Amendment No.2 to Credit Agreement


 Exhibit 10.3 
  
 AMENDMENT NO. 2 TO CREDIT AGREEMENT 
  
 This Amendment, dated as of March 21, 2003 (this “Amendment”), is by and among Footstar, Inc. (the
“Lead Borrower”) and Footstar Corporation (collectively, with the Lead Borrower, the “Borrowers”), the financial institutions named as parties hereto as lenders (the “Lenders”), Fleet National Bank,
as swingline lender and as administrative agent (in such capacity, the “Administrative Agent”), Fleet Retail Finance Inc., as collateral agent (in such capacity, the “Collateral Agent”), Congress Financial
Corporation and Wells Fargo Retail Finance, LLC, as syndication agents (in such capacity, the “Syndication Agents”) and JPMorgan Chase Bank, as documentation agent (in such capacity, the “Documentation Agent”).

  
 WHEREAS, the Borrowers, the Lenders, the Administrative Agent,
the Collateral Agent, the Syndication Agents and the Documentation Agent are parties to that certain Credit Agreement dated as of October 18, 2002 (as amended, extended, supplemented or otherwise modified from time to time, the “Credit
Agreement”). Capitalized terms used herein without definition shall have the meanings assigned to them in the Credit Agreement. 
  
 WHEREAS, the Borrowers have requested (i) a waiver of certain financial covenants for the four fiscal quarter period ending December 28, 2002; (ii)
certain modifications to the financial covenants contained in the Credit Agreement; (iii) a waiver of certain representations in connection with the restatement of the accounts payable, the retained earnings and net income of the Lead Borrower and
its Subsidiaries for prior fiscal periods through September 28, 2002 (the “Accounting Restatement Matter”); and (iv) a further extension of time by which they will be required to deliver to the Administrative Agent and the Lenders
their quarterly and annual financial statements and corresponding Compliance Certificates pursuant to Sections 6.1(a), (b) and (c) of the Credit Agreement for the fiscal quarters ending September 28, 2002 and December 28, 2002. 
  
 NOW, THEREFORE, in consideration of the premises set forth above, and for
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers, the Lenders and the Administrative Agent agree as follows: 
  
 1. Waivers Under Credit Agreement. 
  
 (a) The Borrowers have informed the Administrative Agent that they will not know if they will meet the
Leverage Ratio required by Section 7.11(a) of the Credit Agreement or the Interest Coverage Ratio required by Section 7.11(b) of the Credit Agreement; in each case for the Calculation Period ended December 28, 2002, until the Accounting Restatement
Matter is finalized. The Lenders hereby waive any Default or Event of Default existing or arising out of the Borrowers’ failure to comply with the provisions of Sections 7.11(a) and 7.11(b) of the Credit Agreement as of and for the Calculation
Period ending December 28, 2002. 
  
 (b) The
Borrowers have informed the Administrative Agent that the maximum potential impact to earnings with respect to the Accounting Restatement 







 
Matter may be up to $55,000,000 in the aggregate, which amount represents non-cash charges and is in excess of the $35,000,000 previously represented to the
Administrative Agent and the Lenders as the maximum amount at issue. The Lenders hereby waive any Event of Default existing under Section 8.1(c) of the Credit Agreement, as of the date hereof in connection with any increase in potential impact to
earnings with respect to the Accounting Restatement Matter, provided the maximum potential impact to earnings does not exceed $55,000,000 as set forth in Section 5 hereof. 
  
 2. Amendments to Credit Agreement. 
  
 (a) Section 7.11 of the Credit Agreement is hereby amended and restated in its entirety as follows:

  
 “SECTION 7.11 Financial
Covenants. 
  
 (a) Minimum Consolidated
EBITDA. The Lead Borrower and its Subsidiaries shall maintain Consolidated EBITDA at the end of each period ending on the dates set forth below of at least the amounts set forth opposite such date: 
  

	 Period Ending

	  	Minimum Amount


	Fiscal quarter ending March 29, 2003	  	$	9,300,000
	Two fiscal quarters ending June 28, 2003	  	$	33,800,000
	Three fiscal quarters ending September 27, 2003	  	$	59,800,000
	Four fiscal quarters ending January 3, 2004	  	$	89,200,000
	Four fiscal quarters ending April 3, 2004 and each period of four fiscal quarters thereafter	  	 
 
 	Minimum Required
Consolidated EBITDA
(as defined below)

  
 As used herein,
‘Minimum Required Consolidated EBITDA’ shall mean with respect to any period of four fiscal quarters, an amount equal to the lesser of (A) $100,000,000, or (B) the sum of (i) the minimum amount of Consolidated EBITDA required
hereunder for the immediately preceding period of four fiscal quarters, plus (ii) $2,000,000. The calculations set forth in this subsection 7.11(a) shall exclude the non-cash impact of Borrowers’ treatment of the granting of stock
options to employees as an expense pursuant to FAS 123 or any subsequently issued related pronouncements or requirements. 
  

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 (b) Reserved. 
  
 (c) Maximum Capital Expenditures. Neither the Lead Borrower nor any of its Subsidiaries shall make or
agree to make, or incur any obligations with respect to, any Capital Expenditures (excluding Capital Expenditures incurred in connection with Permitted Acquisitions) in excess of $85,000,000 for fiscal year 2002 or $46,000,000 in any fiscal year
thereafter, plus with respect to each such fiscal year, the unused portion, if any, of up to 50% of the maximum base Capital Expenditures amount for the immediately preceding fiscal year (the “Carryforward Amount”), without
giving effect to any Carryforward Amount included therein. For purposes of determining the Carryforward Amount in any fiscal year, Capital Expenditures shall first be applied to reduce any Carryforward Amount from the immediately preceding fiscal
year and then to reduce the maximum amount specified herein. 
  
 (d) Excess Availability. The Lead Borrower and its Subsidiaries shall have no less than $20,000,000 of Excess Availability at all times, except as follows: (i) during the Kmart Reserve Period, (A) at any time
the Kmart Reserve is equal to or greater than $20,000,000, there shall be no Excess Availability requirement under this Section 7.11(d), and (B) at any time the Kmart Reserve is less than $20,000,000, the Excess Availability under this Section
7.11(d) shall be $20,000,000 minus the Kmart Reserve then in effect (but in no event less than zero), (ii) at all times during the period beginning from the date of the payment of the Kmart Dividend in fiscal year 2003 through March 30, 2003,
the Lead Borrower and its Subsidiaries shall be required to have no less than $10,000,000 of Excess Availability under this Section 7.11(d), and (iii) at all times during the period from March 31, 2003 through May 31, 2003, the Lead Borrower and its
Subsidiaries shall be required to have no less than $2,500,000 of Excess Availability under this Section 7.11(d), and (iv) at all times during the period from June 1, 2003 through June 15, 2003, the Lead Borrower and its subsidiaries shall be
required to have no less then $10,000,000 of Excess Availability under this Section 7.11(d).” 
  
 (b) The definition of “Consolidated Adjusted Income” contained in Section 1.1 of the Credit Agreement is hereby amended and
restated in its entirety as follows: 
  
 “‘Consolidated Adjusted Income’ means, for any Calculation Period, the Consolidated Net Income (or loss) from operations of the Lead Borrower and its Subsidiaries, increased for the non-cash portion of any
extraordinary losses or restructuring charges or, without duplication, severance expenses or reduced for extraordinary gains or reversals of restructuring charges or, without duplication, severance expenses taken, in each case to the extent expensed
or included in determining such Consolidated Net Income for such Calculation Period, determined in each 

  

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case on a consolidated basis in accordance with GAAP, provided that the cash effect from such non-cash adjustments from prior periods shall be
recognized and deducted from Consolidated Net income in future fiscal periods to the extent paid or received in such future fiscal periods, and further provided that severance expenses excluded above in determining Consolidated Net Income
shall not exceed $5,000,000 in the aggregate during fiscal year 2003.” 
  
 (c) The following new definition shall be inserted in Section 1.1 of the Credit Agreement in proper alphabetical order: 
  
 “‘Minimum Required Consolidated EBITDA’ has the meaning set forth in Section 7.11(a).” 
  
 (d) The Administrative Agent and each of the Lenders hereby
agree that the time by which the Borrowers shall be required to deliver their annual financial statements under Section 6.1(a), their quarterly financial statements under Section 6.1(b), and the corresponding Compliance Certificates under Section
6.1(c) of the Credit Agreement, for the fiscal quarters ended September 28, 2002 and December 28, 2002, respectively, is hereby extended to the earlier of: (i) the date by which the Lead Borrower files with the Securities and Exchange Commission its
Form 10Q report for the fiscal quarter ended September 28, 2002 and its Form 10K report for the fiscal quarter ended December 28, 2002, or (ii) April 30, 2003. 
  

(e) The Form of Compliance Certificate contained in Exhibit G to the Credit Agreement shall be deleted in its entirety and the
Form of Compliance Certificate attached in the appendix hereto shall be substituted therefor. 
  
 (f) The following language shall be inserted in subsection (b) of the definition of Consolidated EBITDA after the words “Consolidated
Adjusted Income”: “plus the portion of interest expense representing amortization of financing costs paid in a previous period”. 
  
 3. Conditions to Effectiveness. The extension contemplated by this Amendment shall become effective upon the satisfaction of the following
conditions: 
  
 (a) the Administrative Agent
shall have received counterparts hereof executed by each of the Required Lenders (and with respect to the effectiveness of the amendment to Section 7.11(d) contained herein, each of the Required Supermajority Lenders), the Administrative Agent and
the Borrowers; 
  
 (b) all representations and
warranties contained in this Amendment shall be true and correct in all material respects; 
  
 (c) no event shall have occurred and be continuing which constitutes an Event of Default or a Default (except as to the specific matters
covered hereby); and 
  

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 (d) the Borrowers shall have paid the fees agreed to be paid by the Borrowers in
connection with this Amendment. 
  
 4. Reference to and
Effect on the Loan Documents. On and after the effective date of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement, as modified by this Amendment, and each reference in the other Loan Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of like import
referring to the Credit Agreement shall mean and be a reference to the Credit Agreement, as modified by this Amendment. The Credit Agreement and all other Loan Documents are and shall continue to be in full force and effect and are hereby in all
respects ratified and confirmed. 
  
 5. Specific
Representations as to the Accounting Restatement Matter. Each of the Borrowers represents and warrants that the maximum potential impact to earnings with respect to the Accounting Restatement Matter does not and will not exceed $55,000,000
in the aggregate. In the event such maximum aggregate amount exceeds $55,000,000, such event shall constitute an Event of Default under Section 8.1(c) of the Credit Agreement. Each of the Borrowers further represents and warrants that the Accounting
Restatement Matter in the aggregate does not and will not negatively affect the Collateral or the Borrowing Base in any manner and except as specifically waived herein, none of the financial covenants set forth in Section 7.11 of the Credit
Agreement will be breached with respect to the fiscal quarter ended September 28, 2002 or thereafter as a result of the Accounting Restatement Matter. In the event the Accounting Restatement Matter in the aggregate negatively affects the Collateral
or the Borrowing Base or in the event any of such financial covenants are breached (except as specifically waived herein) as a result of the Accounting Restatement Matter, the same shall constitute an Event of Default under Section 8.1(c) of the
Credit Agreement. 
  
 6. Miscellaneous. 

 
 (a) Representations and Warranties. Each of the
Borrowers represents and warrants that: 
  
 (i)
it is duly organized, validly existing corporation in good standing under the laws of the jurisdiction of its organization and has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Amendment and has
taken or caused to be taken all necessary corporate action to authorize the execution, delivery and performance of this Amendment; 
  
 (ii) no consent of any other person, including, without limitation, shareholders, creditors or Subsidiaries of either of the Borrowers,
and no action of, or filing with, any governmental or public body or authority, is required to authorize, or is otherwise required in connection with the execution, delivery and performance of, this Amendment; 
  

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 (iii) this Amendment has been duly executed and delivered by a duly authorized officer on
behalf of each of the Borrowers, and constitutes its legal, valid and binding obligations, enforceable in accordance with its terms, except as enforcement thereof may be subject to the effect of any applicable (A) bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors’ rights generally and (B) general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law); and 
  
 (iv) the execution, delivery and performance of this
Amendment will not violate any law, statute or regulation applicable to either of the Borrowers or any order or decree of any court or governmental instrumentality applicable to it, or conflict with, or result in the breach of, or constitute a
default under, any of its contractual obligations. 
  
 (b) No Waiver. Except as to the specific matters covered hereby, nothing herein contained shall constitute a waiver or be deemed to be a waiver, of any existing Default or Event of Default, and the Lenders and the Administrative
Agent are entering into this Amendment without prejudice and hereby reserve all rights and remedies granted to them by the Credit Agreement, by the other Loan Documents, by law and otherwise. 
  
 (c) Counterparts. This Amendment may be executed in
any number of separate counterparts, each of which shall collectively and separately constitute one agreement. Delivery of an executed counterpart of a signature page to this Amendment by facsimile shall be effective as delivery of a manually
executed counterpart of this Amendment. 
  
 (d)
GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES). 
  
 [Signature pages to
follow] 
  

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 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective duly
authorized officers, as of the date first above written. 
  

	 FOOTSTAR, INC., as a Borrower

		
	 By:
	 	 /s/ Kathy Guinnessey


	 	 	 Name:
	 	 Kathy Guinnessey

	 	 	 Title:
	 	 Vice President and Treasurer

	
	 FOOTSTAR CORPORATION, as a Borrower

		
	 By:
	 	 /s/ Kathy Guinnessey


	 	 	 Name:
	 	 Kathy Guinnessey

	 	 	 Title:
	 	 Vice President and Treasurer



  
 Signature Page
to Amendment No. 2 to Credit Agreement 







	FLEET NATIONAL BANK, as Administrative Agent and as Lender
		
	 By:
	 	 /S/    SUZANNE CHOMICZEWSKI


	 	 	 Name:
	 	 SUZANNE CHOMICZEWSKI

	 	 	 Title:
	 	 V.P.

	
	FLEET RETAIL FINANCE INC., as Collateral Agent
		
	 By:
	 	 /S/    KEITH
VERCAUTEREN


	 	 	 Name:
	 	 Keith Vercauteren

	 	 	 Title:
	 	 Vice President



  
 Signature Page
to Amendment No. 2 to Credit Agreement 







	 BACK BAY CAPITAL FUNDING LLC

		
	 By:
	 	 /s/ Michael L. Pizette


	 	 	 Name:
	 	 Michael L. Pizette

	 	 	 Title:
	 	 Managing Director



  
 Signature Page
to Amendment No. 2 to Credit Agreement 







	 CONGRESS FINANCIAL CORPORATION

		
	 By:
	 	 /s/ THOMAS GRABOSKY


	 	 	 Name:
	 	 THOMAS GRABOSKY

	 	 	 Title:
	 	 FIRST VICE PRESIDENT



  
 Signature Page
to Amendment No. 2 to Credit Agreement 







	 WELLS FARGO RETAIL FINANCE, LLC

		
	 By:
	 	 /s/ EUNNIE KIM


	 	 	 Name:
	 	 EUNNIE KIM

	 	 	 Title:
	 	 ASST. VICE PRESIDENT



  
 Signature Page
to Amendment No. 2 to Credit Agreement 







	 JPMORGAN CHASE BANK

		
	 By:
	 	 /s/ Dale A. Pensgen


	 	 	 Name:
	 	 Dale A. Pensgen

	 	 	 Title:
	 	 Vice President










	 THE CIT GROUP/BUSINESS CREDIT, INC.

		
	 By:
	 	 /s/ STEVEN SCHUIT


	 	 	 Name:
	 	 STEVEN SCHUIT

	 	 	 Title:
	 	 VICE PRESIDENT

 TEAM LEADER



  
 Signature Page
to Amendment No. 2 to Credit Agreement 







	 UPS CAPITAL CORPORATION

		
	 By:
	 	 /s/ Charles Johnson


	 	 	 Name:
	 	 Charles Johnson

	 	 	 Title:
	 	 Senior Vice President



  
 Signature Page
to Amendment No. 2 to Credit Agreement 







	 AMSOUTH BANK

		
	 By:
	 	 /s/ KEVIN R. ROGERS


	 	 	 Name:
	 	 KEVIN R. ROGERS

	 	 	 Title:
	 	 ATTORNEY-IN-FACT



  
 Signature Page
to Amendment No. 2 to Credit Agreement 







	 NATIONAL CITY BANK

		
	 By:
	 	 /s/ Thomas J. McDonnell


	 	 	 Name:
	 	 Thomas J. McDonnell

	 	 	 Title:
	 	 Senior Vice President



  
 Signature Page
to Amendment No. 2 to Credit Agreement 







	 ORIX FINANCIAL SERVICES, INC.

		
	 By:
	 	 /s/ Andrew Kosowsky


	 	 	 Name:
	 	 Andrew Kosowsky

	 	 	 Title:
	 	 Vice President



  
 Signature Page
to Amendment No. 2 to Credit Agreement 






 APPENDIX 
  

EXHIBIT G 
  
 FORM OF COMPLIANCE CERTIFICATE 
  
 To be provided. 






 ACKNOWLEDGEMENT AND CONSENT BY GUARANTORS 
  
 Each of the undersigned Guarantors does hereby acknowledge and consent to the
execution, delivery and performance of the within foregoing Amendment, confirms the continuing effect of such Guarantor’s guarantee of the Obligations after giving effect to the foregoing Amendment, and agrees to the provisions of the within
and foregoing Amendment. 
  
 Accepted and agreed to as of March
21, 2003 by the Facility Guarantors: 
  

	 FOOTSTAR CENTER, INC.

	 FOOTACTION CENTER, INC.

	 ATHLETIC CENTER, INC.

	 FA HC, INC.

	 FEET HC, INC.

	 FWS I, INC.

	 FWS II, INC.

	 STELLAR WHOLESALING, INC.

	 FEET CENTER, INC.

	 MELDISCO H.C., INC.

	 APACHE-MINNESOTA THOM MCAN, INC.

	 MILES SHOES MELDISCO LAKEWOOD, COLORADO, INC.

	 MALL OF AMERICA FAN CLUB, INC.

	 NEVADA FEET, INC.

	 FEET OF COLORADO, INC.

	 LFD I, INC.

	 LFD II, INC.

	 LFD OPERATING, INC.

	 FOOTSTAR HQ, LLC

	 SHOE ZONE CENTER, INC.

	 LFD TODAY, INC.

	 ATHLETIC ATTIC OF TEXAS, INC.

	 and each of their Subsidiaries, including all other Facility Guarantors



  

	 By:
	 	 /s/    Authorized Signatory


	 	 	 Duly Authorized Signatory as to all