FOOTSTAR, INC.
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Employment Agreement for Jeffrey Shepard
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FOOTSTAR, INC.
Employment Agreement for Jeffrey Shepard
PAGE
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
5.
Disability..............................................................4
9. Reimbursement of Business
and Other Expenses; Perquisites...............5
10. Termination of
Employment...............................................5
11. Confidentiality; Cooperation
with Regard to Litigation.................14
12.
Non-competition........................................................15
13. Non-solicitation of
Employees..........................................16
14.
Remedies...............................................................16
15. Resolution of
Disputes.................................................17
16.
Indemnification........................................................17
17. Excise Tax
Gross-Up....................................................18
18. Effect of Agreement on Other
Benefits..................................19
19. Assignability; Binding
Nature..........................................20
20.
Representation.........................................................20
21. Entire
Agreement.......................................................20
22. Amendment or
Waiver....................................................20
23.
Severability...........................................................20
24.
Survivorship...........................................................21
25.
Beneficiaries/References...............................................21
26. Governing
Law/Jurisdiction.............................................21
27.
Notices................................................................21
28.
Headings...............................................................22
29.
Counterparts...........................................................22
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EMPLOYMENT 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 Jeffrey Shepard
(the "Executive").
WITNESSETH:
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.
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(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.
(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
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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
$360,000, 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 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
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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 (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
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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 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
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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 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;
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(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 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
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(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 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;
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(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 1 5 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 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
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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
B
