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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996
Commission File Number 1-11681
FOOTSTAR, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3439443
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(State of incorporation) (IRS Employer Identification No.)
933 MacArthur Boulevard, Mahwah, New Jersey 07430
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(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 934-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock (par value $.01 per share) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.
[ ]
The aggregate market value of the common stock held by non-affiliates of the
Registrant as of March 17, 1997 was $939,999,100.*
Number of shares outstanding of the issuer's Common Stock (par value $.01 per
share) at March 17, 1997: 30,533,883
Documents Incorporated by Reference
1. Portions of the registrant's Annual Report to Shareholders for the fiscal
year ended December 28, 1996: Part I, Item 1; Part II, Items 5, 6, 7 and 8;
and Part IV, Item 14.
2. Portions of the registrant's definitive Proxy Statement expected to be
filed pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year (December 28, 1996): Part III, Items 10, 11, 12 and 13.
Forward-Looking Statements
This Report on Form 10-K and the documents incorporated by reference
contain statements which constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements appear in a number of places in this Report as well as the documents
incorporated by reference and can be identified by the use of forward-looking
terminology such as "believe," "expect," "estimate," "plans," "may," "will,"
"should" or "anticipates" or similar statements or the negative thereof or other
variations thereof. Such forward-looking statements include, without limitation,
statements made as to cost savings, the impact of the discontinuation of Thom
McAn, improvements in infrastructure, distribution and replenishment systems and
operating efficiencies, business strategy, sales and earnings growth, and
expansion plans and projections. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Consequently, all of the forward-looking statements
made herein are qualified by these cautionary statements, and there can be no
assurance that the actual results, performance or achievement will be realized.
The information contained in this Report and the documents incorporated by
reference as well as information contained under the caption "Risk Factors" in
the Form 10/A filed by the Company on September 25, 1996 with the Securities and
Exchange Commission, identifies important factors that could cause such results,
performance or achievements not to be realized.
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* For purposes of this calculation, only voting stock beneficially owned by
directors and executive officers or members of their immediate families has
been excluded. In making such calculation, the registrant does not
determine the affiliate or non-affiliate status of any shares for any other
purpose.
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PART I
ITEM 1. BUSINESS
GENERAL
Footstar, Inc. (the "Company") is a holding company, which directly or
indirectly, through its wholly owned subsidiaries, owns the capital stock of the
subsidiaries that operate its Footaction and Meldisco businesses and its
discontinued Thom McAn segment. The Company was organized in Delaware on March
21, 1996 and became a publicly traded company as part of the overall
restructuring of Melville Corporation ("Melville"). As part of that
restructuring plan, Melville divested its ownership interest in the Company by
means of a tax-free distribution to its stockholders on October 12, 1996 of
all of the outstanding shares of common stock of the Company.
The Company is principally a specialty retailer conducting business in the
branded athletic footwear and apparel and discount footwear segments through its
Footaction and Meldisco businesses, respectively. The financial information
concerning industry segments required by Item 101(b) of regulation S-K is set
forth on page 35 of the Company's Annual Report to Shareholders for the
year-ended December 28, 1996 and is incorporated herein by reference.
In general, the retailing business is seasonal in nature, with peak sales
periods during Easter, "Back-to-School" and the Christmas selling periods.
Competition is generally based upon such factors as price, style, quality and
design of product and location and design of stores.
FOOTACTION: THE BRANDED ATHLETIC FOOTWEAR AND APPAREL BUSINESS
Footaction, which opened its first store in 1976, is a leading mall-based
specialty retailer of branded athletic footwear, apparel and related
accessories. Its primary customers are 12 to 24 year olds for whom having the
most up-to-date athletic footwear and apparel is an important consideration. As
of December 28, 1996, Footaction operated 479 stores in 43 states and Puerto
Rico. During 1996, the Company opened 51 new Footaction stores, including 24
stores converted from the discontinued Thom McAn business, and remodeled,
relocated or expanded 45 existing Footaction stores.
Footaction's stores are located predominantly in enclosed regional and
neighborhood malls anchored by major department stores to take advantage of
customer traffic and the shopping preferences of Footaction's target customers.
Footaction has been growing rapidly in recent years with 1996 sales increasing
22% to $516 million and operating profit before special charges increasing 171%
to $50 million. For the fiscal year ended December 28, 1996, Footaction
accounted for approximately 31% of the Company's net sales and approximately 34%
of the Company's operating profit.
The ability of Footaction to maintain a high level of sales is dependent in
part on a high volume of mall traffic and the continued popularity of mall
shopping among Footaction's primary customers. Its future growth is also
dependent on its ability to open new stores in desirable mall locations.
Unfavorable developments with respect to any of these factors could have a
material adverse effect on the Company.
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Footaction--Merchandising
Footaction seeks to be one of the first to offer the most current and
innovative brand-name athletic footwear and apparel available to its target
customer group. Footaction constantly monitors product trends in order to
identify styles which are, or may become, popular. Footaction carries the
leading athletic footwear brands, including Nike, Reebok, Fila, Adidas,
Converse, New Balance, and Asics, as well as outdoor brands such as Timberland.
Footaction offers a selection of brand-name apparel and accessories including
warm-up suits, T-shirts, athletic shorts, caps, socks and shoe care products.
Apparel and accessory brands include Nike, Fila, Adidas and Reebok, among
others. The following table sets forth the approximate percentage of
Footaction's net sales attributable to footwear, apparel and accessories:
Approximate Percentage of Footaction's Net Sales
1996 1995 1994
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Footwear 77% 77% 80%
Apparel 17% 16% 14%
Accessories 6% 7% 6%
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100% 100% 100%
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Footaction also seeks to differentiate itself from other branded athletic
footwear and apparel retailers by increasing consumer awareness and name
recognition of Footaction and establishing in the minds of its target customer
group the perception that Footaction is one of the first to offer the latest
styles. As part of this strategy, Footaction works with leading vendors such as
Nike, Fila, Adidas and Reebok to design and develop product line exclusives
based on unique designs or variations in color of the latest styles of popular
brand-name footwear.
Footaction tailors merchandise assortment and store space allocation to
customer preferences at each store location. This is accomplished by recognizing
subtle differences in fashion preferences and demographic factors in the region
or market in which each store is located. This store-by-store merchandising
involves differences in brands, sizes, colors, fabrication and timing or the
assortment and space allocated to present such merchandise. Footaction maintains
information systems designed to manage aged inventory, assuring that its product
lines remain current.
Footaction--Marketing
Footaction believes that its core customers--teens and young adults, age 12
to 24--constitute 47% of total branded athletic footwear sales. And, that within
the target age group, male and female teens (age 12-17) are over-represented
among Footaction customers, accounting for 33% of Footaction shoppers and 41% of
sales.
Footaction's marketing strategy is to build traffic, sales, and brand
awareness with its primary customers by increasing awareness of Footaction among
individuals in the target customer group and by increasing the perception among
these individuals that Footaction is one of the first to have the latest styles.
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Footaction's media advertisements typically feature both Footaction and a
branded product, and may include celebrity endorsements. The Company believes
endorsements of athletic wear by professional athletes, celebrities and other
trend setters influence purchasing patterns and preferences among Footaction's
image and status-conscious target customers. A portion of the cost of such
advertising is offset by co-operative advertising allowances. Footaction focuses
its mass media advertising during key selling periods on males in the 12 to 24
year old age group.
In-store visual merchandising programs are also an important part of
Footaction's marketing effort. Footaction believes these initiatives create
excitement at the store level and support the marketplace message that
Footaction carries the latest products. Footaction has developed a "Coming Soon"
display to announce upcoming product launches, enhancing its presentation of new
product with a "New Arrivals" tower for the latest lines, and uses "exclusive
tags" to highlight products only available at Footaction.
Footaction has created a preferred customer card, called the Star Card,
which is designed to build a marketing database that enables the chain to
communicate directly with customers and gain more information about their buying
habits. Star Card members receive customized birthday greetings, selected vendor
mailings and "magalogs." The "magalog," a magazine/catalog combination called
the "Footaction Star," is mailed to Star Card holders four times a year. It is
an entertaining and informative marketing tool featuring the latest in athletic
footwear and apparel along with product availability dates. It also includes
interviews with popular athletes who appear in current Footaction advertising
campaigns, vendor profiles and other teen-relevant sports features.
Footaction--Competitive Environment
Historically, the athletic footwear industry has been served by a variety
of distribution channels, including mall-based specialty athletic footwear
retailers, department stores, discount retailers, traditional shoe stores,
sporting goods stores, and "category killers" (i.e. retailers providing a
dominant assortment of selected lines of merchandise at competitive prices).
Footaction competes in the brand-name segment of the athletic footwear market,
and faces competition primarily from other mall-based athletic footwear and
sporting goods stores.
Within the mall environment, Footaction's primary competitors are Woolworth
Athletic, Athletes Foot and The Finish Line. Woolworth Athletic is the largest
athletic footwear retailer, offering multiple formats designed to compete in
this market segment including Foot Locker, Lady Foot Locker, Kids Foot Locker,
Champs, Athletic Express and Going To The Game. The Finish Line competes on the
basis of price, while Footaction, Woolworth Athletic and Athletes Foot are
full-price retailers. Footaction believes that it differentiates itself from its
competitors by offering the latest styles demanded by fashion-conscious,
status-oriented consumers in an exciting shopping environment. However, there
can be no assurances that in the future these or other competitors will not have
a material adverse effect on the Company.
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MELDISCO: THE DISCOUNT FOOTWEAR BUSINESS
Meldisco has operated leased footwear departments in discount chains since
1961 and is the leading operator of leased footwear departments today. As of
December 28, 1996, Meldisco operated leased footwear departments in 2,146 Kmart
department stores, 392 PayLess Drug Stores and Thrifty Drug Stores
(collectively, "PayLess Thrifty Drug Stores"), and 13 Tesco department stores
located in the Czech Republic, Slovakia and Hungary. In its Kmart leased
footwear departments, Meldisco sells a wide variety of family footwear,
including men's, women's and children's dress, casual and athletic footwear,
work shoes and slippers. The majority of the shoes offered by Meldisco in its
leased footwear departments are private label brands, although Meldisco also
sells some brand-name merchandise at discounted prices.
For the fiscal year ended December 28, 1996, Meldisco's net sales from
Kmart's operations accounted for approximately 67% of the Company's net sales
and 96% of Meldisco's net sales.
Pursuant to an agreement between the Company and Kmart Corporation
("Kmart") entered into effective July 1, 1995, and amended as of March 1996
(collectively, the "Kmart Agreement"), and an agreement between the Company and
PayLess Drug Stores Northwest, Inc. dated October 10, 1988, the Company has the
exclusive right to operate the footwear departments in Kmart and PayLess Thrifty
Drug Stores. All license agreements relating to the Kmart leased departments
expire July 1, 2012 and all agreements relating to PayLess Thrifty Drug Stores
have terms of 25 years. All of these agreements are subject to certain
performance standards. Rental payments under all such license agreements are
based on a percentage of sales, with additional payments to be made under
certain of the license agreements with Kmart based on profits. The Company has a
51% equity interest, and Kmart has a 49% equity interest, in all the
subsidiaries which operate leased departments in Kmart stores, with the
exception of 41 such subsidiaries in which the Company has a 100% equity
interest. The Company has a 100% equity interest in all the subsidiaries which
operate leased departments in PayLess Thrifty Drug Stores.
The business relationship between Meldisco and Kmart is very significant to
the Company, and the loss of Meldisco's Kmart operations would have a material
adverse effect on the Company. The Kmart Agreement or any license agreement for
a particular Kmart store, may only be terminated: (i) by Kmart with respect to
any Kmart store with a footwear department which is to cease to operate and be
open for business to the public; (ii) by Kmart or Meldisco with respect to any
affected Kmart store, in the event that any footwear department premises become
unfit for use and occupancy by reason of material damage or destruction, or as a
result of condemnation; (iii) by Kmart or Meldisco if the other party shall fail
to make any material payments when due or to deliver any material accounting
reports as required by the Kmart Agreement, or in the event of a material breach
of any covenant, representation or warranty of the other party, subject to the
right of the party so charged to cure the breach or failure within a specified
period; (iv) by either party if Kmart or Meldisco shall fail to pay its debts
when due or becomes subject to certain insolvency, bankruptcy or similar events;
(v) at the option of the non-selling or non-transferring party, in the event of
a sale or transfer of a majority of the outstanding shares of the other party to
a single person or entity or an affiliated group under common control; or (vi)
in the event that the Meldisco Subsidiaries fail to achieve the performance
standards outlined in the Kmart Agreement.
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Meldisco--Merchandising
Meldisco's merchandising strategy focuses on solidifying and building upon
its current industry position while attracting Kmart shoppers who do not
currently purchase their footwear at Kmart. The essence of this two-pronged
strategy is to satisfy Meldisco's core customer with high in-stock availability
rates of its footwear products while generating interest among Kmart's
non-footwear shoppers by providing a wider selection of well known national
brands.
Meldisco's traditional strength has been in seasonal, work, value-priced
athletic, and children's shoes. Meldisco works to solidify its strength in these
segments by ensuring high levels of customer service and satisfaction.
Meldisco's "narrow and deep" merchandising strategy and its planned systems
innovations are designed to ensure that each store is well stocked in product
lines that are particularly popular with Meldisco's core customers. Meldisco's
demand-driven merchandise replenishment system has been designed to permit
inventory management at the store, stock unit and size level.
Meldisco also seeks to attract more affluent Kmart non-footwear shoppers
into the footwear department from other areas of the store. To this end,
Meldisco increasingly offers selected high-quality footwear licensed by well
known national brands at prices significantly lower than comparable merchandise
sold by full price retailers. These branded products are also intended to change
customer perceptions of "sameness" among discount footwear retailers. Licensed
brands available only at Meldisco include "Weather Protectors by Totes,"
"Baywatch," and "Cobbie Cuddlers," a brand name licensed from and styled by Nine
West. Meldisco is currently conducting consumer research to assess the fit of
additional brands in terms of price, positioning, and discount category
suitability.
Meldisco is taking steps to increase customer perception of assortment
availability without increasing store inventories. Meldisco believes that
customer satisfaction and perception of assortment availability should improve
as Meldisco develops and implements systems enabling it to offer the optimal
product mix at the individual store level.
Meldisco--Marketing
Meldisco believes that Kmart's typical footwear shopper generally parallels
the average Kmart softlines shopper who is a "busy, budget-conscious mom" in the
25 to 49 age group, employed at least part-time, has at least one child under
the age of 18 and reports a total annual household income between $25,000 and
$65,000. Kmart's apparel and footwear shoppers do, however, tend to be less
affluent than Kmart's overall customer base. Meldisco's marketing initiatives
are designed to support its overall business strategy of increasing purchases
among traditional Kmart footwear shoppers while attracting more affluent current
Kmart non-footwear shoppers into the footwear department from hardlines and
other areas of the store.
Meldisco's marketing strategy is designed to convey to prospective Kmart
customers that Meldisco carries the right combination of product selection,
quality, and price to position Meldisco-operated Kmart leased footwear
departments as their discount footwear destination of choice.
This message is communicated through weekly advertising in Kmart's
newspaper insert. Meldisco currently pays Kmart a sales promotional fee that
Kmart applies toward its footwear advertisements in the Kmart weekly newspaper
insert, a publication with a circulation of approximately 70 million. Meldisco
advertises primarily through the Kmart newspaper insert but continuously
evaluates other alternatives for promotion of its products. Meldisco's marketing
strategy is supported by the announced Kmart high-frequency remodelling program
<PAGE>
which relocates the footwear department to an improved position near the center
of the softlines area of the store.
Meldisco--Competitive Environment
The discount footwear industry is characterized by consolidation and a
highly competitive environment. Competition within the discount segment is
heavily concentrated among four retailers. Payless ShoeSource, Inc. ("Payless")
(which is not affiliated with PayLess Thrifty Drug Stores), and two discount
department stores, Wal-Mart and Dayton Hudson's Target are Meldisco's primary
retail footwear competitors. These competitors have been growing more rapidly
and have substantially greater resources than the Company. The Company believes
that it has been able to maintain its overall unit market share during this
period of rapid growth by its primary competitors due to the relative strength
of Meldisco's business. There can be no assurance, however, that in the future
the operations of competitors will not have a material effect on the Company.
J. Baker,Inc.'s Morse Shoe division ("Morse") is Meldisco's primary
competitor among operators of leased footwear departments. Morse, through its
subsidiaries, operates leased self-selection footwear departments in discount
and promotional department store chains located throughout the U. S., including
footwear departments at Hills, Bradlees, Ames and ShopKo stores. Morse
constitutes a competitor insofar as Meldisco is seeking to expand its leased
footwear department operations. Neither Morse nor any other operator, however,
is a competitor with respect to Kmart since the Meldisco agreement with Kmart
provides for Meldisco's continued operation of Kmart's footwear departments
through 2012, unless terminated earlier in the case of breach or certain other
limited circumstances.
Fashion Trends
The success of the Company depends in part on its ability to anticipate and
respond to changing fashion and merchandise trends and consumer demands in a
timely manner. Accordingly, any failure by the business segments to identify and
respond to emerging trends could adversely affect consumer acceptance of the
merchandise which in turn could adversely affect the Company's business.
Key Vendors
Footaction's product sourcing is driven by its relationships with athletic
footwear and apparel vendors. In 1996, approximately 85% of Footaction's net
sales were generated by merchandise purchased from Nike, Fila, Reebok and Adidas
with the most significant percent attributable to Nike. The loss of the
Company's relationship with certain key vendors could have a materially adverse
impact on the Company.
Foreign Purchasing
The Company's sourcing and purchasing of product is conducted by the
merchandising department of each of its segments. A significant percentage of
the Company's products are sourced or manufactured offshore, with China,
Indonesia and Brazil being the most significant offshore sources. There are
risks inherent in foreign sourcing and manufacturing and although the Company
has not historically experienced any material adverse effects from these risks,
there can be no assurances that they will not have a material adverse effect in
the future.
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Trademarks and Service Marks
The Company or its subsidiaries own all rights to "Footaction" for use as a
trademark or service mark in connection with footwear and related products and
services. The Company or its subsidiaries have registered or have common law
rights to over 100 trademarks and/or service marks under which the Company
markets private label merchandise or its services. The Company either has
registered or is in the process of registering its trademarks and service marks
in foreign countries in which it may operate in the future. As necessary, the
Company vigorously protects its trademarks and service marks both domestically
and internationally.
Employees
As of December 28, 1996, the Company had approximately 12,600 employees
including approximately 8,200 at Meldisco and 4,400 at Footaction. Of
Meldisco's, approximately 3,600 were employed full-time, and 4,600 were
part-time employees. As of December 28, 1996, Footaction had approximately 1,600
full-time and 2,800 part-time employees.
Discontinuation of Thom McAn Segment
Thom McAn, which had been part of Melville since 1922, was primarily a
mall-based, specialty retailer, marketing moderately-priced men's and women's
private label footwear and accessories. As a result of extreme competitive
pressures in the moderately-priced footwear retail market, Melville decided to
exit the Thom McAn business by converting 80 to 100 Thom McAn stores to
Footaction stores, and selling or closing the remaining locations. As of
December 28, 1996, Thom McAn operated 17 stores, located primarily in Puerto
Rico all of which are now closed.
ITEM 2. PROPERTIES
Footaction has a nationwide presence. As of December 28, 1996, it operated
479 stores in 43 states and Puerto Rico. Footaction's prototype store design is
a 4,000 to 6,500 square foot large store format, which the Company believes
operates more profitably while satisfying the needs of its customers more
effectively then its 2,500 square foot traditional store format. At December
28, 1996, 148 of the Company's 479 Footaction stores were of the large store
format and 331 were of the traditional store format. Footaction stores are all
leased and typically for 10 year terms. These leases call for minimum annual
rent subject to periodic adjustments, plus other charges, including a
proportionate share of taxes, insurance and common area maintenance, and
percentage rent based on the store's sales volume.
At December 28, 1996, Meldisco operated leased footwear departments in
2,551 stores. Collectively, these leased departments are located in all 50
states, Guam, Puerto Rico, the U.S. Virgin Islands, the Czech Republic,
Slovakia, Hungary and Mexico. All but 405 of the leased departments operated at
December 28, 1996 were located in Kmart discount department stores. Of these 405
stores, 392 leased departments were located in PayLess Thrifty Drug Stores and
13 in Tesco department stores.
Kmart and PayLess Thrifty Drug stores provide Meldisco with store space to
sell footwear in exchange for certain payments. Meldisco-operated footwear
departments in traditional Kmart stores average 2,900 square feet and 3,600
square feet in Super Kmart Centers. Meldisco's footwear departments in PayLess
Thrifty Drug Stores generally occupy approximately 100 feet of selling space.
<PAGE>
Company headquarters and Meldisco's corporate offices are located in
190,000 square feet of leased office space in Mahwah, New Jersey. Footaction's
corporate offices are located in 50,000 square feet of leased office space in
Irving, Texas. Meldisco operates out of its two new distribution facilities with
a total of 906,500 square feet. Footaction leases distribution facilities in
Dallas, Texas with a total of 180,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental
to the conduct of its business, none of which, the Company believes, will have a
material adverse effect on its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 28, 1996.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information sets forth the name, age and business experienace
during the past five years of the executive officers of the registrant. For each
officer named below, the term of office extends to the date of the Board of
Directors Meeting following the next Annual Meeting of Stockholders of the
registrant.
J.M. Robinson, age 51, is and has been the Chairman, Chief Executive
Officer and President of the Company since October 12, 1996. Mr. Robinson was
President and Chief Executive Officer of the Meldisco division of Melville since
June 1988.
Carlos E. Alberini, age 41, is and has been the Senior Vice President,
Chief Financial Officer of the Company since October 12, 1996. From February,
1996 to July 10, 1996, Mr. Alberini was the Acting Chief Financial Officer of
Melville, having joined Melville in May 1995 as Vice President of Finance. Prior
to that time, Mr. Alberini served as the Chief Financial Officer and Senior Vice
President (1990-1995) of The Bon Ton Stores Inc., a chain of 64 department
stores.
Maureen Richards, age 40, is and has been the Vice President, General
Counsel and Corporate Secretary of the Company since October 12, 1996. From
October 1995, Ms. Richards had been Vice President, Corporate Counsel and
Assistant Secretary of Melville and its Corporate and Trademark Counsel and
Assistant Secretary from October 1991 to October 1995.
Donald V. Roach, age 39, is and has been the Vice President and Corporate
Controller of the Company since October 12, 1996. Prior to that time, Mr. Roach
served as Senior Vice President, Chief Financial Officer (1994-1996) and Vice
President, Chief Financial Officer (1991-1994) of Footaction USA.
PART II
ITEM 5. MARKET PRICES OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The information required by this item is included in the registrant's
Annual Report to Shareholders for the year ended December 28, 1996 on pages 18,
21 and 36 and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the registrant's
Annual Report to Shareholders for the fiscal year ended December 28, 1996 on
page 37 and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is included in the registrant's
Annual Report to Shareholders for the fiscal year ended December 28, 1996 on
pages 18 through 21 and is incorporated herein by reference.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in the registrant's
Annual Report to Shareholders for the fiscal year ended December 28,1996 on
pages 23 through 37 and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the executive officers is furnished under the heading
"EXECUTIVE OFFICERS OF THE REGISTRANT" in Part I of this report since such
information will not be furnished in the registrant's definitive proxy statement
other than for Mr. Robinson.
Any other information required by this Part III (Items 10, 11, 12 and 13)
will be included in the registrant's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14A and is incorporated herein by
reference. The Compensation Committee report on executive compensation and the
performance graph included in such proxy statement shall not be deemed
incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(l) Financial Statements
The following financial statements and reports are incorporated by reference to
pages 22 through 37 of the Company's Annual Report to Shareholders for the
fiscal year ended December 28, 1996.
Independent Auditors' Report
Consolidated Statements of Operations for the years ended
December 28, 1996, December 31, 1995 and December 31, 1994
Consolidated Balance Sheets as of December 28, 1996 and
December 31, 1995
Consolidated Statements of Shareholders'
Equity for the years ended December 28, 1996,
December 31, 1995 and December 31, 1994
Consolidated Statements of Cash Flows for the years
ended December 28, 1996, December 31, 1995 and
December 31, 1994
Notes to Consolidated Financial Statements
Five-Year Historical Financial Summary
(a)(2) Schedules
The following schedules are included in Part IV of this Report: Page
----
Independent Auditors' Report on Schedule F-1
Schedule II - Valuation and Qualifying Accounts for the years
ended December 28, 1996, December 31, 1995 and December 31, 1994 F-2
Schedules not included above have been omitted because they are not applicable
or the required information is shown in the consolidated financial statements or
related notes.
<PAGE>
(a)(3) Exhibits
The exhibits to this Report are listed in the Exhibit Index included elsewhere
herein.
(b) Reports on Form 8-K
On December 13, 1996, the Company filed a report on Form 8-K dated December 5,
1996 reporting Item 8 "Change in Fiscal Year." The event reported was the Board
of Directors' approval to change to a fiscal year ending on the Saturday closest
to December 31 from a calendar year.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FOOTSTAR, INC.
By /s/ J. M. Robinson
-----------------------------
J. M. Robinson, Chairman,
Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Act of 1934, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ J. M. Robinson Chairman, Chief Executive
- --------------------------- Officer, President and March 26, 1997
J. M. Robinson Director
/s/ Carlos E. Alberini
- --------------------------- Senior Vice President and March 26, 1997
Carlos E. Alberini Chief Financial Officer
/s/ Donald V. Roach
- --------------------------- Vice President and March 26, 1997
Donald V. Roach Corporate Controller
/s/ George S. Day
- --------------------------- Director March 26, 1997
George S. Day
/s/ Stanley P. Goldstein
- --------------------------- Director March 26, 1997
Stanley P. Goldstein
/s/ Terry R. Lautenback
- --------------------------- Director March 26, 1997
Terry R. Lautenbach
/s/ Bettye Martin Musham
- --------------------------- Director March 26, 1997
Bettye Martin Musham
- --------------------------- Director March , 1997
Kenneth S. Olshan
/s/ M. Cabell Woodward, Jr.
- --------------------------- Director March 25, 1997
M. Cabell Woodward, Jr.
<PAGE>
Independent Auditor's Report on Schedule
To the Board of Directors and Shareholders of Footstar, Inc.:
Under the date of February 12, 1996, we reported on the consolidated balance
sheets of Footstar, Inc. and Subsidiary Companies as of December 28, 1996 and
December 31, 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 28, 1996, as contained in the 1996 Annual Report to
Shareholders. These consolidated financial statements and our report thereon are
incorporated by reference in the Annual Report on Form 10-K for the year ended
December 28, 1996. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule listed in answer to Part IV, Item 14(a)(2) of Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/KPMG Peat Marwick LLP
New York, New York
February 12, 1997
F-1
<PAGE>
Schedule II
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts
Years ended December 28, 1996, December 31, 1995
and 1994
($ in Millions)
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Description Beginning Costs and Balance at
----------- of Year Expenses Deductions(1) End of Year
------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Accounts Receivable:
Allowance for Doubtful Accounts:
Year Ended December 28, 1996 .......... $1.0 $(0.3) $0.3 $0.4
==== ===== ==== ====
Year Ended December 31, 1995 .......... $0.6 $ 0.5 $0.1 $1.0
==== ===== ==== ====
Year Ended December 31, 1994 .......... $0.4 $ 0.3 $0.1 $0.6
==== ===== ==== ====
</TABLE>
(1) Write-offs, net of recoveries
F-2
<PAGE>
Exhibit Index
Exhibit
Number DESCRIPTION
------ -----------
2.1 Form of Distribution Agreement among Melville Corporation
("Melville"), Footaction Center, Inc., and the Registrant.
Incorporated by reference to Exhibit 2.1 to Footstar,
Inc.'s Form 10/A Information Statement dated September 26,
1996.
3.1 Amended and Restated Articles of Incorporation of the
Registrant. Incorporated by reference to Exhibit 3.1 to
Footstar, Inc.'s Form 10/A Information Statement dated
September 26, 1996.
3.2 Amended and Restated Bylaws of the Registrant.
Incorporated by reference to Exhibit 3.2 to Footstar,
Inc.'s Form 10/A Information Statement dated September 26,
1996.
10.1 Master Agreement, dated as of June 9, 1995, between Kmart
Corporation and the Registrant, as amended. Incorporated
by reference to Exhibit 10.1 to Footstar, Inc.'s Form 10/A
Information Statement dated September 26, 1996. Certain
portions of this Exhibit have been accorded confidential
treatment.
10.2 Tax Disaffiliation Agreement between Melville and the
Registrant. Incorporated by reference to Exhibit 10.2 to
Footstar, Inc.'s Form 10/A Information Statement dated
September 26, 1996.
10.3 1996 Incentive Compensation Plan of Registrant.
Incorporated by reference to Exhibit 10.3 to Footstar,
Inc.'s Form 10/A Information Statement dated September 26,
1996.
10.4 1996 Non-Employee Director Stock Plan of Registrant.
Incorporated by reference to Exhibit 10.4 to Footstar,
Inc.'s Form 10/A Information Statement dated September 26,
1996.
10.5 Employment Agreements with Executive Officers.
10.6 Credit Agreement, dated as of August 13, 1996, among the
Banks listed therein, the Bank of New York, as Issuing
Bank, Morgan Guaranty Trust Company of New York, as
Administrative Agent and Swingline Lender, and the
Registrant. Incorporated by reference to Exhibit 10.6 to
Footstar, Inc.'s Form 10/A Information Statement dated
September 26, 1996.
10.7 Change in Control Agreement with Executive Officer.
10.8 Footstar Deferred Compensation Plan.
10.9 Supplemental Retirement Plan for Select Senior Management.
13.1 Portions of Annual Report to Shareholders for the fiscal
year ended December 28, 1996.
21.1 A list of subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule for the fiscal year ended December
28, 1996.
FOOTSTAR, INC.
- --------------------------------------------------------------------------------
Employment Agreement for J. M. Robinson
- --------------------------------------------------------------------------------
<PAGE>
FOOTSTAR, INC.
- --------------------------------------------------------------------------------
Employment Agreement for J. M. Robinson
- --------------------------------------------------------------------------------
Page
----
1. Definitions ........................................................ 1
2. Term of Employment ................................................. 2
3. Position, Duties and Responsibilities .............................. 2
4. Base Salary ........................................................ 3
5. Annual Incentive Awards ............................................ 3
6. Long-Term Stock Incentive Programs ................................. 3
7. Employee Benefit Programs .......................................... 4
8. Disability ......................................................... 5
9. Reimbursement of Business and Other Expenses; Perquisites .......... 6
10. Termination of Employment .......................................... 6
11. Confidentiality; Cooperation with Regard to Litigation ............. 16
12. Non-competition .................................................... 17
13. Non-solicitation of Employees ...................................... 18
14. Remedies ........................................................... 18
15. Resolution of Disputes ............................................. 18
16. Indemnification .................................................... 18
17. Excise Tax Gross-Up ................................................ 19
18. Effect of Agreement on Other Benefits .............................. 21
19. Assignability; Binding Nature ...................................... 21
20. Representation ..................................................... 21
21. Entire Agreement ................................................... 22
22. Amendment or Waiver ................................................ 22
23. Severability ....................................................... 22
24. Survivorship ....................................................... 22
25. Beneficiaries/References ........................................... 22
26. Governing Law/Jurisdiction ......................................... 22
27. Notices ............................................................ 23
28. Headings ........................................................... 23
29. Counterparts ....................................................... 23
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 6th day of June, 1996 by and
between Footstar, Inc., a Delaware corporation (together with its successors and
assigns permitted under this Agreement, the "Company"), and Mr. J.M. Robinson
(the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive pursuant to an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Approved Early Retirement" shall have the meaning set forth in Section
10(f) below.
(b) "Base Salary" shall have the meaning set forth in Section 4 below.
(c) "Board" shall have the meaning set forth in Section 3 below.
(d) "Cause" shall have the meaning set forth in Section 10(b) below.
(e) "Change in Control" shall have the meaning set forth in Section 10(c)
below.
(f) "Confidential Information" shall have the meaning set forth in Section
11 below.
(g) "Constructive Termination Without Cause" shall have the meaning set
forth in Section 10(c) below.
(h) "Effective Date" shall have the meaning set forth in Section 2 below.
(i) "1996 ICP" shall have the meaning set forth in Section 5 below.
(j) "Normal Retirement" shall have the meaning set forth in Section 10(f)
below.
(k) "Original Term of Employment" shall have the meaning set forth in
Section 2 below.
(l) "Renewal Term" shall have the meaning set forth in Section 2 below.
(m) "Restriction Period" shall have the meaning set forth in Section 12
below.
<PAGE>
(n) "SERP" shall have the meaning set forth in Section 7 below.
(o) "Severance Period" shall have the meaning set forth in Section
10(c)(ii) below.
(p) "Subsidiary" shall have the meaning set forth in Section 11 below.
(q) "Term of Employment" shall have the meaning set forth in Section 2
below.
(r) "Termination Without Cause" shall have the meaning set forth in Section
10(c) below.
2. Term of Employment.
(a) The term of the Executive's employment under this Agreement shall
commence immediately upon the date on which shares of Company common stock are
distributed to shareholders of Melville Corporation (the "Effective Date") and
end on the fifth anniversary of such date (the "Original Term of Employment").
The Original Term of Employment shall be automatically renewed for successive
one-year terms (the "Renewal Terms") unless at least 180 days prior to the
expiration of the Original Term of Employment or any Renewal Term, either Party
notifies the other Party in writing that he or it is electing to terminate this
Agreement at the expiration of the then current Term of Employment. "Term of
Employment" shall mean the Original Term of Employment and all Renewal Terms.
(b) In the event that this Agreement is not renewed because the Company has
given the 180-day notice prescribed in the preceding paragraph on or before the
expiration of the Original Term of Employment or any Renewal Term and, in either
case, such notice would result in the expiration of the Term of Employment prior
to the Executive's 60th birthday, such non-renewal shall be treated as a
"Constructive Termination Without Cause" pursuant to Section 10(c) below.
(c) Notwithstanding anything in this Agreement to the contrary, at least
one year prior to the expiration of the Original Term of Employment, the Parties
shall meet to discuss this Agreement and may agree in writing to modify any of
the terms of this Agreement.
3. Position, Duties and Responsibilities.
(a) Generally. Executive shall serve as Chairman of the Board of Directors,
President and Chief Executive Officer of the Company, and for so long as he is
serving on the Board of Directors of the Company (the "Board"), Executive agrees
to serve as a member of any committee of the Board if the Board shall elect
Executive to such positions. In any and all such capacities, Executive shall
report only to the Board. Executive shall have and perform such duties,
responsibilities, and authorities as are customary for the president and chief
executive officer of a publicly held corporation of the size, type, and nature
of the Company as they may exist from time to time and as are consistent with
such position and status. Executive shall devote substantially all of his
business time and attention (except for periods of vacation or absence due to
illness), and his best efforts, abilities, experience, and talent to the
position of Chairman, President and Chief Executive Officer and for the
businesses of the Company.
(b) Other Activities. Anything herein to the contrary notwithstanding,
nothing in this Agreement shall preclude the Executive from (i) serving on the
boards of directors of a
- 2 -
<PAGE>
reasonable number of other corporations or the boards of a reasonable number of
trade associations and/or charitable organizations, (ii) engaging in charitable
activities and community affairs, and (iii) managing his personal investments
and affairs, provided that such activities do not materially interfere with the
proper performance of his duties and responsibilities under this Agreement.
(c) Place of Employment. Executive's principal place of employment shall be
the corporate offices of the Company.
(d) Rank of Executive Within Company. As Chairman, President and Chief
Executive Officer of the Company, Executive shall be the highest-ranking
executive of the Company.
4. Base Salary.
The Executive shall be paid an annualized salary, payable in accordance
with the regular payroll practices of the Company, of not less than $600,000,
subject to annual review for increase at the discretion of the Compensation
Committee of the Board ("Base Salary"). As soon as practicable following the
Effective Date, the Company shall pay the Executive the excess of (i) the amount
of base salary that would have been payable to him through the Effective Date if
his base salary had been increased to $600,000 on January 1, 1996 over (ii) the
amount of base salary actually payable to him for services on or after January
1, 1996 and through the Effective Date.
5. Annual Incentive Awards.
The Executive shall participate in the Company's 1996 Incentive
Compensation Plan (the "1996 ICP") with a target annual incentive award
opportunity of no less than 50% of Base Salary or in a successor plan to the
1996 ICP that provides the Executive with an equivalent opportunity. Payment of
annual incentive awards shall be made at the same time that other senior-level
executives receive their incentive awards.
6. Long-Term Stock Incentive Programs.
(a) General. The Executive shall be eligible to participate in and to
receive stock incentive awards under the 1996 ICP and any successor plan.
(b) Career Equity Program. The Executive shall be eligible to participate
in the Company's Career Equity Program with a target long term incentive award
opportunity of no less than 35% of Base Salary or in a successor plan or program
that provides the Executive with an equivalent opportunity.
- 3 -
<PAGE>
7. Employee Benefit Programs.
(a) General Benefits. During the Term of Employment, the Executive shall be
entitled to participate in such employee pension and welfare benefit plans and
programs of the Company as are made available to the Company's senior-level
executives or to its employees generally, as such plans or programs may be in
effect from time to time, including, without limitation, health, medical,
dental, long-term disability, travel accident and life insurance plans.
(b) SERP. At or as soon as practicable following (but effective as of) the
Effective Date, the Company shall adopt a supplemental retirement plan ("SERP")
providing for, among other things, a lifetime annuity benefit for the Executive
equal to 2% of his average high three of last 10 years' salary plus actual
annual bonus (before any deferrals) for each year (full and partial) of service
with the Company, except that, as of the Effective Date, the Executive shall be
granted 15 years of credited service for both benefit accrual and vesting
purposes under the SERP. Except as expressly provided below, the Executive's
SERP benefits shall be 100% vested if he remains employed with the Company to or
beyond his 55th birthday.
(c) Deferral of Compensation. The Company shall implement deferral
arrangements, reasonably acceptable to Executive and the Company, permitting
Executive to elect to defer receipt, pursuant to written deferral election terms
and forms (the "Deferral Election Forms"), of all or a specified portion of (i)
his annual Base Salary and annual incentive compensation under Sections 4 and 5,
(ii) long term incentive compensation under Section 6 and (iii) shares acquired
upon exercise of options to purchase Company common stock that are acquired in
an exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares otherwise
issuable to Executive in such exercise; provided, however, that such deferrals
shall not reduce Executive's total cash compensation in any calendar year below
the sum of (i) the FICA maximum taxable wage base plus (ii) the amount needed,
on an after-tax basis, to enable Executive to pay the 1.45% medicare tax imposed
on his wages in excess of such FICA maximum taxable wage base. In addition, the
Committee may require mandatory deferral of amounts payable as annual incentive
compensation under Section 5 or long term incentive compensation under Section
6, which deferrals will otherwise be in accordance with this Section 7(c).
In accordance with such duly executed Deferral Election Forms or the terms
of any such mandatory deferral, the Company shall credit to one or more
bookkeeping accounts maintained for Executive on the respective payment date or
dates, amounts equal to the compensation subject to deferral, such credits to be
denominated in cash if the compensation would have been paid in cash but for the
deferral or in shares if the compensation would have been paid in shares but for
the deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Company common stock
equal to the number of shares credited to Executive's account pursuant to this
Section 7(c) shall be transferred as soon as practicable following such
crediting by the Company to, and shall be held and invested by, an independent
trustee selected by the Company and reasonably acceptable to Executive (a
"Trustee") pursuant to a "rabbi trust" established by the Company in connection
with such deferral arrangement and as to which the Trustee shall make
investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, and insurance
vehicles). Thereafter, Executive's deferral accounts will be valued by reference
to the value of the assets of the "rabbi trust"; provided, however, that a
portion of the assets of the "rabbi trust" may be used to reimburse the Company
for its reasonable cost of funds resulting from payment of taxes by the Company
relating to "rabbi
- 4 -
<PAGE>
trust" assets during the period of deferral and prior to the settlement of
Executive's deferral accounts. The Company shall pay all other costs of
administration of the deferral arrangement, without deduction or reimbursement
from the assets of the "rabbi trust."
Except as otherwise provided under Section 10, in the event of Executive's
termination of employment with the Company or as otherwise determined by the
Committee in the event of hardship on the part of Executive, upon such date(s)
or event(s) set forth in the Deferral Election Forms (including forms filed
after deferral but before settlement in which Executive may elect to further
defer settlement) or under the terms of any mandatory deferral, the Company
shall promptly pay to Executive cash equal to the value of the assets then
credited to Executive's deferral accounts, less applicable withholding taxes,
and such distribution shall be deemed to fully settle such accounts; provided,
however, that the Company may instead settle such accounts by directing the
Trustee to distribute the assets of the "rabbi trust." The Company and Executive
agree that compensation deferred pursuant to this Section 7(c) shall be fully
vested and nonforfeitable; however, Executive acknowledges that his rights to
the deferred compensation provided for in this Section 7(c) shall be no greater
than those of a general unsecured creditor of the Company, and that such rights
may not be pledged, collateralized, encumbered, hypothecated, or liable for or
subject to any lien, obligation, or liability of Executive, or be assignable or
transferable by Executive, otherwise than by will or the laws of descent and
distribution, provided that Executive may designate one or more beneficiaries to
receive any payment of such amounts in the event of his death.
8. Disability.
(a) During the Term of Employment, as well as during the Severance Period,
the Executive shall be entitled to disability coverage as described in this
Section 8(a). In the event the Executive becomes disabled, as that term is
defined under the Company's Long-Term Disability Plan, the Executive shall be
entitled to receive pursuant to the Company's Long-Term Disability Plan or
otherwise, and in place of his Base Salary, an amount equal to 60% of his Base
Salary, at the annual rate in effect at the commencement date of his Company
long-term disability benefit ("Commencement Date") for a period beginning on the
Commencement Date and ending with the earlier to occur of (A) the Executive's
attainment of age 65 or (B) the Executive's commencement of benefits under the
SERP upon his election to receive such benefits. If (i) the Executive ceases to
be disabled during the Term of Employment (as determined in accordance with the
terms of the Long-Term Disability Plan), (ii) his position is then vacant and
(iii) the Company requests in writing that he resume such position, he may elect
to resume such position by written notice to the Company within 15 days after
the Company delivers its request. If he resumes such position, he shall
thereafter be entitled to his Base Salary at the annual rate in effect at the
Commencement Date and, for the year he resumes his position, a pro rata annual
incentive award. If he ceases to be disabled and does not resume his position in
accordance with the preceding sentence, he shall be treated as if he voluntarily
terminated his employment pursuant to Section 10(e) as of the date the Executive
ceases to be disabled. If the Executive is not offered his position as Chairman
and Chief Executive Officer after he ceases to be disabled during the Term of
Employment, he shall be treated as if his employment was terminated Without
Cause pursuant to Section 10(c) as of the date the Executive ceases to be
disabled.
(b) The Executive shall be entitled to a pro rata annual incentive award
for the year in which the Commencement Date occurs based on 50% of Base Salary
paid to him during such year prior to the Commencement Date, payable in a lump
sum promptly after the Commencement Date. The Executive shall not be entitled to
any annual incentive award with
-5-
<PAGE>
respect to the period following the Commencement Date. If the Executive
recommences his position as Chairman and Chief Executive Officer in accordance
with Section 8(a), he shall be entitled to a pro rata annual incentive award for
the year he resumes his position and shall thereafter be entitled to annual
incentive awards in accordance with Section 5 hereof.
(c) During the period the Executive is receiving disability benefits
pursuant to Section 8(a) above, he shall continue to be treated as an employee
for purposes of all employee benefits and entitlements in which he was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6 and 7 above, except that the
Executive shall not be entitled to receive any annual salary increases or any
new stock incentive awards following the Commencement Date.
9. Reimbursement of Business and Other Expenses; Perquisites.
The Executive is authorized to incur reasonable expenses in carrying out
his duties and responsibilities under this Agreement, and the Company shall
promptly reimburse him for all business expenses incurred in connection
therewith, subject to documentation in accordance with the Company's policy.
During the Term of Employment, the Company shall, commencing 1996, provide the
Executive, in accordance with the terms adopted by the Company, with personal
financial and tax planning.
10. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's employment with
the Company is terminated due to his death, his estate or his beneficiaries, as
the case may be, shall be entitled to and their sole remedies under this
Agreement shall be:
(i) Base Salary through the date of death, which shall be paid in a
single lump sum not later than 15 days following the Executive's death;
(ii) pro rata annual incentive award for the year in which the
Executive's death occurs assuming that the Executive would have received an
award equal to 50% of Base Salary for such year, which shall be payable in
a lump sum promptly (but in no event later than 15 days) after his death;
(iii) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time
of his death;
(iv) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of death, including
any matching grant under the Company's "STEP" program or award under the
Company's "Founders Stock" program;
(v) immediate vesting of all outstanding stock options and the right
to exercise such stock options for a period of one year following death (or
such longer period as may be provided in stock options granted to other
similarly situated executive officers of the Company) or for the remainder
of the exercise period, if less;
(vi) immediate vesting of all outstanding awards under the "Career
Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later
than 15 days) after his death;
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<PAGE>
(vii) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's death;
(viii) in the event that the Executive's death occurs before he has
met the age and service requirements of the SERP, the Company will provide
his spouse with a 50% survivor annuity as if he had met such age and
service requirements at the time of his death, payable in accordance with
the terms of the SERP but subject to such other adjustments as may be
provided in the SERP;
(ix) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Forms or
the terms of any mandatory deferral; and
(x) other or additional benefits then due or earned in accordance with
applicable plans and programs of the Company.
(b) Termination by the Company for Cause.
(i) "Cause" shall mean:
(A) the Executive's willful and material breach of Sections 11,
12 or 13 of this Agreement;
(B) the Executive is convicted of a felony involving moral
turpitude; or
(C) the Executive engages in conduct that constitutes willful
gross neglect or willful gross misconduct in carrying out
his duties under this Agreement, resulting, in either case,
in material harm to the financial condition or reputation of
the Company.
For purposes of this Agreement, an act or failure to act on Executive's
part shall be considered "willful" if it was done or omitted to be done by
him not in good faith, and shall not include any act or failure to act
resulting from any incapacity of Executive.
(ii) A termination for Cause shall not take effect unless the
provisions of this paragraph (ii) are complied with. The Executive shall be
given written notice by the Company of its intention to terminate him for
Cause, such notice (A) to state in detail the particular act or acts or
failure or failures to act that constitute the grounds on which the
proposed termination for Cause is based and (B) to be given within 90 days
of the Company's learning of such act or acts or failure or failures to
act. The Executive shall have 10 days after the date that such written
notice has been given to him in which to cure such conduct, to the extent
such cure is possible. If he fails to cure such conduct, the Executive
shall then be entitled to a hearing before the Compensation Committee of
the Board at which the Executive is entitled to appear. Such hearing shall
be held within 15 days of such notice to the Executive, provided he
requests such hearing within 10 days of the written notice from the Company
of the intention to terminate him for Cause. If, within five days following
such hearing, the Executive is furnished written notice by the Board
confirming that, in its judgment, grounds for Cause on the basis of the
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<PAGE>
original notice exist, he shall thereupon be terminated for Cause. Such
hearing shall not limit any other review as set forth in this Agreement on
a de novo basis.
(iii) In the event the Company terminates the Executive's employment
for Cause, he shall be entitled to and his sole remedies under this
Agreement shall be:
(A) Base Salary through the date of the termination of his
employment for Cause, which shall be paid in a single lump
sum not later than 15 days following the Executive's
termination of employment;
(B) any incentive awards earned as of December 31 of the prior
year (but not yet paid), which shall be paid in a single
lump sum not later than 15 days following the Executive's
termination of employment;
(C) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral
Election Form or the terms of any mandatory deferral; and
(D) other or additional benefits then due or earned in
accordance with applicable plans or programs of the Company
including but not limited to the SERP.
(c) Termination Without Cause or Constructive Termination Without Cause
Prior to Change in Control. In the event the Executive's employment with the
Company is terminated without Cause (which termination shall be effective as of
the date specified by the Company in a written notice to the Executive), other
than due to death, or in the event there is a Constructive Termination Without
Cause (as defined below), in either case prior to a Change in Control (as
defined below) the Executive shall be entitled to and his sole remedies under
this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 15 days
following the Executive's termination of employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in
Base Salary is the basis for a Constructive Termination Without Cause, then
the Base Salary in effect immediately prior to such reduction), for a
period of 36 months following such termination (the "Severance Period");
provided that the Company shall, within 30 days following such termination,
contribute to a "rabbi trust" an amount equal to any unpaid severance
benefits due under this Section 10(c)(ii) and Section 10(c)(iv) and direct
the Trustee thereof to make the remaining severance payments required
hereunder when such payments are due unless the Company, in its sole
discretion, directs the Trustee to return unpaid severance benefits to the
Company because the Executive has breached Sections 11, 12 or 13 hereunder;
provided further that the salary continuation payment under this Section
10(c)(ii) and Section 10(c)(iv) shall be in lieu of any salary continuation
arrangements under any other severance program of the Company or any other
agreement between the Executive and the Company;
-8-
<PAGE>
(iii) pro rata annual incentive award for the year in which
termination occurs assuming that the Executive would have received an award
equal to 50% of Base Salary for such year, payable in a lump sum promptly
(but in no event later than 15 days) following termination;
(iv) an amount equal to 50% of Base Salary multiplied by three payable
in equal monthly payments over the Severance Period;
(v) lapse of all restrictions on any restricted stock award (including
any performance-based restricted stock) outstanding at the time of such
termination of employment;
(vi) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of termination,
including any matching grant under the Company's "STEP" program or award
under the Company's "Founders Stock" program;
(vii) immediate vesting of all outstanding stock options and the right
to exercise such stock options during the Severance Period or for the
remainder of the exercise period, if less;
(viii) immediate vesting of all outstanding awards under the "Career
Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later
than 15 days) following the Executive's termination of employment;
(ix) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of employment;
(x) immediate vesting of benefits under the SERP and two additional
years of age and service credit thereunder, with payment of such benefits
to be made in accordance with the terms and conditions of the SERP as in
effect at the date of the Executive's termination (or in accordance with
the terms of any subsequent amendment to the SERP which is more favorable
to the Executive or his beneficiary);
(xi) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Forms or
the terms of any mandatory deferral;
(xii) continued participation in all medical, health and life
insurance plans at the same benefit level at which he was participating on
the date of the termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent
employer (such coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit, basis);
provided that (1) if the Executive is precluded from
continuing his participation in any employee benefit plan or
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program as provided in this clause (xii) of this Section
10(c), he shall receive cash payments equal on an after-tax
basis to the cost to him of obtaining the benefits provided
under the plan or program in which he is unable to
participate for the period specified in this clause (xii) of
this Section 10(c), (2) such cost shall be deemed to be the
lowest reasonable cost that would be incurred by the
Executive in obtaining such benefit himself on an individual
basis, and (3) payment of such amounts shall be made
quarterly in advance; and
(xiii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
"Termination Without Cause" shall mean the Executive's employment is
terminated by the Company for any reason other than Cause (as defined in
Section 10 (b)) or due to death.
"Constructive Termination Without Cause" shall mean a termination of
the Executive's employment at his initiative as provided in this Section
10(c) following the occurrence, without the Executive's written consent, of
one or more of the following events (except as a result of a prior
termination):
(A) a material change, adverse to Executive, in Executive's
positions, titles, or offices as set forth in Section 3(a),
status, rank, nature of responsibilities, or authority
within the Company, or a removal of Executive from or any
failure to elect or re-elect or, as the case may be,
nominate Executive to any such positions or offices,
including as a member of the Board;
(B) an assignment of any duties to Executive which are
inconsistent with his status as President and Chief
Executive Officer of the Company and other positions held
under Section 3(a);
(C) a decrease in annual Base Salary, target annual incentive
award opportunity below 50% of Base Salary or target long
term incentive award opportunity below 35% of Base Salary;
(D) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material
provision of, this Agreement that is not cured within 30
days;
(E) a relocation of the corporate offices of the Company outside
a 35-mile radius of Mahwah, New Jersey; or
(F) any failure to secure the agreement of any successor
corporation or other entity to the Company to fully assume
the Company's obligations under this Agreement.
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A "Change in Control" shall be deemed to have occurred if:
(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 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, the 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
10(c) 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
Executive or entities controlled by Executive shall not
constitute a Corporate Transaction; 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 10(c),
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 Rule 14a-11 of
Regulation 14A 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 10(c), the following shall not constitute a Change in Control for
purposes of this Agreement: (1) any acquisition by or consummation of a
Corporate Transaction with any entity that was a subsidiary of the Company
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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.
For purposes of this definition:
(A) The terms "Beneficial Ownership", "Beneficially Owning",
"Beneficially Owned" and "Beneficial Owners" shall have the
meanings ascribed to such terms in Rule 13d-3 under the Exchange
Act (including any successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor act thereto.
(C) The term "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, including "group" as defined in Section 13(d)
thereof.
(d) Voluntary Termination. In the event of a termination of employment by
the Executive on his own initiative after delivery of 10 business days advance
written notice, other than a termination due to death, a Constructive
Termination Without Cause, or Approved Early Retirement or Normal Retirement
pursuant to Section 10(f) below, the Executive shall have the same entitlements
as provided in Section 10(b)(iii) above for a termination for Cause, provided
that at the Company's election, furnished in writing to the Executive within 30
days following such notice of termination, the Company shall in addition pay the
Executive 50% of his Base Salary for a period of 18 months following such
termination in exchange for the Executive not to engage in competition with the
Company or any Subsidiary as set forth in Section 12(a) below. Notwithstanding
any implication to the contrary, the Executive shall not have the right to
terminate his employment with the Company during the Term of Employment except
in the event of a Constructive Termination Without Cause, Approved Early
Retirement or Normal Retirement, and any voluntary termination of employment
during the Term of Employment in violation of this Agreement shall be considered
a material breach.
(e) Termination Without Cause or Constructive Termination Without Cause
Following Change in Control. In the event the Executive's employment with the
Company is terminated without Cause (which termination shall be effective as of
the date specified by the Company in a written notice to the Executive), other
than due to death, or in the event there is a Constructive Termination Without
Cause (as defined above), in either case within two years
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following a Change in Control (as defined above), the Executive shall be
entitled to and his sole remedies under this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 15 days
following the Executive's termination of employment;
(ii) an amount equal to 2.99 times the Executive's Base Salary, at the
annualized rate in effect on the date of termination of the Executive's
employment (or in the event a reduction in Base Salary is the basis for a
Constructive Termination Without Cause, then the Base Salary in effect
immediately prior to such reduction), payable in a cash lump sum promptly
(but in no event later than 15 days) following the Executive's termination
of employment;
(iii) pro rata annual incentive award for the year in which
termination occurs assuming that the Executive would have received an award
equal to 50% of Base Salary for such year, payable in a cash lump sum
promptly (but in no event later than 15 days) following the Executive's
termination of employment;
(iv) an amount equal to 50% of such Base Salary multiplied by 2.99,
payable in a cash lump sum promptly (but in no event later than 15 days)
following the Executive's termination of employment;
(v) lapse of all restrictions on any restricted stock award (including
any performance-based restricted stock) outstanding at the time of
termination of employment;
(vi) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of termination,
including any matching grant under the Company's "STEP" program or award
under the Company's "Founders Stock" program;
(vii) immediate vesting of all outstanding stock options and the right
to exercise such stock options during the Severance Period or for the
remainder of the exercise period, if less;
(viii) immediate vesting of all outstanding awards under the "Career
Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later
than 15 days) following the Executive's termination of employment;
(ix) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of employment;
(x) immediate vesting of benefits under the SERP and two additional
years of age and service credit thereunder, with payment of such benefits
to be made in accordance with the terms and conditions of the SERP as in
effect at the date of the Executive's termination (or in accordance with
the terms of any subsequent amendment to the SERP which is more favorable
to the Executive or his beneficiary);
(xi) settlement of all deferred compensation arrangements in
accordance with Executive's duly executed Deferral Election Forms or the
terms of any mandatory deferral;
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(xii) continued participation in all medical, health and life
insurance plans at the same benefit level at which he was participating on
the date of the termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent coverage and benefits
under the plans and programs of a subsequent employer (such
coverage and benefits to be determined on a coverage-by-coverage,
or benefit-by-benefit, basis); provided that (1) if the Executive
is precluded from continuing his participation in any employee
benefit plan or program as provided in this clause (xii) of this
Section 10(e), he shall receive cash payments equal on an
after-tax basis to the cost to him of obtaining the benefits
provided under the plan or program in which he is unable to
participate for the period specified in this clause (xii) of this
Section 10(e), (2) such cost shall be deemed to be the lowest
reasonable cost that would be incurred by the Executive in
obtaining such benefit himself on an individual basis, and (3)
payment of such amounts shall be made quarterly in advance; and
(xiii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company
(f) Approved Early Retirement or Normal Retirement. Upon the Executive's
Approved Early Retirement or Normal Retirement (as defined below), the Executive
shall be entitled to and his sole remedies under this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 15 days
following the Executive's termination of employment;
(ii) pro rata annual incentive award for the year in which termination
occurs, based on performance valuation at the end of such year and payable
in a cash lump sum promptly (but in no event later than 15 days)
thereafter;
(iii) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time
of his termination of employment;
(iv) continued vesting (as if the Executive remained employed by the
Company) of any outstanding award of contingent shares as of the date of
termination of employment, including any matching grant under the Company's
"STEP" program or award under the Company's "Founders Stock" program;
(v) continued vesting of all outstanding stock options and the right
to exercise such stock options for a period of one year following the
Executive's termination of employment (or such longer period as may be
provided in stock options granted to other similarly situated executive
officers of the Company) or for the remainder of the exercise period, if
less;
(vi) continued vesting (as if Executive remained employed by the
Company) of all outstanding awards under the "Career Equity" program and a
payment of such
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awards based on valuation at the end of the performance period, payable in
a cash lump sum promptly (but in no event later than 15 days) thereafter;
(vii) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of employment;
(viii) immediate vesting of benefits under the Company's SERP, with
payment of such benefits to be made in accordance with the terms and
conditions of the SERP as in effect at the date of the Executive's
termination (or in accordance with the terms of any subsequent amendment to
the SERP which is more favorable to the Executive or his beneficiary);
(ix) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Forms or
the terms of any mandatory deferral;
(x) continued participation in all medical, health and life insurance
plans at the same benefit level at which he was participating on the date
of the termination of his employment until the earlier of:
(A) the Executive's attainment of age 60; or
(B) the date, or dates, he receives substantially equivalent coverage
and benefits under the plans and programs of a subsequent
employer (such coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit, basis); provided
that (1) if the Executive is precluded from continuing his
participation in any employee benefit plan or program as provided
in this clause (x) of this Section 10(f), he shall receive cash
payments equal on an after-tax basis to the cost to him of
obtaining the benefits provided under the plan or program in
which he is unable to participate for the period specified in
this clause (x) of this Section 10(f), (2) such cost shall be
deemed to be the lowest cost that would be incurred by the
Executive in obtaining such benefit himself on an individual
basis, and (3) payment of such amounts shall be made quarterly in
advance; and
(xi) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
"Approved Early Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 55 but
prior to attaining age 60, if such termination is approved in advance by
the Compensation Committee.
"Normal Retirement" shall mean the Executive's voluntary termination
of employment with the Company at or after attaining age 60.
(g) No Mitigation; No Offset. In the event of any termination of employment
under this Section 10, the Executive shall be under no obligation to seek other
employment; amounts due the Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that he may
obtain.
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(h) Nature of Payments. Any amounts due under this Section 10 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
(i) Exclusivity of Severance Payments. Upon termination of the Executive's
employment during the Term of Employment, he shall not be entitled to any
severance payments or severance benefits from the Company or any payments by the
Company on account of any claim by him of wrongful termination, including claims
under any federal, state or local human and civil rights or labor laws, other
than the payments and benefits provided in this Section 10.
(j) Release of Employment Claims. The Executive agrees, as a condition to
receipt of the termination payments and benefits provided for in this Section
10, that he will execute a release agreement, in a form reasonably satisfactory
to the Company, releasing any and all claims arising out of the Executive's
employment (other than enforcement of this Agreement, the Executive's rights
under any of the Company's incentive compensation and employee benefit plans and
programs to which he is entitled under this Agreement, and any claim for any
tort for personal injury not arising out of or related to his termination of
employment).
11. Confidentiality; Cooperation with Regard to Litigation.
(a) During the Term of Employment and thereafter, the Executive shall not,
without the prior written consent of the Company, disclose to anyone except in
good faith in the ordinary course of business to a person who will be advised by
the Executive to keep such information confidential or make use of any
Confidential Information, except when required to do so by legal process, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) that requires him to divulge, disclose or make accessible such
information. In the event that the Executive is so ordered, he shall give prompt
written notice to the Company in order to allow the Company the opportunity to
object to or otherwise resist such order.
(b) During the Term of Employment and thereafter, Executive shall not
disclose the existence or contents of this Agreement beyond what is disclosed in
the proxy statement or documents filed with the government unless and to the
extent such disclosure is required by law, by a governmental agency, or in a
document required by law to be filed with a governmental agency or in connection
with enforcement of his rights under this Agreement. In the event that
disclosure is so required, the Executive shall give prompt written notice to the
Company in order to allow the Company the opportunity to object to or otherwise
resist such requirement. This restriction shall not apply to such disclosure by
him to members of his immediate family, his tax, legal or financial advisors,
any lender, or tax authorities, or to potential future employers to the extent
necessary, each of whom shall be advised not to disclose such information.
(c) "Confidential Information" shall mean all information that is not known
or available to the public concerning the business of the Company or any
Subsidiary relating to any of their products, product development, trade
secrets, customers, suppliers, finances, and business plans and strategies. For
this purpose, information known or available generally within the trade or
industry of the Company or any Subsidiary shall be deemed to be known or
available to the public. Confidential Information shall include information that
is, or becomes, known to the public as a result of a breach by the Executive of
the provisions of Section 11(a) above.
(d) "Subsidiary" shall mean any corporation controlled directly or
indirectly by the Company and any affiliate of the Company.
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(e) The Executive agrees to cooperate with the Company, during the Term of
Employment and thereafter (including following the Executive's termination of
employment for any reason), by making himself available to testify on behalf of
the Company or any Subsidiary or affiliate of the Company, in any action, suit,
or proceeding, whether civil, criminal, administrative, or investigative, and to
assist the Company, or any Subsidiary or affiliate of the Company, in any such
action, suit, or proceeding, by providing information and meeting and consulting
with the Board or its representatives or counsel, or representatives or counsel
to the Company, or any Subsidiary or affiliate of the Company, as requested. The
Company agrees to reimburse the Executive, on an after-tax basis, for all
expenses actually incurred in connection with his provision of testimony or
assistance.
12. Non-competition.
(a) During the Restriction Period (as defined in Section 12(b) below), the
Executive shall not engage in Competition with the Company or any Subsidiary.
"Competition" shall mean engaging in any activity, except as provided below, for
a Competitor of the Company or any Subsidiary, whether as an employee,
consultant, principal, agent, officer, director, partner, shareholder (except as
a less than one percent shareholder of a publicly traded company) or otherwise.
A "Competitor" shall mean (i) KMart, Target, Payless, WalMart, Montgomery Ward
or Sears (and any successor or successors thereto) or (ii) the portion of any
other corporation or other entity or start-up corporation or entity that is
engaged in the Discount Retail Footwear Business within fifty (50) miles of any
Discount Retail Footwear Business outlet in the United States of the Company or
any Subsidiary, provided that a corporation or entity described in clause (ii)
above shall not be deemed to be a Competitor if the Executive shall not either
directly or indirectly oversee or manage the activities of such corporation or
entity's division or unit engaged in the Discount Retail Footwear Business. If
the Executive commences employment or becomes a consultant, principal, agent,
officer, director, partner, or shareholder of any entity that is not a
Competitor at the time the Executive initially becomes employed or becomes a
consultant, principal, agent, officer, director, partner, or shareholder of the
entity, future activities of such entity shall not result in a violation of this
provision unless (x) such activities were contemplated at the time the Executive
initially became employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity (and the contemplation of such
activities was known to the Executive) or (y) the Executive commences directly
or indirectly overseeing or managing the activities which are competitive with
the activities of the Company or Subsidiary. The Executive shall not be deemed
indirectly overseeing or managing the activities which are competitive with the
activities of the Company or Subsidiary so long as he does not regularly
participate in discussions with regard to the competing business. For purposes
of the foregoing, "Discount Retail Footwear Business" shall mean a group of four
or more stores which primarily sells discount footwear.
(b) For the purposes of this Section 12 and Section 13 below, "Restriction
Period" shall mean the period beginning with the Effective Date and ending with:
(i) in the case of a termination of the Executive's employment without
Cause or a Constructive Termination Without Cause, in either case prior to
a Change in Control, the earlier of (1) the end of the Severance Period and
(2) the occurrence of a Change in Control;
(ii) in the case of a termination of the Executive's employment for
Cause, the first anniversary of such termination;
(iii) in the case of a voluntary termination of the Executive's
employment pursuant to Section 10(d) above followed by the Company's
election to pay the
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Executive (and subject to the payment of) 50% of his Base Salary, as
provided in Section 10(d) above, the end of the 18-month period following
such termination;
(iv) in the case of a voluntary termination of the Executive's
employment pursuant to Section 10(d) above which is not followed by the
Company's election to pay the Executive such 50% of Base Salary, the date
of such termination;
(v) in the case of Approved Early Retirement or Normal Retirement
pursuant to Section 10(f) above, the remainder of the Term of Employment;
or
(vi) in the case of a termination of the Executive's employment
without Cause or a Constructive Termination Without Cause, in either case
following a Change in Control, immediately upon such termination of
employment.
13. Non-solicitation of Employees.
During the portion of the Restriction Period following the termination of
the Executive's employment, the Executive shall not induce employees of the
Company or any Subsidiary to terminate their employment. During the portion of
the Restriction Period following the termination of the Executive's employment,
the Executive shall not directly or indirectly hire any employee of the Company
or any Subsidiary or any person who was employed by the Company or any
Subsidiary within 180 days of such hiring.
14. Remedies.
In addition to whatever other rights and remedies the Company may have at
equity or in law, if the Executive breaches any of the provisions contained in
Sections 11, 12 or 13 above, the Company (a) shall have the right to immediately
terminate all payments and benefits due under this Agreement and (b) shall have
the right to seek injunctive relief. The Executive acknowledges that such a
breach would cause irreparable injury and that money damages would not provide
an adequate remedy for the Company.
15. Resolution of Disputes.
Any disputes arising under or in connection with this Agreement, other than
seeking injunctive relief under Section 14, shall be resolved by binding
arbitration, to be held at an office closest to the Company's principal offices
in accordance with the rules and procedures of the American Arbitration
Association, except that disputes arising under or in connection with Sections
11, 12 and 13 above shall be submitted to the federal or state courts in the
State of New Jersey. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. Pending the resolution of
any arbitration or court proceeding, the Company shall continue payment of all
amounts and benefits due the Executive under this Agreement. All reasonable
costs and expenses (including fees and disbursements of counsel) incurred by the
Executive in seeking to enforce rights pursuant to this Agreement shall be paid
on behalf of or reimbursed to the Executive promptly by the Company, whether or
not the Executive is successful in asserting such rights; provided, however,
that no reimbursement shall be made of such expenses relating to any
unsuccessful assertion of rights if and to the extent that the Executive's
assertion of such rights was in bad faith or frivolous.
16. Indemnification.
(a) Company Indemnity. The Company agrees that if the Executive is made a
party, or is threatened to be made a party, to any action, suit or proceeding,
whether civil,
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criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or any
Subsidiary or is or was serving at the request of the Company or any Subsidiary
as a director, officer, member, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is the Executive's alleged action in an official capacity while serving as a
director, officer, member, employee or agent, the Executive shall be indemnified
and held harmless by the Company to the fullest extent legally permitted or
authorized by the Company's certificate of incorporation or bylaws or
resolutions of the Company's Board of Directors or, if greater, by the laws of
the State of Delaware, against all cost, expense, liability and loss (including,
without limitation, attorney's fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Executive in connection therewith, and such indemnification
shall continue as to the Executive even if he has ceased to be a director,
member, officer, employee or agent of the Company or other entity and shall
inure to the benefit of the Executive's heirs, executors and administrators. The
Company shall advance to the Executive all reasonable costs and expenses
incurred by him in connection with a Proceeding within 20 days after receipt by
the Company of a written request for such advance. Such request shall include an
undertaking by the Executive to repay the amount of such advance if it shall
ultimately be determined that he is not entitled to be indemnified against such
costs and expenses.
(b) No Presumption Regarding Standard of Conduct. Neither the failure of
the Company (including its board of directors, independent legal counsel or
stockholders) to have made a determination prior to the commencement of any
proceeding concerning payment of amounts claimed by the Executive under Section
16(a) above that indemnification of the Executive is proper because he has met
the applicable standard of conduct, nor a determination by the Company
(including its board of directors, independent legal counsel or stockholders)
that the Executive has not met such applicable standard of conduct, shall create
a presumption that the Executive has not met the applicable standard of conduct.
(c) Liability Insurance. The Company agrees to continue and maintain a
directors and officers' liability insurance policy covering the Executive to the
extent the Company provides such coverage for its other executive officers.
17. Excise Tax Gross-Up.
If the Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company or any affiliated company
(the "Total Payments"), which are or become subject to the tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or
any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company
shall pay to the Executive at the time specified below an additional amount (the
"Gross-up Payment") (which shall include, without limitation, reimbursement for
any penalties and interest that may accrue in respect of such Excise Tax) such
that the net amount retained by the Executive, after reduction for any Excise
Tax (including any penalties or interest thereon) on the Total Payments and any
federal, state and local income or employment tax and Excise Tax on the Gross-up
Payment provided for by this Section 17, but before reduction for any federal,
state, or local income or employment tax on the Total Payments, shall be equal
to the sum of (a) the Total Payments, and (b) an amount equal to the product of
any deductions disallowed for federal, state, or local income tax purposes
because of the inclusion of the Gross-up Payment in the Executive's adjusted
gross income multiplied by the highest applicable marginal rate of federal,
state, or local
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<PAGE>
income taxation, respectively, for the calendar year in which the Gross-up
Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and except to the
extent that, in the written opinion of independent compensation
consultants, counsel or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and reasonably
acceptable to the Executive, the Total Payments (in whole or in part)
do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of
the Code in excess of the base amount within the meaning of Section
280G(b)(3) of the Code or are otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as subject to
the Excise Tax shall be equal to the lesser of (A) the total amount of
the Total Payments or (B) the total amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code (after
applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Independent Advisors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment, the
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in the Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to the Executive or
otherwise realized as a benefit by the Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess (plus any interest and penalties payable with respect to
such excess) at the time that the amount of such excess is finally determined.
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The Gross-up Payment provided for above shall be paid on the 30th day (or
such earlier date as the Excise Tax becomes due and payable to the taxing
authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to the Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest any other
issue raised by the Internal Revenue Service or any other taxing authority. The
Executive shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder.
18. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of this
Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which he currently participates.
19. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and permitted assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred in connection with the sale or
transfer of all or substantially all of the assets of the Company, provided that
the assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale or transfer of assets as described in the preceding sentence, it
shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder. No rights or obligations of the Executive under this
Agreement may be assigned or transferred by the Executive other than his rights
to compensation and benefits, which may be transferred only by will or operation
of law, except as provided in Section 24 below.
20. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
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<PAGE>
21. Entire Agreement.
This Agreement contains the entire understanding and agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto.
22. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
23. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
24. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
25. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
26. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New Jersey without reference to principles of
conflict of laws, except insofar as the Delaware General Corporation Law,
federal laws and regulations may be applicable. Subject to Section 15, the
Company and the Executive hereby consent to the jurisdiction of any or all of
the following courts for purposes of resolving any dispute under this Agreement:
(i) the United States District Court for New Jersey, (ii) any of the courts of
the State of New Jersey, or (iii) any other court having jurisdiction. The
Company and the Executive further agree that any service of process or notice
requirements in any such proceeding shall be satisfied if the rules of such
court relating thereto have been substantially satisfied. The Company and the
Executive hereby waive, to the fullest extent permitted by applicable law, any
objection which it or he may now or hereafter have to such jurisdiction and any
defense of inconvenient forum.
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<PAGE>
27. Notices.
Any notice given to a Party shall be in writing and shall be deemed to have
been given when delivered personally or sent by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the Party concerned
at the address indicated below or to such changed address as such Party may
subsequently give such notice of:
If to the Company: Footstar, Inc.
933 MacArthur Boulevard
Mahwah, New Jersey 07430
Attention: Secretary
If to the Executive: Mr. J.M. Robinson
66 Rockwood Lane
Greenwich, Connecticut 06830
28. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
29. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
FOOTSTAR, INC.
By: /s/ Stanley Goldstein
----------------------
Name: Stanley Goldstein
Title: Chairman and CEO, Melville Corporation
EXECUTIVE
/s/ J.M. Robinson
-----------------
Mr. J.M. Robinson
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FOOTSTAR, INC.
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Employment Agreement for Carlos Alberini
- --------------------------------------------------------------------------------
<PAGE>
FOOTSTAR, INC.
- --------------------------------------------------------------------------------
Employment Agreement for Carlos Alberini
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Page
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1. Definitions ....................................................... 1
2. Term of Employment ................................................ 2
3. Position, Duties and Responsibilities ............................. 2
4. Base Salary ....................................................... 2
5. Annual Incentive Awards ........................................... 3
6. Long-Term Stock Incentive Programs ................................ 3
7. Employee Benefit Programs ......................................... 3
8. Disability ........................................................ 4
9. Reimbursement of Business and Other Expenses; Perquisites ......... 5
10. Termination of Employment ........................................ 5
11. Confidentiality; Cooperation with Regard to Litigation ........... 15
12. Non-competition .................................................. 16
13. Non-solicitation of Employees .................................... 17
14. Remedies ......................................................... 17
15. Resolution of Disputes ........................................... 17
16. Indemnification .................................................. 18
17. Excise Tax Gross-Up .............................................. 18
18. Effect of Agreement on Other Benefits ............................ 20
19. Assignability; Binding Nature .................................... 20
20. Representation ................................................... 21
21. Entire Agreement ................................................. 21
22. Amendment or Waiver .............................................. 21
<PAGE>
FOOTSTAR, INC.
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Employment Agreement for Carlos Alberini
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Page
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23. Severability ..................................................... 21
24. Survivorship ..................................................... 21
25. Beneficiaries/References ......................................... 21
26. Governing Law/Jurisdiction ....................................... 22
27. Notices .......................................................... 22
28. Headings ......................................................... 22
29. Counterparts ..................................................... 23
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into between Footstar, Inc., a Delaware
corporation (together with its successors and assigns permitted under this
Agreement, the "Company"), and Carlos Alberini (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive pursuant to an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Approved Early Retirement" shall have the meaning set forth in Section
10(f) below.
(b) "Base Salary" shall have the meaning set forth in Section 4 below.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Cause" shall have the meaning set forth in Section 10(b) below.
(e) "Change in Control" shall have the meaning set forth in Section 10(c)
below.
(f) "Confidential Information" shall have the meaning set forth in Section
11 below.
(g) "Constructive Termination Without Cause" shall have the meaning set
forth in Section 10(c) below.
(h) "Effective Date" shall have the meaning set forth in Section 2 below.
(i) "1996 ICP" shall have the meaning set forth in Section 5 below.
(j) "Normal Retirement" shall have the meaning set forth in Section 10(f)
below.
(k) "Original Term of Employment" shall have the meaning set forth in
Section 2 below.
(l) "Renewal Term" shall have the meaning set forth in Section 2 below.
(m) "Restriction Period" shall have the meaning set forth in Section 12
below.
(n) "SERP" shall have the meaning set forth in Section 7 below.
<PAGE>
(o) "Severance Period" shall have the meaning set forth in Section
10(c)(ii) below, except as provided otherwise in Section 10(e) below.
(p) "Subsidiary" shall have the meaning set forth in Section 11 below.
(q) "Term of Employment" shall have the meaning set forth in Section 2
below.
(r) "Termination Without Cause" shall have the meaning set forth in Section
10(c) below.
2. Term of Employment.
(a) The term of the Executive's employment under this Agreement shall
commence immediately upon the date on which shares of Company common stock are
distributed to shareholders of Melville Corporation (the "Effective Date") and
end on the third anniversary of such date (the "Original Term of Employment").
The Original Term of Employment shall be automatically renewed for successive
one-year terms (the "Renewal Terms") unless at least 180 days prior to the
expiration of the Original Term of Employment or any Renewal Term, either Party
notifies the other Party in writing that he or it is electing to terminate this
Agreement at the expiration of the then current Term of Employment. "Term of
Employment" shall mean the Original Term of Employment and all Renewal Terms.
(b) Notwithstanding anything in this Agreement to the contrary, at least
one year prior to the expiration of the Original Term of Employment, the Parties
shall meet to discuss this Agreement and may agree in writing to modify any of
the terms of this Agreement.
3. Position, Duties and Responsibilities.
(a) Generally. Executive shall serve as a senior executive of the Company.
Executive shall have and perform such duties, responsibilities, and authorities
as shall be specified by the Company from time to time and as are customary for
a senior executive of a publicly held corporation of the size, type, and nature
of the Company as they may exist from time to time and as are consistent with
such position and status. Executive shall devote substantially all of his
business time and attention (except for periods of vacation or absence due to
illness), and his best efforts, abilities, experience, and talent to his
position and the businesses of the Company.
(b) Other Activities. Anything herein to the contrary notwithstanding,
nothing in this Agreement shall preclude the Executive from (i) engaging in
charitable activities and community affairs and (ii) managing his personal
investments and affairs, provided that such activities do not materially
interfere with the proper performance of his duties and responsibilities under
this Agreement. Unless approved in writing by the Board or Chief Executive
Officer of the Company, the Executive may not serve on the board of directors of
any corporation or the board of any association and/or charitable organization.
4. Base Salary.
The Executive shall be paid an annualized salary, payable in accordance
with the regular payroll practices of the Company, of not less than $320,000,
subject to annual review for increase at the discretion of the Compensation
Committee of the Board ("Base Salary").
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<PAGE>
5. Annual Incentive Awards.
The Executive shall participate in the Company's 1996 Incentive
Compensation Plan (the "1996 ICP") with a target annual incentive award
opportunity of no less than 40% of Base Salary or in a successor plan to the
1996 ICP that provides the Executive with an equivalent opportunity. Payment of
annual incentive awards shall be made at the same time that other senior-level
executives receive their incentive awards.
6. Long-Term Stock Incentive Programs.
(a) General. The Executive shall be eligible to participate in and to
receive stock incentive awards under the 1996 ICP and any successor plan.
(b) Career Equity Program. The Executive shall be eligible to participate
in the Company's Career Equity Program with a target long term incentive award
opportunity of no less than 30% of Base Salary or in a successor plan or program
that provides the Executive with an equivalent opportunity.
7. Employee Benefit Programs.
(a) General Benefits. During the Term of Employment, the Executive shall be
entitled to participate in such employee pension and welfare benefit plans and
programs of the Company as are made available to the Company's senior-level
executives or to its employees generally, as such plans or programs may be in
effect from time to time, including, without limitation, health, medical,
dental, long-term disability, travel accident and life insurance plans.
(b) SERP. At or as soon as practicable following (but effective as of) the
Effective Date, the Company shall adopt a supplemental retirement plan ("SERP")
providing for, among other things, a lifetime annuity benefit for the Executive
equal to 2% of his average high three of last 10 years' salary plus actual
annual bonus (before any deferrals) for each year (full and partial) of service
with the Company.
(c) Deferral of Compensation. The Company shall implement deferral
arrangements, reasonably acceptable to Executive and the Company, permitting
Executive to elect to defer receipt, pursuant to written deferral election terms
and forms (the "Deferral Election Forms"), of all or a specified portion of (i)
his annual Base Salary and annual incentive compensation under Sections 4 and 5,
(ii) long term incentive compensation under Section 6 and (iii) shares acquired
upon exercise of options to purchase Company common stock that are acquired in
an exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares otherwise
issuable to Executive in such exercise; provided, however, that such deferrals
shall not reduce Executive's total cash compensation in any calendar year below
the sum of (i) the FICA maximum taxable wage base plus (ii) the amount needed,
on an after-tax basis, to enable Executive to pay the 1.45% medicare tax imposed
on his wages in excess of such FICA maximum taxable wage base. In addition, the
Committee may require mandatory deferral of amounts payable as annual incentive
compensation under Section 5 or long term incentive compensation under Section
6, which deferrals will otherwise be in accordance with this Section 7(c).
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<PAGE>
In accordance with such duly executed Deferral Election Forms or the terms
of any such mandatory deferral, the Company shall credit to one or more
bookkeeping accounts maintained for Executive on the respective payment date or
dates, amounts equal to the compensation subject to deferral, such credits to be
denominated in cash if the compensation would have been paid in cash but for the
deferral or in shares if the compensation would have been paid in shares but for
the deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Company common stock
equal to the number of shares credited to Executive's account pursuant to this
Section 7(c) shall be transferred as soon as practicable following such
crediting by the Company to, and shall be held and invested by, an independent
trustee selected by the Company (a "Trustee") pursuant to a "rabbi trust"
established by the Company in connection with such deferral arrangement and as
to which the Trustee shall make investments based on Executive's investment
objectives (including possible investment in publicly traded stocks and bonds,
mutual funds, and insurance vehicles). Thereafter, Executive's deferral accounts
will be valued by reference to the value of the assets of the "rabbi trust";
provided, however, that a portion of the assets of the "rabbi trust" may be used
to reimburse the Company for its reasonable cost of funds resulting from payment
of taxes by the Company relating to "rabbi trust" assets during the period of
deferral and prior to the settlement of Executive's deferral accounts. The
Company shall pay all other costs of administration of the deferral arrangement,
without deduction or reimbursement from the assets of the "rabbi trust."
Except as otherwise provided under Section 10, in the event of Executive's
termination of employment with the Company or as otherwise determined by the
Committee in the event of hardship on the part of Executive, upon such date(s)
or event(s) set forth in the Deferral Election Forms (including forms filed
after deferral but before settlement in which Executive may elect to further
defer settlement) or under the terms of any mandatory deferral, the Company
shall promptly pay to Executive cash equal to the value of the assets then
credited to Executive's deferral accounts, less applicable withholding taxes,
and such distribution shall be deemed to fully settle such accounts; provided,
however, that the Company may instead settle such accounts by directing the
Trustee to distribute the assets of the "rabbi trust." The Company and Executive
agree that compensation deferred pursuant to this Section 7(c) shall be fully
vested and nonforfeitable; however, Executive acknowledges that his rights to
the deferred compensation provided for in this Section 7(c) shall be no greater
than those of a general unsecured creditor of the Company, and that such rights
may not be pledged, collateralized, encumbered, hypothecated, or liable for or
subject to any lien, obligation, or liability of Executive, or be assignable or
transferable by Executive, otherwise than by will or the laws of descent and
distribution, provided that Executive may designate one or more beneficiaries to
receive any payment of such amounts in the event of his death.
8. Disability.
(a) During the Term of Employment, as well as during the Severance Period,
the Executive shall be entitled to disability coverage as described in this
Section 8(a). In the event the Executive becomes disabled, as that term is
defined under the Company's Long-Term Disability Plan, the Executive shall be
entitled to receive pursuant to the Company's Long-Term Disability Plan or
otherwise, and in place of his Base Salary, an amount equal to 60% of his Base
Salary, at the annual rate in effect at the commencement date of his Company
long-term disability benefit ("Commencement Date") for a period beginning on the
Commencement Date and ending with the earlier to occur of (A) the Executive's
attainment of age 65 or (B) the
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<PAGE>
Executive's commencement of benefits under the SERP upon his election to receive
such benefits. If (i) the Executive ceases to be disabled during the Term of
Employment (as determined in accordance with the terms of the Long-Term
Disability Plan), (ii) his position or another senior executive position is then
vacant and (iii) the Company requests in writing that he resume such position,
he may elect to resume such position by written notice to the Company within 15
days after the Company delivers its request. If he resumes such position, he
shall thereafter be entitled to his Base Salary at the annual rate in effect at
the Commencement Date and, for the year he resumes his position, a pro rata
annual incentive award. If he ceases to be disabled and does not resume his
position in accordance with the preceding sentence, he shall be treated as if he
voluntarily terminated his employment pursuant to Section 10(e) as of the date
the Executive ceases to be disabled. If the Executive is not offered his
position or another senior executive position after he ceases to be disabled
during the Term of Employment, he shall be treated as if his employment was
terminated without Cause pursuant to Section 10(c) as of the date the Executive
ceases to be disabled.
(b) The Executive shall be entitled to a pro rata annual incentive award
for the year in which the Commencement Date occurs based on 40% of Base Salary
paid to him during such year prior to the Commencement Date, payable in a lump
sum promptly after the Commencement Date. The Executive shall not be entitled to
any annual incentive award with respect to the period following the Commencement
Date. If the Executive recommences his position in accordance with Section 8(a),
he shall be entitled to a pro rata annual incentive award for the year he
resumes his position and shall thereafter be entitled to annual incentive awards
in accordance with Section 5 hereof.
(c) During the period the Executive is receiving disability benefits
pursuant to Section 8(a) above, he shall continue to be treated as an employee
for purposes of all employee benefits and entitlements in which he was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6 and 7 above, except that the
Executive shall not be entitled to receive any annual salary increases or any
new stock incentive awards following the Commencement Date.
9. Reimbursement of Business and Other Expenses; Perquisites.
The Executive is authorized to incur reasonable expenses in carrying out
his duties and responsibilities under this Agreement, and the Company shall
promptly reimburse him for all business expenses incurred in connection
therewith, subject to documentation in accordance with the Company's policy.
10. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's employment with
the Company is terminated due to his death, his estate or his beneficiaries, as
the case may be, shall be entitled to and their sole remedies under this
Agreement shall be:
(i) Base Salary through the date of death, which shall be paid in a
single lump sum not later than 15 days following the Executive's death;
(ii) pro rata annual incentive award for the year in which the
Executive's death occurs assuming that the Executive would have received an
award equal to
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<PAGE>
40% of Base Salary for such year, which shall be payable in a lump sum
promptly (but in no event later than 15 days) after his death;
(iii) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time
of his death;
(iv) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of death, including
any matching grant under the Company's "STEP" program or award under the
Company's "Founders Stock" program;
(v) immediate vesting of all outstanding stock options and the right
to exercise such stock options for a period of one year following death (or
such longer period as may be provided in stock options granted to other
similarly situated executive officers of the Company) or for the remainder
of the exercise period, if less;
(vi) immediate vesting of all outstanding awards under the "Career
Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later
than 15 days) after his death;
(vii) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's death;
(viii) in the event that the Executive's death occurs before he has
met the age and service requirements of the SERP, the Company will provide
his spouse with a 50% survivor annuity as if he had met such age and
service requirements at the time of his death, payable in accordance with
the terms of the SERP but subject to such other adjustments as may be
provided in the SERP;
(ix) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Forms or
the terms of any mandatory deferral; and
(x) other or additional benefits then due or earned in accordance with
applicable plans and programs of the Company.
(b) Termination by the Company for Cause.
(i) "Cause" shall mean:
(A) the Executive's willful and material breach of Sections 11,
12 or 13 of this Agreement;
(B) the Executive is convicted of a felony involving moral
turpitude; or
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<PAGE>
(C) the Executive engages in conduct that constitutes willful
gross neglect or willful gross misconduct in carrying out his duties
under this Agreement, resulting, in either case, in material harm to
the financial condition or reputation of the Company.
For purposes of this Agreement, an act or failure to act on Executive's
part shall be considered "willful" if it was done or omitted to be done by
him not in good faith, and shall not include any act or failure to act
resulting from any incapacity of Executive.
(ii) A termination for Cause shall not take effect unless the
provisions of this paragraph (ii) are complied with. The Executive shall be
given written notice by the Company of its intention to terminate him for
Cause, such notice (A) to state in detail the particular act or acts or
failure or failures to act that constitute the grounds on which the
proposed termination for Cause is based and (B) to be given within 90 days
of the Company's learning of such act or acts or failure or failures to
act. The Executive shall have 10 days after the date that such written
notice has been given to him in which to cure such conduct, to the extent
such cure is possible. If he fails to cure such conduct, the Executive
shall then be entitled to a hearing before the Compensation Committee of
the Board at which the Executive is entitled to appear. Such hearing shall
be held within 15 days of such notice to the Executive, provided he
requests such hearing within 10 days of the written notice from the Company
of the intention to terminate him for Cause. If, within five days following
such hearing, the Executive is furnished written notice by the Board
confirming that, in its judgment, grounds for Cause on the basis of the
original notice exist, he shall thereupon be terminated for Cause. Such
hearing shall not limit any other review as set forth in this Agreement on
a de novo basis.
(iii) In the event the Company terminates the Executive's employment
for Cause, he shall be entitled to and his sole remedies under this
Agreement shall be:
(A) Base Salary through the date of the termination of his
employment for Cause, which shall be paid in a single lump sum not
later than 15 days following the Executive's termination of
employment;
(B) any incentive awards earned as of December 31 of the prior
year (but not yet paid), which shall be paid in a single lump sum not
later than 15 days following the Executive's termination of
employment;
(C) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Form
or the terms of any mandatory deferral; and
(D) other or additional benefits then due or earned in accordance
with applicable plans or programs of the Company including but not
limited to the SERP.
(c) Termination Without Cause or Constructive Termination Without Cause
Prior to Change in Control. In the event the Executive's employment with the
Company is terminated without Cause (which termination shall be effective as of
the date specified by the Company in a written notice to the Executive), other
than due to death, or in the event there is a Constructive Termination Without
Cause (as defined below), in either case prior to a Change in Control (as
defined below) the Executive shall be entitled to and his sole remedies under
this Agreement shall be:
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(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 15 days
following the Executive's termination of employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in
Base Salary is the basis for a Constructive Termination Without Cause, then
the Base Salary in effect immediately prior to such reduction), for a
period of 18 months following such termination (the "Severance Period");
provided that the Company shall, within 30 days following such termination,
contribute to a "rabbi trust" an amount equal to any unpaid severance
benefits due under this Section 10(c)(ii) and Section 10(c)(iv) and direct
the Trustee thereof to make the remaining severance payments required
hereunder when such payments are due unless the Company, in its sole
discretion, directs the Trustee to return unpaid severance benefits to the
Company because the Executive has breached Sections 11, 12 or 13 hereunder;
provided further that the salary continuation payment under this Section
10(c)(ii) and Section 10(c)(iv) shall be in lieu of any salary continuation
arrangements under any other severance program of the Company or any other
agreement between the Executive and the Company;
(iii) pro rata annual incentive award for the year in which
termination occurs assuming that the Executive would have received an award
equal to 40% of Base Salary for such year, payable in a lump sum promptly
(but in no event later than 15 days) following termination;
(iv) an amount equal to 40% of Base Salary multiplied by 1.5 payable
in equal monthly installments over the Severance Period:
(v) Company common stock, issued without restrictions, equal to the
number of unvested shares of deferred stock relating to any matching grant
under the Company's "STEP" program multiplied by a fraction the numerator
of which is the number of completed years of employment with the Company
following the date on which such matching grant was awarded and the
denominator of which is five;
(vi) Company common stock, issued without restrictions, equal to the
number of unvested shares of deferred stock awarded to the Executive under
the Company's "Founders Stock" program multiplied by a fraction the
numerator of which is the number of completed years of employment with the
Company following the date on which such award was granted and the
denominator of which is five;
(vii) immediate vesting of all outstanding awards under the "Career
Equity" program relating to completed performance cycles, payable in a cash
lump sum promptly (but in no event later than 15 days) following the
Executive's termination of employment;
(viii) the right to exercise all outstanding stock options that are
vested as of the date of termination during the Severance Period or for the
remainder of the exercise period, if less;
(ix) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of employment;
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(x) settlement of all deferred compensation arrangements in accordance
with the Executive's duly executed Deferral Election Forms or the terms of
any mandatory deferral;
(xi) continued participation in all medical, health and life insurance
plans at the same benefit level at which he was participating on the date
of the termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such
coverage and benefits to be determined on a coverage-by-coverage, or
benefit-by-benefit, basis); provided that (1) if the Executive is
precluded from continuing his participation in any employee benefit
plan or program as provided in this clause (xi) of this Section 10(c),
he shall receive cash payments equal on an after-tax basis to the cost
to him of obtaining the benefits provided under the plan or program in
which he is unable to participate for the period specified in this
clause (xi) of this Section 10(c), (2) such cost shall be deemed to be
the lowest reasonable cost that would be incurred by the Executive in
obtaining such benefit himself on an individual basis, and (3) payment
of such amounts shall be made quarterly in advance; and
(xii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
"Termination Without Cause" shall mean the Executive's employment is
terminated by the Company for any reason other than Cause (as defined in
Section 10 (b)) or due to death.
"Constructive Termination Without Cause" shall mean a termination of
the Executive's employment at his initiative as provided in this Section
10(c) following the occurrence, without the Executive's written consent, of
one or more of the following events (except as a result of a prior
termination):
(A) an assignment of any duties to Executive which are
inconsistent with his status as a senior executive of the Company;
(B) a decrease in annual Base Salary, target annual incentive
award opportunity below 40% of Base Salary or target long term
incentive award opportunity below 30% of Base Salary;
(C) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material provision
of, this Agreement that is not cured within 30 days; or
(D) any failure to secure the agreement of any successor
corporation or other entity to the Company to fully assume the
Company's obligations under this Agreement.
In addition, following a Change in Control, "Constructive Termination Without
Cause" shall also mean a termination of the Executive's employment at his
initiative as provided in this Section
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10(c) following the occurrence, without the Executive's written consent, of a
relocation of his principal place of employment outside a 35-mile radius of his
principal place of employment as in effect immediately prior to such Change in
Control.
A "Change in Control" shall be deemed to have occurred if:
(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 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 30% or more of the Company Common Stock
Outstanding or 30% 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, the 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 10(c) 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 Executive or entities controlled by Executive
shall not constitute a Corporate Transaction; 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 10(c), 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 Rule 14a-11 of Regulation 14A 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 10(c), the following shall not constitute a Change in
Control for purposes of this Agreement: (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
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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.
For purposes of this definition:
(A) The terms "Beneficial Ownership", "Beneficially Owning",
"Beneficially Owned" and "Beneficial Owners" shall have the meanings
ascribed to such terms in Rule 13d-3 under the Exchange Act (including
any successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor act thereto.
(C) The term "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, including "group" as defined in Section 13(d)
thereof.
(d) Voluntary Termination. In the event of a termination of employment by
the Executive on his own initiative after delivery of 10 business days advance
written notice, other than a termination due to death, a Constructive
Termination Without Cause, or Approved Early Retirement or Normal Retirement
pursuant to Section 10(f) below, the Executive shall have the same entitlements
as provided in Section 10(b)(iii) above for a termination for Cause, provided
that at the Company's election, furnished in writing to the Executive within 30
days following such notice of termination, the Company shall in addition pay the
Executive 50% of his Base Salary for a period of 18 months following such
termination in exchange for the Executive not to engage in competition with the
Company or any Subsidiary as set forth in Section 12(a) below. Notwithstanding
any implication to the contrary, the Executive shall not have the right to
terminate his employment with the Company during the Term of Employment except
in the event of a Constructive Termination Without Cause, Approved Early
Retirement or Normal Retirement, and any voluntary termination of employment
during the Term of Employment in violation of this Agreement shall be considered
a material breach.
(e) Termination Without Cause or Constructive Termination Without Cause
Following Change in Control. In the event the Executive's employment with the
Company is terminated without Cause (which termination shall be effective as of
the date specified by the Company in a written notice to the Executive), other
than due to death, or in the event there is a Constructive Termination Without
Cause (as defined above), in either case within two years following a Change in
Control (as defined above), the Executive shall be entitled to and his sole
remedies under this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 15 days
following the Executive's termination of employment;
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(ii) an amount equal to two times the Executive's Base Salary, at the
annualized rate in effect on the date of termination of the Executive's
employment (or in the event a reduction in Base Salary is the basis for a
Constructive Termination Without Cause, then the Base Salary in effect
immediately prior to such reduction), payable in a cash lump sum promptly
(but in no event later than 15 days) following the Executive's termination
of employment;
(iii) pro rata annual incentive award for the year in which
termination occurs assuming that the Executive would have received an award
equal to 40% of Base Salary for such year, payable in a cash lump sum
promptly (but in no event later than 15 days) following the Executive's
termination of employment;
(iv) an amount equal to 40% of Base Salary multiplied by two, payable
in a cash lump sum promptly (but in no event later than 15 days) following
the Executive's termination of employment;
(v) lapse of all restrictions on any restricted stock award (including
any performance-based restricted stock) outstanding at the time of
termination of employment;
(vi) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of termination,
including any matching grant under the Company's "STEP" program or award
under the Company's "Founders Stock" program;
(vii) immediate vesting of all outstanding stock options and the right
to exercise such stock options during the Severance Period or for the
remainder of the exercise period, if less;
(viii) immediate vesting of all outstanding awards under the "Career
Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later
than 15 days) following the Executive's termination of employment;
(ix) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of employment;
(x) settlement of all deferred compensation arrangements in accordance
with Executive's duly executed Deferral Election Forms or the terms of any
mandatory deferral;
(xi) continued participation in all medical, health and life insurance
plans at the same benefit level at which he was participating on the date
of the termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such
coverage and benefits to be determined on a coverage-by-coverage, or
benefit-by-benefit, basis); provided that (1) if the Executive is
precluded from continuing his participation in any employee benefit
plan or program
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<PAGE>
as provided in this clause (xi) of this Section 10(e), he shall
receive cash payments equal on an after-tax basis to the cost to him
of obtaining the benefits provided under the plan or program in which
he is unable to participate for the period specified in this clause
(xi) of this Section 10(e), (2) such cost shall be deemed to be the
lowest reasonable cost that would be incurred by the Executive in
obtaining such benefit himself on an individual basis, and (3) payment
of such amounts shall be made quarterly in advance; and
(xii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
For purposes of any termination pursuant to this Section 10(e), the term
"Severance Period" shall mean the period of 24 months following the termination
of the Executive's employment.
(f) Approved Early Retirement or Normal Retirement. Upon the Executive's
Approved Early Retirement or Normal Retirement (as defined below), the Executive
shall be entitled to and his sole remedies under this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 15 days
following the Executive's termination of employment;
(ii) pro rata annual incentive award for the year in which termination
occurs, based on performance valuation at the end of such year and payable
in a cash lump sum promptly (but in no event later than 15 days)
thereafter;
(iii) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time
of his termination of employment;
(iv) continued vesting (as if the Executive remained employed by the
Company) of any outstanding award of contingent shares as of the date of
termination of employment, including any matching grant under the Company's
"STEP" program or award under the Company's "Founders Stock" program;
(v) continued vesting of all outstanding stock options and the right
to exercise such stock options for a period of one year following the
Executive's termination of employment (or such longer period as may be
provided in stock options granted to other similarly situated executive
officers of the Company) or for the remainder of the exercise period, if
less;
(vi) continued vesting (as if Executive remained employed by the
Company) of all outstanding awards under the "Career Equity" program and a
payment of such awards based on valuation at the end of the performance
period, payable in a cash lump sum promptly (but in no event later than 15
days) thereafter;
(vii) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of employment;
(viii) immediate vesting of benefits under the Company's SERP, with
payment of such benefits to be made in accordance with the terms and
conditions of the SERP
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<PAGE>
as in effect at the date of the Executive's termination (or in accordance
with the terms of any subsequent amendment to the SERP which is more
favorable to the Executive or his beneficiary);
(ix) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Forms or
the terms of any mandatory deferral;
(x) continued participation in all medical, health and life insurance
plans at the same benefit level at which he was participating on the date
of the termination of his employment until the earlier of:
(A) the Executive's attainment of age 60; or
(B) the date, or dates, he receives substantially equivalent
coverage and benefits under the plans and programs of a subsequent
employer (such coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit, basis); provided that (1)
if the Executive is precluded from continuing his participation in any
employee benefit plan or program as provided in this clause (x) of
this Section 10(f), he shall receive cash payments equal on an
after-tax basis to the cost to him of obtaining the benefits provided
under the plan or program in which he is unable to participate for the
period specified in this clause (x) of this Section 10(f), (2) such
cost shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit himself on an individual
basis, and (3) payment of such amounts shall be made quarterly in
advance; and
(xi) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
"Approved Early Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 55 but
prior to attaining age 60, if such termination is approved in advance by the
Compensation Committee.
"Normal Retirement" shall mean the Executive's voluntary termination of
employment with the Company at or after attaining age 60.
(g) No Mitigation; No Offset. In the event of any termination of employment
under this Section 10, the Executive shall be under no obligation to seek other
employment; amounts due the Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that he may
obtain.
(h) Nature of Payments. Any amounts due under this Section 10 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
(i) Exclusivity of Severance Payments. Upon termination of the Executive's
employment during the Term of Employment, he shall not be entitled to any
severance payments or severance benefits from the Company or any payments by the
Company on account of any claim by him of wrongful termination, including claims
under any federal, state or local human and civil rights or labor laws, other
than the payments and benefits provided in this Section 10.
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<PAGE>
(j) Release of Employment Claims. The Executive agrees, as a condition to
receipt of the termination payments and benefits provided for in this Section
10, that he will execute a release agreement, in a form reasonably satisfactory
to the Company, releasing any and all claims arising out of the Executive's
employment (other than enforcement of this Agreement, the Executive's rights
under any of the Company's incentive compensation and employee benefit plans and
programs to which he is entitled under this Agreement, and any claim for any
tort for personal injury not arising out of or related to his termination of
employment).
11. Confidentiality; Cooperation with Regard to Litigation.
(a) During the Term of Employment and thereafter, the Executive shall not,
without the prior written consent of the Company, disclose to anyone except in
good faith in the ordinary course of business to a person who will be advised by
the Executive to keep such information confidential or make use of any
Confidential Information, except when required to do so by legal process, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) that requires him to divulge, disclose or make accessible such
information. In the event that the Executive is so ordered, he shall give prompt
written notice to the Company in order to allow the Company the opportunity to
object to or otherwise resist such order.
(b) During the Term of Employment and thereafter, Executive shall not
disclose the existence or contents of this Agreement beyond what is disclosed in
the proxy statement or documents filed with the government unless and to the
extent such disclosure is required by law, by a governmental agency, or in a
document required by law to be filed with a governmental agency or in connection
with enforcement of his rights under this Agreement. In the event that
disclosure is so required, the Executive shall give prompt written notice to the
Company in order to allow the Company the opportunity to object to or otherwise
resist such requirement. This restriction shall not apply to such disclosure by
him to members of his immediate family, his tax, legal or financial advisors,
any lender, or tax authorities, or to potential future employers to the extent
necessary, each of whom shall be advised not to disclose such information.
(c) "Confidential Information" shall mean all information that is not known
or available to the public concerning the business of the Company or any
Subsidiary relating to any of their products, product development, trade
secrets, customers, suppliers, finances, and business plans and strategies. For
this purpose, information known or available generally within the trade or
industry of the Company or any Subsidiary shall be deemed to be known or
available to the public. Confidential Information shall include information that
is, or becomes, known to the public as a result of a breach by the Executive of
the provisions of Section 11(a) above.
(d) "Subsidiary" shall mean any corporation controlled directly or
indirectly by the Company and any affiliate of the Company.
(e) The Executive agrees to cooperate with the Company, during the Term of
Employment and thereafter (including following the Executive's termination of
employment for any reason), by making himself available to testify on behalf of
the Company or any Subsidiary or affiliate of the Company, in any action, suit,
or proceeding, whether civil, criminal, administrative, or investigative, and to
assist the Company, or any Subsidiary or affiliate of the
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<PAGE>
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board or its representatives or counsel, or
representatives or counsel to the Company, or any Subsidiary or affiliate of the
Company, as requested. The Company agrees to reimburse the Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.
12. Non-competition.
(a) During the Restriction Period (as defined in Section 12(b) below), the
Executive shall not engage in Competition with the Company or any Subsidiary.
"Competition" shall mean engaging in any activity, except as provided below, for
a Competitor of the Company or any Subsidiary, whether as an employee,
consultant, principal, agent, officer, director, partner, shareholder (except as
a less than one percent shareholder of a publicly traded company) or otherwise.
A "Competitor" shall mean (i) Payless, Target, Wal-Mart, Woolworth and J. Baker
(and any successor or successors thereto) or (ii) the portion of any other
corporation or other entity or start-up corporation or entity that is engaged in
the Discount Retail Footwear Business within fifty (50) miles of any Discount
Retail Footwear Business outlet in the United States of the Company or any
Subsidiary, provided that a corporation or entity described in clause (ii) above
shall not be deemed to be a Competitor if the Executive shall not either
directly or indirectly oversee or manage the activities of such corporation or
entity's division or unit engaged in the Discount Retail Footwear Business. If
the Executive commences employment or becomes a consultant, principal, agent,
officer, director, partner, or shareholder of any entity that is not a
Competitor at the time the Executive initially becomes employed or becomes a
consultant, principal, agent, officer, director, partner, or shareholder of the
entity, future activities of such entity shall not result in a violation of this
provision unless (x) such activities were contemplated at the time the Executive
initially became employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity (and the contemplation of such
activities was known to the Executive) or (y) the Executive commences directly
or indirectly overseeing or managing the activities which are competitive with
the activities of the Company or Subsidiary. The Executive shall not be deemed
indirectly overseeing or managing the activities which are competitive with the
activities of the Company or Subsidiary so long as he does not regularly
participate in discussions with regard to the competing business. For purposes
of the foregoing, "Discount Retail Footwear Business" shall mean a group of four
or more stores which primarily sells discount footwear.
(b) For the purposes of this Section 12 and Section 13 below, "Restriction
Period" shall mean the period beginning with the Effective Date and ending with:
(i) in the case of a termination of the Executive's employment without
Cause or a Constructive Termination Without Cause, in either case prior to
a Change in Control, the earlier of (1) the end of the Severance Period (as
such term is defined in Section 10(c)(ii)) and (2) the occurrence of a
Change in Control;
(ii) in the case of a termination of the Executive's employment for
Cause, the first anniversary of such termination;
(iii) in the case of a voluntary termination of the Executive's
employment pursuant to Section 10(d) above followed by the Company's
election to pay the Executive (and subject to the payment of) 50% of his
Base Salary, as provided in Section 10(d) above, the end of the 18-month
period following such termination;
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(iv) in the case of a voluntary termination of the Executive's
employment pursuant to Section 10(d) above which is not followed by the
Company's election to pay the Executive such 50% of Base Salary, the date
of such termination;
(v) in the case of Approved Early Retirement or Normal Retirement
pursuant to Section 10(f) above, the remainder of the Term of Employment;
or
(vi) in the case of a termination of the Executive's employment
without Cause or a Constructive Termination Without Cause, in either case
following a Change in Control, immediately upon such termination of
employment.
13. Non-solicitation of Employees.
During the portion of the Restriction Period following the termination of
the Executive's employment, the Executive shall not induce employees of the
Company or any Subsidiary to terminate their employment. During the portion of
the Restriction Period following the termination of the Executive's employment,
the Executive shall not directly or indirectly hire any employee of the Company
or any Subsidiary or any person who was employed by the Company or any
Subsidiary within 180 days of such hiring.
14. Remedies.
In addition to whatever other rights and remedies the Company may have at
equity or in law, if the Executive breaches any of the provisions contained in
Sections 11, 12 or 13 above, the Company (a) shall have the right to immediately
terminate all payments and benefits due under this Agreement and (b) shall have
the right to seek injunctive relief. The Executive acknowledges that such a
breach would cause irreparable injury and that money damages would not provide
an adequate remedy for the Company.
15. Resolution of Disputes.
Any disputes arising under or in connection with this Agreement, other than
seeking injunctive relief under Section 14, shall be resolved by binding
arbitration, to be held at an office closest to the Company's principal offices
in accordance with the rules and procedures of the American Arbitration
Association, except that disputes arising under or in connection with Sections
11, 12 and 13 above shall be submitted to the federal or state courts in the
State of New Jersey. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. Pending the resolution of
any arbitration or court proceeding, the Company shall continue payment of all
amounts and benefits due the Executive under this Agreement. All reasonable
costs and expenses (including fees and disbursements of counsel) incurred by the
Executive in seeking to enforce rights pursuant to this Agreement shall be paid
on behalf of or reimbursed to the Executive promptly by the Company, whether or
not the Executive is successful in asserting such rights; provided, however,
that no reimbursement shall be made of such expenses relating to any
unsuccessful assertion of rights if and to the extent that the Executive's
assertion of such rights was in bad faith or frivolous.
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16. Indemnification.
(a) Company Indemnity. The Company agrees that if the Executive is made a
party, or is threatened to be made a party, to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he is or was a director, officer or employee of the
Company or any Subsidiary or is or was serving at the request of the Company or
any Subsidiary as a director, officer, member, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether or not the basis of such
Proceeding is the Executive's alleged action in an official capacity while
serving as a director, officer, member, employee or agent, the Executive shall
be indemnified and held harmless by the Company to the fullest extent legally
permitted or authorized by the Company's certificate of incorporation or bylaws
or resolutions of the Company's Board of Directors or, if greater, by the laws
of the State of Delaware, against all cost, expense, liability and loss
(including, without limitation, attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by the Executive in connection therewith, and such
indemnification shall continue as to the Executive even if he has ceased to be a
director, member, officer, employee or agent of the Company or other entity and
shall inure to the benefit of the Executive's heirs, executors and
administrators. The Company shall advance to the Executive all reasonable costs
and expenses incurred by him in connection with a Proceeding within 20 days
after receipt by the Company of a written request for such advance. Such request
shall include an undertaking by the Executive to repay the amount of such
advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses.
(b) No Presumption Regarding Standard of Conduct. Neither the failure of
the Company (including its board of directors, independent legal counsel or
stockholders) to have made a determination prior to the commencement of any
proceeding concerning payment of amounts claimed by the Executive under Section
16(a) above that indemnification of the Executive is proper because he has met
the applicable standard of conduct, nor a determination by the Company
(including its board of directors, independent legal counsel or stockholders)
that the Executive has not met such applicable standard of conduct, shall create
a presumption that the Executive has not met the applicable standard of conduct.
(c) Liability Insurance. The Company agrees to continue and maintain a
directors and officers' liability insurance policy covering the Executive to the
extent the Company provides such coverage for its other executive officers.
17. Excise Tax Gross-Up.
If the Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company or any affiliated company
(the "Total Payments"), which are or become subject to the tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or
any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company
shall pay to the Executive at the time specified below an additional amount (the
"Gross-up Payment") (which shall include, without limitation, reimbursement for
any penalties and interest that may accrue in respect of such Excise Tax) such
that the net amount retained by the Executive, after reduction for any Excise
Tax (including any penalties or interest thereon) on the
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Total Payments and any federal, state and local income or employment tax and
Excise Tax on the Gross-up Payment provided for by this Section 17, but before
reduction for any federal, state, or local income or employment tax on the Total
Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount
equal to the product of any deductions disallowed for federal, state, or local
income tax purposes because of the inclusion of the Gross-up Payment in the
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be
treated as subject to the Excise Tax, unless, and except to the extent
that, in the written opinion of independent compensation consultants,
counsel or auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable to the
Executive, the Total Payments (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Total Payments or (B) the total amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code (after
applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment, the
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in the Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to the Executive or
otherwise realized as a benefit by the Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount
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taken into account hereunder at the time the Gross-up Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Gross-up Payment), the Company shall make an additional
Gross-up Payment in respect of such excess (plus any interest and penalties
payable with respect to such excess) at the time that the amount of such excess
is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th day (or
such earlier date as the Excise Tax becomes due and payable to the taxing
authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to the Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determina tion and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest any other
issue raised by the Internal Revenue Service or any other taxing authority. The
Executive shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder.
18. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of this
Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which he currently participates.
19. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and permitted assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred in connection with the sale or
transfer of all or substantially all of the assets of the Company, provided that
the assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale or transfer of assets as described in the preceding sentence, it
shall take whatever action it legally can in order to cause such assignee
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<PAGE>
or transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder. No rights or obligations of the Executive under this
Agreement may be assigned or transferred by the Executive other than his rights
to compensation and benefits, which may be transferred only by will or operation
of law, except as provided in Section 24 below.
20. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
21. Entire Agreement.
This Agreement contains the entire understanding and agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto.
22. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
23. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
24. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
25. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
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<PAGE>
26. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New Jersey without reference to principles of
conflict of laws, except insofar as the Delaware General Corporation Law,
federal laws and regulations may be applicable. Subject to Section 15, the
Company and the Executive hereby consent to the jurisdiction of any or all of
the following courts for purposes of resolving any dispute under this Agreement:
(i) the United States District Court for New Jersey, (ii) any of the courts of
the State of New Jersey, or (iii) any other court having jurisdiction. The
Company and the Executive further agree that any service of process or notice
requirements in any such proceeding shall be satisfied if the rules of such
court relating thereto have been substantially satisfied. The Company and the
Executive hereby waive, to the fullest extent permitted by applicable law, any
objection which it or he may now or hereafter have to such jurisdiction and any
defense of inconvenient forum.
27. Notices.
Any notice given to a Party shall be in writing and shall be deemed to have
been given when delivered personally or sent by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the Party concerned
at the address indicated below or to such changed address as such Party may
subsequently give such notice of:
If to the Company: Footstar, Inc.
933 MacArthur Boulevard
Mahwah, New Jersey 07430
Attention: Secretary
If to the Executive: Carlos Alberini
14 Green Lane
Chappaqua, NY 10514
28. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
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<PAGE>
29. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
FOOTSTAR, INC.
By: /s/ J.M. Robinson
---------------------
Name: J.M. Robinson
Title: Chairman & Chief
Executive Officer
EXECUTIVE
/s/ Carlos Alberini
-------------------
Carlos Alberini
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<PAGE>
FOOTSTAR, INC.
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Employment Agreement for Maureen Richards
- --------------------------------------------------------------------------------
<PAGE>
FOOTSTAR, INC.
- --------------------------------------------------------------------------------
Employment Agreement for Maureen Richards
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Page
----
1. Definitions ....................................................... 1
2. Term of Employment ................................................ 2
3. Position, Duties and Responsibilities ............................. 2
4. Base Salary ....................................................... 3
5. Annual Incentive Awards ........................................... 3
6. Long-Term Stock Incentive Programs ................................ 3
7. Employee Benefit Programs ......................................... 3
8. Disability ........................................................ 4
9. Reimbursement of Business and Other Expenses; Perquisites ......... 5
10. Termination of Employment ........................................ 5
11. Confidentiality; Cooperation with Regard to Litigation ........... 15
12. Non-competition .................................................. 16
13. Non-solicitation of Employees .................................... 17
14. Remedies ......................................................... 17
15. Resolution of Disputes ........................................... 17
16. Indemnification .................................................. 18
17. Excise Tax Gross-Up .............................................. 18
18. Effect of Agreement on Other Benefits ............................ 20
19. Assignability; Binding Nature .................................... 20
20. Representation ................................................... 21
21. Entire Agreement ................................................. 21
22. Amendment or Waiver .............................................. 21
<PAGE>
FOOTSTAR, INC.
- --------------------------------------------------------------------------------
Employment Agreement for Maureen Richards
- --------------------------------------------------------------------------------
Page
----
23. Severability ..................................................... 21
24. Survivorship ..................................................... 21
25. Beneficiaries/References ......................................... 21
26. Governing Law/Jurisdiction ....................................... 22
27. Notices .......................................................... 22
28. Headings ......................................................... 22
29. Counterparts ..................................................... 22
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into between Footstar, Inc., a Delaware
corporation (together with its successors and assigns permitted under this
Agreement, the "Company"), and Maureen Richards (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive pursuant to an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Approved Early Retirement" shall have the meaning set forth in Section
10(f) below.
(b) "Base Salary" shall have the meaning set forth in Section 4 below.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Cause" shall have the meaning set forth in Section 10(b) below.
(e) "Change in Control" shall have the meaning set forth in Section 10(c)
below.
(f) "Confidential Information" shall have the meaning set forth in Section
11 below.
(g) "Constructive Termination Without Cause" shall have the meaning set
forth in Section 10(c) below.
(h) "Effective Date" shall have the meaning set forth in Section 2 below.
(i) "1996 ICP" shall have the meaning set forth in Section 5 below.
(j) "Normal Retirement" shall have the meaning set forth in Section 10(f)
below.
(k) "Original Term of Employment" shall have the meaning set forth in
Section 2 below.
(l) "Renewal Term" shall have the meaning set forth in Section 2 below.
(m) "Restriction Period" shall have the meaning set forth in Section 12
below.
(n) "SERP" shall have the meaning set forth in Section 7 below.
<PAGE>
(o) "Severance Period" shall have the meaning set forth in Section
10(c)(ii) below, except as provided otherwise in Section 10(e) below.
(p) "Subsidiary" shall have the meaning set forth in Section 11 below.
(q) "Term of Employment" shall have the meaning set forth in Section 2
below.
(r) "Termination Without Cause" shall have the meaning set forth in Section
10(c) below.
2. Term of Employment.
(a) The term of the Executive's employment under this Agreement shall
commence immediately upon the date on which shares of Company common stock are
distributed to shareholders of Melville Corporation (the "Effective Date") and
end on the third anniversary of such date (the "Original Term of Employment").
The Original Term of Employment shall be automatically renewed for successive
one-year terms (the "Renewal Terms") unless at least 180 days prior to the
expiration of the Original Term of Employment or any Renewal Term, either Party
notifies the other Party in writing that she or it is electing to terminate this
Agreement at the expiration of the then current Term of Employment. "Term of
Employment" shall mean the Original Term of Employment and all Renewal Terms.
(b) Notwithstanding anything in this Agreement to the contrary, at least
one year prior to the expiration of the Original Term of Employment, the Parties
shall meet to discuss this Agreement and may agree in writing to modify any of
the terms of this Agreement.
3. Position, Duties and Responsibilities.
(a) Generally. Executive shall serve as General Counsel, Corporate
Secretary and a senior executive of the Company reporting directly to the Chief
Executive Officer. Executive shall have and perform such duties,
responsibilities, and authorities as shall be specified by the Company from time
to time and as are customary for a senior executive of a publicly held
corporation of the size, type, and nature of the Company as they may exist from
time to time and as are consistent with such position and status. Executive
shall devote substantially all of her business time and attention (except for
periods of vacation or absence due to illness), and her best efforts, abilities,
experience, and talent to her position and the businesses of the Company.
(b) Other Activities. Anything herein to the contrary notwithstanding,
nothing in this Agreement shall preclude the Executive from (i) engaging in
charitable activities and community affairs and (ii) managing her personal
investments and affairs, provided that such activities do not materially
interfere with the proper performance of her duties and responsibilities under
this Agreement. Unless approved in writing by the Board or Chief Executive
Officer of the Company, the Executive may not serve on the board of directors of
any corporation or the board of any association and/or charitable organization;
provided, however, that the Executive may serve on any cooperative board
relating to her personal residence.
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<PAGE>
4. Base Salary.
The Executive shall be paid an annualized salary, payable in accordance
with the regular payroll practices of the Company, of not less than $200,000,
subject to annual review for increase at the discretion of the Compensation
Committee of the Board ("Base Salary").
5. Annual Incentive Awards.
The Executive shall participate in the Company's 1996 Incentive
Compensation Plan (the "1996 ICP") with a target annual incentive award
opportunity of no less than 35% of Base Salary or in a successor plan to the
1996 ICP that provides the Executive with at least an equivalent opportunity.
Payment of annual incentive awards shall be made at the same time that other
senior-level executives receive their incentive awards.
6. Long-Term Stock Incentive Programs.
(a) General. The Executive shall be eligible to participate in and to
receive stock incentive awards under the 1996 ICP and any successor plan.
(b) Career Equity Program. The Executive shall be eligible to participate
in the Company's Career Equity Program with a target long term incentive award
opportunity of no less than 25% of Base Salary or in a successor plan or program
that provides the Executive with at least an equivalent opportunity.
7. Employee Benefit Programs.
(a) General Benefits. During the Term of Employment, the Executive shall be
entitled to participate in such employee pension and welfare benefit plans and
programs of the Company as are made available to the Company's senior-level
executives or to its employees generally, as such plans or programs may be in
effect from time to time, including, without limitation, financial planning,
health, medical, dental, long-term disability, travel accident and life
insurance plans.
(b) SERP. At or as soon as practicable following (but effective as of) the
Effective Date, the Company shall adopt a supplemental retirement plan ("SERP")
providing for, among other things, a lifetime annuity benefit for the Executive
equal to 2% of her average high three of last 10 years' salary plus actual
annual bonus (before any deferrals) for each year (full and partial) of service
with the Company.
(c) Deferral of Compensation. The Company shall implement deferral
arrangements, reasonably acceptable to Executive and the Company, permitting
Executive to elect to defer receipt, pursuant to written deferral election terms
and forms (the "Deferral Election Forms"), of all or a specified portion of (i)
her annual Base Salary and annual incentive compensation under Sections 4 and 5,
(ii) long term incentive compensation under Section 6 and (iii) shares acquired
upon exercise of options to purchase Company common stock that are acquired in
an exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares otherwise
issuable to Executive in such exercise; provided, however, that such deferrals
shall not reduce Executive's total cash compensation in any calendar year below
the sum of (i) the FICA maximum taxable wage base plus (ii) the amount needed,
on an after-tax basis, to enable Executive to pay the
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<PAGE>
1.45% medicare tax imposed on her wages in excess of such FICA maximum taxable
wage base. In addition, the Committee may require mandatory deferral of amounts
payable as annual incentive compensation under Section 5 or long term incentive
compensation under Section 6, which deferrals will otherwise be in accordance
with this Section 7(c).
In accordance with such duly executed Deferral Election Forms or the terms
of any such mandatory deferral, the Company shall credit to one or more
bookkeeping accounts maintained for Executive on the respective payment date or
dates, amounts equal to the compensation subject to deferral, such credits to be
denominated in cash if the compensation would have been paid in cash but for the
deferral or in shares if the compensation would have been paid in shares but for
the deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Company common stock
equal to the number of shares credited to Executive's account pursuant to this
Section 7(c) shall be transferred as soon as practicable following such
crediting by the Company to, and shall be held and invested by, an independent
trustee selected by the Company (a "Trustee") pursuant to a "rabbi trust"
established by the Company in connection with such deferral arrangement and as
to which the Trustee shall make investments based on Executive's investment
objectives (including possible investment in publicly traded stocks and bonds,
mutual funds, and insurance vehicles). Thereafter, Executive's deferral accounts
will be valued by reference to the value of the assets of the "rabbi trust";
provided, however, that a portion of the assets of the "rabbi trust" may be used
to reimburse the Company for its reasonable cost of funds resulting from payment
of taxes by the Company relating to "rabbi trust" assets during the period of
deferral and prior to the settlement of Executive's deferral accounts. The
Company shall pay all other costs of administration of the deferral arrangement,
without deduction or reimbursement from the assets of the "rabbi trust."
Except as otherwise provided under Section 10, in the event of Executive's
termination of employment with the Company or as otherwise determined by the
Committee in the event of hardship on the part of Executive, upon such date(s)
or event(s) set forth in the Deferral Election Forms (including forms filed
after deferral but before settlement in which Executive may elect to further
defer settlement) or under the terms of any mandatory deferral, the Company
shall promptly pay to Executive cash equal to the value of the assets then
credited to Executive's deferral accounts, less applicable withholding taxes,
and such distribution shall be deemed to fully settle such accounts; provided,
however, that the Company may instead settle such accounts by directing the
Trustee to distribute the assets of the "rabbi trust." The Company and Executive
agree that compensation deferred pursuant to this Section 7(c) shall be fully
vested and nonforfeitable; however, Executive acknowledges that her rights to
the deferred compensation provided for in this Section 7(c) shall be no greater
than those of a general unsecured creditor of the Company, and that such rights
may not be pledged, collateralized, encumbered, hypothecated, or liable for or
subject to any lien, obligation, or liability of Executive, or be assignable or
transferable by Executive, otherwise than by will or the laws of descent and
distribution, provided that Executive may designate one or more beneficiaries to
receive any payment of such amounts in the event of her death.
8. Disability.
(a) During the Term of Employment, as well as during the Severance Period,
the Executive shall be entitled to disability coverage as described in this
Section 8(a). In the event the Executive becomes disabled, as that term is
defined under the Company's Long-Term Disability Plan, the Executive shall be
entitled to receive pursuant to the Company's Long-Term
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<PAGE>
Disability Plan or otherwise, and in place of her Base Salary, an amount equal
to 60% of her Base Salary, at the annual rate in effect at the commencement date
of her Company long-term disability benefit ("Commencement Date") for a period
beginning on the Commencement Date and ending with the earlier to occur of (A)
the Executive's attainment of age 65 or (B) the Executive's commencement of
benefits under the SERP upon her election to receive such benefits. If (i) the
Executive ceases to be disabled during the Term of Employment (as determined in
accordance with the terms of the Long-Term Disability Plan), (ii) her position
or another senior executive position is then vacant and (iii) the Company
requests in writing that she resume such position, she may elect to resume such
position by written notice to the Company within 15 days after the Company
delivers its request. If she resumes such position, she shall thereafter be
entitled to her Base Salary at the annual rate in effect at the Commencement
Date and, for the year she resumes her position, a pro rata annual incentive
award. If she ceases to be disabled and does not resume her position in
accordance with the preceding sentence, she shall be treated as if she
voluntarily terminated her employment pursuant to Section 10(e) as of the date
the Executive ceases to be disabled. If the Executive is not offered her
position or another senior executive position after she ceases to be disabled
during the Term of Employment, she shall be treated as if her employment was
terminated without Cause pursuant to Section 10(c) as of the date the Executive
ceases to be disabled.
(b) The Executive shall be entitled to a pro rata annual incentive award
for the year in which the Commencement Date occurs based on 35% (or such higher
percentage then in effect for Executive) of Base Salary paid to her during such
year prior to the Commencement Date, payable in a lump sum promptly after the
Commencement Date. The Executive shall not be entitled to any annual incentive
award with respect to the period following the Commencement Date. If the
Executive recommences her position in accordance with Section 8(a), she shall be
entitled to a pro rata annual incentive award for the year she resumes her
position and shall thereafter be entitled to annual incentive awards in
accordance with Section 5 hereof.
(c) During the period the Executive is receiving disability benefits
pursuant to Section 8(a) above, she shall continue to be treated as an employee
for purposes of all employee benefits and entitlements in which she was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6 and 7 above, except that the
Executive shall not be entitled to receive any annual salary increases or any
new stock incentive awards following the Commencement Date.
9. Reimbursement of Business and Other Expenses; Perquisites.
The Executive is authorized to incur reasonable expenses in carrying out
her duties and responsibilities under this Agreement, and the Company shall
promptly reimburse her for all business expenses incurred in connection
therewith, subject to documentation in accordance with the Company's policy.
10. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's employment with
the Company is terminated due to her death, her estate or her beneficiaries, as
the case may be, shall be entitled to and their sole remedies under this
Agreement shall be:
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(i) Base Salary through the date of death, which shall be paid in a
single lump sum not later than 15 days following the Executive's death;
(ii) pro rata annual incentive award for the year in which the
Executive's death occurs assuming that the Executive would have received an
award equal to 35% (or such higher percentage then in effect for Executive)
of Base Salary for such year, which shall be payable in a lump sum promptly
(but in no event later than 15 days) after her death;
(iii) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time
of her death;
(iv) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of death, including
any matching grant under the Company's "STEP" program or award under the
Company's "Founders Stock" program;
(v) immediate vesting of all outstanding stock options and the right
to exercise such stock options for a period of one year following death (or
such longer period as may be provided in stock options granted to other
similarly situated executive officers of the Company) or for the remainder
of the exercise period, if less;
(vi) immediate vesting of all outstanding awards under the "Career
Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later
than 15 days) after her death;
(vii) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's death;
(viii) in the event that the Executive's death occurs before she has
met the age and service requirements of the SERP, the Company will provide
her spouse with a 50% survivor annuity as if she had met such age and
service requirements at the time of her death, payable in accordance with
the terms of the SERP but subject to such other adjustments as may be
provided in the SERP;
(ix) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Forms or
the terms of any mandatory deferral; and
(x) other or additional benefits then due or earned in accordance with
applicable plans and programs of the Company.
(b) Termination by the Company for Cause.
(i) "Cause" shall mean:
(A) the Executive's willful and material breach of Sections 11,
12 or 13 of this Agreement;
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(B) the Executive is convicted of a felony involving moral
turpitude; or
(C) the Executive engages in conduct that constitutes willful
gross neglect or willful gross misconduct in carrying out her duties
under this Agreement, resulting, in either case, in material harm to
the financial condition or reputation of the Company.
For purposes of this Agreement, an act or failure to act on Executive's
part shall be considered "willful" if it was done or omitted to be done by
her not in good faith, and shall not include any act or failure to act
resulting from any incapacity of Executive.
(ii) A termination for Cause shall not take effect unless the
provisions of this paragraph (ii) are complied with. The Executive shall be
given written notice by the Company of its intention to terminate her for
Cause, such notice (A) to state in detail the particular act or acts or
failure or failures to act that constitute the grounds on which the
proposed termination for Cause is based and (B) to be given within 90 days
of the Company's learning of such act or acts or failure or failures to
act. The Executive shall have 10 days after the date that such written
notice has been given to her in which to cure such conduct, to the extent
such cure is possible. If she fails to cure such conduct, the Executive
shall then be entitled to a hearing before the Compensation Committee of
the Board at which the Executive is entitled to appear. Such hearing shall
be held within 15 days of such notice to the Executive, provided she
requests such hearing within 10 days of the written notice from the Company
of the intention to terminate her for Cause. If, within five days following
such hearing, the Executive is furnished written notice by the Board
confirming that, in its judgment, grounds for Cause on the basis of the
original notice exist, she shall thereupon be terminated for Cause. Such
hearing shall not limit any other review as set forth in this Agreement on
a de novo basis.
(iii) In the event the Company terminates the Executive's employment
for Cause, she shall be entitled to and her sole remedies under this
Agreement shall be:
(A) Base Salary through the date of the termination of her
employment for Cause, which shall be paid in a single lump sum not
later than 15 days following the Executive's termination of
employment;
(B) any incentive awards earned as of December 31 of the prior
year (but not yet paid), which shall be paid in a single lump sum not
later than 15 days following the Executive's termination of
employment;
(C) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Form
or the terms of any mandatory deferral; and
(D) other or additional benefits then due or earned in accordance
with applicable plans or programs of the Company including but not
limited to the SERP.
(c) Termination Without Cause or Constructive Termination Without Cause
Prior to Change in Control. In the event the Executive's employment with the
Company is terminated without Cause (which termination shall be effective as of
the date specified by the Company in a written notice to the Executive), other
than due to death, or in the event there is a
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Constructive Termination Without Cause (as defined below), in either case prior
to a Change in Control (as defined below) the Executive shall be entitled to and
her sole remedies under this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 15 days
following the Executive's termination of employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in
Base Salary is the basis for a Constructive Termination Without Cause, then
the Base Salary in effect immediately prior to such reduction), for a
period of 18 months following such termination (the "Severance Period");
provided that the Company shall, within 30 days following such termination,
contribute to a "rabbi trust" an amount equal to any unpaid severance
benefits due under this Section 10(c)(ii) and Section 10(c)(iv) and direct
the Trustee thereof to make the remaining severance payments required
hereunder when such payments are due unless the Company, in its sole
discretion, directs the Trustee to return unpaid severance benefits to the
Company because the Executive has breached Sections 11, 12 or 13 hereunder;
provided further that the salary continuation payment under this Section
10(c)(ii) and Section 10(c)(iv) shall be in lieu of any salary continuation
arrangements under any other severance program of the Company or any other
agreement between the Executive and the Company;
(iii) pro rata annual incentive award for the year in which
termination occurs equal to 35% (or such higher percentage then in effect
for Executive) of Base Salary for such year, payable in a lump sum promptly
(but in no event later than 15 days) following termination;
(iv) an amount equal to 35% (or such higher percentage then in effect
for Executive) of Base Salary multiplied by 1.5 payable in equal monthly
installments over the Severance Period:
(v) Company common stock, issued without restrictions, equal to the
number of unvested shares of deferred stock relating to any matching grant
under the Company's "STEP" program multiplied by a fraction the numerator
of which is the number of completed years of employment with the Company
following the date on which such matching grant was awarded and the
denominator of which is five;
(vi) Company common stock, issued without restrictions, equal to the
number of unvested shares of deferred stock awarded to the Executive under
the Company's "Founders Stock" program multiplied by a fraction the
numerator of which is the number of completed years of employment with the
Company following the date on which such award was granted and the
denominator of which is five;
(vii) immediate vesting of all outstanding awards under the "Career
Equity" program relating to completed performance cycles, payable in a cash
lump sum promptly (but in no event later than 15 days) following the
Executive's termination of employment;
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<PAGE>
(viii) the right to exercise all outstanding stock options that are
vested as of the date of termination during the Severance Period or for the
remainder of the exercise period, if less;
(ix) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of employment;
(x) settlement of all deferred compensation arrangements in accordance
with the Executive's duly executed Deferral Election Forms or the terms of
any mandatory deferral;
(xi) continued participation in all medical, health and life insurance
plans at the same benefit level at which she was participating on the date
of the termination of her employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, she receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such
coverage and benefits to be determined on a coverage-by-coverage, or
benefit-by-benefit, basis); provided that (1) if the Executive is
precluded from continuing her participation in any employee benefit
plan or program as provided in this clause (xi) of this Section 10(c),
she shall receive cash payments equal on an after-tax basis to the
cost to her of obtaining the benefits provided under the plan or
program in which she is unable to participate for the period specified
in this clause (xi) of this Section 10(c), (2) such cost shall be
deemed to be the lowest reasonable cost that would be incurred by the
Executive in obtaining such benefit herself on an individual basis,
and (3) payment of such amounts shall be made quarterly in advance;
and
(xii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
"Termination Without Cause" shall mean the Executive's employment is
terminated by the Company for any reason other than Cause (as defined in
Section 10 (b)) or due to death.
"Constructive Termination Without Cause" shall mean a termination of
the Executive's employment at her initiative as provided in this Section
10(c) following the occurrence, without the Executive's written consent, of
one or more of the following events (except as a result of a prior
termination):
(A) an assignment of any duties to Executive which are
inconsistent with her status as a senior executive of the Company;
(B) a decrease in annual Base Salary, target annual incentive
award opportunity below 35% of Base Salary or target long term
incentive award opportunity below 25% of Base Salary;
(C) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material provision
of, this Agreement that is not cured within 30 days; or
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(D) any failure to secure the agreement of any successor
corporation or other successor entity to the Company to fully assume
the Company's obligations under this Agreement.
In addition, following a Change in Control, "Constructive Termination
Without Cause" shall also mean a termination of the Executive's employment
at her initiative as provided in this Section 10(c) following the
occurrence, without the Executive's written consent, of a relocation of her
principal place of employment outside a 35-mile radius of her principal
place of employment as in effect immediately prior to such Change in
Control.
A "Change in Control" shall be deemed to have occurred if:
(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 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, the 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 10(c) 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 Executive or entities controlled by
Executive shall not constitute a Corporate Transaction; 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 10(c), 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 Rule 14a-11 of Regulation 14A 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 10(c), the following shall not constitute a Change in
Control for purposes of this Agreement: (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
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<PAGE>
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.
For purposes of this definition:
(A) The terms "Beneficial Ownership", "Beneficially Owning",
"Beneficially Owned" and "Beneficial Owners" shall have the meanings
ascribed to such terms in Rule 13d-3 under the Exchange Act (including
any successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor act thereto.
(C) The term "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, including "group" as defined in Section 13(d)
thereof.
(d) Voluntary Termination. In the event of a termination of employment by
the Executive on her own initiative after delivery of 10 business days advance
written notice, other than a termination due to death, a Constructive
Termination Without Cause, or Approved Early Retirement or Normal Retirement
pursuant to Section 10(f) below, the Executive shall have the same entitlements
as provided in Section 10(b)(iii) above for a termination for Cause, provided
that at the Company's election, furnished in writing to the Executive within 30
days following such notice of termination, the Company shall in addition pay the
Executive 50% of her Base Salary for a period of 18 months following such
termination in exchange for the Executive not to engage in competition with the
Company or any Subsidiary as set forth in Section 12(a) below. Notwithstanding
any implication to the contrary, the Executive shall not have the right to
terminate her employment with the Company during the Term of Employment except
in the event of a Constructive Termination Without Cause, Approved Early
Retirement or Normal Retirement, and any voluntary termination of employment
during the Term of Employment in violation of this Agreement shall be considered
a material breach.
(e) Termination Without Cause or Constructive Termination Without Cause
Following Change in Control. In the event the Executive's employment with the
Company is terminated without Cause (which termination shall be effective as of
the date specified by the Company in a written notice to the Executive), other
than due to death, or in the event there is a Constructive Termination Without
Cause (as defined above), in either case within two years following a Change in
Control (as defined above), the Executive shall be entitled to and her sole
remedies under this Agreement shall be:
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(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 15 days
following the Executive's termination of employment;
(ii) an amount equal to two times the Executive's Base Salary, at the
annualized rate in effect on the date of termination of the Executive's
employment (or in the event a reduction in Base Salary is the basis for a
Constructive Termination Without Cause, then the Base Salary in effect
immediately prior to such reduction), payable in a cash lump sum promptly
(but in no event later than 15 days) following the Executive's termination
of employment;
(iii) pro rata annual incentive award for the year in which
termination occurs equal to 35% (or such higher percentage then in effect
for Executive) of Base Salary for such year, payable in a cash lump sum
promptly (but in no event later than 15 days) following the Executive's
termination of employment;
(iv) an amount equal to 35% (or such higher percentage then in effect
for Executive) of Base Salary multiplied by two, payable in a cash lump sum
promptly (but in no event later than 15 days) following the Executive's
termination of employment;
(v) lapse of all restrictions on any restricted stock award (including
any performance-based restricted stock) outstanding at the time of
termination of employment;
(vi) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of termination,
including any matching grant under the Company's "STEP" program or award
under the Company's "Founders Stock" program;
(vii) immediate vesting of all outstanding stock options and the right
to exercise such stock options during the Severance Period or for the
remainder of the exercise period, if less;
(viii) immediate vesting of all outstanding awards under the "Career
Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later
than 15 days) following the Executive's termination of employment;
(ix) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of employment;
(x) settlement of all deferred compensation arrangements in accordance
with Executive's duly executed Deferral Election Forms or the terms of any
mandatory deferral;
(xi) continued participation in all medical, health and life insurance
plans at the same benefit level at which she was participating on the date
of the termination of her employment until the earlier of:
(A) the end of the Severance Period; or
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(B) the date, or dates, she receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such
coverage and benefits to be determined on a coverage-by-coverage, or
benefit-by-benefit, basis); provided that (1) if the Executive is
precluded from continuing her participation in any employee benefit
plan or program as provided in this clause (xi) of this Section 10(e),
she shall receive cash payments equal on an after-tax basis to the
cost to her of obtaining the benefits provided under the plan or
program in which she is unable to participate for the period specified
in this clause (xi) of this Section 10(e), (2) such cost shall be
deemed to be the lowest reasonable cost that would be incurred by the
Executive in obtaining such benefit himself on an individual basis,
and (3) payment of such amounts shall be made quarterly in advance;
and
(xii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
For purposes of any termination pursuant to this Section 10(e), the term
"Severance Period" shall mean the period of 24 months following the termination
of the Executive's employment.
(f) Approved Early Retirement or Normal Retirement. Upon the Executive's
Approved Early Retirement or Normal Retirement (as defined below), the Executive
shall be entitled to and her sole remedies under this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 15 days
following the Executive's termination of employment;
(ii) pro rata annual incentive award for the year in which termination
occurs, based on performance valuation at the end of such year and payable
in a cash lump sum promptly (but in no event later than 15 days)
thereafter;
(iii) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time
of her termination of employment;
(iv) continued vesting (as if the Executive remained employed by the
Company) of any outstanding award of contingent shares as of the date of
termination of employment, including any matching grant under the Company's
"STEP" program or award under the Company's "Founders Stock" program;
(v) continued vesting of all outstanding stock options and the right
to exercise such stock options for a period of one year following the
Executive's termination of employment (or such longer period as may be
provided in stock options granted to other similarly situated executive
officers of the Company) or for the remainder of the exercise period, if
less;
(vi) continued vesting (as if Executive remained employed by the
Company) of all outstanding awards under the "Career Equity" program and a
payment of such awards based on valuation at the end of the performance
period, payable in a cash lump sum promptly (but in no event later than 15
days) thereafter;
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(vii) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of employment
or the date the amount of such award is determinable, if later;
(viii) immediate vesting of benefits under the Company's SERP, with
payment of such benefits to be made in accordance with the terms and
conditions of the SERP as in effect at the Effective Date (or in accordance
with the terms of any subsequent amendment to the SERP which is more
favorable to the Executive or her beneficiary);
(ix) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Forms or
the terms of any mandatory deferral;
(x) continued participation in all medical, health and life insurance
plans at the same benefit level at which she was participating on the date
of the termination of her employment until the earlier of:
(A) the Executive's attainment of age 60; or
(B) the date, or dates, she receives substantially equivalent
coverage and benefits under the plans and programs of a subsequent
employer (such coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit, basis); provided that (1)
if the Executive is precluded from continuing her participation in any
employee benefit plan or program as provided in this clause (x) of
this Section 10(f), she shall receive cash payments equal on an
after-tax basis to the cost to her of obtaining the benefits provided
under the plan or program in which she is unable to participate for
the period specified in this clause (x) of this Section 10(f), (2)
such cost shall be deemed to be the lowest cost that would be incurred
by the Executive in obtaining such benefit himself on an individual
basis, and (3) payment of such amounts shall be made quarterly in
advance; and
(xi) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
"Approved Early Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 55 but
prior to attaining age 60, if such termination is approved in advance by the
Compensation Committee.
"Normal Retirement" shall mean the Executive's voluntary termination of
employment with the Company at or after attaining age 60.
(g) No Mitigation; No Offset. In the event of any termination of employment
under this Section 10, the Executive shall be under no obligation to seek other
employment; amounts due the Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that she may
obtain.
(h) Nature of Payments. Any amounts due under this Section 10 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
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(i) Exclusivity of Severance Payments. Upon termination of the Executive's
employment during the Term of Employment, she shall not be entitled to any
severance payments or severance benefits from the Company or any payments by the
Company on account of any claim by her of wrongful termination, including claims
under any federal, state or local human and civil rights or labor laws, other
than the payments and benefits provided in this Section 10.
(j) Release of Employment Claims. The Executive agrees, as a condition to
receipt of the termination payments and benefits provided for in this Section
10, that she will execute a release agreement, in a form reasonably satisfactory
to the Company, releasing any and all claims arising out of the Executive's
employment (other than enforcement of this Agreement, the Executive's rights
under any of the Company's incentive compensation and employee benefit plans and
programs to which she is entitled under this Agreement, and any claim for any
tort for personal injury not arising out of or related to her termination of
employment).
11. Confidentiality; Cooperation with Regard to Litigation.
(a) During the Term of Employment and thereafter, the Executive shall not,
without the prior written consent of the Company, disclose to anyone except in
good faith in the ordinary course of business to a person who will be advised by
the Executive to keep such information confidential or make use of any
Confidential Information, except when required to do so by legal process, by any
governmental agency or by any administrative or legislative body (including a
committee thereof) that requires her to divulge, disclose or make accessible
such information. In the event that the Executive is so ordered, she shall give
prompt written notice to the Company in order to allow the Company the
opportunity to object to or otherwise resist such order.
(b) During the Term of Employment and thereafter, Executive shall not
disclose the existence or contents of this Agreement beyond what is disclosed in
the proxy statement or documents filed with the government unless and to the
extent such disclosure is required by law, by a governmental agency, or in a
document required by law to be filed with a governmental agency or in connection
with enforcement of her rights under this Agreement. In the event that
disclosure is so required, the Executive shall give prompt written notice to the
Company in order to allow the Company the opportunity to object to or otherwise
resist such requirement. This restriction shall not apply to such disclosure by
her to members of her immediate family, her tax, legal or financial advisors,
any lender, or tax authorities, or to potential future employers to the extent
necessary, each of whom shall be advised not to disclose such information.
(c) "Confidential Information" shall mean all information that is not known
or available to the public concerning the business of the Company or any
Subsidiary relating to any of their products, product development, trade
secrets, customers, suppliers, finances, and business plans and strategies. For
this purpose, information known or available generally within the trade or
industry of the Company or any Subsidiary shall be deemed to be known or
available to the public. Confidential Information shall include information that
is, or becomes, known to the public as a result of a breach by the Executive of
the provisions of Section 11(a) above.
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<PAGE>
(d) "Subsidiary" shall mean any corporation controlled directly or
indirectly by the Company and any affiliate of the Company.
(e) The Executive agrees to reasonably cooperate with the Company, during
the Term of Employment and thereafter (including following the Executive's
termination of employment for any reason), by making herself available to
testify on behalf of the Company or any Subsidiary or affiliate of the Company,
in any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any Subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board or its representatives or counsel, or
representatives or counsel to the Company, or any Subsidiary or affiliate of the
Company, as requested. The Company agrees to reimburse the Executive, on an
after-tax basis, for all expenses actually incurred in connection with her
provision of testimony or assistance.
12. Non-competition.
(a) During the Restriction Period (as defined in Section 12(b) below), the
Executive shall not engage in Competition with the Company or any Subsidiary.
"Competition" shall mean engaging in any activity, except as provided below, for
a Competitor of the Company or any Subsidiary, whether as an employee,
consultant, principal, agent, officer, director, partner, shareholder (except as
a less than one percent shareholder of a publicly traded company) or otherwise.
A "Competitor" shall mean (i) Federated Department Stores, May Department
Stores, Payless, Target, Wal-Mart, Woolworth and J. Baker (and any successor or
successors thereto) or (ii) the portion of any other corporation or other entity
or start-up corporation or entity that is engaged in the Discount Retail
Footwear Business within fifty (50) miles of any Discount Retail Footwear
Business outlet in the United States of the Company or any Subsidiary, provided
that a corporation or entity described in clause (ii) above shall not be deemed
to be a Competitor if the Executive shall not either directly or indirectly
oversee or manage the activities of such corporation or entity's division or
unit engaged in the Discount Retail Footwear Business. If the Executive
commences employment or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of any entity that is not a Competitor at the
time the Executive initially becomes employed or becomes a consultant,
principal, agent, officer, director, partner, or shareholder of the entity,
future activities of such entity shall not result in a violation of this
provision unless (x) such activities were contemplated at the time the Executive
initially became employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity (and the contemplation of such
activities was known to the Executive) or (y) the Executive commences directly
or indirectly overseeing or managing the activities which are competitive with
the activities of the Company or Subsidiary. The Executive shall not be deemed
indirectly overseeing or managing the activities which are competitive with the
activities of the Company or Subsidiary so long as she does not regularly
participate in discussions with regard to the competing business. For purposes
of the foregoing, "Discount Retail Footwear Business" shall mean a group of four
or more stores which primarily sells discount footwear.
(b) For the purposes of this Section 12 and Section 13 below, "Restriction
Period" shall mean the period beginning with the Effective Date and ending with:
(i) in the case of a termination of the Executive's employment without
Cause or a Constructive Termination Without Cause, in either case prior to
a Change in Control,
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the earlier of (1) the end of the Severance Period (as such term is defined
in Section 10(c)(ii)) and (2) the occurrence of a Change in Control;
(ii) in the case of a termination of the Executive's employment for
Cause, the first anniversary of such termination;
(iii) in the case of a voluntary termination of the Executive's
employment pursuant to Section 10(d) above followed by the Company's
election to pay the Executive (and subject to the payment of) 50% of her
Base Salary, as provided in Section 10(d) above, the end of the 18-month
period following such termination;
(iv) in the case of a voluntary termination of the Executive's
employment pursuant to Section 10(d) above which is not followed by the
Company's election to pay the Executive such 50% of Base Salary, the date
of such termination;
(v) in the case of Approved Early Retirement or Normal Retirement
pursuant to Section 10(f) above, the remainder of the Term of Employment;
or
(vi) in the case of a termination of the Executive's employment
without Cause or a Constructive Termination Without Cause, in either case
following a Change in Control, immediately upon such termination of
employment.
13. Non-solicitation of Employees.
During the portion of the Restriction Period following the termination of
the Executive's employment, the Executive shall not induce employees of the
Company or any Subsidiary to terminate their employment. During the portion of
the Restriction Period following the termination of the Executive's employment,
the Executive shall not directly or indirectly hire any employee of the Company
or any Subsidiary or any person who was employed by the Company or any
Subsidiary within 180 days of such hiring.
14. Remedies.
In addition to whatever other rights and remedies the Company may have at
equity or in law, if the Executive breaches any of the provisions contained in
Sections 11, 12 or 13 above, the Company (a) shall have the right to immediately
terminate all payments and benefits due under this Agreement and (b) shall have
the right to seek injunctive relief. The Executive acknowledges that such a
breach would cause irreparable injury and that money damages would not provide
an adequate remedy for the Company.
15. Resolution of Disputes.
Any disputes arising under or in connection with this Agreement, other than
seeking injunctive relief under Section 14, shall be resolved by binding
arbitration, to be held at an office closest to the Company's principal offices
in accordance with the rules and procedures of the American Arbitration
Association, except that disputes arising under or in connection with Sections
11, 12 and 13 above shall be submitted to the federal or state courts in the
State of New Jersey. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. Pending the resolution of
any arbitration or court proceeding, the Company shall continue payment of all
amounts and benefits due the Executive under this Agreement. All reasonable
costs and expenses (including fees and disbursements of counsel)
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<PAGE>
incurred by the Executive in seeking to enforce rights pursuant to this
Agreement shall be paid on behalf of or reimbursed to the Executive promptly by
the Company, whether or not the Executive is successful in asserting such
rights; provided, however, that no reimbursement shall be made of such expenses
relating to any unsuccessful assertion of rights if and to the extent that the
Executive's assertion of such rights was in bad faith or frivolous.
16. Indemnification.
(a) Company Indemnity. The Company agrees that if the Executive is made a
party, or is threatened to be made a party, to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that she is or was a director, officer or employee of the
Company or any Subsidiary or is or was serving at the request of the Company or
any Subsidiary as a director, officer, member, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether or not the basis of such
Proceeding is the Executive's alleged action in an official capacity while
serving as a director, officer, member, employee or agent, the Executive shall
be indemnified and held harmless by the Company to the fullest extent legally
permitted or authorized by the Company's certificate of incorporation or bylaws
or resolutions of the Company's Board of Directors or, if greater, by the laws
of the State of Delaware, against all cost, expense, liability and loss
(including, without limitation, attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by the Executive in connection therewith, and such
indemnification shall continue as to the Executive even if she has ceased to be
a director, member, officer, employee or agent of the Company or other entity
and shall inure to the benefit of the Executive's heirs, executors and
administrators. The Company shall advance to the Executive all reasonable costs
and expenses incurred by her in connection with a Proceeding within 20 days
after receipt by the Company of a written request for such advance. Such request
shall include an undertaking by the Executive to repay the amount of such
advance if it shall ultimately be determined that she is not entitled to be
indemnified against such costs and expenses.
(b) No Presumption Regarding Standard of Conduct. Neither the failure of
the Company (including its board of directors, independent legal counsel or
stockholders) to have made a determination prior to the commencement of any
proceeding concerning payment of amounts claimed by the Executive under Section
16(a) above that indemnification of the Executive is proper because she has met
the applicable standard of conduct, nor a determination by the Company
(including its board of directors, independent legal counsel or stockholders)
that the Executive has not met such applicable standard of conduct, shall create
a presumption that the Executive has not met the applicable standard of conduct.
(c) Liability Insurance. The Company agrees to continue and maintain a
directors and officers' liability insurance policy covering the Executive to the
extent the Company provides such coverage for its other executive officers.
17. Excise Tax Gross-Up.
If the Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company, a subsidiary or any
affiliated company (the "Total Payments"), which are or
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<PAGE>
become subject to the tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") (or any similar tax that may hereafter be
imposed) (the "Excise Tax"), the Company shall pay to the Executive at the time
specified below an additional amount (the "Gross-up Payment") (which shall
include, without limitation, reimbursement for any penalties and interest that
may accrue in respect of such Excise Tax) such that the net amount retained by
the Executive, after reduction for any Excise Tax (including any penalties or
interest thereon) on the Total Payments and any federal, state and local income
or employment tax and Excise Tax on the Gross-up Payment provided for by this
Section 17, but before reduction for any federal, state, or local income or
employment tax on the Total Payments, shall be equal to the sum of (a) the Total
Payments, and (b) an amount equal to the product of any deductions disallowed
for federal, state, or local income tax purposes because of the inclusion of the
Gross-up Payment in the Executive's adjusted gross income multiplied by the
highest applicable marginal rate of federal, state, or local income taxation,
respectively, for the calendar year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall be
treated as subject to the Excise Tax, unless, and except to the extent
that, in the written opinion of independent compensation consultants,
counsel or auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable to the
Executive, the Total Payments (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Total Payments or (B) the total amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code (after
applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment, the
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in the Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company at the time that
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<PAGE>
the amount of such reduction in Excise Tax is finally determined (but, if
previously paid to the taxing authorities, not prior to the time the amount of
such reduction is refunded to the Executive or otherwise realized as a benefit
by the Executive) the portion of the Gross-up Payment that would not have been
paid if such Excise Tax had been applied in initially calculating the Gross-up
Payment, plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the time the
Gross-up Payment is made (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-up Payment), the
Company shall make an additional Gross-up Payment in respect of such excess
(plus any interest and penalties payable with respect to such excess) at the
time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th day (or
such earlier date as the Excise Tax becomes due and payable to the taxing
authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to the Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determina tion and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest any other
issue raised by the Internal Revenue Service or any other taxing authority. The
Executive shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder.
18. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of this
Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which she currently participates.
19. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and permitted assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred in
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<PAGE>
connection with the sale or transfer of all or substantially all of the assets
of the Company, provided that the assignee or transferee is the successor to all
or substantially all of the assets of the Company and such assignee or
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a matter of law. The
Company further agrees that, in the event of a sale or transfer of assets as
described in the preceding sentence, it shall take whatever action it legally
can in order to cause such assignee or transferee to expressly assume the
liabilities, obligations and duties of the Company hereunder. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than her rights to compensation and benefits, which may
be transferred only by will or operation of law, except as provided in Section
24 below.
20. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
21. Entire Agreement.
This Agreement contains the entire understanding and agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto.
22. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
23. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
24. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
25. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit
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<PAGE>
payable hereunder following the Executive's death by giving the Company written
notice thereof. In the event of the Executive's death or a judicial
determination of her incompetence, reference in this Agreement to the Executive
shall be deemed, where appropriate, to refer to her beneficiary, estate or other
legal representative.
26. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New Jersey without reference to principles of
conflict of laws, except insofar as the Delaware General Corporation Law,
federal laws and regulations may be applicable. Subject to Section 15, the
Company and the Executive hereby consent to the jurisdiction of any or all of
the following courts for purposes of resolving any dispute under this Agreement:
(i) the United States District Court for New Jersey, (ii) any of the courts of
the State of New Jersey, or (iii) any other court having jurisdiction. The
Company and the Executive further agree that any service of process or notice
requirements in any such proceeding shall be satisfied if the rules of such
court relating thereto have been substantially satisfied. The Company and the
Executive hereby waive, to the fullest extent permitted by applicable law, any
objection which it or she may now or hereafter have to such jurisdiction and any
defense of inconvenient forum.
27. Notices.
Any notice given to a Party shall be in writing and shall be deemed to have
been given when delivered personally or sent by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the Party concerned
at the address indicated below or to such changed address as such Party may
subsequently give such notice of:
If to the Company: Footstar, Inc.
933 MacArthur Boulevard
Mahwah, New Jersey 07430
Attention: Chairman
If to the Executive: Maureen Richards
5041 Fieldston Road
Bronx, NY 10471
28. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
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<PAGE>
29. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
FOOTSTAR, INC.
By:/s/ J.M. Robinson
--------------------
Name: J.M. Robinson
Title: Chairman & Chief
Executive Officer
EXECUTIVE
/s/ Maureen Richards
--------------------
Maureen Richards
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<PAGE>
FOOTSTAR, INC.
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Change in Control Agreement for Donald Roach
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<PAGE>
FOOTSTAR, INC.
- --------------------------------------------------------------------------------
Change in Control Agreement for Donald Roach
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Page
----
1 Definitions .......................................................... 1
2 Term of Agreement .................................................... 4
3 Entitlement to Change in Control Benefit ............................. 4
4 Confidentiality; Cooperation with Regard to Litigation ............... 6
5 Remedies ............................................................. 7
6 Resolution of Disputes ............................................... 7
7 Effect of Agreement on Other Benefits ................................ 8
8 Not an Employment Agreement .......................................... 8
9 Assignability; Binding Nature ........................................ 8
10 Representation ....................................................... 8
11 Entire Agreement ..................................................... 8
12 Amendment or Waiver .................................................. 9
13 Severability ......................................................... 9
14 Survivorship ......................................................... 9
15 Governing Law/Jurisdiction ........................................... 9
16 Notices .............................................................. 9
17 Headings ............................................................. 10
18 Counterparts ......................................................... 10
<PAGE>
CHANGE IN CONTROL AGREEMENT
AGREEMENT, made and entered into as of the 12th day of October, 1996 by and
between Footstar, Inc., a Delaware corporation (together with its successors and
assigns permitted under this Agreement, the "Company"), and Donald Roach (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Executive is an employee of the Company serving in an
executive capacity;
WHEREAS, the Board of Directors of the Company (the "Board") believes it is
necessary and desirable that the Company be able to rely upon the Executive to
continue serving in his or her position in the event of a pending or actual
change in control of the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's annual base salary.
(b) "Cause" shall mean:
(i) the Executive's willful and material breach of Section 4 of this
Agreement;
(ii) the Executive is convicted of a felony involving moral turpitude;
or
(iii) the Executive engages in conduct that constitutes willful gross
neglect or willful gross misconduct in carrying out his/her duties under
this Agreement, resulting, in either case, in material harm to the
financial condition or reputation of the Company.
For purposes of this Agreement, an act or failure to act on Executive's
part shall be considered "willful" if it was done or omitted to be done by
him/her not in good faith, and shall not include any act or failure to act
resulting from any incapacity of Executive. A termination for Cause shall not
take effect unless the provisions of this paragraph are complied with. The
Executive shall be given written notice by the Company of its intention to
terminate him/her for Cause, such notice (A) to state in detail the particular
act or acts or failure or failures to act that constitute the grounds on which
the proposed termination for Cause is based and (B) to be given within 90 days
of the Company's learning of such act or acts or failure or failures to act. The
Executive shall have 10 days after the date that such written notice has been
given to him/her in which to cure such conduct, to the extent such cure is
possible. If he/she fails to cure such conduct, the Executive shall then be
entitled to a hearing before the Compensation Committee of the Board at which
the Executive is entitled to appear. Such hearing shall be held within 15 days
of such notice to the Executive, provided he/she requests such hearing within 10
days of the written notice from the Company of the intention to terminate
him/her for Cause. If,
<PAGE>
within five days following such hearing, the Executive is furnished written
notice by the Board confirming that, in its judgment, grounds for Cause on the
basis of the original notice exist, he/she shall thereupon be terminated for
Cause. Such hearing shall not limit any other review as set forth in this
Agreement on a de novo basis.
(c) A "Change in Control" shall be deemed to have occurred if:
(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 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, the 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 1(c) 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 Executive or entities controlled by
Executive shall not constitute a Corporate Transaction; 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 1(c), 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 Rule 14a-11 of
Regulation 14A 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 1(c) the following shall not constitute a Change in Control
for purposes of this Agreement: (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
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<PAGE>
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.
For purposes of this definition:
(A) The terms "Beneficial Ownership", "Beneficially Owning",
"Beneficially Owned" and "Beneficial Owners" shall have the meanings
ascribed to such terms in Rule 13d-3 under the Exchange Act (including
any successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor act thereto.
(C) The term "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, including "group" as defined in Section 13(d)
thereof.
(d) "Confidential Information" shall have the meaning set forth in Section
4 below.
(e) "Constructive Termination Without Cause" shall mean a termination of
the Executive's employment at his/her initiative following the occurrence,
without the Executive's written consent, of one or more of the following events
(except as a result of a prior termination):
(i) a material change, adverse to Executive, in Executive's position,
title, office, status, rank, nature of responsibilities, or authority
within the Company;
(ii) an assignment of any duties to Executive which are inconsistent
with his/her status;
(iii) a decrease in annual Base Salary, target annual incentive award
opportunity or target long term incentive award opportunity;
(iv) any failure to secure the agreement of any successor corporation
or other entity to the Company to fully assume the Company's obligations
under this Agreement; or
(v) a relocation of Executive's principal place of employment more
than 35 miles from his place of employment before such relocation.
(f) "Disability" shall mean disability as that term is defined in the
Company's Long-Term Disability Plan.
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<PAGE>
(g) "Effective Date" shall have the meaning set forth in Section 2 below.
(h) "Original Term" shall have the meaning set forth in Section 2 below.
(i) "Renewal Term" shall have the meaning set forth in Section 2 below.
(j) "Retirement" shall mean the Executive's termination of employment with
the Company at or after attaining age 60.
(k) "Severence Period" shall mean the period of 24 months following the
termination of the Executive's employment.
(l) "Subsidiary" shall have the meaning set forth in Section 4 below.
(m) "Term" shall have the meaning set forth in Section 2 below.
2. Term of Agreement.
The term of this Agreement shall commence immediately upon the date on
which shares of Company common stock are distributed to shareholders of Melville
Corporation (the "Effective Date") and end on the third anniversary of such date
(the "Original Term"). The Original Term shall be automatically renewed for
successive one-year terms (the "Renewal Terms") unless at least 180 days prior
to the expiration of the Original Term or any Renewal Term, either Party
notifies the other Party in writing that he/she or it is electing to terminate
this Agreement at the expiration of the then current Term. If a Change in
Control shall have occurred during the Original Term or during any Renewal Term,
notwithstanding any other provision of this Section 2, the Term shall be
automatically extended and shall end two years after such Change in Control.
"Term" shall mean the Original Term and all Renewal Terms.
3. Entitlement to Severance Benefit.
(a) Severance Benefit. In the event the Executive's employment with the
Company is terminated without Cause, other than due to death, Disability or
Retirement, or in the event there is a Constructive Termination Without Cause,
in either case within two years following a Change in Control, the Executive
shall be entitled to receive:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 15 days
following the Executive's termination of employment;
(ii) an amount equal to two times the Executive's Base Salary, at the
annualized rate in effect on the date of termination of the Executive's
employment (or in the event a reduction in Base Salary is the basis for a
Constructive Termination Without Cause, then the Base Salary in effect
immediately prior to such reduction), payable in a cash lump sum promptly
(but in no event later than 15 days) following the Executive's termination
of employment;
(iii) a pro rata annual incentive award for the year in which
termination occurs, assuming that the Executive would have received an
award equal to the Executive's
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<PAGE>
target award opportunity for such year, payable in a cash lump sum promptly
(but in no event later than 15 days) following the Executive's termination
of employment;
(iv) an amount equal the Executive's target annual incentive award
opportunity for the year of termination (or in the event a reduction in
such target is the basis for a Constructive Termination Without Cause, then
the target in effect immediately prior to such reduction) multiplied by
two, payable in a cash lump sum promptly (but in no event later than 15
days) following the Executive's termination of employment;
(v) lapse of all restrictions on any restricted stock award (including
any performance-based restricted stock) outstanding at the time of
termination of employment;
(vi) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of termination,
including any matching grant under the Company's "STEP" program or award
under the Company's "Founders Stock" program;
(vii) immediate vesting of all outstanding stock options and the right
to exercise such stock options during the Severance Period or for the
remainder of the exercise period, if less;
(viii) immediate vesting of all outstanding awards under the "Career
Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later
than 15 days) following the Executive's termination of employment;
(ix) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of employment;
(x) settlement of all deferred compensation arrangements in accordance
with Executive's duly executed Deferral Election Forms or the terms of any
mandatory deferral;
(xi) continued participation in all medical, health and life insurance
plans at the same benefit level at which he/she was participating on the
date of the termination of his/her employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he/she receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such
coverage and benefits to be determined on a coverage-by-coverage, or
benefit-by-benefit, basis); provided that (1) if the Executive is
precluded from continuing his/her participation in any employee
benefit plan or program as provided in this clause (xi) of this
Section 3(a), he/she shall receive cash payments equal on an after-tax
basis to the cost to him/her of obtaining the benefits provided under
the plan or program in which he/she is unable to participate for the
period specified in this clause (xi) of this Section 3(a), (2) such
cost shall be deemed to be the lowest
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<PAGE>
reasonable cost that would be incurred by the Executive in obtaining
such benefit himself on an individual basis, and (3) payment of such
amounts shall be made quarterly in advance; and
(xii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
(b) No Mitigation; No Offset. In the event of any termination of employment
under this Section 3, the Executive shall be under no obligation to seek other
employment; amounts due the Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that he/she may
obtain.
(c) Nature of Payments. Any amounts due under this Section 3 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
(d) Release of Employment Claims. The Executive agrees, as a condition to
receipt of the termination payments and benefits provided for in this Section 3,
that he/she will execute a release agreement, in a form reasonably satisfactory
to the Company, releasing any and all claims arising out of the Executive's
employment (other than enforcement of this Agreement, the Executive's rights
under any of the Company's incentive compensation and employee benefit plans and
programs to which he/she is entitled under this Agreement, and any claim for any
tort for personal injury not arising out of or related to his/her termination of
employment).
4. Confidentiality; Cooperation with Regard to Litigation.
(a) During the Term and thereafter, the Executive shall not, without the
prior written consent of the Company, disclose to anyone except in good faith in
the ordinary course of business to a person who will be advised by the Executive
to keep such information confidential or make use of any Confidential
Information, except when required to do so by legal process, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) that requires
him/her to divulge, disclose or make accessible such information. In the event
that the Executive is so ordered, he/she shall give prompt written notice to the
Company in order to allow the Company the opportunity to object to or otherwise
resist such order.
(b) During the Term and thereafter, Executive shall not disclose the
existence or contents of this Agreement beyond what is disclosed in the proxy
statement or documents filed with the government unless and to the extent such
disclosure is required by law, by a governmental agency, or in a document
required by law to be filed with a governmental agency or in connection with
enforcement of his/her rights under this Agreement. In the event that disclosure
is so required, the Executive shall give prompt written notice to the Company in
order to allow the Company the opportunity to object to or otherwise resist such
requirement. This restriction shall not apply to such disclosure by him/her to
members of his/her immediate family, his/her tax, legal or financial advisors,
any lender, or tax authorities, or to potential future employers to the extent
necessary, each of whom shall be advised not to disclose such information.
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<PAGE>
(c) "Confidential Information" shall mean all information that is not known
or available to the public concerning the business of the Company or any
Subsidiary relating to any of their products, product development, trade
secrets, customers, suppliers, finances, and business plans and strategies. For
this purpose, information known or available generally within the trade or
industry of the Company or any Subsidiary shall be deemed to be known or
available to the public. Confidential Information shall include information that
is, or becomes, known to the public as a result of a breach by the Executive of
the provisions of Section 4(a) above.
(d) "Subsidiary" shall mean any corporation controlled directly or
indirectly by the Company and any affiliate of the Company.
(e) The Executive agrees to cooperate with the Company, during the Term and
thereafter (including following the Executive's termination of employment for
any reason), by making himself available to testify on behalf of the Company or
any Subsidiary or affiliate of the Company, in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, and to assist the
Company, or any Subsidiary or affiliate of the Company, in any such action,
suit, or proceeding, by providing information and meeting and consulting with
the Board or its representatives or counsel, or representatives or counsel to
the Company, or any Subsidiary or affiliate of the Company, as requested. The
Company agrees to reimburse the Executive, on an after-tax basis, for all
expenses actually incurred in connection with his/her provision of testimony or
assistance.
5. Remedies.
In addition to whatever other rights and remedies the Company may have at
equity or in law, if the Executive breaches any of the provisions contained in
Section 4 above, the Company (a) shall have the right to immediately terminate
all payments and benefits due under this Agreement and (b) shall have the right
to seek injunctive relief. The Executive acknowledges that such a breach would
cause irreparable injury and that money damages would not provide an adequate
remedy for the Company.
6. Resolution of Disputes.
Any disputes arising under or in connection with this Agreement, other than
seeking injunctive relief under Section 5, shall be resolved by binding
arbitration, to be held at an office closest to the Company's principal offices
in accordance with the rules and procedures of the American Arbitration
Association, except that disputes arising under or in connection with Section 4
above shall be submitted to the federal or state courts in the State of New
Jersey. Judgment upon the award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof. Pending the resolution of any arbitration
or court proceeding, the Company shall continue payment of all amounts and
benefits due the Executive under this Agreement. All reasonable costs and
expenses (including fees and disbursements of counsel) incurred by the Executive
in seeking to enforce rights pursuant to this Agreement shall be paid on behalf
of or reimbursed to the Executive promptly by the Company, whether or not the
Executive is successful in asserting such rights; provided, however, that no
reimbursement shall be made of such expenses relating to any unsuccessful
assertion of rights if and to the extent that the Executive's assertion of such
rights was in bad faith or frivolous.
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<PAGE>
7. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of this
Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which he/she currently participates.
8. Not an Employment Agreement.
This Agreement is not, and nothing herein shall be deemed to create, a
contract of employment between the Executive and the Company. The Company may
terminate the employment of the Executive at any time, subject to the terms of
any employment agreement between the Company and the Executive that may then be
in effect.
9. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and permitted assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred in connection with the sale or
transfer of all or substantially all of the assets of the Company, provided that
the assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale or transfer of assets as described in the preceding sentence, it
shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder. No rights or obligations of the Executive under this
Agreement may be assigned or transferred by the Executive other than his/her
rights to compensation and benefits, which may be transferred only by will or
operation of law, except as provided in Section 14 below.
10. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
11. Entire Agreement.
This Agreement contains the entire understanding and agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto.
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<PAGE>
12. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
13. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
14. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
15. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New Jersey without reference to principles of
conflict of laws, except insofar as the Delaware General Corporation Law,
federal laws and regulations may be applicable. Subject to Section 6, the
Company and the Executive hereby consent to the jurisdiction of any or all of
the following courts for purposes of resolving any dispute under this Agreement:
(i) the United States District Court for New Jersey, (ii) any of the courts of
the State of New Jersey, or (iii) any other court having jurisdiction. The
Company and the Executive further agree that any service of process or notice
requirements in any such proceeding shall be satisfied if the rules of such
court relating thereto have been substantially satisfied. The Company and the
Executive hereby waive, to the fullest extent permitted by applicable law, any
objection which it or he/she may now or hereafter have to such jurisdiction and
any defense of inconvenient forum.
16. Notices.
Any notice given to a Party shall be in writing and shall be deemed to have
been given when delivered personally or sent by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the Party concerned
at the address indicated below or to such changed address as such Party may
subsequently give such notice of:
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<PAGE>
If to the Company: Footstar, Inc.
933 MacArthur Boulevard
Mahwah, New Jersey 07430
Attention: Secretary
If to the Executive: Donald Roach
43 Joshua Drive
Ramsey, New Jersey 07446
17. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
18. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
FOOTSTAR, INC.
By:/s/ J.M. Robinson
--------------------
Name: J.M. Robinson
Title: Chairman & Chief
Executive Officer
EXECUTIVE
/s/ Donald Roach
----------------
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FOOTSTAR, INC.
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Change in Control Agreement for _________
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<PAGE>
FOOTSTAR, INC.
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Change in Control Agreement for _________
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Page
----
1. Definitions.......................................................... 1
2. Term of Agreement.................................................... 4
3. Entitlement to Change in Control Benefit............................. 4
4. Confidentiality; Cooperation with Regard to Litigation............... 6
5. Remedies............................................................. 7
6. Resolution of Disputes............................................... 8
7. Effect of Agreement on Other Benefits................................ 8
8. Not an Employment Agreement.......................................... 8
9. Assignability; Binding Nature........................................ 8
10. Representation....................................................... 9
11. Entire Agreement..................................................... 9
12. Amendment or Waiver.................................................. 9
13. Severability......................................................... 9
14. Survivorship......................................................... 9
15. Governing Law/Jurisdiction........................................... 10
16. Notices.............................................................. 10
17. Headings............................................................. 10
18. Counterparts......................................................... 11
<PAGE>
CHANGE IN CONTROL AGREEMENT
AGREEMENT, made and entered into as of the day of June, 1996 by and
between Footstar, Inc., a Delaware corporation (together with its successors and
assigns permitted under this Agreement, the "Company"), and (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is an employee of the Company serving in an
executive capacity;
WHEREAS, the Board of Directors of the Company (the "Board") believes
it is necessary and desirable that the Company be able to rely upon the
Executive to continue serving in his or her position in the event of a pending
or actual change in control of the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's annual base salary.
(b) "Cause" shall mean:
(i) the Executive's willful and material breach of Section 4
of this Agreement;
(ii) the Executive is convicted of a felony involving moral
turpitude; or
(iii) the Executive engages in conduct that constitutes
willful gross neglect or willful gross misconduct in carrying out his/her duties
under this Agreement, resulting, in either case, in material harm to the
financial condition or reputation of the Company.
For purposes of this Agreement, an act or failure to act on
Executive's part shall be considered "willful" if it was done or omitted to be
done by him/her not in good faith, and shall not include any act or failure to
act resulting from any incapacity of Executive. A termination for Cause shall
not take effect unless the provisions of this paragraph are complied with. The
Executive shall be given written notice by the Company of its intention to
terminate him/her for Cause, such notice (A) to state in detail the particular
act or acts or failure or failures to act that constitute the grounds on which
the proposed termination for Cause is based and (B) to be given within 90 days
of the Company's learning of such act or acts or failure or failures to act. The
Executive shall have 10 days after the date that such written notice has been
given to him/her in which to cure such conduct, to the extent such cure is
possible. If he/she fails to cure such conduct, the Executive shall then be
entitled to a hearing before the Compensation
<PAGE>
Committee of the Board at which the Executive is entitled to appear. Such
hearing shall be held within 15 days of such notice to the Executive, provided
he/she requests such hearing within 10 days of the written notice from the
Company of the intention to terminate him/her for Cause. If, within five days
following such hearing, the Executive is furnished written notice by the Board
confirming that, in its judgment, grounds for Cause on the basis of the original
notice exist, he/she shall thereupon be terminated for Cause. Such hearing shall
not limit any other review as set forth in this Agreement on a de novo basis.
(c) A "Change in Control" shall be deemed to have occurred if:
(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 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, the 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 1(c) 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
Executive or entities controlled by Executive shall not constitute a Corporate
Transaction; 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 1(c), 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 Rule 14a-11 of Regulation 14A 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 1(c) the following shall not constitute a Change in Control for
purposes of this Agreement: (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
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<PAGE>
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.
For purposes of this definition:
(A) The terms "Beneficial Ownership", "Beneficially Owning",
"Beneficially Owned" and "Beneficial Owners" shall have the meanings ascribed to
such terms in Rule 13d-3 under the Exchange Act (including any successor to such
Rule).
(B) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, or any successor act thereto.
(C) The term "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, including "group" as defined in Section 13(d) thereof.
(d) "Confidential Information" shall have the meaning set forth in
Section 4 below.
(e) "Constructive Termination Without Cause" shall mean a termination
of the Executive's employment at his/her initiative following the occurrence,
without the Executive's written consent, of one or more of the following events
(except as a result of a prior termination):
(i) a material change, adverse to Executive, in Executive's
position, title, office, status, rank, nature of responsibilities, or authority
within the Company;
(ii) an assignment of any duties to Executive which are
inconsistent with his/her status;
(iii) a decrease in annual Base Salary, target annual
incentive award opportunity or target long term incentive award opportunity;
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<PAGE>
(iv) any failure to secure the agreement of any successor
corporation or other entity to the Company to fully assume the Company's
obligations under this Agreement; or
(v) a relocation of Executive's principal place of
employment more than 35 miles from his place of employment before such
relocation.
(f) "Disability" shall mean disability as that term is defined in the
Company's Long-Term Disability Plan.
(g) "Effective Date" shall have the meaning set forth in Section 2
below.
(h) "Original Term" shall have the meaning set forth in Section 2
below.
(i) "Renewal Term" shall have the meaning set forth in Section 2
below.
(j) "Retirement" shall mean the Executive's termination of employment
with the Company at or after attaining age 60.
(k) "Severence Period" shall mean the period of 24 months following
the termination of the Executive's employment.
(l) "Subsidiary" shall have the meaning set forth in Section 4 below.
(m) "Term" shall have the meaning set forth in Section 2 below.
2. Term of Agreement.
The term of this Agreement shall commence immediately upon the date on
which shares of Company common stock are distributed to shareholders of Melville
Corporation (the "Effective Date") and end on the third anniversary of such date
(the "Original Term"). The Original Term shall be automatically renewed for
successive one-year terms (the "Renewal Terms") unless at least 180 days prior
to the expiration of the Original Term or any Renewal Term, either Party
notifies the other Party in writing that he/she or it is electing to terminate
this Agreement at the expiration of the then current Term. If a Change in
Control shall have occurred during the Original Term or during any Renewal Term,
notwithstanding any other provision of this Section 2, the Term shall be
automatically extended and shall end two years after such Change in Control.
"Term" shall mean the Original Term and all Renewal Terms.
3. Entitlement to Severance Benefit.
(a) Severance Benefit. In the event the Executive's employment with
the Company is terminated without Cause, other than due to death, Disability or
Retirement, or in the event there is a Constructive Termination Without Cause,
in either case within two years following a Change in Control, the Executive
shall be entitled to receive:
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<PAGE>
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a single lump sum not later than
15 days following the Executive's termination of employment;
(ii) an amount equal to two times the Executive's Base
Salary, at the annualized rate in effect on the date of termination of the
Executive's employment (or in the event a reduction in Base Salary is the basis
for a Constructive Termination Without Cause, then the Base Salary in effect
immediately prior to such reduction), payable in a cash lump sum promptly (but
in no event later than 15 days) following the Executive's termination of
employment;
(iii) a pro rata annual incentive award for the year in
which termination occurs, assuming that the Executive would have received an
award equal to the Executive's target award opportunity for such year, payable
in a cash lump sum promptly (but in no event later than 15 days) following the
Executive's termination of employment;
(iv) an amount equal the Executive's target annual incentive
award opportunity for the year of termination (or in the event a reduction in
such target is the basis for a Constructive Termination Without Cause, then the
target in effect immediately prior to such reduction) multiplied by two, payable
in a cash lump sum promptly (but in no event later than 15 days) following the
Executive's termination of employment;
(v) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time of
termination of employment;
(vi) Company common stock, issued without restrictions,
equal to any outstanding award of contingent shares as of the date of
termination, including any matching grant under the Company's "STEP" program or
award under the Company's "Founders Stock" program;
(vii) immediate vesting of all outstanding stock options and
the right to exercise such stock options during the Severance Period or for the
remainder of the exercise period, if less;
(viii) immediate vesting of all outstanding awards under the
"Career Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later than 15
days) following the Executive's termination of employment;
(ix) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid), which shall be paid in a
single lump sum not later than 15 days following the Executive's termination of
employment;
(x) settlement of all deferred compensation arrangements in
accordance with Executive's duly executed Deferral Election Forms or the terms
of any mandatory deferral;
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<PAGE>
(xi) continued participation in all medical, health and life
insurance plans at the same benefit level at which he/she was participating on
the date of the termination of his/her employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he/she receives equivalent
coverage and benefits under the plans and programs of a subsequent employer
(such coverage and benefits to be determined on a coverage-by-coverage, or
benefit-by-benefit, basis); provided that (1) if the Executive is precluded from
continuing his/her participation in any employee benefit plan or program as
provided in this clause (xi) of this Section 3(a), he/she shall receive cash
payments equal on an after-tax basis to the cost to him/her of obtaining the
benefits provided under the plan or program in which he/she is unable to
participate for the period specified in this clause (xi) of this Section 3(a),
(2) such cost shall be deemed to be the lowest reasonable cost that would be
incurred by the Executive in obtaining such benefit himself on an individual
basis, and (3) payment of such amounts shall be made quarterly in advance; and
(xii) other or additional benefits then due or earned in
accordance with applicable plans and programs of the Company.
(b) No Mitigation; No Offset. In the event of any termination of
employment under this Section 3, the Executive shall be under no obligation to
seek other employment; amounts due the Executive under this Agreement shall not
be offset by any remuneration attributable to any subsequent employment that
he/she may obtain.
(c) Nature of Payments. Any amounts due under this Section 3 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
(d) Release of Employment Claims. The Executive agrees, as a condition
to receipt of the termination payments and benefits provided for in this Section
3, that he/she will execute a release agreement, in a form reasonably
satisfactory to the Company, releasing any and all claims arising out of the
Executive's employment (other than enforcement of this Agreement, the
Executive's rights under any of the Company's incentive compensation and
employee benefit plans and programs to which he/she is entitled under this
Agreement, and any claim for any tort for personal injury not arising out of or
related to his/her termination of employment).
4. Confidentiality; Cooperation with Regard to Litigation.
(a) During the Term and thereafter, the Executive shall not, without
the prior written consent of the Company, disclose to anyone except in good
faith in the ordinary course of business to a person who will be advised by the
Executive to keep such information confidential or make use of any Confidential
Information, except when required to do so by legal process, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) that requires
him/her to divulge, disclose or make accessible such information. In the event
that
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<PAGE>
the Executive is so ordered, he/she shall give prompt written notice to the
Company in order to allow the Company the opportunity to object to or otherwise
resist such order.
(b) During the Term and thereafter, Executive shall not disclose the
existence or contents of this Agreement beyond what is disclosed in the proxy
statement or documents filed with the government unless and to the extent such
disclosure is required by law, by a governmental agency, or in a document
required by law to be filed with a governmental agency or in connection with
enforcement of his/her rights under this Agreement. In the event that disclosure
is so required, the Executive shall give prompt written notice to the Company in
order to allow the Company the opportunity to object to or otherwise resist such
requirement. This restriction shall not apply to such disclosure by him/her to
members of his/her immediate family, his/her tax, legal or financial advisors,
any lender, or tax authorities, or to potential future employers to the extent
necessary, each of whom shall be advised not to disclose such information.
(c) "Confidential Information" shall mean all information that is not
known or available to the public concerning the business of the Company or any
Subsidiary relating to any of their products, product development, trade
secrets, customers, suppliers, finances, and business plans and strategies. For
this purpose, information known or available generally within the trade or
industry of the Company or any Subsidiary shall be deemed to be known or
available to the public. Confidential Information shall include information that
is, or becomes, known to the public as a result of a breach by the Executive of
the provisions of Section 4(a) above.
(d) "Subsidiary" shall mean any corporation controlled directly or
indirectly by the Company and any affiliate of the Company.
(e) The Executive agrees to cooperate with the Company, during the
Term and thereafter (including following the Executive's termination of
employment for any reason), by making himself available to testify on behalf of
the Company or any Subsidiary or affiliate of the Company, in any action, suit,
or proceeding, whether civil, criminal, administrative, or investigative, and to
assist the Company, or any Subsidiary or affiliate of the Company, in any such
action, suit, or proceeding, by providing information and meeting and consulting
with the Board or its representatives or counsel, or representatives or counsel
to the Company, or any Subsidiary or affiliate of the Company, as requested. The
Company agrees to reimburse the Executive, on an after-tax basis, for all
expenses actually incurred in connection with his/her provision of testimony or
assistance.
5. Remedies.
In addition to whatever other rights and remedies the Company may have
at equity or in law, if the Executive breaches any of the provisions contained
in Section 4 above, the Company (a) shall have the right to immediately
terminate all payments and benefits due under this Agreement and (b) shall have
the right to seek injunctive relief. The Executive acknowledges that such a
breach would cause irreparable injury and that money damages would not provide
an adequate remedy for the Company.
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<PAGE>
6. Resolution of Disputes.
Any disputes arising under or in connection with this Agreement, other
than seeking injunctive relief under Section 5, shall be resolved by binding
arbitration, to be held at an office closest to the Company's principal offices
in accordance with the rules and procedures of the American Arbitration
Association, except that disputes arising under or in connection with Section 4
above shall be submitted to the federal or state courts in the State of New
Jersey. Judgment upon the award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof. Pending the resolution of any arbitration
or court proceeding, the Company shall continue payment of all amounts and
benefits due the Executive under this Agreement. All reasonable costs and
expenses (including fees and disbursements of counsel) incurred by the Executive
in seeking to enforce rights pursuant to this Agreement shall be paid on behalf
of or reimbursed to the Executive promptly by the Company, whether or not the
Executive is successful in asserting such rights; provided, however, that no
reimbursement shall be made of such expenses relating to any unsuccessful
assertion of rights if and to the extent that the Executive's assertion of such
rights was in bad faith or frivolous.
7. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of
this Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which he/she currently participates.
8. Not an Employment Agreement.
This Agreement is not, and nothing herein shall be deemed to create, a
contract of employment between the Executive and the Company. The Company may
terminate the employment of the Executive at any time, subject to the terms of
any employment agreement between the Company and the Executive that may then be
in effect.
9. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and permitted assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred in connection with the sale or
transfer of all or substantially all of the assets of the Company, provided that
the assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale or transfer of assets as described in the preceding sentence, it
shall take whatever action it legally can in order to
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<PAGE>
cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
other than his/her rights to compensation and benefits, which may be transferred
only by will or operation of law, except as provided in Section 14 below.
10. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
11. Entire Agreement.
This Agreement contains the entire understanding and agreement between
the Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto.
12. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
13. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
14. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
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<PAGE>
15. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New Jersey without reference to principles of
conflict of laws, except insofar as the Delaware General Corporation Law,
federal laws and regulations may be applicable. Subject to Section 6, the
Company and the Executive hereby consent to the jurisdiction of any or all of
the following courts for purposes of resolving any dispute under this Agreement:
(i) the United States District Court for New Jersey, (ii) any of the courts of
the State of New Jersey, or (iii) any other court having jurisdiction. The
Company and the Executive further agree that any service of process or notice
requirements in any such proceeding shall be satisfied if the rules of such
court relating thereto have been substantially satisfied. The Company and the
Executive hereby waive, to the fullest extent permitted by applicable law, any
objection which it or he/she may now or hereafter have to such jurisdiction and
any defense of inconvenient forum.
16. Notices.
Any notice given to a Party shall be in writing and shall be deemed to
have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Footstar, Inc.
933 MacArthur Boulevard
Mahwah, New Jersey 07430
Attention: Secretary
If to the Executive: _________________________
_________________________
_________________________
17. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
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<PAGE>
18. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
FOOTSTAR, INC.
By: _____________________________
Name:
Title:
EXECUTIVE
_________________________________
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FOOTSTAR, INC.
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Deferred Compensation Plan
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<PAGE>
FOOTSTAR, INC.
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Deferred Compensation Plan
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Page
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1. Purposes.............................................................. 1
2. Definitions........................................................... 1
3. Administration........................................................ 2
4. Participation......................................................... 3
5. Deferrals............................................................. 3
6. Deferral Accounts..................................................... 4
7. Deferral of Certain Stock-Denominated Awards.......................... 5
8. Settlement of Deferral Accounts....................................... 6
9. Provisions Relating to Section 16 of the Exchange Act
and Section 162(m) of the Code........................................ 6
10. Statements............................................................ 7
11. Sources of Stock: Limitation on Amount of
Stock-Denominated Deferrals........................................... 7
12. Amendment/Termination................................................. 7
13. General Provisions.................................................... 7
14. Effective Date........................................................ 9
<PAGE>
FOOTSTAR, INC.
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Deferred Compensation Plan
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1. Purposes. The purposes of this Deferred Compensation Plan (the "Plan")
are to provide certain highly compensated employees of Footstar, Inc. (the
"Company") and its subsidiaries with the opportunity to elect to defer receipt
of specified portions of compensation and to have such deferred amounts treated
as if invested in specified investment vehicles.
2. Definitions. In addition to the terms defined in Section 1 above, the
following terms used in the Plan shall have the meanings set forth below:
(a) "Administrator" shall mean the Deferred Compensation Committee set
forth in Section 3(b) to whom the Committee has delegated the authority to take
action under the Plan, except as may be otherwise required under Section 9.
(b) "Beneficiary" shall mean any person (which may include trusts and
is not limited to one person) who has been designated by the Participant in his
or her most recent written beneficiary designation filed with the Company to
receive the benefits specified under the Plan in the event of the Participant's
death. If no Beneficiary has been designated who survives the Participant's
death, then Beneficiary means any person(s) entitled by will or, in the absence
thereof, the laws of descent and distribution to receive such benefits.
(c) "Change in Control" shall have the meaning given to such term in
the Footstar, Inc. 1996 Incentive Compensation Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation (including a proposed
regulation) thereunder shall include any successor provisions or regulations.
(e) "Committee" shall mean the Compensation Committee of the Board of
Directors of the Company or any other directors of the Company designated as the
Committee. Except as may be otherwise required under Section 9 or by applicable
law, any function of the Committee may be delegated to the Administrator.
(f) "Deferral Account" shall mean the account or subaccount
established and maintained by the Company for specified deferrals by a
Participant, as described in Sections 6 and 7. Deferral Accounts will be
maintained solely as bookkeeping entries by the Company to evidence unfunded
obligations of the Company.
(g) "Disability" shall have the meaning given to such term in the
Company's Long-Term Disability Plan.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act or rule thereunder
shall include any successor provisions or rules.
<PAGE>
(i) "Participant" shall mean any employee of the Company or any
subsidiary who is designated by the Committee as an eligible Participant in the
Plan and who participates or makes an election to participate in the Plan.
(j) "Retirement" shall mean a Participant's voluntary termination of
employment (i) at or after attaining age 60 or (ii) at or after attaining age
55, but prior to attaining age 60, if such termination is approved in advance by
the Committee.
(k) "Stock" shall mean Footstar, Inc. Common Stock, or any other
equity securities of the Company designated by the Committee.
(l) "Trust" shall mean any trust or trusts established by the Company
as part of the Plan; provided, however, that the assets of such trusts shall
remain subject to the claims of the general creditors of the Company.
(m) "Trustee" shall mean the trustee of a Trust.
(n) "Trust Agreement" shall mean the agreement entered into between
the Company and the Trustee to carry out the purposes of the Plan, as amended or
restated from time to time.
(o) "Valuation Date" shall mean the close of business on the last
business day of each calendar quarter; provided, however, that in the case of
termination of employment for reasons other than Retirement, death, or
Disability, the Valuation Date shall mean the close of business on the last
business day of the month in which employment terminates, and in the case of a
Change in Control of the Company, the Valuation Date shall be the date of such
Change in Control.
3. Administration.
(a) Authority. Both the Committee and the Administrator (subject to
the ability of the Committee to restrict the Administrator) shall administer the
Plan in accordance with its terms, and shall have all powers necessary to
accomplish such purpose, including the power and authority to construe and
interpret the Plan, to define the terms used herein, to prescribe, amend and
rescind rules and regulations, agreements, forms, and notices relating to the
administration of the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. Any actions of the Committee or
the Administrator with respect to the Plan shall be conclusive and binding upon
all persons interested in the Plan, except that any action of the Administrator
will not be binding on the Committee. The Committee and Administrator may each
appoint agents and delegate thereto powers and duties under the Plan, except as
otherwise limited by the Plan.
(b) Administrator. The Administrative Committee shall consist of such
number of members as shall be determined by the Committee, each of whom shall be
appointed by, shall remain in office at the will of, and may be removed, with or
without cause, by the Committee. Any member of the Administrative Committee may
resign at any time. No member of the Administrative Committee shall be entitled
to act on or decide any matter relating solely to himself or herself or any of
his or her rights or benefits under the Plan. The members of the Administrative
Committee shall not receive any special compensation for serving in their
capacities as members of the Administrative Committee but shall be reimbursed
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<PAGE>
for any reasonable expenses incurred in connection therewith. No bond or other
security need be required of the Administrative Committee or any member thereof
in any jurisdiction.
(c) Limitation of Liability. Each member of the Committee and the
Administrator shall be entitled to, in good faith, rely or act upon any report
or other information furnished to him or her by any officer or other employee of
the Company or any subsidiary, the Company's independent certified public
accountants, or any executive compensation consultant, legal counsel, or other
professional retained by the Company to assist in the administration of the
Plan. To the maximum extent permitted by law, no member of the Committee or the
Administrator, nor any person to whom ministerial duties have been delegated,
shall be liable to any person for any action taken or omitted in connection with
the interpretation and administration of the Plan.
4. Participation. The Administrator will notify each person of his or her
participation or eligibility to participate in the Plan not later than 15 days
(or such lesser period as may be practicable in the circumstances) prior to any
deadline for filing an election form.
5. Deferrals. To the extent authorized by the Committee, a Participant may
elect to defer compensation or awards which may be in the form of cash, Stock,
Stock-denominated awards or other property to be received from the Company or a
subsidiary, including salary, annual incentive award, long term award, shares
issuable on stock option exercise and compensation payable under other plans and
programs, employment agreements or other arrangements, or otherwise, as may be
provided under the terms of such plans, programs and arrangements or as
designated by the Committee; provided, however, that a Participant who is an
employee of the Company or a subsidiary may defer, with respect to a given year,
receipt of only that portion of the Participant's salary, annual incentive
award, long term award, shares issuable on stock option exercise and
compensation payable under other plans and programs, employment agreements or
other arrangements that exceeds the FICA maximum taxable wage base plus the
amount necessary to satisfy Medicare and all other payroll taxes (other than
Federal, state or local income tax withholding) imposed on the wages of such
Participant from the Company and its subsidiaries. In addition to such
limitation, and any terms and conditions of deferral set forth under plans,
programs or arrangements from which receipt of compensation or awards is
deferred, the Committee may impose limitations on the amounts permitted to be
deferred and other terms and conditions on deferrals under the Plan. Any such
limitations, and other terms and conditions of deferral, shall be set forth in
the rules relating to the Plan or election forms, other forms, or instructions
published by the Committee and/or the Administrator.
(a) Elections. Once an election form, properly completed, is received
by the Company, the elections of the Participant shall be irrevocable; provided,
however, that the Committee and/or the Administrator may, in its discretion,
permit a Participant to elect a further deferral of amounts credited to a
Deferral Account by filing a later election form; provided, further, that,
unless otherwise approved by the Committee, any election to further defer
amounts credited to a Deferral Account must be made at least one (1) year prior
to the date such amounts would otherwise be payable.
(b) Date of Election. An election to defer compensation or awards
hereunder must be received by the Administrator prior to the date specified by
the Administrator. Under no circumstances may a Participant defer compensation
or awards to which the Participant has
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<PAGE>
attained, at the time of deferral, a legally enforceable right to current
receipt of such compensation or awards.
6. Deferral Accounts. The following provisions will apply to Deferral
Accounts other than those established under Section 7:
(a) Establishment; Crediting of Amounts Deferred. One or more Deferral
Accounts will be established for each Participant, as determined by the
Administrator. The amount of compensation or awards deferred with respect to
each Deferral Account will be credited to such Account as of the date on which
such amounts would have been paid to the Participant but for the Participant's
election to defer receipt hereunder. The amounts of hypothetical income and
appreciation and depreciation in value of such account will be credited and
debited to, or otherwise reflected in, such Account from time to time. Unless
otherwise determined by the Administrator, cash amounts credited to a Deferral
Account shall be deemed invested in a hypothetical investment as of the date of
deferral.
(b) Hypothetical Investment Vehicles. Subject to the provisions of
Sections 6(c) and 9, amounts credited to a Deferral Account shall be deemed to
be invested, at the Participant's direction, in one or more investment vehicles
as may be specified from time to time by the Administrator. The Administrator
may change or discontinue any hypothetical investment vehicle available under
the Plan in its discretion; provided, however, that, subject to the authority of
the Administrator to disregard the directions of any Participant, each affected
Participant is given the opportunity, without limiting or otherwise impairing
any other right of such Participant regarding changes in investment directions,
to redirect the allocation of his or her Deferral Account deemed invested in the
discontinued investment vehicle among the other hypothetical investment
vehicles, including any replacement vehicle.
(c) Allocation and Reallocation of Hypothetical Investments. A
Participant may allocate amounts credited to his or her Deferral Account to one
or more of the hypothetical investment vehicles authorized under the Plan.
Subject to the rules established by the Administrator, a Participant may
reallocate amounts credited to his or her Deferral Account as of the Valuation
Date following the Participant's election to one or more of such hypothetical
investment vehicles, by filing with the Administrator a notice, in such form as
may be specified by the Administrator, not later than the 15th of the month
preceding such Valuation Date. The Committee or Administrator may, in its
discretion, restrict allocation into or reallocation by specified Participants
into or out of specified investment vehicles or specify minimum amounts that may
be allocated or reallocated by Participants.
(d) Trusts. The Committee may, in its discretion, establish one or
more Trusts (including sub-accounts under such Trusts), and deposit therein
amounts of cash, Stock, or other property not exceeding the amount of the
Company's obligations with respect to a Participant's Deferral Account
established under this Section 6. In such case, the amounts of hypothetical
income and appreciation and depreciation in value of such Deferral Account shall
be equal to the actual income on, and appreciation and depreciation of, the
assets in such Trusts. Other provisions of this Section 6 notwithstanding, the
timing of allocations and reallocations of assets in such a Deferral Account,
and the investment vehicles available with respect to such Deferral Account, may
be varied to reflect the timing of actual investments of the assets of such
Trust and the actual investments available to such Trust.
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<PAGE>
7. Deferral of Certain Stock-Denominated Awards.
(a) Establishment. Subject to any terms and conditions imposed by the
Committee, Participants may elect to defer, under the Plan, awards denominated
in Stock specified in Sections 7(d) or 7(e) or otherwise specified by the
Committee or Administrator. In connection with such deferral of a
Stock-denominated award, a Deferral Account shall be established for such
Participant and a Trust (including sub-accounts under such Trust) may also be
established, on terms determined by the Committee, into which the Company may
deposit a number of whole shares of Stock equal to the number of shares subject
to such deferred award. With respect to any fractional shares of Stock or
Stock-denominated awards, the Administrator, in its sole discretion, shall pay
such fractional shares to the Participant in cash or credit the Deferral Account
with cash in lieu of depositing fractional shares into the Deferral Account. In
such case, the amounts of hypothetical income and appreciation and depreciation
in value of such Deferral Account shall be equal to the actual income on, and
appreciation and depreciation of, the assets in the Trust.
(b) Investment of Trust Assets. The Trustee of each Trust, which shall
be a party not under the control of the Company, shall be authorized, upon
written instructions received from the Administrator or investment manager
appointed by the Administrator, to invest and reinvest the assets of the Trust
in accordance with the applicable Trust Agreement, including the disposition of
such Stock and reinvestment of the proceeds in one or more investment vehicles
designated by the Administrator; provided that, except as may be permitted under
Section 7(c), no such disposition shall be made until the date that the shares
of Stock subject to the deferred award are no longer subject to a risk of
forfeiture by the Participant.
(c) Cashless Exercise. If and to the extent permitted by the
Committee, and subject to such terms and conditions as may be established by the
Committee from time to time, a Participant may submit a request to the
Administrator to surrender (or constructively surrender) Stock allocated to his
or her Deferral Account to pay the purchase price of any stock options of the
Company granted to the Participant under another plan, program or arrangement.
(d) Annual Incentive Award/STEP Program. To the extent Participants
elect, in accordance with election forms approved by the Committee and/or
Administrator, (i) to defer receipt of amounts otherwise payable pursuant to any
annual incentive award and (ii) to have such amounts credited to the
Participant's Deferral Account hereunder in the form of Stock (a "STEP
Deferral"), the Company shall credit the Participant's Deferral Account with an
additional number of shares of Stock (a "STEP Premium") equal to 50% of the
number of shares constituting such STEP Deferral; provided, however, that the
number of shares of Stock constituting the STEP Premium shall be reduced to the
extent necessary so that the value of such shares on the crediting date is no
more than 25% of the Participant's total annual incentive award. The number of
shares of Stock constituting the STEP Premium (together with any appreciation
and dividends thereon) shall become vested and nonforfeitable only if the
Participant continues to be employed by the Company or a subsidiary, and the
related shares constituting the STEP Deferral remain credited to the
Participant's Deferral Account, until the earliest to occur of (i) expiration of
five years after such crediting, (ii) a Change in Control, or (iii) the
termination of the Participant's employment with the Company or a subsidiary due
to death, Disability, or Retirement. Shares of Stock constituting the STEP
Premium shall be forfeited in the event the preceding conditions are not
satisfied. Notwithstanding the foregoing, in the event of a Change in Control,
shares of Stock constituting the STEP Premium that have not previously been
forfeited shall automatically become 100% vested and nonforfeitable and shall
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<PAGE>
be distributed in accordance with the Plan. Shares credited to a Participant's
Deferral Account in connection with the STEP Deferral and STEP Premium shall be
deemed to be awards under the Footstar, Inc. 1996 Incentive Compensation Plan.
8. Settlement of Deferral Accounts.
(a) Form of Payment. The Company shall settle a Participant's Deferral
Account, and discharge all of its obligations to pay deferred compensation under
the Plan with respect to such Deferral Account, by payment of cash or, in the
discretion of the Committee, by delivery of other assets (including Stock)
having a fair market value equal to the amount credited to the Deferral Account.
(b) Forfeited Shares. To the extent that Stock (i) is deposited in a
Trust pursuant to Section 7 in connection with a deferral of Stock or a
Stock-denominated award under another plan, program, employment agreement or
other arrangement and (ii) is forfeited pursuant to the terms of such plan,
program, agreement or arrangement, the Participant shall not be entitled to the
value of such Stock and other property related thereto (including without
limitation, dividends and distributions thereon). Any Stock or Stock-denominated
awards and other property forfeited shall be returned to the Company.
(c) Timing of Payments. Payments in settlement of a Deferral Account
shall be made as soon as practicable after the date or dates (including upon the
occurrence of specified events), and in such number of installments, as may be
directed by the Participant in his or her election relating to such Deferral
Account, or earlier in the following circumstances:
(i) In the event of termination of employment for reasons other than
Retirement or Disability, a single lump sum payment in settlement of any
Deferral Account (including a Deferral Account with respect to which one or
more installment payments have previously been made) shall be made as
promptly as practicable following the next Valuation Date, unless otherwise
determined by the Administrator; or
(ii) In the event of a Change in Control, payments in settlement of
any Deferral Account (including a Deferral Account with respect to which
one or more installment payments have previously been made) shall be made
within fifteen (15) business days following such Change in Control.
(d) Financial Emergency and Other Payments. Other provisions of the
Plan (except Section 9) notwithstanding, if, upon the written application of a
Participant, the Committee determines that the Participant has a financial
emergency of such a substantial nature and beyond the individual's control that
payment of amounts previously deferred under the Plan is warranted, the
Committee may direct the payment to the Participant of all or a portion of the
balance of a Deferral Account and the time and manner of such payment.
9. Provisions Relating to Section 16 of the Exchange Act and Section
162(m) of the Code.
(a) Compliance with Section 16. With respect to a Participant who is
then subject to the reporting requirements of Section 16(a) of the Exchange Act,
the Committee and Administrator shall implement transactions under the Plan and
administer the Plan in a manner that will ensure that each transaction by such a
Participant is exempt from or otherwise not
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<PAGE>
subject to liability under Rule 16b-3, except that such a Participant may be
permitted to engage in a non-exempt transaction under the Plan if written notice
is given to the Participant regarding the non-exempt nature of such transaction.
(b) Compliance with Code Section 162(m). It is the intent of the
Company that any compensation (including any award) deferred under the Plan by a
person who is, with respect to the year of payout, deemed by the Committee to be
a "covered employee" within the meaning of Code Section 162(m) and regulations
thereunder, which compensation constitutes "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder, shall not, as a result of deferral hereunder, become compensation
with respect to which the Company in fact would not be entitled to a tax
deduction under Code Section 162(m). Accordingly, unless otherwise determined by
the Committee, if any compensation would become so disqualified under Section
162(m) as a result of deferral hereunder, the terms of such deferral shall be
automatically modified to the extent necessary to ensure that the compensation
would not, at the time of payout, be so disqualified.
10. Statements. The Administrator will furnish statements to each
Participant reflecting the amount credited to a Participant's Deferral Accounts
and transactions therein not less frequently than once each calendar year.
11. Sources of Stock: Limitation on Amount of Stock-Denominated Deferrals.
If Stock is deposited under the Plan in a Trust pursuant to Section 7 in
connection with a deferral of a Stock-denominated award under another plan,
program, employment agreement or other arrangement that provides for the
issuance of shares, the shares so deposited shall be deemed to have originated,
and shall be counted against the number of shares reserved, under such other
plan, program or arrangement. Stock actually delivered in settlement of Deferral
Accounts shall be originally issued shares or treasury shares, in the discretion
of the Committee.
12. Amendment/Termination. The Committee may, with prospective or
retroactive effect, amend, alter, suspend, discontinue, or terminate the Plan at
any time without the consent of Participants, stockholders, or any other person;
provided, however, that, without the consent of a Participant, no such action
shall materially and adversely affect the rights of such Participant with
respect to any rights to payment of amounts credited to such Participant's
Deferral Account. Notwithstanding the foregoing, the Committee may, in its sole
discretion, terminate the Plan (in whole or in part) and distribute to
Participants (in whole or in part) the amounts credited to their Deferral
Accounts.
13. General Provisions.
(a) Limits on Transfer of Awards. Other than by will or the laws of
descent and distribution, no right, title or interest of any kind in the Plan
shall be transferable or assignable by a Participant or his or her Beneficiary
or be subject to alienation, anticipation, encumbrance, garnishment, attachment,
levy, execution or other legal or equitable process, nor subject to the debts,
contracts, liabilities or engagements, or torts of any Participant or his or her
Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge, garnish,
attach or take any other action subject to legal or equitable process or
encumber or dispose of any interest in the Plan shall be void.
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(b) Receipt and Release. Payments (in any form) to any Participant or
Beneficiary in accordance with the provisions of the Plan shall, to the extent
thereof, be in full satisfaction of all claims for the compensation or awards
deferred and relating to the Deferral Account to which the payments relate
against the Company or any subsidiary thereof, the Committee, or the
Administrator, and the Administrator may require such Participant or
Beneficiary, as a condition to such payments, to execute a receipt and release
to such effect. In the case of any payment under the Plan of less than all
amounts then credited to an account in the form of Stock, the amounts paid shall
be deemed to relate to the Stock credited to the account at the earliest time.
(c) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for deferred compensation and
Participants shall rely solely on the unsecured promise of the Company for
payment hereunder. With respect to any payment not yet made to a Participant
under the Plan, nothing contained in the Plan shall give a Participant any
rights that are greater than those of a general unsecured creditor of the
Company; provided, however, that the Committee may authorize the creation of
Trusts, including but not limited to the Trusts referred to in Sections 6 and 7
hereof, or make other arrangements to meet the Company's obligations under the
Plan, which 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.
(d) Compliance. A Participant in the Plan shall have no right to
receive payment (in any form) with respect to his or her Deferral Account until
legal and contractual obligations of the Company relating to establishment of
the Plan and the making of such payments shall have been complied with in full.
In addition, the Company shall impose such restrictions on Stock delivered to a
Participant hereunder and any other interest constituting a security as it may
deem advisable in order to comply with the Securities Act of 1933, as amended,
the requirements of the New York Stock Exchange or any other stock exchange or
automated quotation system upon which the Stock is then listed or quoted, any
state securities laws applicable to such a transfer, any provision of the
Company's Certificate of Incorporation or Bylaws, or any other law, regulation,
or binding contract to which the Company is a party.
(e) Other Participant Rights. No Participant shall have any of the
rights or privileges of a stockholder of the Company under the Plan, including
as a result of the crediting of Stock equivalents or other amounts to a Deferral
Account, or the creation of any Trust and deposit of such Stock therein, except
at such time as Stock may be actually delivered in settlement of a Deferral
Account. No provision of the Plan or transaction hereunder shall confer upon any
Participant any right to be employed by the Company or a subsidiary thereof, or
to interfere in any way with the right of the Company or a subsidiary to
increase or decrease the amount of any compensation payable to such Participant.
Subject to the limitations set forth in Section 13(a) hereof, the Plan shall
inure to the benefit of, and be binding upon, the parties hereto and their
successors and assigns.
(f) Tax Withholding. The Company and any subsidiary shall have the
right to deduct from amounts otherwise payable in settlement of a Deferral
Account any sums that federal, state, local or foreign tax law requires to be
withheld with respect to such payment. Shares may be withheld to satisfy such
obligations in any case where taxation would be imposed upon the delivery of
shares, except that shares issued or delivered under any plan, program,
employment agreement or other arrangement may be withheld only in accordance
-8-
<PAGE>
with the terms of such plan, program, employment agreement or other arrangement
and any applicable rules, regulations, or resolutions thereunder.
(g) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws, and applicable provisions of federal law.
(h) Limitation. A Participant and his or her Beneficiary shall assume
all risk in connection with any decrease in value of the Deferral Account and
neither the Company, the Committee nor the Administrator shall be liable or
responsible therefor.
(i) Construction. The captions and numbers preceding the sections of
the Plan are included solely as a matter of convenience of reference and are not
to be taken as limiting or extending the meaning of any of the terms and
provisions of the Plan. Whenever appropriate, words used in the singular shall
include the plural or the plural may be read as the singular.
(j) Severability. In the event that any provision of the Plan shall be
declared illegal or invalid for any reason, said illegality or invalidity shall
not affect the remaining provisions of the Plan but shall be fully severable,
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been inserted herein.
(k) Status. The establishment and maintenance of, or allocations and
credits to, the Deferral Account of any Participant shall not vest in any
Participant any right, title or interest in and to any Plan assets or benefits
except at the time or times and upon the terms and conditions and to the extent
expressly set forth in the Plan and in accordance with the terms of the Trust.
14. Effective Date. The Plan shall be effective as of October 8, 1996.
-9-
SUPPLEMENTAL RETIREMENT PLAN FOR
SELECT SENIOR MANAGEMENT OF
FOOTSTAR, INC.
Effective October 14, 1996
<PAGE>
SUPPLEMENTAL RETIREMENT PLAN FOR
SELECT SENIOR MANAGEMENT OF
FOOTSTAR, INC.
TABLE OF CONTENTS
Page
----
ARTICLE 1. Definitions .............................................. 1
ARTICLE 2. Membership ............................................... 13
ARTICLE 3. Amount and Payment of Supplemental Benefits .............. 14
ARTICLE 4. Administration ........................................... 19
ARTICLE 5. Member Obligations ....................................... 20
ARTICLE 5. General Provisions ....................................... 24
ARTICLE 6. Amendment or Termination ................................. 26
<PAGE>
SUPPLEMENTAL RETIREMENT PLAN FOR
SELECT SENIOR MANAGEMENT OF
FOOTSTAR, INC.
ARTICLE 1. DEFINITIONS
1.01 "Annual Benefit"
(a) "Annual Benefit" shall mean, subject to clauses (b) and (c) below, the
amount by which the product of (x) 2% times (y) the Member's Years of
Service times (z) such Member's Compensation exceeds the sum of (i) and
(ii) where
(i) equals the aggregate annualized value of any retirement and deferred
profit sharing benefits in respect of such Member (excluding the value
of any benefits attributable to pre-tax or after-tax contributions
made by or on behalf of the Member) which have previously been
received or which such Member or any other person has a vested right
to receive at the time of the commencement of payment of such Member's
benefit under Section 3.04 of the Plan, under any arrangement
maintained by the Corporation other than the Plan (including any
arrangement which constitutes a qualified plan under Section 401 of
the Internal Revenue Code of 1986, as amended) computed pursuant to
clause (d) below, and
(ii) equals the Annual Benefit used in computing any lump sum payment
previously made pursuant to Section 3.04 to such a Member becoming
entitled to a recomputation of the Annual Benefit pursuant to Section
3.05.
(b) In the case of any Member whose retirement allowance under Section 3.04 of
the Plan commences to be paid on or after his reaching age 55 years but
prior to his reaching age 60 years, such Member's Annual Benefit determined
<PAGE>
Page 2
under clause (a) above shall be reduced by that percentage which is the
product of 4 times the number of whole and partial years (treating a
partial year as a whole year) until such Member's 60th birthday so that,
for example, the Annual Benefit for a Member age 58-1/2 years would be
reduced by 8%.
(c) Notwithstanding the foregoing, the Annual Benefit computed under this
Section 1.01 shall not be more than 50% of the Member's Compensation.
(d) The annualized value of a Member's retirement shall be computed as follows:
(i) with respect to any benefit which such Member is thereupon commencing
to receive at the time of such computation in the form of an annuity,
the annual payment to which such Member would be entitled under the
terms of the plan under which such benefit is to be paid were such
benefit to be paid in the form of a single life annuity for the
Member's life, or
(ii) with respect to any other benefit, the annual amount of the actuarial
equivalent of such benefit computed as if such benefit were to be paid
in the form of a single life annuity to such Member commencing at the
time of such computation. In computing such actuarial equivalents, the
actuarial assumptions to be used shall be (A) the 1983 Group Annuity
Mortality Table and (B) an interest rate assumption equal to the
applicable interest rate (expressed as a percentage) used by the
Pension Benefit Guaranty Corporation for valuing benefits for single
employer plans that terminate on the date of such calculation, minus
.5%.
<PAGE>
Page 3
1.02 "Beneficiary" shall mean the person named by the Member (i) at the time
payments to the Member commence under the Plan or (ii) in the case of
benefits payable under Section 3.03, at the time of the Member's death, by
written designation filed with the Retirement Administration Committee, to
receive payments after the Member's death. In the absence of a beneficiary
designation, the Participant's Beneficiary for purposes of Section 3.03
shall be his spouse, if any, or his estate.
1.03 "Board" shall mean the Board of Directors of Footstar, Inc.
1.04 "Cause" shall mean, in connection with an involuntary termination by the
Corporation of a Member's employment, (a) the Member's willful and material
breach of Article 5 of this Plan; (b) the Member is convicted of a felony
involving moral turpitude; or (c) the Member engages in conduct that
constitutes willful gross neglect or willful gross misconduct in carrying
out his duties under this Plan, resulting, in either case, in material harm
to the financial condition or reputation of Footstar. For purposes of this
Plan, an act or failure to act on Member's part shall be considered
"willful" if it was done or omitted to be done by him not in good faith,
and shall not include any act or failure to act resulting from any
incapacity of a Member. A termination for Cause shall not take effect
unless the following provisions are complied with. The Member shall be
given written notice by Footstar of its intention to terminate him for
Cause, such notice (A) to state in detail the particular act or acts or
failure or failures to act that constitute the grounds on which the
proposed termination for Cause is based and (B) to be given within 90 days
of Footstar's learning of such act or acts or failure or failures to act.
The Member shall have 10 days after the date that such written notice has
<PAGE>
Page 4
been given to him in which to cure such conduct, to the extent such cure is
possible. If he fails to cure such conduct, the Member shall then be
entitled to a hearing before the Committee at which the Member is entitled
to appear. Such hearing shall be held within 15 days of such notice to the
Member, provided he requests such hearing within 10 days of the written
notice from Footstar of the intention to terminate him for Cause. If,
within five days following such hearing, the Member is furnished written
notice by the Board confirming that, in its judgment, grounds for Cause on
the basis of the original notice exist, he shall thereupon be terminated
for Cause.
1.05 "Change in Control" shall mean any of the following occurrences:
(a) An acquisition by any Person of Beneficial Ownership of the shares of
common stock of Footstar then outstanding (the "Footstar Common Stock
Outstanding") or the voting securities of Footstar then outstanding
entitled to vote generally in the election of directors (the "Footstar
Voting Securities Outstanding"), if such acquisition of Beneficial
Ownership results in the Person's Beneficially Owning 25% or more of
Footstar Common Stock Outstanding or 25% or more of the combined voting
power of Footstar Voting Securities Outstanding; or
(b) The approval by the stockholders of Footstar of a reorganization, merger,
consolidation, complete liquidation or dissolution of Footstar, the sale or
disposition of all or substantially all of the assets of Footstar or
similar corporate transaction (in each case referred to in this Section
1.05 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
<PAGE>
Page 5
merger, consolidation, sale, disposition or other similar transaction to or
with a Member or entities controlled by a Member shall not constitute a
Corporate Transaction; or
(c) 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 1.05, that any individual who becomes a member of the Board
subsequent to the Effective Date whose election, or nomination for election
by Footstar'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 Rule 14a-11 of
Regulation 14A 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 Incumber Board.
(d) Notwithstanding the provisions set forth in subparagraphs (a) and (b) of
this Section 1.05, the following shall not constitute a Change in Control
for purposes of this Agreement; (1) any acquisition by or consummation of a
Corporate Transaction with any entity that was a subsidiary of Footstar
immediately prior to the transaction or an employee benefit plan (or
related trust) sponsored or maintained by Footstar or an entity that was a
subsidiary of Footstar 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
<PAGE>
Page 6
controlled Footstar 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 Footstar Common Stock Outstanding and Footstar 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
Footstar Common Stock Outstanding and Footstar Voting Securities
Outstanding, as the case may be.
(e) For purposes of this definition:
(i) The terms "Beneficial Ownership", "Beneficial Owning",
"Beneficially Owned" and "Beneficial Owners" shall have the meanings
ascribed to such terms in Rule 13d-3 under the Exchange Act (including any
successor to such Rule).
(ii) The term "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor act thereto.
(iii) The term "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, including "group" as defined in Section 13(d) thereof.
<PAGE>
1.06 "Committee" shall mean the Compensation Committee of the Board.
1.07 "Compensation" shall mean the highest average three consecutive years of a
Member's annual base pay rate plus the Member's Serp Incentive Target
during the 10 years preceding such Member's Compensation Measurement Date.
A Member's Compensation Measurement Date shall be the date on which such
Member terminates employment with the Corporation for any reason, including
retirement, death or disability, unless using the date of a Change in
Control as of which such Member was a Member would result in a higher
amount in which case the date of such Change in Control shall be such
Member's Compensation Measurement Date.
1.08 "Corporation" shall mean Footstar and any subsidiary or other entity at any
time at which 50% or more of the voting power or beneficial interest of
such subsidiary or other entity, is owned directly or indirectly by
Footstar. References in the Plan to Footstar shall be deemed to include
successors to Footstar.
1.09 "Eligible Executive" shall mean an employee of the Corporation who occupies
a position of senior management with the Corporation and who has been
listed on Appendix A as amended from time to time by the Committee.
1.10 "Good Reason" means any of the following which occur after the occurrence
of a Change in Control without the express written consent of the affected
Member: (a) an assignment of any duties to Executive which are inconsistent
with his status as a senior executive of Footstar; (b) any decrease in
<PAGE>
Page 8
annual base pay or any reduction in annual target incentive compensation
opportunity; (c) any other failure by Footstar to perform any material
obligation under, or breach by Footstar of any material provision of an
employment agreement with the Member that is not cured within 30 days; or
(d) any failure to secure the agreement of any successor corporation or
other entity to the Company to fully assume Footstar's obligations under an
employment agreement with the Member. In addition, following a Change in
Control, "Good Reason" shall also mean a termination of the Member's
employment at his initiative following the occurrence, without the Member's
written consent, of a relocation of his principal place of employment
outside a 35-mile radius of his principal place of employment as in effect
immediately prior to such Change in Control.
1.11 "Lump Sum Benefit" shall mean
(a) with respect to a Member to whom payment of benefits under Section 3.04 has
not commenced or, if previously commenced, has been discontinued pursuant
to Section 3.05, and who has made no election under Section 3.04 or has
elected a form of benefit under Section 3.04 making no provision for a
Beneficiary, the lump sum actuarial equivalent of a single life annuity for
the Member commencing at the date as of which such Member would have had 10
years of Service assuming no termination of employment with the Corporation
following a Change in Control, but not prior to such Member's attaining age
60, (the "Presumed Starting Date"), under which annuity the annual payment
is equal to the Projected Annual Benefit times a fraction, the numerator of
which is such Member's actual years of Service as of such Member's
Termination of Employment (but not more than 10) and the denominator of
which is 10,
<PAGE>
Page 9
(b) with respect to (i) a Member to whom payment of benefits under Section 3.04
has not commenced or, if previously commenced, has been discontinued
pursuant to Section 3.05 and who has elected an optional form of benefit
under Section 3.04 making provision for a Beneficiary and (ii) the
Beneficiary of such Member, the lump sum actuarial equivalent of that part
of the benefit described in clause (a) to be paid to such Member, or to
such Beneficiary, respectively, pursuant to the optional form of benefit
elected by such Member under Section 3.04, or
(c) with respect to (i) a Beneficiary to whom payment of benefits under Section
3.03 has commenced, (ii) a Member to whom payment of benefits under Section
3.04 has commenced and has not been discontinued pursuant to Section 3.05
and (iii) the Beneficiary of such a Member, the lump sum actuarial
equivalent of all future benefits, if any, payable to such Member or to
such Beneficiary, as the case may be, under the Plan.
The amount of such actuarial equivalents computed under this Section 1.09
shall be determined by the Committee with sole discretion using the
actuarial assumptions described in Section 1.01(d).
1.12 "Member" shall mean any person included in the membership of the Plan as
provided in Article 2.
<PAGE>
Page 10
1.13 "Plan" shall mean the Supplemental Retirement Plan for Select Senior
Management of Footstar, Inc., as described herein or as hereafter amended.
1.14 "Projected Annual Benefit" shall mean
(a) with respect to a Member of the Plan at the time of a Change in Control
to whom payment of benefits under Section 3.04 has not commenced, the
amount by which the product of (x) 2% times (y) the Member's Years of
Service times (z) such Member's Compensation exceeds the sum of
(i) the aggregate annualized value of any retirement and deferred profit
sharing benefits in respect of such Member (excluding the value of any
benefits attributable to pre-tax or after-tax contributions made by or
on behalf of a Member) which have previously been received or which
such Member or any other person has a vested right to receive at the
time of such Member's termination of employment under any arrangement
maintained by the Corporation, other than the Plan (including any
arrangement which constitutes a qualified plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended) computed in the manner
described in Section 1.01(d), assuming payment of such benefits will
commence at such Member's Presumed Starting Date, as defined in
Section 1.11(a),
(ii) the Projected Annual Benefit used in computing any Lump Sum Benefit
payment previously made to such Member pursuant to Section 3.06, and
(iii)the Annual Benefit used in computing any lump sum payment previously
made to such Member pursuant to Section 3.05; or
<PAGE>
Page 11
(b) with respect to a Member of the Plan at the time of a Change in Control to
whom payment of benefits under Section 3.04 has previously commenced but
who has been restored to employment with the Corporation, the amount
computed pursuant to (a) above, but in no event less than such Member's
Annual Benefit computed pursuant to Section 3.05 as if such Member had then
terminated employment with the Corporation.
1.15 "Retiree" shall mean a Member who has 10 or more years of Service and
terminates employment with the Corporation at or after age 55 for any
reason, including disability but excluding a termination for Cause or by
reason of death, provided, however, that if such Member shall be eligible
upon such termination of employment to commence to receive payments under a
defined benefit retirement plan in which he is a participant, if any, he
shall not be a Retiree unless he commences to receive such payments upon
such termination of employment.
1.16 "Retirement Administration Committee" shall mean the Committee of the
Starfund 401(k) Profit Sharing Plan of Footstar, Inc. and Affiliated
Companies.
1.17 "Serp Incentive Target" shall mean the Member's full target annual
incentive compensation award as last in effect immediately prior to such
Member's Compensation Measurement Date (as defined in Section 1.07).
1.18 "Service" shall mean with respect to a Member the sum of (a) the period of
such Member's active employment with the Corporation, as an Eligible
Executive, excluding, unless otherwise provided by the Committee, any
<PAGE>
Page 12
period during which the Member (i) was engaged as a consultant or (ii)
received salary continuance or severance payments and (b) any Service
credited to such Member by the Committee pursuant to Article 4. A "Year of
Service" shall mean a period of 12 consecutive months of Service.
1.19 "Termination of Employment" shall mean (a) termination by the Corporation
of a Member's employment with the Corporation for any reason other than
Cause and (b) any voluntary termination by the Member of a Member's
employment with the Corporation for Good Reason, which in each case occurs
coincident with or within the twenty-four (24) month period immediately
following the occurrence of a Change in Control.
<PAGE>
Page 13
ARTICLE 2. MEMBERSHIP
2.01 Every Eligible Executive in the employ of the Corporation on October 14,
1996 shall become a Member of the Plan on October 14, 1996.
2.02 Any other employee of the Corporation who becomes an Eligible Executive
shall on such date become a Member of the Plan.
2.03 Any Member who becomes a Retiree shall continue to be a Member of the Plan
until the later of (a) the termination of his employment and (b) the
payment of all benefits in respect of such Retiree under the Plan.
2.04 The membership under the Plan of an Eligible Executive who is not a Retiree
shall terminate if his employment with the Corporation as an Eligible
Executive terminates unless at the time of such termination, or within 60
days thereafter, he becomes a Retiree or within 60 days thereafter, he
becomes a Retiree, or unless upon such termination he continues to be
entitled to a benefit hereunder pursuant to Section 3.06, in which event
his membership shall cease upon the payment of all Plan benefits.
2.05 A Member whose membership in the Plan terminates pursuant to Section 2.03
or Section 2.04 shall be restored to membership in the Plan at such time as
he is restored to employment as an Eligible Executive of the Corporation.
<PAGE>
Page 14
ARTICLE 3. AMOUNT AND PAYMENT OF SUPPLEMENTAL BENEFITS
3.01 Except as provided in Section 3.06, benefits under this Article 3 shall be
payable by the Corporation only with respect to Members who are Retirees or
become Retirees or, as provided in Section 3.03, to Beneficiaries.
3.02 Except as provided in Section 3.06, a Retiree shall be entitled to
commencement of payment of benefits hereunder pursuant to Section 3.04 upon
the first of the month following his termination of employment with the
Corporation.
3.03 (a) In the event that a Member dies, after attaining age 55 with at least
10 years of service, prior to becoming a Retiree, or dies after becoming a
Retiree but prior to commencing to receive payments hereunder pursuant to
Section 3.04, his Beneficiary shall be entitled to the immediate
commencement of a single life annuity, with an annual payment equal to
one-half of the Annual Benefit, if any, computed under Section 1.01,
including any reduction under subsection (b) thereof, if applicable, for
such Member as if the Member was a Retiree and had commenced to receive
payment of benefits under Section 3.04 immediately prior to his death. In
the event the age difference between the Member and his Beneficiary is
greater than 5 years, the benefit payable pursuant to this Section 3.03
shall be actuarially adjusted to reflect the differences in the life
expectancy of the Participant and the Beneficiary.
<PAGE>
Page 15
Notwithstanding any Plan provisions to the contrary, in the event the
Participant's Beneficiary is his estate, the benefit otherwise payable
under this Section 3.03 shall be commuted into a single lump sum amount of
actuarial equivalent value, which amount shall be determined by assuming
the Beneficiary had been a person of the same age as the Member at the
Member's date of death. The amount of such actuarial equivalents computed
under this Section 3.03 shall be determined by the Committee with sole
discretion using the actuarial assumptions described in Section 1.01(d).
(b) In the event that a Member dies at a time when no benefit is payable
under Section 3.03(a), but such Member is survived by a spouse, such
surviving spouse shall receive a benefit calculated as if Section 3.03(a)
applies and such surviving spouse is the Member's beneficiary. In the event
such Member is not survived by a spouse but is survived by an eligible
child or eligible children, then the benefit that would have been paid to a
surviving spouse shall be paid to the eligible child, or, if more than one,
in equal shares to such eligible children with payments to any such child
ceasing when such child attains the age of 21 or dies, if earlier. For
purposes of this Section 3.03(b), eligible child shall mean a child of a
Member so long as such child has not attained age 21, including a child
legally adopted by a Member prior to the Member's death.
3.04 Except as provided in Section 3.06 and subject to the next succeeding
sentence, the benefit payable under the Plan to a Retiree shall be a single
life annuity for the life of the Retiree, with annual payments equal to the
Annual Benefit computed under Section 1.01 for such Member at the time of
the commencement of payment of benefits under this Section 3.04. A Member
<PAGE>
Page 16
may make an irrevocable election in writing filed with the Retirement
Administration Committee at least 12 months prior to the date of the
commencement of benefits hereunder requesting to receive such benefits (a)
in a joint and survivor annuity form which provides a reduced benefit
payable to the Member during his life, and after his death providing that
100% or 50% of the reduced benefit will continue to be paid during the life
of and to his Beneficiary or (b) in a lump sum; provided, however, that a
Member may not elect an optional form of benefit providing for a deferred
commencement date. Any such optional form of benefit or lump sum shall be
the actuarial equivalent of such single life annuity using the actuarial
assumptions described in Section 1.01(c) and shall be subject to the
approval of the Committee.
3.05 If a Retiree who has terminated employment with the Corporation is restored
to employment after commencing to receive payments under Section 3.04 of
the Plan, the payment of benefits under the Plan shall be discontinued
(unless all such benefits have been previously paid in a lump sum) and,
upon such Member's subsequent termination of employment with the
Corporation for any reason, including retirement, death or disability, the
Member's Annual Benefit under the Plan shall thereafter be recomputed in
accordance with Section 1.01, Section 3.03 or Section 3.04, as applicable,
and shall be payable in accordance with the provisions of the Plan,
provided, however, that such recomputation shall be based upon the higher
of (i) such Member's Compensation at the time of such previous termination
<PAGE>
Page 17
of employment and (ii) such Member's Compensation at the time of such
subsequent termination of employment.
3.06 Notwithstanding the provisions of Section 3.01 and Section 3.02, if a
Change in Control occurs
(a) each Member who is then a Retiree and each Beneficiary entitled to benefits
under Section 3.03 or Section 3.04 shall be entitled to receive an
immediate payment in cash of such Retiree's or such Beneficiary's Lump Sum
Benefit,
(b) Each Member at the time of such Change in Control who experiences a
Termination of Employment, each Beneficiary of such a Member who has
elected an optional form of benefit under Section 3.04 making a provision
for such Beneficiary, and each Beneficiary of a Member at the time of such
Change in Control who dies within 2 years following such Change in Control
without having received a Lump Sum Benefit, shall, upon such Termination of
Employment or death, as the case may be, be entitled to receive an
immediate payment in cash of such Member's, or such Beneficiary's Lump Sum
Benefit.
(c) Each Member at the time of such Change in Control who neither dies within 2
years following such Change in Control nor experiences a Termination of
Employment shall, upon such Member's later termination of employment with
the Corporation for any reason other than Cause or death, without becoming
a Retiree and, with respect to each such Member who later dies, the
Beneficiary of such Member if such Beneficiary is not otherwise entitled to
a benefit under Section 3.03, shall nevertheless be entitled to a Benefit
commencing at the Presumed Starting Date in the form specified in Section
<PAGE>
Page 18
3.04 or Section 3.03, as the case may be, provided that in computing such
benefit there shall be substituted for the term Annual Benefit in Section
3.04 or Section 3.03, as the case may be, the following: the Projected
Annual Benefit times a fraction, the numerator of which is such Member's
years of Service as of such Change in Control (but not more than 10) and
the denominator of which is 10.
<PAGE>
Page 19
ARTICLE 4. ADMINISTRATION
4.01 The Committee shall select which employees who occupy a position of senior
management with the Corporation shall be designated as an Eligible
Executive.
4.02 The Committee shall have discretion to grant credit for Service to any
Eligible Executive.
4.03 Except as provided in Section 6.01 and 6.02, the administration of the
Plan, the exclusive power to interpret it, and the responsibility for
carrying out its provisions are vested in the Retirement Administration
Committee.
4.04 The provisions of Article VIII of the Starfund 401(k) Profit Sharing Plan
of Footstar, Inc. and Affiliated Companies concerning Retirement
Administration Committee membership, meetings, maintenance of records and
Retirement Administration Committee powers shall apply under the Plan. The
expenses of the Retirement Administration Committee incurred in connection
with the Plan shall be paid directly by the Corporation.
<PAGE>
Page 20
ARTICLE 5. MEMBER OBLIGATIONS
5.01 Confidentiality; Cooperation with Regard to Litigation
(a) During a Member's employment with Footstar and thereafter, the Member shall
not, without the prior written consent of Footstar, disclose to anyone
except in good faith in the ordinary course of business to a person who
will be advised by the Member to keep such information confidential or make
use of any Confidential Information, except when required to do so by legal
process, by any governmental agency having supervisory authority over the
business of Footstar or by any administrative or legislative body
(including a committee thereof) that requires him to divulge, disclose or
make accessible such information. In the event that the Member is so
ordered, he shall give prompt written notice to Footstar in order to allow
Footstar the opportunity to object to or otherwise resist such order.
(b) "Confidential Information" shall mean all information that is not known or
available to the public concerning the business of Footstar or any
Subsidiary relating to any of their products, product development, trade
secrets, customers, suppliers, finances, and business plans and strategies.
For this purpose, information known or available generally within the trade
or industry of Footstar or any Subsidiary shall be deemed to be known or
available to the public. Confidential Information shall include information
that is, or becomes, known to the public as a result of a breach by the
Executive of the provisions of Section 5.01(a) above.
(c) "Subsidiary" shall mean any corporation controlled directly or indirectly
by Footstar and any affiliate of Footstar.
<PAGE>
Page 21
(d) The Member agrees to cooperate with Footstar, (including following the
Member's termination of employment for any reason), by making himself
available to testify on behalf of Footstar or any Subsidiary or affiliate
of Footstar, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist Footstar, or any Subsidiary
or affiliate of Footstar, in any such action, suit, or proceeding, by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to Footstar, or
any Subsidiary or affiliate of Footstar, as requested. Footstar agrees to
reimburse the Member, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
5.02 Non-competition.
(a) During the Restriction Period (as defined in Section 5.02(b) below), the
Member shall not engage in Competition with Footstar, or any Subsidiary.
"Competition" shall mean engaging in any activity, except as provided
below, for a Competitor of Footstar or any Subsidiary, whether as an
employee, consultant, principal, agent, officer, director, partner,
shareholder (except as a less than one percent shareholder of a publicly
trade company) or otherwise. A "Competitor" shall mean those companies
designated by Footstar and communicated to the Member (in an Employment
Agreement, Change in Control Agreement or otherwise) and any successor or
successors thereto) or (ii) the portion of any other corporation or other
entity or start-up corporation or entity that is engaged in the Discount
Retail Footwear Business within fifty (50) miles of any Discount Retail
Footwear Business outlet in the United States of Footstar or any
Subsidiary, provided that a corporation or entity described in clause (ii)
above shall not be deemed to be a Competitor if the Member shall not either
directly or indirectly oversee or manage the activities of
<PAGE>
Page 22
such corporation or entity's division or unit engaged in the Discount
Retail Footwear Business. If the Member commences employment or becomes a
consultant, principal, agent, officer, director, partner, or shareholder of
any entity that is not a Competitor at the time the Member initially
becomes employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of any entity, future activities of such
entity shall not result in a violation of this provision unless (x) such
activities were contemplated at the time the Member initially became
employed or becomes a consultant, principal, agent, officer, director,
partner, or shareholder of the entity (and the contemplation of such
activities was known to the Member) or (y) the Member commences directly or
indirectly overseeing or managing the activities of Footstar or Subsidiary
so long as he does not regularly participate in discussions with regard to
the competing business. For purposes of the foregoing, "Discount Retail
Footwear Business" shall mean a group of four or more stores which
primarily sells discount footwear.
(b) For the purposes of this Section 5.02 and Section 5.03 below, "Restriction
Period" shall mean the period beginning with the Member's initial date of
employment by Footstar and ending the date of a Change in Control except
that if the Member has an Employment Agreement with Footstar it shall have
the meaning contained in such employment agreement.
5.03 Non-solicitation of Employees.
During the portion of the Restriction Period following the termination of
the Member's employment, the Member shall not induce employees of Footstar
or any Subsidiary to terminate their employment. During the portion of the
Restriction Period following the termination of the Member's employment,
the Member shall not directly or indirectly hire any employee of Footstar
<PAGE>
Page 23
or any Subsidiary or any person who was employed by Footstar or any
Subsidiary within 180 days of such hiring.
<PAGE>
Page 24
ARTICLE 6. GENERAL PROVISIONS
6.01 The establishment of the Plan shall not be construed as conferring any
legal rights upon any Eligible Executive or other person for a continuation
of employment, nor shall such actions interfere with the rights of the
Corporation to discharge or demote any Eligible Executive and to treat him
without regard to the effect which such treatment might have upon him as a
Member of the Plan.
6.02 In the event that the Retirement Administration Committee shall find that a
Member is unable to care for his affairs because of illness or accident,
the Retirement Administration Committee may direct that any benefit payment
due him, unless claim shall have been made therefor by a duly appointed
legal representative, be paid to his spouse, a child, a parent or other
blood relative, or to a person with whom he resides, and any such payment
so made shall be a complete discharge of the liabilities of the Plan
therefor.
6.03 The Corporation shall have the right to deduct from each payment to be made
under the Plan any required withholding taxes.
6.04 Subject to any applicable law, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt so to do shall be void, nor
shall any such benefit be in any manner liable for or subject to the debts,
contracts, liabilities, engagements or torts of the Retiree or the Member.
<PAGE>
Page 25
6.05 Notwithstanding any other provision of the Plan to the contrary, in the
event that a Member or Retiree shall at any time violate the provisions of
Article 5 or be convicted of a crime involving dishonesty or fraud on the
part of such Member in his relationship with the Corporation, all benefits
which would otherwise be payable to him under the Plan shall be forfeited.
6.06 The rights of any Member or Retiree to benefits under the Plan prior to the
actual receipt of such benefits shall be limited to those of a general
unsecured creditor of the Corporation.
6.07 The Plan shall be construed, regulated and administered under the laws of
the State of New Jersey to the extent such laws are not superseded by
applicable federal law.
6.08 The masculine pronoun shall mean the feminine wherever appropriate.
<PAGE>
Page 26
ARTICLE 7 AMENDMENT OR TERMINATION
The Committee reserves the right to modify or to amend, in whole or in part, or
to terminate, this Supplemental Retirement Plan for Select Senior Management of
Footstar, Inc. at any time; provided, however, that no such modification,
amendment or termination shall adversely affect the right of any Member (or the
Beneficiary of such Member) to receive the benefits such Member (or the
Beneficiary of such Member) should have received under the Plan upon termination
of employment with the Corporation for any reason, including retirement, death
or disability had the Plan not been so modified, amended or terminated, taking
into account such Member's Service and age at the time of such Member's actual
termination of employment with the Corporation for any reason, including
retirement, death or disability.
<PAGE>
Appendix A
----------
Carlos Alberini
Charles Albert
Joseph Caracappa
James De Veau
Glenn Mathieu
Ralph Parks
Randall Proffitt
Maureen Richards
Donald Roach
J.M. Robinson
Jeff Shepard
Financial Review
Management's Discussion and 18
Analysis of Financial Condition
and Results of Operations
Independent Auditors' Report 22
Consolidated Statements 23
of Operations
Consolidated Balance Sheets 24
Consolidated Statements 25
of Shareholders' Equity
Consolidated Statements 26
of Cash Flows
Notes to Consolidated 27
Financial Statements
Summary of Quarterly Results 36
Five-Year Financial 37
Summary
Directors and Officers 38
17
<PAGE>
Footstar, Inc. and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the Company's
historical Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report. Except as otherwise indicated, all dollar
amounts herein are stated in millions.
The "Spin-Off"
Footstar, Inc. (the "Company") became an independent company after the Board of
Directors of Melville Corporation ("Melville") approved the spin-off of its
footwear operations. These businesses were comprised of Meldisco, a leading
operator of leased footwear departments nationwide and abroad; Footaction, a
mall-based branded athletic footwear and apparel chain; and Thom McAn which has
been reported as discontinued operations. The spin-off was completed with the
distribution (the "Distribution") on October 12, 1996, to Melville shareholders
of record on October 2, 1996, of all the shares of the Company. The Distribution
was made on the basis of .2879 shares of the Company's common stock for every
one share of Melville Corporation common stock. A total of 30,533,883 shares of
the Company's common stock was issued and began trading on the New York Stock
Exchange on a when-issued basis on September 25, 1996.
General
Prior to the Distribution date, Meldisco, Footaction and Thom McAn each operated
as a separate division of Melville. On June 3, 1996, Melville announced the
discontinuance of the Thom McAn segment. Accordingly, the results of operations
for the Thom McAn segment have been classified as discontinued operations for
all periods presented. In connection with the discontinuation of Thom McAn, the
Company recorded a pre-tax charge of approximately $85.0 million in the first
quarter of 1996. The charge primarily relates to future operating losses during
the wind-down period, lease buyouts, asset write-offs and severance. The
historical financial information presented herein reflects periods during which
the Company did not operate as an independent company. Certain assumptions were
made in preparing this financial information which may not necessarily reflect
the results of operations or the financial condition of the Company had it been
an independent, public company during the reporting periods, and are not
necessarily indicative of the Company's future operating results or financial
condition.
Furthermore, the Company's operating profit from continuing operations for
1995 was negatively impacted by the recording of special pre-tax charges of
$35.0 million in the fourth quarter of 1995. These pre-tax charges resulted from
a comprehensive restructuring plan announced by Melville in October 1995 that
included the spin-off of the Company. The restructuring component of this
charge, amounting to $16.2 million, was for estimated tenancy and severance
costs associated with the closing of 18 stores, as well as asset write-offs and
other costs to be incurred from the strategic decision to outsource the
Company's data processing function. In addition, the Company recorded an asset
impairment charge of $7.5 million due to the early adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Other one-time
charges in connection with the Company's repositioning, including the recording
of markdowns related to the discontinuation of certain product lines and other
miscellaneous charges, were directly charged to operations and totaled $11.3
million.
In the absence of these nonrecurring special charges, operating profit from
continuing operations would have been $139.3 million in 1995 compared with
$104.0 million as reflected in the Consolidated Statement of Operations.
In 1995, the Company also changed its policy to expense internally
developed software costs that were previously capitalized. The impact on 1995
was to reduce net income by $1.0 million. In addition, a $3.9 million reduction
to net income was reported as the cumulative effect of a change in accounting
principle.
18
<PAGE>
Results of Operations
Net Sales
- --------------------------------------------------------------------------------
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Company:
Net sales $1,672.3 $1,615.2 $1,612.8
Net sales % change
from prior year 3.5% 0.1% 9.4%
Same store sales
% change 2.8% (2.1%) 2.4%
Meldisco:
Net sales $1,156.6 $1,191.5 $1,280.5
Net sales % change
from prior year (2.9%) (7.0%) 5.6%
Same store sales
% change (2.0%) (5.8%) 2.4%
% of consolidated
net sales 69.2% 73.8% 79.4%
Footaction:
Net sales $ 515.7 $ 423.7 $ 332.3
Net sales % change
from prior year 21.7% 27.5% 26.7%
Same store sales
% change 16.8% 13.1% 2.4%
% of consolidated
net sales 30.8% 26.2% 20.6%
Fiscal Years 1996, 1995 and 1994
Consolidated net sales for 1996 increased 3.5% over 1995. Footaction's continued
success of its highly focused marketing and merchandising strategies, better
in-stock position, and the increased consumer demand for athletic footwear and
branded apparel enabled Footaction to have a record-setting year. 1996 net sales
increased 21.7%, partially due to a 16.8% same store sales gain in addition to a
13.1% increase in 1995. During 1996, Footaction opened 51 new stores and added
almost 300,000 square feet from new stores, expansions and relocations.
Footaction's sales increase was offset by decreased sales at the Meldisco
division. Meldisco's net sales for the year were $1,157 million compared to
$1,192 million in 1995. Comparable store sales declined 2.0%. This decrease is
attributable to store closings and a difficult first half of 1996 reflecting the
sluggish discount footwear industry environment. Meldisco's second half
performance improved resulting in positive same store sales for the last six
months of 1996. Contributing factors to Meldisco's improvement were the
introduction of the Cobbie Cuddlers line in August, Kmart's high-frequency
remodeling program and better in-stock positions. Approximately 186
high-frequency conversions occurred during the year. In 1996, Meldisco's Kmart
operations accounted for 66.6% and 96.3% of the net sales of the Company and
Meldisco, respectively.
Consolidated net sales in 1995 increased marginally above the 1994 level.
Footaction's net sales grew by 27.5%, fueled by a 13.1% increase in same store
sales and the opening or acquisition of 21 new stores, as well as the conversion
of 11 additional stores to its new 4,000-6,500 square foot large store
prototype. Footaction's same store sales increase was driven by the successful
implementation of a new merchandise strategy more focused on "narrow and deep"
assortments and by the strength of branded apparel. Footaction's sales
performance was offset by a decline in Meldisco's net sales resulting from
decreased same store sales due to a difficult retail environment from increased
competition among department and discount stores and store closings. During
1995, Kmart closed 218 stores in which Meldisco operated a leased footwear
department. For fiscal year 1995, Meldisco's Kmart operations accounted for
70.6% and 95.7% of the net sales of the Company and Meldisco, respectively.
Costs and Expenses
- --------------------------------------------------------------------------------
(% of net sales) 1996 1995 1994
- --------------------------------------------------------------------------------
Cost of sales 68.5% 69.6% 69.3%
Store operating, selling,
general and administrative
expenses* 21.3% 21.2% 19.8%
Depreciation and
amortization 1.5% 1.2% 1.2%
*Includes allocations from Melville
Cost of Sales
Positive sales results at Footaction enabled this segment to leverage its fixed
operating costs while reductions were noted in markdowns, store shrinkage and
merchandise costs. As a result of Footaction's favorable cost improvements,
consolidated cost of sales for 1996 decreased 110 basis points. Meldisco's cost
of sales, as a percentage of sales, was relatively flat, as improvement in
initial markons were offset by higher delivery and distribution center costs
related to the start-up of new distribution facilities.
Cost of sales increased as a percentage of consolidated net sales in 1995
as compared to 1994 due to the recording of additional markdowns at Meldisco as
a result of declining sales in a generally weak retail environment as well as
218 Kmart store closings.
19
<PAGE>
Footstar, Inc. and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Store Operating, Selling, General and Administrative Expenses
Store operating, selling, general and administrative expenses, as a percent of
net sales for 1996, increased marginally over 1995. Costs incurred for the
addition of functional areas required to support a stand-alone public company
were partially offset by the improved operating leverage at Footaction.
Store operating, selling, general and administrative expenses increased as
a percentage of net sales in 1995 over 1994 primarily due to negative same store
sales at Meldisco which hindered its ability to leverage its fixed costs.
Another factor was $6.9 million of special charges recorded in connection with
the Company's restructuring and other contingencies. These special charges were
principally for the settlement of certain claims, as well as for asset
write-offs related to the repositioning of the Company. See "General". This
increase was partially offset by improved operating leverage at Footaction.
Operating Profit
- --------------------------------------------------------------------------------
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Operating profit before
restructuring and asset
impairment charges 1
Meldisco $102.7 $109.4 $147.1
Footaction 49.6 18.3 9.6
Corporate 2 (5.0) -- --
------ ------ ------
147.3 127.7 156.7
Restructuring and asset
impairment charges -- 23.7 --
------ ------ ------
Operating profit $147.3 $104.0 $156.7
====== ====== ======
Operating profit as a
% of net sales 8.8% 6.4% 9.7%
1 Includes special charges recorded in connection with the Company's
restructuring. Excluding these charges, operating profit for the fiscal
year ended 1995 would have been $116.1 million for Meldisco, $23.2 million
for Footaction, and $139.3 million for Footstar (or 8.6% of net sales).
2 Overhead costs incurred to support new stand-alone public company.
Operating profit for 1996 increased 41.6% over 1995. Footaction's growth in
operating profit of 171% over 1995 was the result of sales growth from 16.8%
same store sales and increased square footage that allowed Footaction to
leverage fixed operating and overhead costs. As a result, operating profit as a
percent of sales improved to 9.6% from 4.3% in 1995. Additionally, gross margin
in 1995 included $4.9 million of special charges recorded in conjunction with
Melville's restructuring announced in the fourth quarter of 1995. Meldisco's
operating profit declined because of negative same store sales and increased
costs due to start-up distribution issues associated with two new warehouse
facilities and the impact of Kmart closing 218 stores in 1995.
Operating profit in 1995 was adversely affected by the restructuring and
asset impairment charges, asset write-offs related to the repositioning of the
Company in anticipation of the Distribution and certain one-time charges. For a
discussion of these charges see "General". Adjusting operating profit to exclude
the effect of these charges, operating profit in 1995 would have been $139.3
million as compared to $156.7 million in 1994. This decline resulted principally
from the decrease in operating performance of Meldisco due to a difficult retail
environment and, to a lesser extent, Kmart store closings. An improvement in
Footaction's operating performance driven primarily by a 13.1% same store sales
increase partially offset these results.
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Cash flows provided by
operating activities 1 $212.1 $165.3 $136.2
Working capital 2 259.4 200.0 294.7
Current ratio 2 1.80x 1.91x 2.75x
Capital expenditures 68.3 92.9 59.3
1 Cash flows from operating activities are stated before cash outlays in
respect of minority interest of $63.8 million, $53.3 million and $38.1
million for the fiscal years ended 1996, 1995 and 1994, respectively. The
cash flow amounts include after-tax interest income amounts of
approximately $17.7 million, $27.0 million and $19.2 million for the fiscal
years ended 1996, 1995 and 1994, respectively, related to intercompany
accounts which were eliminated as of the Distribution.
2 1995 and 1994 working capital and current ratio excludes the Company's
intercompany balance with Melville Corporation.
Net cash provided by operating activities totaled $212.1 million, $165.3 million
and $136.2 million for 1996, 1995 and 1994, respectively, and continues to serve
as the Company's primary source of liquidity. During the three years ended
December 28, 1996, cash generated from operations exceeded cash requirements for
capital additions and dividends to Melville Corporation and Kmart. Additionally,
the Company has a credit agreement that provides for a $425 million unsecured
revolving credit facility (the "Credit Facility") in place to meet its operating
and discretionary spending requirements. As of December 28, 1996, there had been
no direct borrowings under the Credit Facility and $171.4 million in letters of
credit were outstanding under the Credit Facility.
The Company's businesses are seasonal in nature. Peak selling periods
coincide with Christmas, the Easter holiday and the back-to-school selling
20
<PAGE>
seasons. Working capital requirements vary with seasonal business volume and
inventory buildups occurring prior to the peak periods. The Company expects that
its current cash, together with cash generated from operations and the Credit
Facility, will be adequate to fund its operating expenses, working capital
needs, capital expenditures, projected growth and expansion plans and the cash
needs associated with the discontinuance of Thom McAn. The Company currently
maintains significant borrowing capacity to take advantage of growth and
investment opportunities.
Current assets, excluding the Melville intercompany receivable, were higher
at December 28, 1996 as compared to the end of 1995 due to the increased cash
and accounts receivable balances, of which $12.4 million represents funds
collected within the first two months of 1997 from the sale of two warehouses.
Inventories declined as the result of the discontinuance and closing of Thom
McAn stores in 1996.
The increase in current liabilities during 1996 compared to the end of 1995
was due to the recording of the discontinued operation reserves in 1996 and
improved working capital management.
The Company spent $68.3 million on capital expenditures in 1996 relating
primarily to the opening, remodeling, relocation or expansion of Footaction
stores, with the balance relating to the completion of the second
state-of-the-art distribution facility for Meldisco and the continuing
investment in strategic management information systems.
Capital expenditures in 1995 were $92.9 million and related primarily to
the construction of two state-of-the-art distribution facilities to be used by
Meldisco. The balance of the 1995 capital expenditures related to strategic
management information systems at Meldisco and Footaction and to the opening,
remodeling, relocation or expansion of Footaction stores.
The majority of the 1997 capital will be utilized for the expansion of
Footaction, including a net of 74 new stores and 57 relocations and expansions.
The remainder of the capital is committed to the investment in strategic
management information systems.
The Company expects that it will retain all available funds for operation
and expansion of its business, and does not anticipate paying any cash dividends
to shareholders in the foreseeable future. Prior to the Distribution and
pursuant to the March 1996 amendment to the Master Agreement, Meldisco
distributed to Kmart in April 1996 approximately $64 million representing
Kmart's normal dividends and their minority interest in all of the undistributed
retained earnings of the Meldisco Subsidiaries with respect to pre-1995 periods.
This distribution was funded by a capital contribution from Melville in
connection with the transfer of retained earnings to Melville and the
elimination of the resulting intercompany indebtedness. Under its arrangement
with Kmart, Meldisco will distribute to Kmart, in future periods, a portion of
Meldisco Subsidiary profits representing Kmart's minority interest in the
Meldisco Subsidiaries.
The Company's Credit Facility contains various operating covenants which,
among other things, impose certain limitations on the Company's ability to incur
liens, incur indebtedness, merge, consolidate or declare and make dividend
payments. Under the Credit Facility, the Company is required to comply with
financial covenants relating to ratios of cash flow, fixed charge coverage and
leverage. The Credit Facility may be prepaid or retired by the Company without
penalty prior to the maturity date of October 15, 1999. The Credit Facility has
a direct borrowing sublimit of $200 million, a $400 million letter of credit
sublimit, and at no time can the total indebtedness under the Credit Facility
exceed $425 million.
Effective March 1, 1997, the Company established the Funds Transfer Program
whereby payment for merchandise will be effected by wire transfer of funds
rather than through letters of credit. Participation in the program provides
vendors with the opportunity to reduce bank fees in connection with letters of
credit, streamline the documentation process for payment and enables them to
determine the date on which they will be paid. This will also significantly
reduce the size of the Company's letter of credit commitments within the Credit
Facility, thereby reducing the letter of credit fees payable by the Company.
21
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders of Footstar, Inc.:
We have audited the accompanying consolidated balance sheets of Footstar, Inc.
and Subsidiary Companies as of December 28, 1996 and December 31, 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 28, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the financial position of Footstar,
Inc. and Subsidiary Companies as of December 28, 1996 and December 31, 1995, and
the results of its operations and its cash flows for each of the years in the
three-year period ended December 28, 1996 in conformity with generally accepted
accounting principles.
As discussed in the notes to consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective October 1, 1995 and changed its policy for accounting for the costs of
internally developed software effective January 1, 1995.
/s/KPMG Peat Marwick LLP
- ------------------------
New York, New York
February 12, 1997
22
<PAGE>
Footstar, Inc. and Subsidiary Companies
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
For the Years Ended
December 28, December 31, December 31,
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Net sales .............................. $1,672.3 $1,615.2 $1,612.8
Cost of sales .......................... 1,144.7 1,124.5 1,117.8
-------- -------- --------
Gross profit ........................... 527.6 490.7 495.0
Store operating, selling, general
and administrative expenses ........ 355.5 343.0 319.6
Depreciation and amortization .......... 24.8 20.0 18.7
Restructuring and asset impairment
charges ............................ -- 23.7 --
-------- -------- --------
Operating profit ....................... 147.3 104.0 156.7
Interest income, net ................... 14.4 21.1 15.4
-------- -------- --------
Income from continuing operations
before income taxes, minority
interests and cumulative effect
of change in accounting principle .. 161.7 125.1 172.1
Provision for income taxes ............. 54.6 37.3 49.5
-------- -------- --------
Income from continuing operations
before minority interests and
cumulative effect of change in
accounting principle ............... 107.1 87.8 122.6
Minority interests in net income ....... 36.0 38.4 51.9
-------- -------- --------
Income from continuing operations
before cumulative effect of change
in accounting principle ............ 71.1 49.4 70.7
Earnings (loss) from discontinued
operations, net of income taxes
(benefits) of $1.1, ($14.1)
and $3.6 ........................... 0.8 (26.8) 6.0
Loss on disposal of discontinued
operations, net of tax benefit
of $31.4 ........................... (53.6) -- --
-------- -------- --------
Income before cumulative effect
of change in accounting principle .. 18.3 22.6 76.7
Cumulative effect of change in
accounting principle, net .......... -- (3.9) --
-------- -------- --------
Net income ............................. $ 18.3 $ 18.7 $ 76.7
======== ======== =========
See accompanying notes to consolidated financial statements.
23
<PAGE>
Footstar, Inc. and Subsidiary Companies
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 28, December 31,
($ in millions, except for share amounts) 1996 1995
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents ......................... $164.6 $ 26.3
Accounts receivable, net .......................... 77.7 56.1
Due from parent and other divisions ............... -- 710.8
Inventories ....................................... 281.9 298.1
Prepaid expenses and other current assets ......... 59.9 38.5
------ --------
Total current assets .............................. 584.1 1,129.8
Property and equipment, net ....................... 197.0 195.1
Goodwill, net of accumulated amortization
of $4.2 at December 28, 1996 and $3.4
at December 31, 1995 .......................... 28.8 29.6
Deferred charges and other noncurrent assets ...... 22.2 33.7
------ --------
Total assets ...................................... $832.1 $1,388.2
====== ========
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable .................................. $ 79.8 $ 75.1
Accrued expenses .................................. 215.6 143.9
Income taxes payable .............................. 29.3 --
------ --------
Total current liabilities ......................... 324.7 219.0
Long-term debt .................................... 0.2 0.2
Other long-term liabilities ....................... 58.3 61.4
Minority interests in subsidiaries ................ 65.0 93.8
------ --------
Total liabilities ................................. $448.2 $ 374.4
------ --------
Shareholders' equity:
Common stock $.01 par value: 100,000,000
shares authorized, 30,533,883 shares
issued and outstanding ........................ 0.3 --
Additional paid-in capital ........................ 323.6 --
Equity adjustment from foreign
currency translation .......................... (0.4) --
Retained earnings ................................. 60.4 --
------ --------
Total shareholders' equity ........................ 383.9 --
------ --------
Divisional equity ................................. -- 1,013.8
------ --------
Total liabilities and shareholders' equity ........ $ 832.1 $1,388.2
======== ========
See accompanying notes to consolidated financial statements.
24
<PAGE>
Footstar, Inc. and Subsidiary Companies
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Equity
Adjustment
Additional From Foreign
Common Stock Paid-in Currency Retained Divisional
($ in millions, except for share amounts) Shares Amount Capital Translation Earnings Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance as of December 31, 1993 ...................... $ 978.1
Net income ........................................... -- -- -- -- -- 76.7
Dividends paid to parent ............................. -- -- -- -- -- (31.3)
Translation adjustment ............................... -- -- -- -- -- (1.3)
Melville capital infusion ............................ -- -- -- -- -- 10.9
---------- ---- ------ ----- ----- --------
Balance as of December 31, 1994 ...................... -- -- -- -- -- $1,033.1
---------- ---- ------ ----- ----- --------
Net income ........................................... -- -- -- -- -- 18.7
Dividends paid to parent ............................. -- -- -- -- -- (38.2)
Translation adjustment ............................... -- -- -- -- -- 1.6
Melville capital withdrawal .......................... -- -- -- -- -- (1.4)
---------- ---- ------ ----- ----- --------
Balance as of December 31, 1995 ...................... -- -- -- -- -- $1,013.8
---------- ---- ------ ----- ----- --------
Changes in shareholders' equity for the period ended October 12, 1996:
Net loss ............................................. -- -- -- -- -- (4.2)
Translation adjustment ............................... -- -- -- -- -- (2.0)
Melville capital withdrawal .......................... -- -- -- -- -- (646.2)
Distribution of Footstar, Inc.
common stock by Melville .................... 30,533,883 $0.3 $323.6 $(0.4) $37.9 $ (361.4)
---------- ---- ------ ----- ----- --------
Balance as of October 12, 1996 ....................... 30,533,883 0.3 323.6 $(0.4) 37.9 --
---------- ---- ------ ----- ----- --------
Net income ........................................... -- -- -- -- 22.5 --
---------- ---- ------ ----- ----- --------
Balance as of December 28, 1996 ...................... 30,533,883 $0.3 $323.6 $(0.4) $60.4 --
---------- ---- ------ ----- ----- --------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
Footstar, Inc. and Subsidiary Companies
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
For the Years Ended
December 28, December 31, December 31,
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income ............................... $ 18.3 $ 18.7 $ 76.7
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities:
Loss on disposal of
discontinued operations .............. 85.0 -- --
Restructuring and asset
impairment charges ................... -- 51.8 --
Cumulative effect of change in
accounting principle ................. -- 9.5 --
Minority interests in net income ......... 36.0 38.4 51.9
Depreciation and amortization ............ 29.8 26.7 25.9
Loss on disposal of fixed assets ......... 2.3 7.6 7.9
Deferred income taxes .................... (12.2) (17.5) 12.2
Changes in operating assets and liabilities:
(Increase) in accounts
receivable, net ...................... (9.2) (3.5) (9.5)
Decrease (increase) in inventories ....... 16.2 64.7 (40.2)
Decrease (increase) in prepaid
expenses, deferred charges
and other assets ..................... 0.2 (19.2) 1.1
Increase (decrease) in accounts
payable and accrued expenses ......... 20.3 (2.6) (12.0)
Increase (decrease) in income
taxes payable and other
liabilities .......................... 25.4 (9.3) 22.2
------ ------ ------
Net cash provided by
operating activities ................. 212.1 165.3 136.2
------ ------ ------
Cash flows from (used in)
investing activities:
Additions to property and equipment ...... (68.3) (92.9) (59.3)
Acquisitions, net of cash acquired ....... -- (1.5) (0.4)
Proceeds from the sale or
disposal of property
and equipment ........................ 3.4 -- --
------ ------ ------
Net cash (used in) investing
activities ........................... (64.9) (94.4) (59.7)
------ ------ ------
Cash flows from (used in) financing activities:
Dividends paid to parent ................. -- (38.2) (31.3)
Dividends paid to minority
interests ............................ (63.8) (53.3) (38.1)
(Decrease) increase in book
overdrafts ........................... (5.5) 16.4 6.4
Decrease (increase) in due
from parent and other
divisions ............................ 710.8 16.6 (21.7)
Melville capital infusion
(withdrawal) ......................... (646.2) (1.4) 10.9
Other .................................... (4.2) 1.4 (1.5)
------ ------ ------
Net cash (used in) financing
activities ........................... (8.9) (58.5) (75.3)
------ ------ ------
Net increase in cash and
cash equivalent ...................... 138.3 12.4 1.2
Cash and cash equivalents
beginning of year .................... 26.3 13.9 12.7
------ ------ ------
Cash and cash equivalents
end of year .......................... $164.6 $ 26.3 $ 13.9
====== ====== ======
See accompanying notes to consolidated financial statements.
26
<PAGE>
Footstar, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
The Company
Footstar, Inc. (the "Company") became an independent company after the Board of
Directors of Melville Corporation ("Melville") approved the spin-off of its
footwear operations. These businesses were comprised of Meldisco, a leading
operator of leased footwear departments nationwide and abroad; Footaction, a
mall-based branded athletic footwear and apparel chain; and Thom McAn, which has
been reported as discontinued operations. The spin-off was completed with the
distribution (the "Distribution") on October 12, 1996, to Melville shareholders
of record on October 2, 1996, of all the shares of the Company. The Distribution
was made on the basis of .2879 shares of the Company's common stock for every
one share of Melville Corporation common stock. A total of 30,533,883 shares of
the Company's common stock was issued and began trading on the New York Stock
Exchange on a when-issued basis on September 25, 1996.
Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements of the
Company include the accounts of all subsidiary companies. The minority interests
represent the 49% participation of Kmart Corporation ("Kmart") in the ownership
of substantially all retail subsidiaries of Meldisco formed or to be formed from
July 1967 until July 1, 2012 for the purpose of operating leased shoe
departments in Kmart stores. Interdivisional balances and transactions between
the entities have been eliminated. The accompanying financial statements include
the consolidated results of operations, assets and liabilities of the Company
for the eleven weeks ended December 28, 1996 and the combined historical results
of operation, assets and liabilities of the Company while a part of Melville
Corporation for the 41 weeks ended October 12, 1996, and for the years ended
December 31, 1995 and 1994. For simplicity of presentation, these financial
statements are referred to as consolidated financial statements herein.
Accounting Changes: The Board of Directors of the Company approved on
December 5, 1996 a change to a fiscal year ending on the Saturday closest to
December 31 from a calendar year. Fiscal 1996 ended on December 28, 1996 and
fiscal 1997 will end January 3, 1998 and will be a 53-week year.
On October 23, 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123"). The
provisions of this statement are effective for fiscal years beginning after
December 15, 1995. As permitted under SFAS No. 123, the Company has elected not
to adopt the fair value- based method of accounting for its stock-based
compensation plans, but continues to apply the provisions of APB Opinion No. 25
and related interpretations in accounting for its plans. The Company has adopted
the disclosure requirements of SFAS No. 123 in fiscal 1996.
Effective October 1, 1995, the Company adopted Statement of Financial
Accounting Standards SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). The
reduction of depreciation and amortization expense due to the adoption of SFAS
No. 121 was immaterial for fiscal years 1996 and 1995.
Effective January 1, 1995, the Company changed its policy to expense
internally developed software costs that previously were capitalized. The
Company believes that this change results in a better matching of revenues and
expenses. The impact on 1995, inclusive of discontinued operations, as a result
of this change, exclusive of the cumulative effect of $3.9 million, was to
reduce net income by $1.0 million.
Basis of Presentation: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash equivalents consist of highly liquid
instruments with maturities of three months or less and are stated at cost that
approximates their fair market value. The Company's cash management program
utilizes zero balance accounts. Accordingly, all book overdraft balances have
been reclassified to current liabilities.
Inventories: Inventories, principally finished goods, consist of
merchandise purchased from domestic and foreign vendors and are carried
predominantly at the lower of cost or market value, determined by the retail
inventory method on a first-in, first-out (FIFO) basis.
Property and Equipment: Property and equipment are stated at cost.
Depreciation and amortization of property and equipment are computed on a
straight-line basis, generally over the estimated useful lives of the assets or,
when applicable, the life of the lease, whichever is shorter. Capitalized
software costs are amortized on a straight-line basis over their estimated
useful lives. Maintenance and repairs are charged directly to expense as
incurred. Major renewals or replacements are capitalized after making the
necessary adjustment on the asset and accumulated depreciation accounts of the
items renewed or replaced.
27
<PAGE>
Footstar, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
Impairment of Long-Lived Assets: When changes in circumstance warrant
measurement, impairment losses for store fixed assets are calculated by
comparing projected individual store cash flows over the lease term to the asset
carrying values.
Deferred Charges: Deferred charges, principally beneficial leasehold costs,
are amortized on a straight-line basis, generally over the remaining life of the
leasehold acquired.
Goodwill: The excess of acquisition costs over the fair value of net assets
acquired is amortized on a straight line basis over forty years. Impairment is
assessed based on the profitability of the related business relative to planned
levels.
Store Opening and Closing Costs: New store opening costs are charged to
expense as incurred. In the event a store is closed before its lease has
expired, the total lease obligation, less sublease rental income, is provided
for in the year of closing.
Advertising Costs: The Company charges production costs of advertising to
expense the first time the advertising takes place.
Income Taxes: The Company and Melville Corporation have entered into a Tax
Disaffiliation Agreement. Under the Agreement, the Company is generally
responsible for any of its tax with respect to pre-spin periods, determined as
if on a separate company basis. For periods subsequent to October 12, 1996, the
Company will file its own federal and state tax returns.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Foreign Currency Translation: The Company translates foreign currency
financial statements by translating balance sheet accounts at the exchange rate
as of the balance sheet date and income statement accounts at the average rate
for the year. Translation gains and losses are recorded in shareholders' equity,
and realized gains and losses are reflected in operations. The balance in the
equity adjustment from foreign currency translation relates principally to the
Company's operations in Mexico. Transaction gains and losses were insignificant
in all periods.
Postretirement Benefits: The Company provides a defined benefit health care
plan for substantially all retirees who meet certain eligibility requirements.
The annual cost of postretirement benefits is funded as it arises and the cost
is recognized over an employee's term of service to the Company.
Earnings Per Share: Earnings per share information has been omitted from
the accompanying consolidated statements of operations since the Company was not
a separate entity with its own capital structure until October 12,1996. See note
"Pro Forma Financial Information" with respect to pro forma earnings per share
data.
Reclassifications: Certain reclassifications have been made to the
consolidated financial statements of prior years to conform to the 1996
presentation.
Restructuring and Asset Impairment Charges
On October 24, 1995, Melville announced a comprehensive restructuring plan that
included the spin-off of the Company and the outsourcing of certain information
processing and telecommunication functions. In connection with the initiation of
the plan, 18 stores were closed and a pre-tax charge of $23.7 million was
recorded. Asset write-offs included in the charge totaled $19.9 million, while
the balance required cash outlays, primarily in 1996. In connection with the
various components of the plan, approximately 40 store employees were
eliminated.
The significant components of the restructuring and asset impairment
charges, and the reserves remaining as of December 28, 1996 and December 31,
1995, relating to continuing operations, were as follows:
- --------------------------------------------------------------------------------
Recorded Remaining
($ in millions) 1996 1995
- --------------------------------------------------------------------------------
Lease obligations and
fixed asset write-offs
for store closings $ 3.8 $0.8 $3.6
Asset write-offs related
to outsourcing 12.2 -- --
Severance and other
employee benefit vesting 0.2 -- 0.2
----- ---- ----
16.2 0.8 3.8
Asset impairment charge
in connection with the
adoption of SFAS No. 121 7.5 -- --
----- ---- ----
Total $23.7 $0.8 $3.8
===== ==== ====
The net sales and operating losses in 1995 of the stores closed were
approximately $7.0 million and $0.8 million, respectively.
28
<PAGE>
Discontinued Operations
On June 3, 1996, Melville announced a plan to convert approximately 100 Thom
McAn stores to Footaction stores and to exit the Thom McAn business. This plan
is expected to be completed by mid-1997. In connection with this plan, the
Company recorded a pre-tax charge of $85.0 million in the first quarter of 1996.
Accordingly, the results of operations for the Thom McAn segment have been
classified as discontinued operations for all periods presented in the
consolidated statements of operations.
Discontinued operations accounted for 5.3% and 27.9% of total assets as of
year end 1996 and 1995, respectively. The 1996 balance consists of a deferred
tax asset and the 1995 assets consist of due from parent, inventory and property
and equipment.
Discontinued operations accounted for 20.7% and 13.9% of total liabilities
as of year end 1996 and 1995, respectively. Liabilities in both years
principally consist of reserves for restructuring and employee benefits.
The following table summarizes the operating results of the discontinued
operations for the fiscal years presented.
- --------------------------------------------------------------------------------
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Net sales $187.6 $212.0 $227.1
Operating loss (94.5) (57.3) (1.8)
The loss on disposal of discontinued operations for 1996 included an $85.0
million pre-tax charge relating to future operating losses during the wind-down
period, lease settlement costs, asset write-offs and severance.
The significant components of the charge and the reserve remaining as of
December 28, 1996 follow:
- --------------------------------------------------------------------------------
($ in millions) Recorded Remaining
- --------------------------------------------------------------------------------
Lease obligations and
fixed asset write-offs
for store closings, home
office and warehouse
shutdowns $61.9 $45.0
Operating loss reserve 21.1 7.6
Severance and other employee
benefit vesting 2.0 1.8
----- -----
Total $85.0 $54.4
===== =====
The loss from discontinued operations for the year ended December 31, 1995
includes $24.8 million of restructuring charges related to the consolidation of
operations and closure of stores, as well as an asset impairment charge of $3.2
million related to the adoption of SFAS No. 121.
The significant components of the restructuring and asset impairment
charges, and the reserves remaining as of December 28, 1996 and December 31,
1995 are as follows:
- --------------------------------------------------------------------------------
Recorded Remaining
($ in millions) 1996 1995
- --------------------------------------------------------------------------------
Lease obligations and
fixed asset write-offs
for store closings, home
office and warehouse
shutdowns $17.6 $ 7.3 $17.6
Asset write-offs related
to outsourcing 0.3 -- --
Severance and other
employee benefit
vesting 6.9 3.1 6.9
----- ----- -----
24.8 10.4 24.5
Asset impairment
charge in connection
with the adoption
of SFAS No. 121 3.2 -- --
----- ----- -----
Total $28.0 $10.4 $24.5
===== ===== =====
Accounts Receivable
Accounts receivable consisted of the following:
- --------------------------------------------------------------------------------
($ in millions) 1996 1995
- --------------------------------------------------------------------------------
Due from licensors $ 36.2 $ 31.8
Other 41.9 25.3
------- -------
78.1 57.1
Less: Allowance for
doubtful accounts 0.4 1.0
------- -------
Total $ 77.7 $ 56.1
======= =======
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
- --------------------------------------------------------------------------------
($ in millions) 1996 1995
- --------------------------------------------------------------------------------
Deferred income taxes $ 53.9 $ 30.7
Other 6.0 7.8
------- -------
Total $ 59.9 $ 38.5
======= =======
29
<PAGE>
Footstar, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment consisted of the following:
- --------------------------------------------------------------------------------
Useful
lives
($ in millions) (in yrs.) 1996 1995
- --------------------------------------------------------------------------------
Land $ 6.7 $ 7.7
Buildings and improvements 10-40 32.2 55.6
Equipment and furniture 5-10 160.5 174.3
Leasehold improvements 10 56.7 78.3
Leased property under
capital leases 10 0.1 4.4
------ ------
256.2 320.3
Less accumulated depreciation
and amortization 59.2 125.2
------ ------
Total $197.0 $195.1
====== ======
Accrued Expenses
Accrued expenses consisted of the following:
- --------------------------------------------------------------------------------
($ in millions) 1996 1995
- --------------------------------------------------------------------------------
Taxes other than
income taxes $ 17.0 $ 11.6
Rent 30.4 29.2
Salaries and compensated
absences 13.2 10.4
Reserve for loss on disposal of
discontinued operations 54.4 --
Restructuring reserve 17.3 35.1
Professional fees 2.6 14.1
Capital expenditures 5.9 15.3
Other 74.8 28.2
------ ------
Total $215.6 $143.9
====== ======
Other Long-Term Liabilities
Other long-term liabilities consisted of the following:
- --------------------------------------------------------------------------------
($ in millions) 1996 1995
- --------------------------------------------------------------------------------
Employee benefit costs $37.2 $46.0
Lease obligations for
closed stores 1.5 7.7
Other 19.6 7.7
----- -----
Total $58.3 $61.4
===== =====
Long-Term Debt
The Company has a Credit Facility that provides for $425 million in unsecured
revolving credit. As of December 28, 1996 there has been no direct borrowing
under the Credit Facility. Interest on all borrowing is determined based upon
several alternative rates as stipulated in the Credit Facility.
The Company's Credit Facility contains various operating covenants which,
among other things, impose certain limitations on the Company's ability to incur
liens, incur indebtedness, merge, consolidate or declare and make dividend
payments. Under the Credit Facility, the Company is required to comply with
financial covenants relating to ratios of cash flow, fixed charge coverage and
leverage. The Credit Facility may be prepaid or retired by the Company without
penalty prior to the maturity date of October 15, 1999. The Credit Facility has
a direct borrowing sublimit of $200 million, a $400 million letter of credit
sublimit, and at no time can the total indebtedness under the Credit Facility
exceed $425 million. As of December 28, 1996 there was $171.4 million in letters
of credit outstanding. In-transit inventory of $52.9 million as of December 28,
1996 is included in accounts payable and is still considered an outstanding
letter of credit commitment.
Leases
The Company and its subsidiaries lease retail stores, warehouses and office
facilities over periods generally ranging from five to fifteen years with
options to renew such terms ranging from five to fifteen years.
Net rental expense for all operating leases for the three years ended
December 28, 1996 was as follows:
- --------------------------------------------------------------------------------
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Minimum rentals $ 80.0 $ 80.0 $ 70.6
Contingent rentals 146.3 149.6 174.7
------ ------ ------
Total $226.3 $229.6 $245.3
====== ====== ======
At December 28, 1996, the future minimum rental payments under operating
leases, excluding lease obligations for closed stores, were as follows:
- --------------------------------------------------------------------------------
Year Operating Leases
- --------------------------------------------------------------------------------
1997 $ 48.9
1998 42.6
1999 39.8
2000 37.3
2001 33.7
Thereafter 109.7
------
Total $312.0
======
30
<PAGE>
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities for the fiscal years were as
follows:
- --------------------------------------------------------------------------------
($ in millions) 1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Restructuring reserves $36.5 $21.2
Inventories 6.1 6.8
Postretirement benefits 12.9 17.0
Other 14.1 9.4
----- -----
Total deferred tax assets 69.6 54.4
===== =====
Deferred tax liabilities:
Property and equipment 13.3 10.1
Other 2.4 2.1
----- -----
Total deferred tax liabilities 15.7 12.2
===== =====
Net deferred tax assets $53.9 $42.2
===== =====
Based on the Company's historical and current pre-tax earnings, management
believes it is more likely than not that the Company will realize the net
deferred tax assets.
The provision for income taxes is comprised of the following:
- --------------------------------------------------------------------------------
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Federal $44.3 $29.6 $40.0
State 10.3 7.7 9.5
----- ----- -----
Total $54.6 $37.3 $49.5
===== ===== =====
The provision for income taxes includes a net deferred charge of $7.8
million for December 28, 1996, and net deferred tax benefits of $15.0 million
and $2.8 million for December 31, 1995 and 1994, respectively.
Reconciliations of the effective tax rates to the U.S. statutory income tax
rate are as follows:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Effective tax rate 33.8% 29.8% 28.8%
State income taxes, net
of federal tax benefit (4.1) (4.0) (3.6)
51% owned subsidiaries
excluded from the
consolidated federal
income tax return 6.1 11.4 10.1
Other (0.8) (2.2) (0.3)
---- ---- ----
Statutory federal
income tax rate 35.0% 35.0% 35.0%
==== ==== ====
Stock Incentive Awards
Effective on the Distribution, the Company adopted the 1996 Incentive
Compensation Plan (the "Plan"). The Plan is designed to motivate and reward
officers and key employees for outstanding service, by providing awards that are
linked to the Company's performance and the creation of shareholder value. Under
the Plan, a maximum of 3,100,000 shares, plus 10% of the number of any shares
newly issued by the Company (excluding issuances under the Plan or any other
compensation or benefit plan of the Company) may be issued in connection with
stock options, restricted stock, incentive stock, deferred stock or other
stock-based awards.
Stock options under the Plan may not be awarded at less than the fair
market value on the date of grant. Generally, options are exercisable in
installments of 20% beginning one year from date of grant and expire ten years
after the grant date, provided the optionee continues to be employed by the
Company. During 1996, the Company granted options to purchase 616,500 shares of
Common Stock under the Plan at a price of $21.12 per share. In 1996, no options
expired or were exercised and 1,050 were forfeited. At December 28, 1996, there
were no exercisable options.
In connection with the spin-off, 171,212 deferred stock units were granted
to certain officers and key employees. The units vest five years from date of
grant, provided the executive continues to be employed by the Company. The
market value of these shares has been recorded as unearned compensation of $3.6
million and is being amortized to expense over the five-year vesting period.
Approximately $0.2 million was charged to expense in 1996.
The Plan also permits the granting of performance share units, representing
rights to receive cash and/or common stock of the Company based upon certain
performance criteria generally over a three-year performance period, and
restricted share units, representing rights to receive cash and/or common stock
of the Company based upon certain performance criteria over a one-year
performance period. Compensation expense related to grants under these
provisions is based on current market price of the Company's common stock at the
date of grant and the extent to which performance criteria are being met. It is
recorded as unearned compensation and amortized to expense over the vesting
period which ranges from five years to expected retirement date of the
employees.
31
<PAGE>
Footstar, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
Effective on the Distribution, the Company adopted the 1996 Non-Employee
Director Stock Plan (the "Director Plan"). The Director Plan is intended to
assist the Company in attracting and retaining highly qualified persons to serve
as non-employee directors and to more closely align such directors' current and
ongoing interests with those of the Company's stockholders by providing a
significant portion of their total compensation in the form of Company Stock. A
total of 200,000 shares of Company Common Stock are reserved and available for
issuance under the Director Plan. Any person who becomes an eligible director
receives an initial grant to purchase 2,000 shares of common stock. All options
are awarded at the fair market value on the date of grant. Options are
exercisable in installments of 20% beginning one year from date of grant and
expire 10 years after grant date. During 1996, the Company granted options to
purchase 10,000 shares of common stock under the Director Plan at a price of
$21.12. In 1996, no options were expired, exercised or forfeited. At December
28, 1996, there were no exercisable options.
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 Company's shareholders commencing in 1997, is a
non-employee director. Each Stock Unit represents the right to receive one share
of Company Common Stock at the end of a specified period. Fifty percent of such
Stock Units will vest 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. The remaining fifty percent of such Stock
Units vest at date of grant and will be paid upon the later of ceasing to be a
director or attaining age 65, provided that settlement of such Stock Units shall
be accelerated in the event of death, disability, or a Change in Control. During
1996, 10,000 Stock Units were granted.
At December 28, 1996 shares available for grant under the Plan totaled
2,313,338 and 180,000 shares of stock were available for grant under the
Director's Plan.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans other than for restricted stock and
performance-based awards. Had compensation cost for the company's other stock
option plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the Company's net income and earnings per share would have been
reduced by approximately $0.2 million, or $.01 per share. The fair value of the
options granted during 1996 is estimated as $9.41 on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: volatility of
30.0%, risk-free interest rate of 6.2%, assumed forfeiture rate of 0.0%, and an
expected life of six and a half years.
401(k) Profit Sharing Plan
The Company has a qualified 401(k) Profit Sharing Plan available to full-time
employees who meet the plan's eligibility requirements. This plan, which is also
a defined contribution plan, contains a profit sharing component, with tax
- -deferred contributions to each employee based on certain performance criteria,
and also permits employees to make contributions up to the maximum limits
allowed by Internal Revenue Code Section 401(d). Under the 401(k) component, the
Company matches a portion of the employee's contribution under a pre-determined
formula based on the level of contribution and years of vesting service.
Contributions to the plan by the Company for both profit sharing and
matching of employee contributions were approximately $3.3 million, $2.3 million
and $2.0 million for the years ended 1996, 1995, and 1994, respectively.
32
<PAGE>
Postretirement Benefits
Prior to the spin-off, Melville provided postretirement health benefits.
Subsequent to the spin-off on October 12, 1996, the Company provides
postretirement health benefits for retirees who meet certain eligibility
requirements.
The weighted average discount rates used to determine the accumulated
postretirement benefit obligation ("APBO") were 7.5% and 6.89% at December 28,
1996 and December 31, 1995, respectively. The following table reflects the
Company's accrued postretirement benefit costs:
- --------------------------------------------------------------------------------
($ in millions) 1996 1995
- --------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $17.1 $13.0
Fully eligible active
plan participants 0.9 1.3
Other plan participants 5.2 12.5
----- -----
23.2 26.8
Unrecognized prior
service cost 6.5 11.6
Unrecognized net gain 4.9 7.5
----- -----
Accrued postretirement
benefit cost included in
other long-term liabilities $34.6 $45.9
===== =====
Effective in December 1992, the Company amended these plans to terminate certain
benefits, resulting in a prior service gain of $14.8 million to be amortized
over 13 years. The Company's net periodic cost, inclusive of discontinued
operations, for the years ended December 28, 1996, December 31, 1995 and 1994
was as follows:
- --------------------------------------------------------------------------------
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Interest expense $ 1.7 $ 1.8 $ 1.7
Service cost (net of prior
service gain amortization) (0.4) 0.5) (0.3)
Amortization of gains (0.3) (0.3) --
----- ----- -----
$ 1.0 $ 1.0 $ 1.4
===== ===== =====
For measurement purposes, an 8.6% increase in the cost of covered health care
benefits was assumed for 1996. The rate was assumed to decline gradually to 5%
in the year 1999 and remain at that level thereafter. A 1% increase in the
health-care cost trend rate would increase the APBO at December 28, 1996 by $3.4
million and the 1996 annual expense by $0.4 million.
Supplemental Executive Retirement Plan
The Company has an unfunded Supplemental Executive Retirement Plan ("SERP").
Expense related to the SERP was $0.6, $0.4 and $0.2 in fiscal years 1996, 1995
and 1994, respectively.
Loans
The weighted average interest rate on loans to Melville for the period from
January 1 to October 12, 1996 and the years ended December 31, 1995, and 1994
was 5.2%, 5.7% and 4.2%, respectively. The related interest income earned by the
Company on such loans was $13.7 million, $20.9 million and $15.5 million in
1996, 1995 and 1994, respectively.
Commitments and Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's combined financial position, results of operations or liquidity.
Countervailing Duty
The U.S. Customs Service charged Brazilian companies of unfair trading practices
during 1980 and 1981, when the Brazilian government was allegedly subsidizing
its shoe manufacturers, and imposed an additional duty (the "countervailing
duty") on all shoes imported from Brazil by U. S. Companies during this time
period. The Company accrued approximately $7.0 million for the estimated
liability related to this matter between 1981 and 1988.
In December 1994, the GATT Uruguay Round Agreements Act contained
provisions that effectively ended the Brazil countervailing duty. Accordingly,
the Company reversed the entire accrual, which is reflected in the 1994
consolidated statement of operations.
33
<PAGE>
Footstar, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
Meldisco's Relationship with Kmart
For the year ended December 28, 1996 and the fiscal year ended December 31,
1995, Meldisco's Kmart operations represented 96.3% and 95.7%, respectively, of
Meldisco's net sales. These operations represented 66.6% and 70.6% respectively,
of the Company's consolidated net sales during the same periods. The business
relationship between Meldisco and Kmart is very significant to the Company and
the loss of Meldisco's Kmart operations would have a material adverse effect on
the Company.
The Company's arrangement with Kmart is governed by a Master Agreement
effective as of July 1, 1995 and amended as of March 1996. The Master Agreement
provides the Company with the non-transferable exclusive right and license to
operate a footwear department in each applicable Kmart store. The initial term
of the Master Agreement expires July 1, 2012 and is renewable thereafter for
15-year terms, unless terminated earlier as provided in the Master Agreement.
Pro Forma Financial Information
The following table represents a comparison of the Company's pro forma
consolidated condensed statements of operations to the actual results for the
year ended December 28, 1996. Pro forma results assume that the Distribution and
related transactions and events occurred as of the beginning of 1996. Pro forma
financial information is presented for informational purposes only and may not
reflect the future results of the Company or what the results would have been
had the Company been operated as a separate company.
- --------------------------------------------------------------------------------
($ in millions, except per share data) Historical Pro Forma
- --------------------------------------------------------------------------------
Net sales $1,672.3 $1,672.3
Cost of sales 1,144.7 1,144.7
-------- --------
Gross profit 527.6 527.6
Store operating, selling, general
and administrative expenses 355.5 363.1
Depreciation and amortization 24.8 24.8
-------- --------
Operating profit 147.3 139.7
Interest income, net 14.4 0.7
-------- --------
Income from continuing
operations before income
taxes and minority interests 161.7 140.4
Provision for income taxes 54.6 46.2
-------- --------
Income from continuing
operations before
minority interests 107.1 94.2
Minority interests in
net income 36.0 36.0
-------- --------
Income from continuing
operations $ 71.1 $ 58.2
======== ========
Weighted average shares
outstanding (in millions) 30.6
========
Earnings per share $ 1.90
========
The pro forma results have been derived from the historical financial
results and principally reflect the following:
a) The elimination of the Melville expense allocation and the anticipated
net increase in overhead to add functional areas required to be a
stand-alone public company.
b) The elimination of net interest income relating to intercompany
balances due to the recapitalization of the Company.
c) The net change in provision for income taxes. The pro forma
adjustments were tax effected at 39%, which approximates the Company's
blended statutory rate.
d) Pro forma earnings per common share assumes that the common stock
issued on the Distribution date had been issued at the beginning of
1996, after giving effect to common stock equivalents arising from
deferred stock awards.
34
<PAGE>
Segment Information
The Company is a retailer conducting business through retail stores in two
business segments: Meldisco in discount footwear and Footaction in branded
athletic footwear and apparel. Information about operations for each of these
segments is summarized as follows:
- --------------------------------------------------------------------------------
For the Years Ended
December 28, December 31, December 31,
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Meldisco:
Net sales ............................ $1,156.6 $1,191.5 $1,280.5
Operating profit1 .................... 102.7 99.5 147.1
Identifiable assets at year end 2 .... 405.3 885.9 864.4
Depreciation and amortization ........ 8.7 4.6 5.9
Additions to property and equipment .. 28.5 75.2 14.1
Footaction:
Net sales ............................ 515.7 423.7 332.3
Operating profit1 .................... 49.6 4.5 9.6
Identifiable assets at year end 2 .... 228.7 119.3 107.2
Depreciation and amortization ........ 16.1 15.4 12.8
Additions to property and equipment .. 38.9 13.2 32.4
Corporate:
Net sales ............................ -- -- --
Operating profit ..................... (5.0) -- --
Identifiable assets at year end ...... 154.0 -- --
Depreciation and amortization ........ -- -- --
Additions to property and equipment .. -- -- --
Consolidated:
Net sales ............................ 1,672.3 1,615.2 1,612.8
-------- -------- --------
Operating profit1 .................... 147.3 104.0 156.7
Interest income, net ................. 14.4 21.1 15.4
-------- -------- --------
Earnings before income taxes
and minority interests .......... $ 161.7 $ 125.1 $ 172.1
-------- -------- --------
Identifiable assets at year end 2 .... $ 788.0 $1,005.2 $ 971.6
Assets of discontinued operations .... 44.1 383.0 420.9
-------- -------- --------
Total assets at year end ............. $ 832.1 $1,388.2 $1,392.5
-------- -------- --------
Depreciation and amortization ........ $ 24.8 $ 20.0 $ 18.7
-------- -------- --------
Additions to property and equipment .. $ 67.4 $ 88.4 $ 46.5
Additions to property and equipment
of discontinued operations ...... 0.9 4.5 12.8
-------- -------- --------
Total additions to property
and equipment ................... $ 68.3 $ 92.9 $ 59.3
-------- -------- --------
Operating profit is defined as total revenues less operating expenses.
Identifiable assets include those assets directly related to each segment's
operations.
1 Includes special charges recorded in connection with the Company's
restructuring. Excluding these charges, operating profit for the fiscal
year ended 1995 would have been $116.1 million for Meldisco, $23.2 million
for Footaction, and $139.3 million for the consolidated Company.
2 Both 1995 and 1994 include the intercompany balance with Melville.
35
<PAGE>
Footstar, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
Summary of Quarterly Results (Unaudited)
Summary data for the years ended December 28, 1996 and December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
($ in millions) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
- ----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Net sales
1996 .............................. $336.9 $419.0 $432.7 $483.7 $1,672.3
1995 .............................. 325.8 421.8 412.4 455.2 1,615.2
Gross profit
1996 .............................. $ 93.6 $138.1 $135.1 $160.8 $ 527.6
1995 .............................. 90.2 130.0 125.3 145.2 490.7
Income from continuing
operations before cumulative
effect of change in
accounting principle
1996 .............................. $ 6.1 $ 22.2 $ 19.0 $ 23.8 $ 71.1
1995 .............................. 5.6 20.6 17.9 5.3 49.4
Income (loss) before
cumulative effect of change
in accounting principle
1996 .............................. $(48.5) $ 24.0 $ 19.0 $ 23.8 $ 18.3
1995 .............................. 1.6 21.3 18.3 (18.6) 22.6
Net income (loss)
1996 .............................. $(48.5) $ 24.0 $ 19.0 $ 23.8 $ 18.3
1995 .............................. (2.3) 21.3 18.3 (18.6) 18.7
</TABLE>
Market Information
The Company's common stock began trading on a when-issued basis on September 25,
1996. During the period September 25, 1996 through December 28, 1996, the stock
traded at a price between $19.50 and $27.00 per share. As of December 28, 1996,
there were 5,285 shareholders of record.
Supplemental Cash Flow Information
Cash payments for income taxes and interest for the three years ended December
28, 1996 were as follows:
- --------------------------------------------------------------------------------
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Income taxes ................................... $7.6 $52.8 $40.6
Interest (net of amounts capitalized) .......... $0.4 $ 0.3 $ 0.6
36
<PAGE>
Footstar, Inc. and Subsidiary Companies
Five-Year Financial Summary
Five-Year Historical Financial Summary
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
($ in millions) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
Statement of Operations Data
<S> <C> <C> <C> <C> <C>
Net sales ......................... $1,672.3 $1,615.2 $1,612.8 $1,474.8 $1,413.8
Cost of sales ..................... 1,144.7 1,124.5 1,117.8 1,011.7 971.5
-------- -------- -------- -------- --------
Gross profit ...................... 527.6 490.7 495.0 463.1 442.3
Store operating, selling, general
and administrative expenses ....... 355.5 343.0 319.6 287.0 266.7
Depreciation and amortization ..... 24.8 20.0 18.7 13.7 10.5
Restructuring and asset
impairment charges ................ -- 23.7 -- -- --
-------- -------- -------- -------- --------
Operating profit1 ................. 147.3 104.0 156.7 162.4 165.1
Interest income, net .............. 14.4 21.1 15.4 11.7 12.5
Provision for income taxes ........ 54.6 37.3 49.5 53.7 54.8
Minority interests in net income .. 36.0 38.4 51.9 47.3 53.8
(Loss) earnings from discontinued
operations, net 2 ................. (52.8) (26.8) 6.0 5.0 (45.2)
Cumulative effect of changes in
accounting principle, net 3 ....... -- (3.9) -- -- (22.1)
-------- -------- -------- -------- --------
Net income ........................ $ 18.3 $ 18.7 $ 76.7 $ 78.1 $ 1.7
-------- -------- -------- -------- --------
Balance Sheet Data
Current assets:
Cash and cash equivalents ......... $ 164.6 $ 26.3 $ 13.9 $ 12.7 $ 10.0
Due from parent and
other divisions ................... -- 710.8 727.7 706.1 731.8
Inventories ....................... 281.9 298.1 347.3 307.1 299.4
Other ............................. 137.6 94.6 101.8 103.8 128.2
-------- -------- -------- -------- --------
Total current assets .............. 584.1 1,129.8 1,190.7 1,129.7 1,169.4
Property and equipment, net ....... 197.0 195.1 163.9 133.0 110.7
Other assets ...................... 51.0 63.3 37.9 38.9 40.4
-------- -------- -------- -------- --------
Total assets ...................... 832.1 1,388.2 1,392.5 1,301.6 1,320.5
-------- -------- -------- -------- --------
Current liabilities ............... 324.7 219.0 168.3 135.1 159.1
Other liabilities ................. 58.5 61.6 82.4 94.5 124.4
Minority interests in
subsidiaries ...................... 65.0 93.8 108.7 93.9 100.2
Divisional equity ................. -- 1,013.8 1,033.1 978.1 936.8
Shareholders' equity ............. 383.9 -- -- -- --
</TABLE>
1 Amounts in 1995 also reflect certain non-recurring special charges.
Operating profit in 1995 excluding the effect of these charges would have
been $139.3 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
2 The Company recorded a pre-tax charge of $85.0 million in the first quarter
of 1996 for the discontinuation of Thom McAn.
3 The charge in 1995 was for the write-off, effective January 1, 1995, of
internally developed software costs that were previously capitalized. The
charge in 1992 was for the adoption of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," effective January 1, 1992.
37
<PAGE>
Directors
Dr. George S. Day
Professor of The Wharton School
of the University of Pennsylvania
Stanley P. Goldstein
Chairman and Chief Executive Officer
of CVS Corporation
Terry R. Lautenbach
Former Senior Vice President
of IBM Corporation
Bettye Martin Musham
President and Chief Executive Officer
of GEAR HOLDINGS, INC.
Kenneth S. Olshan
Former Chairman and
Chief Executive Officer
of Wells Rich Greene BDDP
J.M. Robinson
Chairman of the Board,
Chief Executive Officer and
President of the Company
M. Cabell Woodward, Jr.
Former Vice Chairman,
Chief Financial Officer and a
Director of ITT Corporation
Officers
Footstar, Inc.
J.M. Robinson
Chairman of the Board,
Chief Executive Officer
and President
Carlos E. Alberini
Senior Vice President and
Chief Financial Officer
Vice Presidents
Joseph C. Caracappa,
Chief Information Officer
Joseph P. Couture, Tax
James T. DeVeau, Logistics
Maureen Richards,
General Counsel and
Corporate Secretary
Donald V. Roach,
Corporate Controller
Marc G. Schuback,
Assistant General Counsel
and Assistant Corporate
Secretary
Brian M. Szames, Treasurer
Meldisco
933 MacArthur Boulevard
Mahwah, NJ 07430
Jeffrey A. Shepard
President and
Chief Executive Officer
Senior Vice Presidents
Glenn D. Mathieu
Randall S. Proffitt
Vice Presidents
Gerald R. Bahlman
Rosemary E. Donahue
Kenneth G. Eckert
Michael E. Hills
Paul J. Holveck
Melville A. Lambert
Robert M. Livorsi
John M. Shaw
Stuart H. Smith
John L. Swem
Gary D. Thomas
Paul J. Trzynka
Leopold J. Van Ree
Henry A. Wansing
Footaction
7880 Bent Branch Drive
Irving, T 75063
Ralph T. Parks
President and
Chief Executive Officer
Senior Vice Presidents
Charles M. Albert
Keith Daly
Homer L. Greer
Vice Presidents
Rick L. Bergien
Steven K. Carnley
Timothy B. Cincotta
Paul L. Dorcas
Nissan Joseph
Eric J. Luthro
Mark W. Mayer
Jose A. Palacios
Timothy S. Renberg
William L. Reynolds, Jr.
Exhibit 21.1
SUBSIDIARIES OF FOOTSTAR, INC.
The registrant is the direct parent corporation of Footstar Center, Inc., a
California Corporation which owns all of the outstanding shares of Footstar
Corporation, a Texas Corporation which owns all of the outstanding shares of
Footaction Center, Inc., a New York Corporation, Meldisco H. C., Inc., a
Minnesota Corporation; Melville Mexico H. C., Inc. a Minnesota corporation;
Melville Altmex H. C., Inc. a Minnesota Corporation and Melville Foreign, Inc.,
a Minnesota Corporation.
Footaction Center owns all of the outstanding shares of Rosedale Open
Country, Inc., a Minneosta Corporation, which owns all of the outstanding shares
of Mall of America Fan Club, Inc. and TM Apache Footaction, Inc. Mall of America
Fan Club, Inc. owns all of the outstanding shares of approximately 348
corporations which operate specialty retail stores is under the Footaction
tradename located in the United Sates, selling brand name athletic footwear and
related apparel for men, women and children.
TM Apache Footaction, Inc. owns all of the outstanding shares of Pheasant
Thom McAn Inc., a New Hampshire corporation which owns all the outstanding
shares of approximately 285 corporations formed to operate specialty retail
stores under the Thom McAn or BOQ tradenames located in the United States,
Puerto Rico or the U. S. Virgin Islands selling men's and women's footwear.
Meldisco H. C., Inc. owns all of the outstanding shares of Miles Shoes
Meldisco Lakewood, Colorado, Inc., a Colorado corporation which owns 51% of the
capital stock of approximately 2,499 corporations and 100% of the common stock
of approximately 1,043 corporations which were formed to operate leased footwear
departments in Kmart or Pay Less Drug Stores all located in the United States,
Puerto Rico, the U. S. Virgin Islands or Guam.
Melville Mexico H. C., Inc., a Minnesota Corporation, Melville Altmex H.
C., Inc., a Minnesota Corporation and Melville Foreign, Inc., a Minnesota
Corporation directly or indirectly own all of the outstanding shares of
approximately 15 foreign subsidiaries involved in the registrants operations in
Mexico, Singapore, Hungary, the Czech Republic and Slovakia.
Several of the subsidiaries referred to in this Exhibit have not yet opened
their stores for business, and several no longer operate any stores. All of the
subsidiaries referred to herein are included in the consolidated financial
statements of the registrant.
The names of other subsidiaries are omitted as, considered in the aggregate
as a single subsidiary, they would not constitute a significant subsidiary.
Exhibit 23
Independent Auditors' Consent
To the Board of Directors and Shareholders
Footstar, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-20731) on Form S-8 of Footstar, Inc. of our report dated February 12, 1997,
relating to the consolidated balance sheets of Footstar, Inc. and Subsidiary
companies as of December 28, 1996 and December 31, 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 28, 1996, and the
related schedule, which report appears or is incorporated by reference in the
December 28, 1996, annual report on Form 10-K of Footstar, Inc.
KPMG Peat Marwick LLP
New York, New York
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 164600
<SECURITIES> 0
<RECEIVABLES> 78100
<ALLOWANCES> 400
<INVENTORY> 281900
<CURRENT-ASSETS> 584100
<PP&E> 256200
<DEPRECIATION> 59200
<TOTAL-ASSETS> 832100
<CURRENT-LIABILITIES> 324700
<BONDS> 0
0
0
<COMMON> 300
<OTHER-SE> 383600
<TOTAL-LIABILITY-AND-EQUITY> 832100
<SALES> 1672300
<TOTAL-REVENUES> 1672300
<CGS> 1144700
<TOTAL-COSTS> 1144700
<OTHER-EXPENSES> 380300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (14400)
<INCOME-PRETAX> 161700
<INCOME-TAX> 54600
<INCOME-CONTINUING> 71100
<DISCONTINUED> (52800)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18300
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
