Exhibit 10.1
   
EMPLOYMENT AGREEMENT

 

THIS AGREEMENT made February 9th, 2005, between FOOT LOCKER, INC., a New York
corporation with its principal office at 112 West 34 Street, New York, New York
10120 (the “Company”) and Matthew D. Serra (the “Executive”).

 

WHEREAS, the Executive presently serves as the Chairman of the Board, President
and Chief Executive Officer of the Company, pursuant to the provisions of the
Employment Agreement between the Company and the Executive dated January 21,
2003, as amended (the “2003 Agreement”); and

 

WHEREAS, the Company desires to continue to employ Executive as its Chairman of
the Board, President and Chief Executive Officer, and Executive is willing to
serve in such capacity; and

 

WHEREAS, the Company and Executive desire to set forth the terms and conditions
of such employment;

 

NOW, THEREFORE, in consideration of these premises and of the mutual covenants
and agreements herein contained, the Company and Executive hereby agree as
follows:

 

1.

Employment and Term. The Company hereby agrees to employ Executive, and
Executive hereby agrees to serve, as its Chairman of the Board, President and
Chief Executive Officer, subject to the terms and conditions set forth herein.
The initial term of this agreement shall commence on January 30, 2005 (the
“Commencement Date”) and shall end on February 2, 2008 (the “Initial Term”),
unless further extended or sooner terminated as hereinafter provided. Unless the
Company notifies the Executive or the Executive

 

 

 

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notifies the Company on or before January 31, 2007, with regard to the Initial
Term, and any January 31 of any year thereafter, with regard to renewal terms,
that the term shall not be extended, then as of such date, the term of the
agreement shall be automatically extended for an additional year. The Initial
Term together with any renewal terms are hereinafter referred to as the
“Employment Period”.

2.

Position and Duties. Executive shall continue to serve as the Chairman of the
Board, President and Chief Executive Officer of the Company, reporting only to
the Board of Directors (the “Board”). Executive shall have such
responsibilities, duties and authority as are commensurate with his status as
Chairman of the Board, President and Chief Executive Officer as may from time to
time be determined or directed by the Board. Executive shall devote
substantially all of his working time and efforts to the business and affairs of
the Company and its respective subsidiaries and affiliates; provided, however,
that the Executive may serve on the boards of directors of other for-profit
corporations, if such service does not conflict with his duties hereunder or his
fiduciary duty to the Company. It is further understood and agreed that nothing
herein shall prevent the Executive from managing his passive personal
investments (subject to applicable Company policies on permissible investments),
and (subject to applicable Company policies) participating in charitable and
civic endeavors, so long as such activities do not interfere in more than a de
minimis manner with the Executive’s performance of his duties hereunder.

 

3.

Place of Performance. In connection with his employment by the Company,
Executive shall be based at the principal executive offices of the Company in
the New York metropolitan area, or such other place in the United States to
which the Company may hereafter relocate its principal executive offices. In the
event of such relocation outside of the New York metropolitan area, the Company
will pay the reasonable costs of the relocation of the principal

 

 

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residence of Executive, and provide such other relocation assistance as the
Company then provides to its comparably situated senior executive employees.

 

4.

Compensation. As full compensation for the services of Executive hereunder, and
subject to all of the provisions hereof:

 

(a)

During the Employment Period, the Company shall pay Executive a base salary at
such rate per year as may be fixed by the Compensation and Management Resources
Committee of the Board of Directors (the “Compensation Committee”) from time to
time, but in no event at a rate of less than $1,500,000 per year, to be paid in
substantially equal monthly installments, in accordance with the normal payroll
practices of the Company (the "Base Salary").

 

(b)

During the Employment Period, Executive shall be entitled to participate in all
bonus, incentive, and equity plans that are maintained by the Company from time
to time during the Employment Period for its comparably situated senior
executive employees in accordance with the terms of such plans at the time of
participation. The Company may, during the Employment Period, amend or terminate
any such plan, to the extent permitted by the respective plan, if such
termination or amendment occurs pursuant to a program applicable to all
comparably situated executives of the Company and does not result in a
proportionally greater reduction in the rights or benefits of Executive as
compared with any other comparably situated executives of the Company. During
each year of the Employment Period, the annual bonus payable to Executive at
target shall be 125 percent of Executive's then-current Base Salary. The bonus
payable to Executive at target under the Long-Term Incentive Compensation Plan
for any three-year performance period shall be 90 percent of Executive’s Base
Salary at the beginning of such performance period.

 

 

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(c)

During the Employment Period, Executive shall be eligible to participate in all
pension, welfare, and fringe benefit plans, as well as perquisites, maintained
by the Company from time to time for its comparably situated senior executive
employees in accordance with their respective terms as in effect from time to
time. These shall include (i) Company-paid life insurance in the amount of
Executive’s annual Base Salary, (ii) long-term disability insurance coverage of
$25,000 per month; (iii) annual out-of-pocket medical expense reimbursement of
up to $20,000 per year; (iv) reimbursement of financial planning expense of up
to $7,500 per year; (v) participation in the Supplemental Executive Retirement
Plan (prorated for any partial plan year included in the Employment Period);
(vi) eligibility to participate in the Deferred Compensation Plan; and (vii)
annual reimbursement of dues and membership fees of one private club of up to
$20,000 per year. The Company acknowledges that upon the commencement of his
employment with the Company Executive was treated as if he had been credited
with five years of service under the provisions of the Foot Locker Retirement
Plan, and Executive acknowledges that any increased amount of pension payable to
him as a result of such credit may be payable from the Foot Locker Excess Cash
Balance Plan or a similar non-qualified plan of the Company.

 

(d)

During the Employment Period, Executive shall be entitled to receive
reimbursement for all reasonable and customary expenses incurred by him in
performing services hereunder, including all travel and living expenses while
away from home on business at the request of the Company, provided such expenses
are incurred and accounted for in accordance with the Company's applicable
policies and procedures.

   

(e)

Executive shall be entitled to 20 vacation days each calndar year. Unused
vacation shall be forfeited.

 

 

 

 

 

 

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(f)

During the Employment Period, Executive shall be eligible to receive stock
option grants as may be determined from time to time by the Compensation
Committee and subject to the provisions of the applicable stock option and award
plan of the Company. To the extent permissible under the terms of such
applicable plan, all stock options currently held by Executive or that may be
granted to Executive during the Employment Period shall become immediately
exercisable upon a Change in Control (as defined in Attachment A hereto).

 

(g)

No later than February 28, 2005, Executive shall be granted 105,000 shares of
restricted stock (the “Restricted Stock”) under, and pursuant to the provisions
of, the 2003 Stock Option and Award Plan of the Company and the terms of a
restricted stock agreement essentially in the form of Attachment B hereto.
During the Employment Period, Executive shall be eligible to receive additional
restricted stock grants (the “Future Restricted Stock”) as may be determined
from time to time by the Compensation Committee and subject to the provisions of
the applicable stock option and award plan of the Company.

 

(h)

No later than February 28, 2005, Executive shall be granted an option to
purchase 115,000 shares of Common Stock of the Company under, and pursuant to
the provisions of, the 2003 Stock Option and Award Plan. One-third of such
option shall vest on each of the first and second anniversaries of the date of
grant, and the final third of such option shall vest on February 1, 2008.

 

(i)

The Company shall reimburse Executive the reasonable legal fees (based on hourly
rates) and disbursements incurred by him in connection with negotiating and
preparing this employment agreement, provided that in no event shall the amount
of such reimbursement exceed $15,000.

   

(j)

The Company shall reimburse Executive the costs associated with an

 

 

 

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automobile of a type to be reasonably agreed upon by the Company and Executive,
such costs to include monthly lease payments, garaging, insurance, fuel, and
maintenance; provided, however, that the total amount of such payments shall not
exceed $40,000 per year, and the Company, at its sole expense, shall provide
Executive with the services of a full-time driver.

5.

Termination.

 

(a)

The Employment Period shall terminate upon the earliest of the following:

 

 

(i) the death of Executive;    

(ii)

if, as a result of the incapacity of Executive due to physical or mental
illness, Executive shall have been absent from his duties hereunder on a full
time basis for 180 days, and within 30 days after written notice of termination
is given (which may occur before or after the end of such 180 day period) he
shall not have returned to the performance of his duties hereunder on a full
time basis; or

 

(iii)

if the Company terminates the employment of Executive hereunder for Cause. For
purposes of this agreement, the Company shall have "Cause" to terminate the
employment of Executive hereunder upon (A) his willful and continued failure to
substantially perform his duties hereunder (other than any such failure
resulting from his incapacity due to physical or mental illness), (B) his
willful engagement in misconduct that is materially injurious to the Company,
monetarily or otherwise, (C) the willful breach by the Executive of any material
provision of this Agreement, which breach is not cured within 10 business days
from the date of the Company’s notice of the occurrence of such

 

 

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breach to the Executive, or (D) the Executive’s being convicted of a felony
(other than a traffic violation).

(b)

If the Company shall terminate the employment of Executive pursuant to the
provisions of paragraph (a) above, it shall have no further liability or
obligation hereunder except (i) to pay promptly to Executive his then-current
Base Salary through the date of the termination of Executive’s employment (the
“Termination Date”), and (ii) Executive shall receive benefits, if any, and have
the rights afforded by the Company, under its then-existing policies, to
employees whose employment is terminated for death, disability, or cause, as the
case may be, or under the specific terms of any welfare, fringe benefit, or
incentive plan.

 

(c)

If the employment of Executive is terminated by the Company during the
Employment Period for any reason other than those set forth in Section 5(a) or
if the Company breaches any material provision of this agreement, which breach
is not corrected within 30 days following written notice to the Company, and
Executive thereupon elects to terminate his employment hereunder, the Restricted
Stock and any of the restricted stock granted pursuant to the 2003 Agreement
(the “2003 Restricted Stock”) not previously vested shall become fully vested as
of the Termination Date and the Company shall make the following payments and
provide the following benefits to Executive: Until the earliest of (i) February
2, 2008 or, if the Employment Period has been extended beyond the Initial Term
pursuant to the provisions of Section 1 hereof, the end of the Employment Period
(ii) his death, or (iii) his breach of the provisions of Section 8 hereof, (A)
the Company shall make payments to Executive, no less frequently than monthly,
calculated at his then-applicable annual rate of Base Salary; (B) the Company
shall pay to Executive, with respect to the fiscal year in which such
termination occurs, the annual bonus that Executive would otherwise have earned
under the annual bonus plan

 

 

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applicable to Executive if such termination had not occurred, prorated as of the
Termination Date; (C) with respect to the performance period under the Long-Term
Incentive Compensation Plan that ends on the last day of the fiscal year in
which the employment of Executive is terminated, the Company shall pay to
Executive the payment under the Long-Term Incentive Compensation Plan that
Executive would otherwise have earned with respect to such performance period if
such termination had not occurred, prorated as of the Termination Date; and (D)
the Company shall provide Executive for a period of one year following the
Termination Date, at no cost to Executive, with out-placement at a level
commensurate with that provided by the Company to other comparably situated
executives. The payments specified in clause (A) of the preceding sentence (the
“Clause A Payments”) shall commence on the Termination Date or such later date
provided for under Section 409A of the Internal Revenue Code of 1986, as
amended, and the regulations issued or to be issued by the Department of the
Treasury thereunder (“Section 409A”) without triggering adverse tax consequences
to the Executive under Section 409A, provided, however, that if the Clause A
Payments commence more than 30 days following the Termination Date, the first
such payment shall equal the sum of all Clause A Payments that would have been
made from the Termination Date to the date of such first payment were it not for
the restriction contained in this sentence; the payments specified in Clause B
of the preceding sentence shall be paid at the same time as other annual bonuses
for the fiscal year in which the Termination Date occurs are paid (but in no
event later than two and one-half months following the end of the fiscal year in
which the employment of Executive is terminated) or on such later date provided
for under Section 409A without triggering adverse tax consequences to the
Executive under Section 409A; and the payments specified in Clause C of the
preceding sentence shall be paid at the same time and in the same manner as
payments under the Long-Term Incentive Compensation Plan

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are made for the performance period that ends on the last day of the fiscal year
in which the Termination Date occurs (but in no event later than two and
one-half months following the end of the fiscal year in which the employment of
Executive is terminated) or such later date provided for under Section 409A
without triggering adverse tax consequences to the Executive under Section 409A.
Executive shall not be required to mitigate the amount of any payment provided
for in this paragraph (c) by seeking other employment, nor shall any amounts to
be received by Executive hereunder be reduced by any other compensation earned.

 

(d)

Notwithstanding anything herein to the contrary, in the event of a Change in
Control, as defined in Attachment A hereto, the Executive shall have the right
to terminate the Employment Period by written notice given within the 30 day
period following three months after such Change in Control. The Employment
Period shall cease upon the giving of such notice. In such event, or in the
event that the Company shall terminate the Executive’s employment without Cause
or the Executive shall terminate his employment for Good Reason during the two
year period after the Change in Control, the amount payable to Executive under
paragraph (c) (A) through (D) above shall be not less than 1.5 times the sum of
his Base Salary and annual bonus at target, such amount to be paid in a lump sum
within 10 days following the Termination Date, or such later date provided for
under Section 409A without triggering adverse tax consequences to the Executive
under Section 409A, and all of the Restricted Stock, Future Restricted Stock,
any 2003 Restricted Stock not previously vested, and any stock options granted
to Executive on or after April 18, 2002 not previously vested shall immediately
become fully vested. For purposes of this paragraph, (i) “Change in Control”
shall have the meaning specified in Attachment A hereto and (ii) “Good Reason”
shall mean (A) any material demotion of Executive or any material reduction in
Executive’s authority or responsibility, except in each case in connection with
the termination of

 

 

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Executive’s employment for Cause or disability or as a result of Executive’s
death, or temporarily as a result of Executive’s illness or other absence; (B)
any reduction in Executive’s rate of Base Salary as payable from time to time;
(C) a reduction in Executive’s annual bonus classification level; (D) a failure
of the Company to continue in effect the benefits applicable to, or the
Company’s reduction of the benefits applicable to, Executive under any benefit
plan or arrangement (including without limitation, any pension, life insurance,
health or disability plan) in which Executive participates as of the date of the
Change in Control without implementation of a substitute plan(s) providing
materially similar benefits in the aggregate to those discontinued or reduced,
except for a discontinuance of, or reduction under, any such plan or arrangement
that is legally required or generally applies to all executives of the Company
of a similar level, provided that in either such event the Company provides
similar benefits (or the economic effect thereof) to Executive in any manner
determined by the Company; or (E) failure of any successor to the Company to
assume in writing the obligations hereunder, or (F) a breach of any other
material provision of this Employment Agreement, which breach is not corrected
within 30 days following written notice to the Company.

6.

Gross-up. (a) In the event that Executive shall become entitled to the payments
and/or benefits provided by Section 5 or any other amounts (whether pursuant to
the terms of this Employment Agreement or any other plan, arrangement or
agreement with (i) the Company, (ii) any person whose actions result in a change
of ownership covered by Section 280G(b)(2) of the Internal Revenue Code of 1986,
as amended (the “Code”) or (iii) any person affiliated with the Company or such
person) as a result of a Change in Control as defined in Attachment A
(collectively the "Company Payments"), and such Company Payments will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and

 

 

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any similar tax that may hereafter be imposed), the Company shall pay to
Executive at the time specified in paragraph (d) below an additional amount (the
"Gross-up Payment") such that the net amount (of the Company Payments and the
Gross-up Payment) retained by Executive, after deduction of any Excise Tax on
the Company Payments and any federal, state and local income tax and Excise Tax
upon the Gross-up Payment provided for by this paragraph (a), but before
deduction for any federal, state or local income tax on the Company Payments,
shall be equal to the Company Payments.

   

(b)

For purposes of determining whether any of the Company Payments and Gross-up
Payments (collectively the "Total Payments") will be subject to the Excise Tax
and the amount of such Excise Tax, (a) the Total Payments shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Code, and
all "parachute payments" in excess of the "base amount" (as defined under
Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax,
unless and except to the extent that, in the opinion of the Company's
independent certified public accountants appointed prior to any change in
ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected by
such accountants (the "Accountants") such Total Payments (in whole or in part)
either do not constitute "parachute payments," represent reasonable compensation
for services actually rendered within the meaning of Section 280G(b)(2) of the
Code in excess of the "base amount" or are otherwise not subject to the Excise
Tax, and (b) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the principles
of Section 280G of the Code.

   

(c)

For purposes of determining the amount of the Gross-up Payment, Executive shall
be deemed to pay federal income taxes at the highest

 

 

 

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marginal rate of federal income taxation in the calendar year in which the
Gross-up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of Executive's residence for
the calendar year in which the Company 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. In the event that the Excise tax is
subsequently determined by the Accountants to be less than the amount taken into
account hereunder at the time the Gross-up payment is made, Executive shall
repay to the Company, at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the prior Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up Payment
attributable to the Excise tax and federal and state and local income tax
imposed on the portion of the Gross-up Payment being repaid by Executive if such
repayment results in a reduction in Excise Tax or a federal and state and local
income tax deduction), plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in
the event any portion of the Gross-up Payment to be refunded to the Company has
been paid to any federal, state or local tax authority, repayment thereof (and
related amounts) shall not be required until actual refund or credit of such
portion has been made to Executive, and interest payable to the Company shall
not be required until actual refund or credit of such portion has been made to
Executive, and interest payable to the Company shall not exceed the interest
received or credited to Executive by such tax authority for the period it held
such portion. Executive and the Company shall mutually agree upon the course of
action to be pursued (and the method of allocating the expense thereof) if
Executive's claim for refund or credit is denied. In the event that the Excise
Tax is later determined by the Accountants or the Internal Revenue Service to
exceed the amount taken into account hereunder at the time the Gross-up Payment
is made (including by reason of any payment the

 

 

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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 or penalties payable with respect to such excess)
at the time that the amount of such excess is finally determined.

 

(d)

The Gross-up Payment or portion thereof provided for in paragraph (c) above
shall be paid not later than the thirtieth day following an event occurring
which subjects Executive 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 Executive on such day an
estimate, as determined in good faith by the Accountants, of the minimum amount
of such payments and the Company shall pay the remainder of such payments or the
Executive shall reimburse the Company for the amount of any over-payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code), subject to further payments pursuant to paragraph (c) hereof, as soon as
the amount thereof can reasonably be determined, but in no event later than the
ninetieth day after the occurrence of the event subjecting Executive to the
Excise Tax.

 

(e)

The Company shall be responsible for all charges of the Accountants.

 

7.

Indemnification. The Company agrees that the Executive shall be entitled to the
benefits of the indemnity provisions set forth in the Certificate of
Incorporation and the By-laws from time to time in accordance with their terms
both during his employment and thereafter with regard to his actions as an
officer or director of the Company. In addition, the Company agrees to continue
in effect for the benefit of the Executive during the Employment Period
directors’ and officers’ liability insurance of the type and in the amount
currently maintained by the Company to the extent such insurance is available at
a premium cost which the

 

 

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Company considers reasonable and, thereafter, with regard to his prior
activities as an officer or director, such insurance as is maintained for active
directors and officers.

 

8.

Confidential Information and Non-Competition.

 

(a)

Executive agrees that during the Employment Period and thereafter he shall not
disclose, at any time, to any person, or use for his own account, nonpublic
information of any kind concerning the Company or any of its subsidiaries or
affiliates, including, but not limited to, nonpublic information concerning
finances, financial plans, accounting methods, strategic plans, operations,
personnel, organizational structure, methods of distribution, suppliers,
customers, client relationships, marketing strategies, store lists, real estate
strategies, or the like ("Confidential Information"). During such period,
Executive shall not, without the prior written consent of the Company, unless
compelled pursuant to the order of a court or other body having jurisdiction
over such matter and unless required by lawful process or subpoena, communicate
or divulge any Confidential Information to anyone other than the Company and
those designated by the Company. Executive agrees that during the Employment
Period he will not breach his obligations to comply with the provisions of the
Code of Business Conduct of the Company, as in effect on the date hereof and as
may be amended from time to time.

 

(b)

Executive recognizes that Confidential Information has been developed by the
Company and its affiliates at substantial cost and constitutes valuable and
unique property of the Company. Executive acknowledges that the foregoing makes
it reasonably necessary for the protection of the Company's interests, in view
of the position Executive has held with the Company, that Executive not compete
with the Company or its affiliates during the Employment Period and for a
reasonable and limited period thereafter. Therefore, Executive agrees that
during the term of this agreement and for a period of two years thereafter,

 

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Executive shall not engage in Competition. As used herein, "Competition" shall
mean (i) participating, directly or indirectly, as an individual proprietor,
stockholder, officer, employee, director, joint venturer, investor, lender,
consultant, or in any capacity whatsoever (within the United States of America,
or in any country where the Company or any of its subsidiaries or affiliates
does business) in (A) a business in competition with the retail, catalog, or
on-line sale of athletic footwear, athletic apparel, and sporting goods
conducted by the Company or any of its subsidiaries or affiliates (the "Athletic
Business") or (B) a business that in the prior fiscal year supplied product to
the Company or any of its subsidiaries or affiliates for the Athletic Business
having a value of $20 million or more at cost to the Company or any of its
subsidiaries or affiliates; provided, however, that (X) such participation shall
not include the mere ownership of not more than 1 percent of the total
outstanding stock of a publicly traded company and (Y) a department store or
general or merchandise store shall not be a business in competition with any
business conducted by the Company; or (ii) the intentional recruiting,
soliciting or inducing of any employee or employees of the Company or any of its
subsidiaries or affiliates to terminate their employment with, or otherwise
cease their relationship with, the Company or any of its subsidiaries or
affiliates where such employee or employees do in fact so terminate their
employment.

   

(c)

Executive agrees (i) that his services are special and extraordinary, (ii) that
a violation of his commitment not to disclose Confidential Information or
otherwise to engage in acts of Competition would immediately and irreparably
harm the Company, and (iii) that such harm would be incapable of adequate
remediation by money damages. Accordingly, Executive agrees that this paragraph
8 may be enforced by injunction, and that he will interpose no objection or
defense to such enforcement. Enforcement by injunction shall not bar the Company
from any other legal or equitable remedies to which it may be entitled for such
violation. If any restriction set forth with regard to

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Competition is found by any court of competent jurisdiction to be unenforceable
because it extends for too long a period of time or over too great a range of
activities or in too broad a geographic area, it is the intention of the parties
that the court should interpret and enforce such restriction to its fullest
lawful extent.

9.

2003 Agreement. The 2003 Agreement is hereby terminated, effective as of January
29, 2005, without further obligation of either party to the other, and shall
thereafter be of no force and effect. Notwithstanding the foregoing, the parties
acknowledge that they are parties to Restricted Stock Agreements dated February
2, 2003, September 11, 2003, and February 18, 2004; Stock Option Agreements
dated February 12, 2001, April 18, 2002, September 11, 2003, and February 18,
2004; and an Indemnification Agreement dated February 9, 2000, which agreements
shall remain in full force and effect in accordance with their terms.

 

 

10.

Assignment. This agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs, and permitted assigns.
This agreement is personal to Executive and neither this agreement or any rights
hereunder may be assigned by him. 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 pursuant to a merger or
consolidation in which the Company is not the continuing entity, or pursuant to
a sale 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.

 

11.

Arbitration. Any controversy or claim arising out of or relating to this
agreement, or the breach thereof, shall be settled by arbitration in the City of

 

 

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New York, in accordance with the rules of the American Arbitration Association
(the "AAA"); provided, however, that this Section shall not apply to Section 8
herein. The decision of the arbitrator(s) shall be final and binding on the
parties hereto and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. The costs assessed by the AAA
for arbitration shall be borne equally by both parties.

 

12.

Notice. Any notice to either party hereunder shall be in writing, and shall be
deemed to be sufficiently given to or served on such party, for all purposes, if
the same shall be personally delivered to such party, or sent to such party by
registered mail, postage prepaid, in the case of Executive, at his principal
residence address as shown in the records of the Company, and in the case of the
Company, to the General Counsel, Foot Locker, Inc., 112 West 34 Street, New
York, New York 10120. Either party hereto may change the address to which
notices are to be sent to such party hereunder by written notice of such new
address given to the other party hereto. Notices shall be deemed given when
received if delivered personally or three (3) days after mailing if mailed as
aforesaid.

 

 

13.

Applicable Law. This agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York applicable to contracts
between residents of such state to be performed therein.

   

14.

Internal Revenue Code Section 409A. The parties hereto recognize that certain
provisions of this agreement may be affected by Section 409A and they therefore
agree to negotiate in good faith to amend the contract with respect to any
changes necessary or advisable to comply with Section 409A.

   

 

 

 

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15.

Miscellaneous.

 

(a)

This agreement represents the entire understanding of the parties hereto,
supersedes any prior understandings or agreements between the parties, and the
terms and provisions of this agreement may not be modified or amended except in
a writing signed by both parties.

 

(b)

No waiver by either party of any breach by the other party of any condition or
provision contained in this agreement to be fulfilled or 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. Except to the extent otherwise
specifically provided herein, any waiver must be in writing and signed by you or
an authorized officer of the Company, as the case may be.

 

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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Employment Agreement as of the day and year first above written.

 

FOOT LOCKER, INC.

 

 

    /s/ James E. Preston     James E. Preston
Chair
Compensation and Management
   Resources Committee            /s/ Matthew D. Serra
Matthew D. Serra

 

 

 

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Attachment A

 

Change in Control

 

A Change in Control shall mean any of the following: (i) (A) the making of a
tender or exchange offer by any person or entity or group of associated persons
or entities (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934) (a "Person") (other than the Company or its
Affiliates) for shares of common stock pursuant to which purchases are made of
securities representing at least twenty percent (20%) of the total combined
voting power of the Company's then issued and outstanding voting securities; (B)
the merger or consolidation of the Company with, or the sale or disposition of
all or substantially all of the assets of the Company to, any Person other than
(a) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving or parent entity) fifty percent (50%) or more of the combined voting
power of the voting securities of the Company or such surviving or parent entity
outstanding immediately after such merger or consolidation; or (b) a merger or
capitalization effected to implement a recapitalization of the Company (or
similar transaction) in which no Person is or becomes the beneficial owner,
directly or indirectly (as determined under Rule 13d-3 promulgated under the
Securities Exchange Act of 1934), of securities representing more than the
amounts set forth in (C) below; (C) the acquisition of direct or indirect
beneficial ownership (as determined under Rule 13d-3 promulgated under the
Securities Exchange Act of 1934), in the aggregate, of securities of the Company
representing twenty percent (20%) or more of the total combined voting power of
the Company's then issued and outstanding voting securities by any Person acting
in concert as of the date of this Agreement; provided, however, that the Board
may at any time and from time to time and in the sole discretion of the Board,
as the case may be, increase the voting security ownership percentage threshold
of this item (C) to an amount not exceeding forty percent (40%); or (D) the
approval by the shareholders of the Company of any plan or proposal for the
complete liquidation or dissolution of the Company or for the sale of all or
substantially all of the assets of the Company; or (ii) during any period of not
more than

 

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two (2) consecutive years, individuals who at the beginning of such period
constitute the Board, any new director (other than a director designated by a
person who has entered into agreement with the Company to effect a transaction
described in clause (i)) whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof.

 

 

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Attachment B

 

RESTRICTED STOCK AWARD AGREEMENT

 

This Restricted Stock Award Agreement (the "Agreement") made as of February
         , 2005 by and between Foot Locker, Inc., a New York corporation with
its principal office located at 112 West 34th Street, New York, New York 10120
(the "Company") and Matthew D. Serra (the "Executive").

 

On January 25, 2005, the Stock Option Sub-Committee of the Compensation and
Management Resources Committee (the “Compensation Committee”) of the Board of
Directors of the Company approved the grant to the Executive effective as of
February           , 2005 (the "Date of Grant") of an award of 105,000 shares of
Restricted Stock under the 2003 Stock Option and Award Plan (the "Plan"),
subject to the terms of the Plan and the restrictions set forth in this
Agreement.

 

1.

Grant of Shares

 

The Company is transferring to the Executive 105,000 shares of validly issued
Common Stock of the Company, par value $.01 per share (the “Restricted Stock”).
Such shares are fully paid and nonassessable and upon transfer shall be validly
issued and outstanding. The shares are subject to certain restrictions pursuant
to Section 3 hereof, which restrictions shall expire as provided in Section 3.3
hereof.

 

2.

Restrictions on Transfer

 

The Employee shall not sell, transfer, pledge, hypothecate, assign or otherwise
dispose of the Restricted Stock, except as set forth in this Agreement. Any
attempted sale, transfer, pledge, hypothecation, assignment or other disposition
of the shares in violation of this Agreement shall be void and of no effect and
the Company shall have the right to disregard the same on its books and records
and to issue "stop transfer" instructions to its transfer agent.

 

3.

Restricted Stock

 

3.1       Deposit of Certificates. The Executive will deposit with and deliver
to the Company the stock certificate or certificates representing the Restricted
Stock, each duly endorsed in blank or accompanied by stock powers duly executed
in blank. In the event the Executive receives a stock dividend on the Restricted
Stock or the Restricted Stock is split or the Executive receives any other
shares, securities, monies, or property representing a dividend on the
Restricted Stock (other than regular cash dividends on and after the date of
this Agreement) or representing a distribution or return of capital upon or in
respect of the Restricted Stock or any part thereof, or resulting from a
split-up, reclassification or other like changes of the Restricted Stock, or
otherwise received in exchange therefor, and any warrants, rights or options
issued to the Executive in respect

 

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of the Restricted Stock (collectively the "RS Property"), the Executive will
also immediately deposit with and deliver to the Company any of such RS
Property, including any certificates representing shares duly endorsed in blank
or accompanied by stock powers duly executed in blank, and such RS Property
shall be subject to the same restrictions, including that of this Section 3.1,
as the Restricted Stock with regard to which they are issued and shall herein be
encompassed within the term "Restricted Stock."

 

3.2       Rights with Regard to the Restricted Stock. The Restricted Stock has
been transferred from either the Company's treasury or newly issued stock and,
therefore, upon delivery to the Executive will constitute issued and outstanding
shares of Common Stock for all corporate purposes. From and after the date of
transfer, the Executive will have the right to vote the Restricted Stock, to
receive and retain all regular cash dividends payable to record holders of
Common Stock on and after the transfer of the Restricted Stock (although such
dividends shall be treated, to the extent required by law, as additional
compensation for tax purposes if paid on Restricted Stock), and to exercise all
other rights, powers and privileges of a holder of Common Stock with respect to
the Restricted Stock, with the exceptions that (i) the Executive will not be
entitled to delivery of the stock certificate or certificates representing the
Restricted Stock until the restriction period shall have expired and unless all
other vesting requirements with respect thereto shall have been fulfilled, (ii)
the Company will retain custody of the stock certificate or certificates
representing the Restricted Stock and the other RS Property during the
restriction period, (iii) no RS Property shall bear interest or be segregated in
separate accounts during the restriction period and (iv) the Executive may not
sell, assign, transfer, pledge, exchange, encumber or dispose of the Restricted
Stock during the restriction period.

 

3.3

Vesting.

 

Thirty-five thousand shares of Restricted Stock shall become vested and cease to
be Restricted Stock (but still subject to the other terms of the Plan and this
Agreement) on March 15, 2006; 35,000 shares of Restricted Stock shall become
vested and cease to be Restricted Stock (but still subject to the other terms of
the Plan and this Agreement) on March 15, 2007; and 35,000 shares of Restricted
Stock shall become vested and cease to be Restricted Stock (but still subject to
the other terms of the Plan and this Agreement) on February 1, 2008 if the
Executive has been continuously employed by the Company or its subsidiaries
within the meaning of Section 424 of the Internal Revenue Code of 1986, as
amended (the "Control Group") until such date.

 

Other than as may be provided for under Section 3.4 hereof, there shall be no
proportionate or partial vesting in the periods prior to the appropriate vesting
date and all vesting shall occur only on the appropriate vesting date.

 

When any Restricted Stock becomes vested, the Company shall promptly issue and
deliver to the Executive a new stock certificate registered in the name of the

 

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Executive for such shares without the legend set forth in Section 4 hereof and
deliver to the Executive any related other RS Property.

 

In addition, all shares of Restricted Stock shall become immediately vested and
cease to be Restricted Stock upon any Change in Control as defined in Appendix A
hereto.

 

3.4       Forfeiture. In the event of the Executive's death, disability, or
resignation, the Executive shall forfeit to the Company, without compensation,
all unvested shares of Restricted Stock; provided that (i) in the event of the
death or disability of the Executive, or (ii) in the event that the Executive
ceases to be employed by the Company or any subsidiary or affiliate of the
Company as a result of the closing, sale, spin-off or other divestiture of any
operation of the Company, the Compensation Committee, in its sole discretion,
may, but shall not be obligated to, fully vest and not forfeit all or any
portion of the Executive's Restricted Stock; and provided further that in the
event that the employment of the Executive by the Company is terminated in a
manner that gives rise to the payments provided for in Section 5(c) of the
Employment Agreement, the Restricted Stock shall become fully vested as of the
date of the termination of his employment.

 

3.5       Adjustments. In the event of any stock dividend, split up, split-off,
spin-off, distribution, recapitalization, combination or exchange of shares,
merger, consolidation, reorganization or liquidation or the like, the Restricted
Stock shall, where appropriate in the sole discretion of the Compensation
Committee, receive the same distributions as other shares of Common Stock or on
some other basis as determined by the Compensation Committee. In any such event,
the Compensation Committee may, in its sole discretion, determine to award
additional Restricted Stock in lieu of the distribution or adjustment being made
with respect to other shares of Common Stock. In any such event, the
determination made by the Compensation Committee of the Board of Directors shall
be conclusive. The Compensation Committee may, in its sole discretion, at any
time fully vest and not forfeit all or any portion of the Executive's Restricted
Stock.

 

3.6

Withholding. The Executive agrees that, subject to subsection 3.7 below,

 

(a)       No later than the date on which any Restricted Stock shall have become
vested, the Executive will pay to the Company, or make arrangements satisfactory
to the Company regarding payment of, any federal, state or local taxes of any
kind required by law to be withheld with respect to any Restricted Stock which
shall have become so vested; and

 

(b)       The Company shall, to the extent permitted by law, have the right to
deduct from any payment of any kind otherwise due to the Executive any federal,
state or local taxes of any kind required by law to be withheld with respect to
any Restricted Stock which shall have become so vested.

 

 

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3.7       Section 83(b). If the Executive properly elects (as required by
Section 83(b) of the Internal Revenue Code of 1986, as amended) within thirty
(30) days after the issuance of the Restricted Stock to include in gross income
for federal income tax purposes in the year of issuance the fair market value of
such Restricted Stock, the Executive shall pay to the Company or make
arrangements satisfactory to the Company to pay to the Company upon such
election, any federal, state or local taxes required to be withheld with respect
to such Restricted Stock. If the Executive shall fail to make such payment, the
Company shall, to the extent permitted by law, have the right to deduct from any
payment of any kind otherwise due to the Executive any federal, state or local
taxes of any kind required by law to be withheld with respect to such Restricted
Stock, as well as the rights set forth in Section 3.6(c) hereof. The Executive
acknowledges that it is his sole responsibility, and not the Company's, to file
timely the election under Section 83(b) of the Internal Revenue Code of 1986, as
amended, and any corresponding provisions of state tax laws if he elects to
utilize such election.

 

3.8       Special Incentive Compensation. The Executive agrees that the award of
the Restricted Stock hereunder is special incentive compensation and that it,
any dividends paid thereon (even if treated as compensation for tax purposes)
and any other RS Property will not be taken into account as "salary" or
"compensation" or "bonus" in determining the amount of any payment under any
pension, retirement or profit-sharing plan of the Company or any life insurance,
disability or other benefit plan of the Company.

 

3.9       Delivery Delay. The delivery of any certificate representing
Restricted Stock or other RS Property may be postponed by the Company for such
period as may be required for it to comply with any applicable federal or state
securities law, or any national securities exchange listing requirements and the
Company is not obligated to issue or deliver any securities if, in the opinion
of counsel for the Company, the issuance of such shares shall constitute a
violation by the Executive or the Company of any provisions of any law or of any
regulations of any governmental authority or any national securities exchange.

 

4.         Legend. All certificates representing shares of Restricted Stock
shall have endorsed thereon a legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock, substantially in the following
form:

 

"The anticipation, alienation, attachment, sale, transfer, assignment, pledge,
encumbrance or charge of the shares of stock represented hereby are subject to
the terms and conditions (including forfeiture) of the Foot Locker (the
"Company") 2003 Stock Option and Award Plan and an Agreement entered into
between the registered owner and the Company dated as of February
                      , 2005. Copies of such Plan and Agreement are on file at
the principal office of the Company."

 

5.         Not an Employment Agreement. The issuance of the shares of Restricted
Stock hereunder does not constitute an agreement by the Company to continue to
employ

 

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the Executive during the entire, or any portion of the, term of this Agreement,
including but not limited to any period during which the Restricted Stock is
outstanding.

 

6.         Power of Attorney. The Company, its successors and assigns, is hereby
appointed the attorney-in-fact, with full power of substitution, of the
Executive for the purpose of carrying out the provisions of this Agreement and
taking any action and executing any instruments which such attorney-in-fact may
deem necessary or advisable to accomplish the purposes hereof, which appointment
as attorney-in-fact is irrevocable and coupled with an interest. The Company, as
attorney-in-fact for the Executive, may, in the name and stead of the Executive,
make and execute all conveyances, assignments and transfers of the Restricted
Stock, Shares and property provided for herein, and the Executive hereby
ratifies and confirms all that the Company, as said attorney-in-fact, shall do
by virtue hereof. Nevertheless, the Executive shall, if so requested by the
Company, execute and deliver to the Company all such instruments as may, in the
judgment of the Company, be advisable for the purpose.

 

7.

Miscellaneous.

 

7.1       This Agreement shall inure to the benefit of and be binding upon all
parties hereto and their respective heirs, legal representatives, successors and
assigns.

 

7.2       This Agreement constitutes the entire agreement between the parties
and cannot be changed or terminated orally. No modification or waiver of any of
the provisions hereof shall be effective unless in writing and signed by the
party against whom it is sought to be enforced.

 

7.3       This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one contract.

 

7.4       The failure of any party hereto at any time to require performance by
another party of any provision of this Agreement shall not affect the right of
such party to require performance of that provision, and any waiver by any party
of any breach of any provision of this Agreement shall not be construed as a
waiver of any continuing or succeeding breach of such provision, a waiver of the
provision itself, or a waiver of any right under this Agreement.

 

7.5      This Agreement is subject, in all respects, to the provisions of the
Plan, and to the extent any provision of this Agreement contravenes or is
inconsistent with any provision of the Plan, the provisions of the Plan shall
govern.

 

7.6       The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall in no way restrict or modify any of the
terms or provisions hereof.

 

7.7       All notices, consents, requests, approvals, instructions and other
communications provided for herein shall be in writing and validly given or made
when

 

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delivered, or on the second succeeding business day after being mailed by
registered or certified mail, whichever is earlier, to the persons entitled or
required to receive the same, at, in the case of the Company, the address set
forth at the heading of this Agreement and, in the case of the Executive, his
principal residence address as shown in the records of the Company, or to such
other address as either party may designate by like notice. Notices to the
Company shall be addressed to the Chairman of the Compensation and Management
Resources Committee with a copy similarly sent to the General Counsel.

 

7.8       This Agreement shall be governed and construed and the legal
relationships of the parties determined in accordance with the internal laws of
the State of New York.

 

7.9    To indicate your acceptance of the terms of this Restricted Stock Award
Agreement, you must sign and deliver or mail not later than 30 days from the
date hereof, a copy of this Agreement to the General Counsel of the Company at
the address provided in the heading of this Agreement.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.

 

 

FOOT LOCKER, INC.

 

 

By:  

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  Matthew D. Serra  

 

 

 

 

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ACKNOWLEDGMENT

 

 

STATE OF __________

)

 

 

) s.s.:

COUNTY OF ________

)

 

 

 

     On this ________ day of _________ 2005, before me personally appeared
Matthew D. Serra , to me known to be the person described in and who executed
the foregoing agreement, and acknowledged that he executed the same as his free
act and deed.

 

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Notary Public

 

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APPENDIX A

 

Change in Control

 

A Change in Control shall mean any of the following: (i) (A) the making of a
tender or exchange offer by any person or entity or group of associated persons
or entities (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934) (a "Person") (other than the Company or its
Affiliates) for shares of Common Stock pursuant to which purchases are made of
securities representing at least twenty percent (20%) of the total combined
voting power of the Company's then issued and outstanding voting securities; (B)
the merger or consolidation of the Company with, or the sale or disposition of
all or substantially all of the assets of the Company to, any Person other than
(a) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving or parent entity) fifty percent (50%) or more of the combined voting
power of the voting securities of the Company or such surviving or parent entity
outstanding immediately after such merger or consolidation; or (b) a merger or
capitalization effected to implement a recapitalization of the Company (or
similar transaction) in which no Person is or becomes the beneficial owner,
directly or indirectly (as determined under Rule 13d-3 promulgated under the
Securities Exchange Act of 1934), of securities representing more than the
amounts set forth in (C) below; (C) the acquisition of direct or indirect
beneficial ownership (as determined under Rule 13d-3 promulgated under the
Securities Exchange Act of 1934), in the aggregate, of securities of the Company
representing twenty percent (20%) or more of the total combined voting power of
the Company's then issued and outstanding voting securities by any Person acting
in concert as of the date of this Agreement; provided, however, that the Board
of Directors of the Company (referred to herein as the "Board") may at any time
and from time to time and in the sole discretion of the Board, as the case may
be, increase the voting security ownership percentage threshold of this item (C)
to an amount not exceeding forty percent (40%); or (D) the approval by the
shareholders of the Company of any plan or proposal for the complete liquidation
or dissolution of the Company or for the sale of all or substantially all of the
assets of the Company; or (ii) during any period of not more than two (2)
consecutive years, individuals who at the beginning of such period constitute
the Board, and any new director (other than a director designated by a person
who has entered into agreement with the Company to effect a transaction
described in clause (i)) whose election by the Board or nomination for election
by the Company's shareholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof.

 

 

 

 

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