<PAGE>

                                                                 EXHIBIT 10.5(h)

                              FOOTSTAR CORPORATION
                                       AND
                                 FOOTSTAR, INC.

                               CONFIDENTIALITY AND
                            NON-COMPETITION AGREEMENT

            This Agreement among Footstar Corporation, a Texas corporation,
Footstar Inc., a Delaware corporation, (together "Footstar"), and the employee
executing this Agreement below ("Executive") is made and effective
this _______day of _______, 2004 (the "Effective Date").

            WHEREAS, Executive is critical to the success and operation of
Footstar's Meldisco business segment, which primarily engages in the
procurement, sales and marketing of footwear in leased premises located in Kmart
and/or Sears stores;

            WHEREAS, Footstar desires to ensure the continued availability of
the Executive's services and to protect itself against solicitations of
employment of the Executive from Kmart Corporation and/or Sears, Roebuck and
Co., their parents, subsidiaries, affiliates and successors (collectively,
"Kmart").

            WHEREAS, the loss of the Executive to Kmart thereof will potentially
jeopardize Meldisco's business model;

            WHEREAS, Footstar has filed a motion with the Bankruptcy Court for
the Southern District of New York, where it has filed a Chapter 11 case, seeking
approval of the Meldisco Compensation Program, including, without limitation,
the assumption and continuation of an amended Footstar Senior Executive
Retirement Plan and all accrued benefits thereunder, additional retention
bonuses, an increase in severance benefits and authorization for an annual bonus
program in respect of fiscal year 2005, as may be applicable to the Executive
and certain other executives (collectively, the "Retention Incentives") (those
benefits applicable to Executive are identified in Appendix A attached hereto);
and

            WHEREAS, Executive's execution of this Agreement is a condition to
Executive's participation in the Retention Incentives applicable to Executive
(as identified in Appendix A).

            NOW, THEREFORE, in consideration of Executive's eligibility for
participation in the Retention Incentives, Executive's continued employment with
Footstar and the mutual covenants, understandings, representations, warranties,
undertakings and promises hereinafter set forth, and intending to be legally
bound thereby, Footstar and Executive agree as follows:

            1. The Retention Incentives applicable to Executive (as identified
in Appendix A to this Agreement) shall not be effective unless this Agreement is
executed and delivered by the Executive and Footstar.

<PAGE>

            2. Executive acknowledges that during the course of his/her
employment with Footstar, he/she necessarily has had and will have access to and
make use of proprietary information and confidential records of Footstar, its
parents, subsidiaries and affiliates (collectively, referred to herein as "the
Company"). Executive agrees that he/she shall not during his/her employment or
at any time thereafter, directly or indirectly, use for his/her own purpose or
for the benefit of any person or entity other than the Company, nor otherwise
disclose, any proprietary information to any individual or entity, unless such
disclosure has been authorized by the Company or is otherwise required by law.
Executive understands that the term "proprietary information" is information
that was or will be developed or created by or on behalf of the Company,
including without limitation, by the Executive in the course of his/her work for
the Company, or which became or will become known by or was or is conveyed to
the Company, which has commercial value in the Company's business. By way of
illustration, but not limitation, "proprietary information" includes, (a)
information concerning any product, technology, technique or procedure employed
by the Company or under development by or being tested by the Company; (b)
information concerning the Company's policies, prices, systems, methods of
operations, files, contractual arrangements or customers; (c) the Company's
trade secrets and other "know how"; (d) information concerning the structure or
content of the Company's databases; (e) information relating to the Company's
computer software, computer systems, pricing or marketing methods, sales
margins, capital structure, operating results, or business plans; (f)
information concerning the Company's advertisers; (g) information concerning the
Company's suppliers; (h) product and service information and future development
plans; (i) information concerning the Company's finances, including without
limitation financial results, financing, and ownership of the Company; (j)
information regarding the compensation of other executives or of consultants to
the Company; (k) any information which is generally regarded as confidential or
proprietary in any line of business engaged in by the Company; and (1) all
written, graphic and other material relating to any of the foregoing.

            Executive understands that information that is not novel or
copyrighted or patented may nonetheless be proprietary information. The term
"proprietary information" shall not include information generally available to
and known by the public or information that is or becomes available to Executive
on a non-confidential basis from a source other than the Company or the
Company's directors, officers, executives, partners, principals or agents (other
than as a result of a breach of any obligation of confidentiality).

            3. Executive shall not during his/her employment or at any time
thereafter, except as required by law, directly or indirectly publish, make
known or in any fashion disclose any confidential records to, or permit any
inspection or copying of confidential records by, any individual or entity other
than in the course of such individual's or entity's employment or retention by
the Company. For purposes hereof, "confidential records" means all Company
records, correspondence, memoranda, files, manuals, books, lists, financial,
operating or marketing records, magnetic, optical, or electronic or other media
or equipment of any kind which may be in Executive's possession or control or
accessible to Executive which contain any proprietary information. Executive
agrees that all confidential records shall be and remain the sole property of
the Company during Executive's employment with the Company and thereafter.

            4. Upon the termination of Executive's employment, or at any earlier
time as may be requested by the Company, Executive agrees to deliver to the
Company all documents,

                                        2

<PAGE>

computer disks, tapes and electronic media, together with all copies thereof
(whether or not such material constitute proprietary information or confidential
records) obtained in the course of his/her employment.

            5. Executive acknowledges and recognizes the highly competitive
nature of the Company's business and that access to the Company's confidential
records and proprietary information renders Executive special and unique within
the Company's industry. In consideration of Executive's continued employment by
the Company and participation in the Retention Incentives applicable to
Executive (as identified in Appendix A attached hereto), Executive agrees that
during his/her employment by the Company and for a period expiring twelve (12)
months following the earlier of (i) the termination of Executive's employment
with the Company for any reason, or (ii) the termination or expiration of the
Master Agreement between Footstar, Inc. and Kmart Corporation, entered into as
of June 9, 1995 and effective as of July 1, 1995, as amended (the "Restriction
Period"), either for himself/herself or as a principal, agent, stockholder,
director, officer, member, partner, employee, independent contractor, or
consultant of any firm, corporation or association, or for any other person or
entity:

            (a) Executive will not attempt to or own, manage, finance, operate,
control, advise, assist, provide services to or otherwise engage or participate
in any manner in the procurement, sale or marketing of footwear, or the
operation of a footwear business, in each case by or for Kmart or within any
Kmart store.

            (b) Executive shall not directly or indirectly interfere with or
disrupt the relationship, contractual or otherwise, between the Company and (i)
Kmart or (ii) any of the Company's vendors, suppliers or distributors.

            (c) Executive shall not (i) directly or indirectly solicit or
encourage any of the employees, agents, consultants or representatives of the
Company to terminate his, her, or its relationship with the Company, or (ii)
directly or indirectly solicit or encourage any of the employees, agents,
consultants or representatives of the Company to become employees, agents,
representatives or consultants of any other person or entity.

            6. During the Restriction Period, Executive agrees that upon the
earlier of Executive's (a) negotiating with any Competitor (as defined below)
concerning the possible employment of Executive by the Competitor, (b) receiving
an offer of employment from a Competitor, or (c) becoming employed by a
Competitor, Executive will (x) immediately provide notice to the Company of such
circumstances and (y) provide copies of this Agreement to the Competitor.
Executive acknowledges that the Company may provide notice to a Competitor of
Executive's obligations under this Agreement. For purposes of this Agreement,
"Competitor" shall mean any entity (other than the Company) that engages,
directly or indirectly, in the procurement, sale or marketing of footwear, or
the operation of a footwear business, in each case by or for Kmart or within any
Kmart store.

            7. Executive understands that the provisions of this Agreement limit
his/her ability to earn a livelihood in a business similar to the business of
the Company, but permit him to engage in any footwear business that is not
within any Kmart store or operated by or for Kmart or does not otherwise involve
Kmart. Accordingly, Executive agrees and hereby

                                       3
<PAGE>

acknowledges that the consideration provided by Executive's continued employment
by the Company and participation in the applicable Retention Incentives is
sufficient to justify the restrictions contained in such provisions. Executive
further agrees and acknowledges that (i) such provisions are reasonable as to
time and scope of activity to be restrained so as to protect the business
interests of the Company, (ii) such provisions are not unduly burdensome to
Executive and (iii) that he/she will not assert in any forum that such
provisions prevent Executive from earning a living or otherwise are void or
unenforceable or should be held void or unenforceable.

            8. Executive acknowledges and agrees that, by virtue of his/her
position, services, and access to and use of confidential records and
proprietary information, any violation by Executive of any of the undertakings
contained in this Agreement would cause the Company immediate, substantial and
irreparable injury for which it has no adequate remedy at law. Accordingly,
Executive agrees and consents to the entry of an injunction or other equitable
relief by a court of competent jurisdiction restraining any violation or
threatened violation of any undertaking contained in this Agreement. Executive
waives posting of any bond otherwise necessary to secure such injunction or
other equitable relief. Rights and remedies provided for in this Agreement are
cumulative and shall be in addition to rights and remedies otherwise available
to the Company under any other agreement or applicable law.

            9. If any provision of this Agreement, or any part thereof, is held
to be invalid or unenforceable because of the scope or duration of or the area
covered by such provision, Executive and the Company agree that the court making
such determination shall reduce the scope, duration and/or area of such
provision (and shall substitute appropriate provisions for any such invalid or
unenforceable provisions) in order to make such provision enforceable to the
fullest extent permitted by law and/or shall delete specific words and phrases,
and such modified provision shall then be enforceable and shall be enforced. In
the event that any court determines that the time period or the area, or both,
are unreasonable and that any of the covenants is to that extent invalid or
unenforceable, the parties hereto agree that such covenants will remain in full
force and effect, first, for the greatest time period, and second, in the
greatest geographical area that would not render them unenforceable. If any
provision of this Agreement is held to be invalid or unenforceable, the
remaining provisions of this agreement shall nonetheless survive and be enforced
to the fullest extent permitted by law.

            10. Executive represents that his/her entry into and performance of
all the terms of this Agreement and of his/her responsibilities as an Executive
of Footstar does not and will not breach any confidentiality or other agreement
or obligation, whether written or oral, that he/she has with or to any third
party.

            11. This Agreement will be governed by and construed according to
the laws of the State of New Jersey as applied to agreements among New Jersey
residents entered into and to be performed entirely within New Jersey. Any
action arising under this Agreement shall be commenced in a state or federal
court sitting in the State of New Jersey. Footstar and Executive hereby waive
any objection which either now or hereafter have to such jurisdiction and any
defense of inconvenient forum.

                                        4
<PAGE>

            12. This Agreement sets forth the entire agreement and understanding
between Footstar and Executive relating to the subject matter hereof and
supersedes and merges all prior discussions between the parties. No modification
of or amendment to this Agreement, nor any waiver of any rights under this
Agreement, will be effective unless made in writing signed by the party to be
charged. Any subsequent change or changes in Executive's duties, salary or
compensation will not affect the validity or scope of this Agreement.

            13. This Agreement will be binding upon Executive's heirs,
executors, administrators, and other legal representatives and will be for the
benefit of Footstar, its successors and its assigns.

            14. Executive agrees that this Agreement shall be enforceable by,
and may be assigned by Footstar Inc. or Footstar Corporation to, any purchaser
of all or substantially all of their respective businesses or assets, any
successor to Footstar Inc. or Footstar Corporation, or any assignee thereof
(whether direct or indirect, by purchase, merger, consolidation or otherwise).
This Agreement may not be assigned by Executive.

            15. The provisions of this Agreement shall survive the termination
of Executive's employment, any other agreements in connection therewith. The
provisions of this Agreement shall also survive the termination of Footstar's
Chapter 11 case filed in the Bankruptcy Court.

            16. Executive agrees and understands that nothing in this Agreement
shall confer any right with respect to continuation of employment with Footstar,
nor shall it interfere in any way with Executive's right or Footstar's right to
terminate Executive's employment at any time, for any reason, with or without
cause. In addition, Executive agrees that this Agreement does not purport to set
forth all of the terms and conditions of Executive's employment, and that as an
Executive with Footstar, Executive has obligations to Footstar which are not set
forth in this Agreement.

            17. No waiver by Footstar of any breach of this Agreement shall be a
waiver of any preceding or subsequent breach. No waiver by Footstar of any right
under this Agreement shall be construed as a waiver of any other right.

Footstar, Inc.

By: /s/ Dale W. Hilpert                   Executive: Jeffrey A. Shepard
    -----------------------                          -------------------
Print Name: DALE W. HILPERT               Print Name: JEFFREY A. SHEPARD

Title: CEO/CHAIRMAN                       Date: 12/17/04

Date: 1/10/05

                                        5
<PAGE>

                                   APPENDIX A

      TO:  Jeff Shepard
    FROM:  Dale Hilpert
      CC:  Dennis Lee
    DATE:  December 18, 2004
      RE:  COURT APPROVAL OF THE MELDISCO COMPENSATION PROGRAM

We are pleased to advise that the Court has approved your Participation in the
following programs:

1. 2005 AWARDS

   A. 2005 Retention Award. You are eligible to earn an amount equal to 75% of
      your target bonus (65% of your 1/1/2005 base pay or $316,875 to be paid in
      two equal parts and subject to your continued employment through the
      payment dates of July 1, 2005 and January 1, 2006, respectively.

   B. 2005 Performance Incentive Award. You are eligible to earn a performance
      award equal to 100% of your current target bonus opportunity (100% of your
      1/1/2005 base pay or $650,000) based on the achievement of company Free
      Cash Flow(1) related objectives of $70,100,000. Awards will be calculated
      seasonally and paid, subject to your continued employment through the
      payment dates, as soon as practical after July 1, 2005 and January 1,
      2006, based on actual performance against these objectives.

II. SEVERANCE BENEFITS AND PAYMENTS IN CONNECTION WITH SALE OF COMPANY

   In the event of both the Sale of the Company and the failure by the acquiring
   company to offer you a substantially comparable position, you will receive
   the below payments. A Sale of the Company means a sale of all or
   substantially all of the assets or stock of the Company as part of its
   Chapter 11 cases. An offer of "comparable employment" means unless you agree
   otherwise: (i) substantially the same duties as applicable to you immediately
   prior to the Sale and no duties which are inconsistent with your then status
   as an executive; (ii) at least the same salary rate in effect immediately
   prior to the Sale; (in) an equivalent target annual bonus opportunity; (iv)
   substantially comparable employee benefits in the aggregate to the employee
   benefits applicable immediately prior to the Sale, including, without
   limitation, to the extent applicable, severance benefits in effect before the
   approval of the Meldisco Compensation Program, life insurance, retirement
   benefits and supplemental retirement benefits; and (v) a principal place of
   employment that is not more than 35 miles from your principal place of
   employment immediately prior to the Sale.

<TABLE>
<S>                                                                                 <C>
A. Guaranteed severance(2) in lieu of the severance set forth in the attached
   draft letter to you dated May 10, 2004 (the "May Letter") equal to               $2,600,000
                                                                                    ----------
B. The KERP payment set forth in the May letter                                     $  936,000
                                                                                    ----------
C. A fixed SERP payment of                                                          $1,010,300
                                                                                    ----------
D. Plus pro-rata payment (calculated  through the closing date) of any 2005
   Retention and 2005 Performance Awards referred to in Section I above.            $ TBD
</TABLE>

-----------------
(1) Free Cash Flow has the same meaning as set forth in Section 1.42 of the
    Debtor's Plan of Reorganization provided however, the calculation for
    purposes of the 2005 Performance Incentive Plan shall not be a "cumulative"
    calculation, but merely a calculation for the specific time period or season
    being measured. For 2005, the Free Cash Flow target is $70.1 million with a
    target of $42.9 million for the first half of the year and $27.2 million for
    the second half of the year. Such amounts may only be adjusted to reflect
    Kmart store closings in excess of the number of store closings reflected in
    the plan. At target performance 100% of target bonus is payable; at 120% of
    planned performance (maximum) bonus awards will be paid at 200% of target;
    at performance of 80% of target (threshold) 50% of target bonus will be
    paid. For performance between threshold and target and for performance
    between target and maximum, awards are interpolated.

(2) Medical and dental coverage will continue for the duration of the severance
    period, with your payment of the active associate rate. In addition, 24
    months of transition support will be provided through Sight Associates.

<PAGE>

   THE SERP PAYMENT SET FORTH ABOVE IS AN AMOUNT THAT WILL BE PAID TO YOU IN
   FULL SATISFACTION OF ANY OBLIGATIONS OF THE COMPANY TO YOU UNDER THE
   COMPANY'S SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. IN THE EVENT AN ACQUIRER
   OFFERS YOU A COMPARABLE POSITION BUT FOR THE SERP PAYMENT SET FORTH AND
   FOOTSTAR AGREES TO PAY YOU THE SERP LIABILITY DESCRIBED ABOVE, NO SEVERANCE
   BENEFITS WILL BE PAYABLE TO YOU.

                                                   DWH              JS
                                                ---------      --------------
                                                 COMPANY       EXEC. INITIALS

III. SEVERANCE BENEFITS AND PAYMENTS OTHER THAN IN CONNECTION WITH SALE OF
COMPANY

   In the event of your involuntary termination other than in connection with
   the Sale of the Company you will receive the following payments:

<TABLE>
<S>                                                                           <C>
A. Guaranteed severance(2) in lieu of the severance set forth in the May
   Letter equal to                                                            $ 1,950,000
                                                                              -----------
B. The KERP payment set forth in the May Letter of                            $   936,000
                                                                              -----------
C. Plus pro-rata payment (calculated on a daily basis through termination
   date) of any 2005 Retention and 2005 Performance Awards referred to in
   Section I above.                                                           $ TBD
</TABLE>

IV. PARTIAL PAYMENT OF KERP

   Subject to your continued employment through July 1, 2005, you will be paid
   on such date $184,275 in partial satisfaction of the KERP payment set forth
   in the May Letter.

V. PAYMENTS AND BENEFITS IF COMPANY EFFECTS ITS PLAN OF REORGANIZATION

   In the event the Company reorganizes, and subject to your continued
   employment, you will receive the following payments and/or benefits on the
   emergence date:

      A. The balance of any KERP payment due under the May Letter;

      B. The right to participate and be eligible for any awards not yet due or
         paid under the 2005 Retention Plan and 2005 Performance Incentive Plan;
         and

      C. The right to continue to participate in the SERP subject to all the
         terms of and provisions of the SERP that were in place prior to the
         Company's Chapter 11 filing.

VI. CONFIDENTIALITY AND NON-COMPETITION AGREEMENT AND GENERAL RELEASE

   In exchange for your participation in this compensation program, you will be
   required to sign the attached Confidentiality and Non-Competition Agreement,
   which includes an agreement to terminate your employment agreement dated June
   1996, and in the event of your termination, you will be required to sign a
   general release in a form acceptable to the Company in order to receive any
   payments then due.

Executive agrees to maintain the confidentiality of all terms and conditions of
this letter.

/s/ Jeffrey A. Shepard                                          12/17/04
----------------------                                          --------
Executive                                                       Date

Attachments:

<PAGE>

                                                                      APPENDIX B

                      AGREEMENT TO TERMINATE EMPLOYMENT OR
                           CHANGE OF CONTROL AGREEMENT

            This Agreement among Footstar Inc., a Delaware corporation
("Footstar"), and the employee executing this Agreement below ("Executive") is
made and effective this 17th day of December, 2004 (the "Effective Date"). All
initially capitalized terms not defined herein shall have the meaning set forth
in the Confidentiality and Non-Compete Agreement between the parties of even
date herewith ("Non-Compete Agreement").

            NOW, THEREFORE, in consideration of Executive's participation in the
Retention Incentives and the mutual covenants, understandings, and
representations hereinafter set forth, among other valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Footstar and Executive
agree as follows:

      1.    The Retention Incentives applicable to Executive (as identified in
            Appendix A to the Non-Compete Agreement) shall not be effective
            unless this Agreement and the Non-Compete Agreement are executed and
            delivered by the Executive and Footstar.

      2.    The Employment Agreement between Footstar and Executive referenced
            in Appendix A to the Non-Compete Agreement ("Employment Agreement")
            and all of Executive's rights thereunder are hereby terminated and
            its provisions shall be deemed null and void, except as otherwise
            expressly provided herein.

      3.    Executive hereby releases Footstar, Inc., Footstar Corporation or
            any of their respective parents, subsidiaries, affiliates, and each
            of their respective directors, officers, employees, agents and
            representatives (the "Footstar Parties") and their respective
            successors and assigns from all known and unknown claims, causes of
            action, obligations, damages or liabilities arising out of the
            Employment Agreement, and not any other claims, obligations or
            liabilities arising from Executive's employment with Footstar, which
            Executive had, has or may have for any period prior to the date of
            the execution of this Agreement, except that such waiver and release
            shall not apply to or otherwise extinguish any claims for (i)
            benefits arising under Footstar's Supplemental Retirement Plan for
            Senior Management of Footstar, Inc., after taking into account the
            reductions in SERP benefits to which Executive has separately agreed
            in exchange for eligibility for enhanced severance benefits, (ii)
            benefits to which Executive would be entitled under the normal terms
            of any plan of Footstar, and (iii) benefits specifically described
            in Appendix A to the Non-Compete Agreement.

      4.    After this Agreement becomes effective, Executive will be an at-will
            employee of Footstar.

<PAGE>

      5.    Executive agrees that this Agreement shall be enforceable by, and
            may be assigned by Footstar Inc. or Footstar Corporation to, any
            purchaser of all or substantially all of their respective businesses
            or assets, any successor to Footstar Inc. or Footstar Corporation,
            or any assignee thereof (whether direct or indirect, by purchase,
            merger, consolidation or otherwise). This Agreement may not be
            assigned by Executive.

      6.    The provisions of this Agreement shall survive the termination of
            Executive's employment, any other agreements in connection
            therewith. The provisions of this Agreement shall also survive the
            termination of Footstar's Chapter 11 case filed in the Bankruptcy
            Court.

      7.    Executive agrees and understands that nothing in this Agreement
            shall confer any right with respect to continuation of employment
            with Footstar, nor shall it interfere in any way with Executive's
            right or Footstar's right to terminate Executive's employment at any
            time, for any reason, with or without cause. In addition, Executive
            agrees that this Agreement does not purport to set forth all of the
            terms and conditions of Executive's employment, and that as an
            Executive with Footstar, Executive has obligations to Footstar which
            are not set forth in this Agreement.

      8.    This Agreement may be executed in two counterparts, and by different
            parties hereto in separate counterparts, each of which when executed
            shall be deemed to be an original but all of which taken together
            shall constitute one and the same agreement.

      IN WITNESS WHEREOF, Executive has signed his name and Footstar, by the
signature of its duly authorized officer, has executed this Agreement, as of the
date and year first above written.

Footstar, Inc.

By: /s/ Dale W. Hilpert
    -------------------
    Name:
    Title:

Executive

/s/ Jeffrey A. Shepard
----------------------

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