UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-K/A
 (Amendment
No. 1)
 
 (Mark
One)
 x
              ANNUAL
      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
fiscal year ended January 3, 2009
 o
                TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
transition period from _________ to ________
  Commission
File Number 1-11681
 
 FOOTSTAR,
INC.
 (Exact
name of registrant as specified in its charter)
 
 
 Delaware
                
                22-3439443(State
      of Incorporation)
                
                (IRS
      Employer Identification No.)
 
 933
      MacArthur Blvd., Mahwah, New Jersey 07430(Address
      of Principal Executive Offices, including Zip Code)
 
 (201)
      934-2000(Registrant’s
      telephone number, including area code)
 
  Securities
      registered pursuant to Section 12(b) of the Act:
                      NoneSecurities
      registered pursuant to Section 12(g) of the Act:
                      Common Stock, $0.01 Par
      Value(Title
      of Class)
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  o  No x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.  Yes o   No
x
  Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes  x      No
o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes   o     No 
o
  
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large
      accelerated filer
                o
                Accelerated
      filer
                xNon-accelerated
      filer
                  (Do
      not check if a smaller reporting company)
                o
                Smaller
      reporting company
                o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o    No
x
  Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. (The registrant did not distribute new securities under the plan
confirmed by the court; there was no change to the holders of securities as a
result of the registrant’s reorganization.)  Yes  x  No o
 
 For
the purpose of reporting the following market value of the registrant’s common
stock held by non-affiliates, the common stock held by the directors and
executive officers of the registrant have been excluded. The aggregate market
value of the common stock held by non-affiliates of the registrant as of June
30, 2008, was approximately $80.8 million based on the closing price on June 30,
2008 of $4.08 per share.
 
 Number
of shares outstanding of common stock, par value $.01 per share, as of April 3,
2009:  21,577,835.
 
 
  EXPLANATORY
NOTE
 
 Unless
the context requires otherwise, references to “we,” “us,” “our,” “Footstar” and
the “Company” refer specifically to Footstar, Inc. and its
subsidiaries.
 
 Pursuant
to General Instruction G.3 to Form 10-K, this Amendment No. 1 to Form 10-K (the
“Amended Report”) amends the original Annual Report on Form 10-K of the Company
for the fiscal year ended January 3, 2009, filed with the Securities and
Exchange Commission (the “SEC”) on March 9, 2009 (the “Original
Report”).  This Amended Report amends the Original Report solely to
incorporate information required by Part III, Items 10, 11, 12, 13 and 14. As a
result of this amendment, the Company is also filing the certifications required
under Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to the Amended
Report. Except as set forth in Part III and Part IV below, no other changes are
made to the Original Report. Unless expressly stated, this Amended Report does
not reflect events occurring after the filing of the Original Report, nor does
it modify or update in any way the disclosures contained in the Original Report,
which speak as of the date of the original filing. Accordingly, this Amended
Report should be read in conjunction with the Original Report and our other SEC
filings subsequent to the filing of the Original Report.
    
  TABLE
OF CONTENTS
  PagePART
      IIIItem
      10.  Directors, Executive Officers and Corporate
      Governance
                                        1Item
      11.  Executive Compensation
                                        3Item
      12.  Security Ownership of Certain Beneficial Owners and
      Management
                                        33Item
      13.  Certain Relationships and Related Transactions, and
      Director Independence
                                        34Item
      14.  Principal Accounting Fees and Services
                                        35PART
      IVItem
      15.  Exhibits and Financial Statement
    Schedules
                                        36SIGNATURES
                                        37
    
 PARTIII
  ITEM
10.               DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Officers
  The information concerning the
Company’s executive officers set forth in Part I, Item 1 under the caption
“Executive Officers of the Registrant” is incorporated herein by
reference.
  Directors
  Our
Board of Directors (the “Board”) currently consists of seven members divided
into three classes with two directors in two of the classes and three directors
in one of the classes. Directors have been appointed on a staggered term basis,
so that each year the term of office of one class will expire and the terms of
office of the other classes will extend for additional periods of one and two
years, respectively.  Currently, the term of Class III
directors  expires at our 2009 annual meeting; the term of Class I
directors expires at our 2010 annual meeting; and the term of Class II directors
expires at our 2011 annual meeting.  Notwithstanding the expiration
dates of the terms of directors, it is anticipated that following approval of
the Amended Plan of Complete Dissolution and Liquidation of the Company (the
“Plan of Dissolution”) at the Special Meeting of Shareholders scheduled for May
5, 2009, that a Certificate of Dissolution will be promptly filed with the
Secretary of State of Delaware and the size of the Company’s Board will be
reduced from seven to three members with one director serving in each of the
classes. Set forth below are the names of, and certain biographical information
regarding, the directors of the Company.
  Jonathan
M. Couchman, 39, Class
III                                                        Director
Since 2006
  Mr.
Couchman became President and Chief Executive Officer of Footstar effective
January 1, 2009.  Prior to that, on December 9, 2008 Mr. Couchman
became Chief Wind-Down Officer of the Company. He was appointed Chairman of the
Board of Footstar on February 7, 2006.  He is the Managing Member of
Couchman Capital LLC, which is the investment manager of Couchman Investments LP
and Couchman International Ltd., private partnerships established in
2001.  Couchman Capital LLC is also the general partner of Couchman
Partners LLP, a private investment partnership established in
2001.  In addition, Mr. Couchman is the President of Couchman
Advisors, Inc. a management advisory company.  Mr. Couchman currently
serves on the Board of Golf Trust Inc., a position he has held since
2007.  He is a member of the CFA Institute and the New York Society of
Security Analysts and holds a Bachelor of Science in Finance from the California
State University at Chico.
  Eugene
I. Davis, 54, Class
III                                                                      Director
Since 2006
  Presently
Chairman and Chief Executive Officer of PIRINATE Consulting Group, LLC, a
privately-held strategic advisory consulting firm he formed in 1997. From May
2005 to October 2007, Mr. Davis served as Chief Executive Officer of Golden
Northwest Aluminum, Inc., which was an aluminum manufacturing company. From
August 2004 to 2006, Mr. Davis served as Chairman of High Voltage Engineering
Corporation, which designed and manufactured high quality applications and
engineering products. High Voltage Engineering Corporation filed a voluntary
petition for reorganization under Chapter 11 in February 2005. From 2001 to
2004, Mr. Davis served in various executive positions including Chairman, Chief
Executive Officer and President of RBX Industries, Inc., a manufacturer and
distributor of foam products. RBX Industries, Inc. filed a voluntary petition
for reorganization under Chapter 11 in March 2004. From November 2002 until
February 2003, Mr. Davis served in the Office of the Chairman as Co-President
and Chief Executive Officer for Metals USA, Inc., a metal service center
business. Mr. Davis presently serves as Chairman of the Board of Atlas Air
Worldwide Holdings, Inc.  Mr. Davis also serves as a Director of Delta
Air Lines, Inc., American Commercial Lines, Inc., Haights Cross Communication,
Knology, Inc., Rural/Metro Corporation, Salton, Inc., SeraCare Life Sciences,
Inc., Terrestar Corporation and Viskase Companies Inc. Prior to forming PIRINATE
Consulting Group, LLC , Mr. Davis served as the Chief Operating Officer of
Total-Tel USA Communications, Inc. (which was a facilities based provider of
voice, data and Internet solutions to commercial and wholesale carrier markets);
President, Vice Chairman and Director of Emerson Radio Corporation (a consumer
electronics distributor); and Vice Chairman of Sport Supply Group, Inc. (a
direct-marketer of sporting goods and recreational equipment).
  1
  Adam
W. Finerman, 44, Class
II                                                                Director
Since 2006
  Partner
with the law firm of Olshan Grundman Frome Rosenzweig & Wolosky LLP, based
in New York City, since 1998. Mr. Finerman practices in the areas of mergers and
acquisitions, corporate finance and proxy contests. He also counsels corporate
clients on corporate governance practices and related matters, SEC reporting
requirements and other public company obligations.
  Gerald
F. Kelly, 61, Class
II                                                                         Director
Since 2006
  From
November 2005 until his retirement in 2007, Mr. Kelly was Senior Vice President,
Strategic Sourcing and Continuous Improvement and Chief Information Officer of
UAL Corporation, the parent of United Airlines, an air transportation provider.
From 2002 to 2005 he was the Chief Information Officer and Senior Vice President
for Procurement and Continuous Improvement at Sears, Roebuck & Company, a
retailer, and was a member of the Operating, Capital and Contracts, and
Political Action Committees. From 2001 to 2002 he was a business advisor. From
1986 to 2001, Mr. Kelly served as an executive officer of Payless Shoesource,
Inc. (“Payless”) of Topeka, Kansas, a specialty retailer. Mr. Kelly’s last title
at Payless was Senior Vice-President – Logistics, Information Systems and
Technology and he served as a member of Payless’ Senior Management, Operating,
Capital Expenditure, and Political Action Committees. He is a member of The
Alexis de Tocqueville Society of The United Way of America.
  Michael
O’Hara, 41, Class
I                                                                         Director
Since 2006
  Managing
Member and Chief Executive Officer of Consensus Advisory Services LLC and
Consensus Securities LLC an investment banking and financial advisory services
firm, since 2006. From September 2003 to February 2006, he was a Managing
Director of Financo, Inc., a financial advisory firm. In May 2002, Mr. O’Hara
was appointed the President of the liquidating bankruptcy estates of Casual Male
Corp. (and its affiliates), a specialty retailer. From 2000 to 2002, he served
as First Senior Vice President of Corporate Affairs and General Counsel for
Casual Male Corp, and its predecessor, J. Baker, Inc., a specialty retailer.
From April 1996 to January 2000, he served as the head of the real estate and
legal departments of Brookstone, Inc., a specialty retailer. Prior to joining
Brookstone, Inc., Mr. O’Hara practiced corporate law at the law firm Ropes &
Gray in Boston.
  Steven
D. Scheiwe, 48, Class
I                                                                    Director
Since 2007
  President
of Ontrac Advisors, Inc., which provides analysis and management services to
private equity groups, privately held companies and funds managing distressed
corporate debt, since May 2001. Mr. Scheiwe also serves as a director of
FiberTower Corporation (a wireless carrier), Movie Gallery, Inc. (video rental
company), and Hancock Fabrics, Inc. (specialty retailer). Prior to forming
Ontrac, he was the Chief Executive Officer and a Director of Teletrac, Inc., a
wireless location and telecommunications service provider.
  Alan
I. Weinstein, 66, Class
I                                                                    Director
Since 2006
  Principal
of Alan Weinstein Consultants, a business advisor and provider of retail
strategy and consulting services since 2003. Prior to 2003, Mr. Weinstein was
Chairman and Chief Executive Officer of Casual Male Corp., and its predecessor,
J. Baker, Inc., a specialty retailer. Mr. Weinstein has over 34 years of
experience in the retail industry. He is affiliated with AICPA and
NYSCPA.
  Section
16(A) Beneficial Ownership Reporting Compliance
  Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
requires the Company’s officers, directors and more than 10% shareholders to
file reports regarding ownership of the Company’s Common Stock with the SEC, and
to furnish the Company with copies of all such filings. Based on a review of
these filings, the Company believes that all filings were timely made in fiscal
2008.
  2
  Code
of Ethics
  The Company has adopted a code of
business conduct and ethics which applies to the Company’s chief executive
officer, principal financial officer, principal accounting officer, all of the
Company’s directors, and all of its other officers and employees. The code of
business conduct and ethics is available at the Corporate Governance section of
the Company’s website at www.footstar.com, under Code of Conduct and Compliance
Program. A waiver from any provision of the code of business conduct and ethics
in favor of a director or executive officer may only be granted by the Board and
any such waiver will be publicly disclosed. The Company will disclose
substantive amendments to, and any waivers from, the code of business conduct
and ethics provided to the principal executive officer, principal financial
officer or principal accounting officer or controller (or persons performing
similar functions) on the Company’s website at
www.footstar.com.
  Stockholder
Nominations
  There have been no material changes
to the procedures by which stockholders may recommend nominees to the Company’s
Board of Directors.
  Audit
Committee
  The Company has an Audit Committee
established in accordance with Section 3(a) (58) (A) of the Exchange Act. Mr.
Alan Weinstein (Chairperson), Mr. Davis and Mr. Scheiwe are the current members
of the Audit Committee. The Company is not subject to the listing requirements
of any securities exchange or the Nasdaq Stock Market (“Nasdaq”) because the
Common Stock of the Company is quoted on the over-the-counter bulletin board.
However, the Board has adopted the independence criteria established by Nasdaq
for determining director independence and, for all Audit Committee members, the
independence requirements of Nasdaq and the SEC for determining their
independence. The Board has determined that each member of the Audit Committee
is independent in accordance with Nasdaq listing requirements (which the Company
has adopted as its Independence Standards) and Section 10A-3 of the Exchange
Act. The Board also has determined that Messrs. Weinstein and Davis qualify as
an “audit committee financial expert” in accordance with SEC rules. This
designation is an SEC disclosure requirement related to our Audit Committee
members’ experience and understanding of accounting and auditing matters and is
not intended to impose any additional duty, obligation or liability on our Audit
Committee members.
  ITEM
11.  EXECUTIVE
COMPENSATION
  Compensation
Discussion & Analysis
  Our
Business
  The
family footwear business, where the majority of our business was generated, is
highly competitive.
 We
sold family footwear through licensed footwear departments and wholesale
arrangements. The licensed footwear operation sold family footwear and
lower-priced basic and seasonal footwear in Kmart Corporation (“Kmart”) and Rite
Aid Corporation (“Rite Aid”) stores. In our licensed footwear departments, we
generally sold a wide variety of family footwear, including men’s, women’s and
children’s dress, casual and athletic footwear, work shoes and
slippers.
 
 Background
– Our Emergence from Bankruptcy and Our Agreements with Kmart and
Sears
 
 In
March 2004, the Company filed for bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code. During the bankruptcy proceeding, we continued to operate our
business and manage our properties. On February 7, 2006, the Company’s Plan of
Reorganization became effective and we emerged from bankruptcy.
 
 As
part of its emergence from bankruptcy in 2006, substantially all of the
Company’s business operations consisted of running licenses footwear departments
in Kmart stores pursuant to an agreement with Kmart.  This agreement
expired on December 31, 2008. In May 2008, the Board approved a Plan of Complete
Liquidation (the “Original Plan”) for the Company following the expiration of
the agreement with Kmart.  On March 5, 2009, the board approved the
Plan of Dissolution, which reflects technical and legal changes to the Original
Plan consistent with Delaware law and is intended to modify, supersede and
replace the Original Plan.  The Company currently is winding down its
business.  The Company has submitted the Plan of Dissolution for
approval by stockholders at a meeting scheduled for May 5,
2009.
  3
 
 Agreement
with Jonathan Couchman
 
 As is
typically the case with wind-downs, the Board recognized that the Company’s
wind-down would encompass many formal and informal activities.  The
Company’s Board had previously directed management to identify all wind-down
tasks and to begin the process of implementing as many of these tasks prior to
December 31, 2008 as was practical.  Beginning in September 2008, the
Board asked its Chairman, Jonathan M. Couchman, to expand his duties to include
assessing the Company’s preparedness for the wind-down and to make
recommendations to the Board and management about ways to improve recoveries for
the Company’s stakeholders and the manners in which the wind-down may be
expedited.  The Board asked Mr. Couchman to perform these duties in
part due to his understanding of the Company and in order to allow management to
focus as much as possible on driving business performance during the last
quarters of its operations.  In so deciding, the Board took note of
the unprecedented consumer and financial environment in which the Company’s
management was currently operating.
 
 For
his services in this expanded capacity, the Compensation Committee authorized
the payment to Mr. Couchman of $60,000 for each of the months of September and
October, 2008 and $52,000 for the period from November 1, 2008 through December
8, 2008.
 
 On
December 9, 2008, the Board formally appointed Mr. Couchman as its Chief
Wind-Down Officer pursuant to an employment agreement dated December 9,
2008.  In this capacity, Mr. Couchman was given the day-to-day
responsibility of managing the wind-down, including, without limitation, the
disposition of the Company’s assets and any other administrative matters
required in furtherance of the final dissolution of the Company.  The
employment agreement with Mr. Couchman gave the Company the discretion to
appoint Mr. Couchman as its Chief Executive Officer and President as of January
1, 2009, which it did, at which time Mr. Couchman ceased to serve as the
Company’s Chief Wind Down Officer and performed such duties, responsibilities,
and authorities as are specified by the Company and as are customary for a Chief
Executive Officer and President of a publicly held corporation.  This
provided the Company with a transition period of executive leadership as the
employment of the Company’s current Chief Executive Officer, Jeffrey A. Shepard,
terminated on December 31, 2008, contemporaneously with the cessation of the
Company’s footwear business operations.
 
 Mr.
Couchman’s Employment Agreement has a nominal term of December 9, 2008 through
December 8, 2009, but is terminable on thirty (30) days notice by the
Company.  Mr. Couchman receives a base salary of $41,667 per month
(pro rated for partial months) during the term subject to periodic review for
increase or decrease at the discretion of the compensation committee of the
Board.  Mr. Couchman also received 169,492 shares of restricted stock
that vest over time.  Mr. Couchman is not entitled to participate in
any of the Company’s employee benefit programs.
 
 Unless
specifically stated otherwise, all references below to compensation of the
“named executive officers” excludes the compensation to Mr. Couchman in his
capacity as an executive officer which is summarized above.
 
 Overview
and Objectives of the Three Year (2006-2008) Compensation
Program
  Footstar’s
Executive Retention Challenges.As we anticipated the
wind-down of our business after the end of 2008, our success was dependent upon
our ability to retain qualified and talented individuals. As a consequence of
the uncertain future of the Company upon the expiration of the Kmart Agreement,
we faced an acute risk of being unable to retain qualified senior management
such as the executives named in the Summary Compensation Table below, whom we
refer to as our “named executive officers.” We designed our compensation
programs to address this risk.
  4
  Prior
to our emergence from bankruptcy, the Company retained Mercer Human Resource
Consulting (“Mercer”) to develop a compensation program which would motivate and
retain management and key associates through the end of the Kmart Agreement. The
proposed compensation program targeted Total Direct Compensation, which means
base salary plus annual incentive awards plus retention payments (which we
equate with equity awards for peer comparisons), at the 50th
percentile of a peer group developed by Mercer. This peer group data provided
the basis for the development of the compensation program, which has been
integrated into our officer’s employment agreements. The companies that
comprised this peer group were:
 
 Genesco
      Inc.
                    Chico’s
      FAS, Inc.Wolverine
      World Wide, Inc.
                    Guess?,
      Inc.Too,
      Inc.
                    Hot
      Topic, Inc.Gymboree
      Corporation
                    Shoe
      Carnival Inc.Hartmarx
      Corporation
                    Stride
      Rite CorporationKenneth
      Cole Productions, Inc.
 
 The
compensation program was approved by the Compensation Committee as it was
constituted prior to our emergence from bankruptcy. The Board (as it was
constituted prior to our emergence from bankruptcy) then agreed upon the final
compensation program with the Equity Committee, which was a committee appointed
by the U.S. Trustee to represent our stockholders’ interests in the bankruptcy
proceedings. The total program was then approved by the bankruptcy court. The
final program, which was at somewhat less than the 50th
percentile of the peer group for Total Direct Compensation, reflected
compromises both in terms of program design and in the total amount of
compensation delivered.
  The
program was comprised of a greater mix of cash and cash incentives and less
equity than those of the peer group because of the unique situation facing the
Company upon emergence from bankruptcy and the pending expiration of the Kmart
Agreement. The Board also believed that by tying compensation to cash flow,
there would be a more direct link to the value created for our stockholders over
the remaining term of the Kmart Agreement. For this reason, awards under our
semi-annual performance-based incentive program were linked to increases in
adjusted EBITDA, as described in more detail under “Performance-Based Incentive
Compensation” below.
  In
connection with our emergence from bankruptcy on February 7, 2006, the
bankruptcy court approved this three-year compensation program (our
“compensation program”), which was designed to extend through the termination of
our agreement with Kmart.
  The
components of this compensation program as it pertains to each of our named
executive officers are contained in employment agreements that were approved by
the bankruptcy court. These employment agreements set minimum levels of
compensation for each officer for the 2006 through 2008 period. Upward
adjustments to this program, the setting of specific incentive target and payout
levels for the incentive plan, and the general administration of these
agreements are among the responsibilities of the current Compensation
Committee.
  Compensation
Program Objectives.Footstar’s compensation and benefit objectives were driven by our
business environment and the unique challenges to executive recruitment and
retention described above. The objectives of our compensation program were
to:
 
 §
                reward
      behavior that drives operating cash flow and maximizes the value of our
      stockholders’ investment in
Footstar;
 
 §
                link
      a significant portion of earned compensation to performance measures that
      the Compensation Committee believes most correspond to increases in
      stockholder value;
 
 §
                retain
      and motivate our executives and other key associates who possess the
      knowledge and experience most important to the achievement of Footstar’s
      financial goals; and
 
 5
  §
                maintain
      organizational stability and retain management through the expiration of
      the Kmart Agreement.
 
 Compensation
Committee
  In
connection with the Company’s emergence from bankruptcy, Mr. Shepard, the
President and Chief Executive Officer through December 31, 2008, and
Mr. Couchman (who was on the Equity Committee and who  has been
Chairman of  Board), the President and Chief Executive Officer since
January 1, 2009, worked together to select the persons who became our directors
upon our emergence from bankruptcy (with the exception of Mr. Shepard, who
had been a Company director since 2005 and Mr. Scheiwe, who was appointed
by the Board in 2007). Our current Compensation Committee is comprised of
Messrs. O’Hara, Finerman and Scheiwe. Mr. Couchman had also been a member
of the Compensation Committee until his appointment as Chief Wind-down Officer
as of December 9, 2009.  The Compensation Committee assumed
responsibility for establishing the policies that govern the implementation,
administration and interpretation of all aspects of our compensation program,
including for each of our named executive officers.
 
 Peer
Group Benchmarking
  In the
fall of 2006, the Compensation Committee retained Mercer to conduct a study of
the compensation practices of the group of peer companies listed below. Mercer
examined the compensation practices of 19 retail companies that range in size
from approximately one-half to approximately twice our annual revenues, which
Mercer determined to be an appropriate size range for comparison purposes. We
call this group our “market peer group.” The market peer group
included:
  Genesco
      Inc.
                        DSW
      Inc.Wolverine
      World Wide, Inc.
                        Skechers
      USA, Inc.The
      Dress Barn, Inc.
                        Finlay
      Enterprises, Inc.Gymboree
      Corporation
                        Hot
      Topic, Inc.Hartmarx
      Corporation
                        Shoe
      Carnival Inc.Bombay
      Company Inc.
                        Stride
      Rite CorporationWilsons
      The Leather Experts Inc.
                        K-Swiss
      Inc.The
      Wet Seal, Inc.
                        United
      Retail Group, Inc.Kenneth
      Cole Productions, Inc.
                        Steven
      Madden, Ltd.Tweeter
      Home Entertainment Group, Inc.
  Due to
the pending expiration of the Kmart Agreement, compensation practices at five
“distressed” companies were considered as part of the market peer group (The Wet
Seal, Inc.; Bombay Company Inc.; Wilsons The Leather Experts Inc.; Finlay
Enterprises Inc.; and Tweeter Home Entertainment Group, Inc.).
  The
market peer group selected by the Compensation Committee, in conjunction with
Mercer, is intended to reflect companies in similar industries with whom the
Company competes for executive talent. Based on the review of the benchmarking
data provided by Mercer, the Compensation Committee believes that the executives
at these companies share the same general scope of management responsibilities
and, in the case of the distressed companies, are subject to similar challenges
facing our executive officers.
  The
Compensation Committee determined not to retain an outside compensation
consultant to advise the Committee on matters related to executive compensation
after 2006.  As a result of our dependence on the Kmart business and
the scheduled December 2008 expiration of that relationship, the Compensation
Committee believed that the target compensation levels and compensation
structure developed in the fall of 2006 were generally sufficient to retain the
Company’s executive officers, including our named executive officers, through
the scheduled termination of the Kmart Agreement. However, the Compensation
Committee retained its discretion to increase compensation for one or more of
our named executive officers based upon individual performance, position,
changes in responsibility, Company profitability or any other factors that it
deemed appropriate.
  6
 
 In
making its fall 2006 determinations regarding executive compensation for the
remaining terms of the Kmart Agreement, the Compensation Committee considered
the results of its analysis of the compensation practices within the market peer
group, as well as the unique challenges and uncertainties facing the Company
over the remaining term of the Kmart Agreement.  The Compensation
Committee identified our then Chief Executive Officer as the highest level
executive position and established base salary and an annual incentive target
for this position (within the targeted positioning levels described directly
below), which is intended to recognize this higher level of
responsibility.
 
 During
the fall of 2006, the Compensation Committee determined to target Total Cash
Compensation, which means base salary plus target performance incentive awards,
at the 75th
percentile of the market peer group. As established in 2006, Total Cash
Compensation of each of our named executive officers in no case exceeded the
75th
percentile of our market peer group. The Compensation Committee also determined
in the fall of 2006 to target Total Direct Compensation, which means base salary
plus annual incentive awards plus retention awards (which we equate with equity
awards for peer comparisons), at the 50th
percentile of the market peer group. As established in 2006, Total Direct
Compensation of each of our named executive officers in no case exceeded the
50th
percentile of our market peer group.
  This
positioning reflects the Compensation Committee’s determination, based upon the
advice provided by Mercer in late 2006, that a greater reliance on cash, cash
performance incentives and cash retention payments than the market peer group
was appropriate given the Company’s dual objectives of:
  §
                maintaining
      and increasing stockholder value in the short-term, which is directly
      impacted by cash flow generation during the remaining term of our Kmart
      Agreement, and
 
 §
                retaining
      key employees during the remaining term of our Kmart
      Agreement.
 
 These
dual objectives continued to reflect the overarching goals of our executive
compensation program during 2007 and 2008 and the Compensation Committee
continued to believe that the positioning established in the fall of 2006 was
appropriate.  As a result, except as otherwise noted below, the
Compensation Committee did not materially increase compensation levels for 2007
or 2008 for our named executive officers.
 
 Structure
and Elements of Executive Compensation
  Employment
Agreements.
  As
discussed above, each of our named executive officers had or has an employment
agreement, which established base compensation levels for each major component
of our compensation program. These agreements were intended to help to retain
our executive officers by providing them with an increased level of certainty
with respect to compensation arrangements. We considered these agreements to be
essential to the stability of our business as we prepared to exit from
bankruptcy and continued operations through the remaining term of the Kmart
Agreement.
  Details
regarding the material provisions of the agreements are described under the
heading “Employment Agreements or Arrangements” following the Summary
Compensation Table below. All of the agreements contain restrictive covenants,
including non-competition provisions which, among other things, restrict our
executive officers from obtaining employment with a list of our key competitors,
including Kmart and Sears, Roebuck and Co. The non-compete provisions recognize
that the loss of our key executives to these competitors could potentially
negatively impact Footstar’s business.
  For
each named executive officer, our compensation program consists of all or some
of the following elements:
 
 §
                Base
      salary;
 §
                Performance-based
      incentive compensation;
  7
  §
                Semi-annual
      retention payments;
 §
                Severance
      payments (comprised of cash payments and/or vesting of restricted
      stock);
 §
                Supplemental
      Executive Retirement Plan benefits
(“SERP”);
 §
                Benefits;
      and
 §
                Perquisites.
 
 As noted above, although the
Compensation Committee retains the authority to exercise its discretion to
increase any element of compensation for one or more executive officers, the
Committee believes that the target compensation levels and compensation
structure developed in late 2006 generally were sufficient to retain the
Company’s executive officers, including our named executive officers, through
the termination of the Kmart Agreement.  The Chief Executive Officer
at such time, as well as our current Chief Executive Officer who was then a
member of the Compensation Committee, was directly involved in making
recommendations to the Compensation Committee concerning increases in base
salary and other elements of compensation for key management, including our
named executive officers (other than the Chief Executive Officer), when the
Compensation Committee reviewed the general compensation structure in late 2006.
The Compensation Committee intends to continue to consider the impact of our
Chief Executive Officer’s recommendations prior to its approval of compensation
for our named executive officers (other than his own
compensation).
 
 Base
Salary.
 
 When
established in the fall of 2006, base salaries for our named executive officers
ranged from approximately the 55th to the
75th
percentile of the market peer group. The base salary of each of our named
executive officers in no case exceeded the 75th
percentile of our market peer group.
  The
Compensation Committee believed that aligning Total Cash Compensation, of which
base salary was a key component, was crucial to remaining competitive and
retaining the core executive team. Base salary levels directly impacted awards
under our semi-annual incentive compensation program, which were expressed in
part as a percentage of each executive’s base salary.
 
 The
Compensation Committee last approved base salary increases, ranging from 3% to
4% of base salary, for all named executive officers in 2006. In the fall of
2006, the Committee approved an increase in base salary for Mr. Lynch to reflect
his new responsibilities as Chief Financial Officer. In the spring of 2007 and
2008, taking into consideration management’s recommendation, the Compensation
Committee did not approve any base salary adjustments for our executive
officers. This decision reflected the Committee’s desire to tie increases in
compensation for 2007 and 2008 to the achievement of higher levels of
performance under our semi-annual incentive plan, which aligns increases in
compensation to our executive officers with increases in stockholder value.
 
 Performance-Based
Incentive Compensation.
 
 Under
our performance-based incentive plan, our named executive officers are eligible
to earn semi-annual cash incentive awards based on the Company’s performance
against pre-established financial objectives approved by the Compensation
Committee.
  Company
management, including our former Chief Executive Officer, submitted
recommendations on proposed performance metrics for the applicable performance
period to the Compensation Committee, which were subject to adjustment and
approval by the Committee.
  The
incentive awards for 2008 were based on adjusted EBITDA, as described below. The
Compensation Committee believed this financial measure approximates operating
cash flow. We believe this financial measure focuses our executives on achieving
critical short-term cash flow objectives, which in turn results in increased
value to our stockholders. The incentive plan was also designed to encourage
management and other key associates to retain employment with the Company
through the remaining term of the Kmart Agreement by shortening the period
between the beginning of an incentive performance period and actual earned
incentive awards. If an executive officer voluntarily terminates employment with
the Company (other than in the case of constructive termination), he or she
forfeits the right to receive the next semi-annual cash incentive award under
the performance-based incentive plan.
  8
  Adjusted EBITDA as a Performance
Measure.For 2008, we used earnings before interest, taxes, deprecation
& amortization (sometimes referred to as “EBITDA”), after certain
adjustments, as our performance target to determine the size of the semi-annual
incentive awards. Actual EBITDA results are adjusted:
  §
                Downward,
      if the seasonal final aged inventory exceeds 5% of total inventory as
      indicated on our financial statements. The aged inventory adjustment is
      designed as an incentive to keep inventory as current as possible in order
      to maintain the value of our inventory, which was one of our principal
      assets.
 
 §
                Upward
      or downward, in the event that store closing levels were above or below
      previously estimated planned closings. This insured that our executives
      were neither advantaged nor disadvantaged by Kmart’s decisions to close
      more or fewer stores than planned at the beginning of the performance
      period.
 
 §
                Upward
      or downward, if unexpected bankruptcy related charges or professional fees
      were above or below planned
levels.
 
 §
                Any
      severance related charges for planned staff reductions were excluded from
      the calculation
 
 §
                Gaines
      or losses on the sale of assets were excluded
  and;
 
 §
                Any
      gain resulting from the termination of the retiree medical plan was also
      excluded from the calculation
 
 All
adjustments are made pursuant to formulas approved by the Compensation
Committee.
 
 We
believe these stated adjustments help achieved the performance objectives that
the plan was designed to encourage.
  Incentive Opportunities at Target
EBITDA.Incentive opportunities under our performance-based incentive
plan were based on the particular adjusted EBITDA targets established by the
Compensation Committee. If adjusted EBITDA equaled or exceeded established
levels, incentive awards were determined based directly on a designated
percentage of base salary for each named executive officer. In the fall of 2006,
the Compensation Committee established the actual designated percentages of base
salary for each named executive officer at levels intended to ensure
competitiveness with the market peer group.
 
 The
Compensation Committee may increase an incentive percentage above the percentage
originally included in an executive’s employment agreement if it deems such
increase appropriate. In the fall of 2006, the Compensation Committee determined
to increase Mr. Lynch’s incentive opportunity by five percentage points
(effective January 1, 2007) in order to reflect his new increased
responsibilities as Chief Financial Officer for the Company. Following the
Compensation Committee’s review of executive compensation in both 2007 and 2008,
the Committee determined not to increase any other named executive officer’s
incentive percentage during 2007 or in 2008 based on the Committee’s continued
belief that the target levels established in 2006 were sufficiently competitive
with the market peer group. For 2008, the annual incentive award opportunities,
expressed as a percentage of base salary, for our named executive officers, were
as follows:
  §
                Mr.
      Shepard – 100%;
 §
                Mr.
      Lynch – 50%;
 §
                Mr.
      Lenich – 50%;
 §
                Ms.
      Richards – 50%; and
 §
                Mr.
      Proffitt – 45%;
  9
  Seasonal EBITDA Targets and Payout.Our incentive EBITDA targets were set seasonally, rather than annually.
The spring season was January through June and the fall season was July through
December. Incentive award payouts are determined by actual adjusted EBITDA
results compared against the targets pre-established by the Compensation
Committee for each season. Payouts are determined based on where actual adjusted
EBITDA results fall in comparison to “Threshold,” “Target,” and “Maximum”
performance.
  The
incentive award paid out for each season is equal to the percentage indicated
above multiplied by one-half of the named executive officer’s annual base salary
(because each season is one-half of a year) and then multiplying the product by
the following scale:
  §
                Maximum:
      200% payout;
 §
                Target:
      100% payout (when the “plan” is achieved);
  and
 §
                Threshold:
      50% payout.
 
 Threshold
performance is required to earn the minimum award available. Performance that
falls between Threshold and Target or between Target and Maximum are determined
on a straight-line basis to the nearest whole percentage point.
  Our
independent auditors review the actual calculation of payouts and those results
are presented to the Compensation Committee for approval.
  2008 Targets and Payouts.Target adjusted EBITDA performance established for 2008 was a planned
amount, which corresponded to the financial plan approved by the Board for
fiscal 2008. Actual adjustments to EBITDA in both the spring and the fall season
included downward adjustments for store closings, since fewer stores were closed
than planned, as well as downward adjustments for bankruptcy related fees and
claims, which were less than planned, and also excluded severance related
charges for planned staff reductions, gains or losses on the sale of any assets
and the gain resulting from the termination of the retiree medical
plan.
 
 For
the spring 2008 season, Target adjusted EBITDA performance was $18,400,000,
Maximum adjusted EBITDA performance was $24,840,000, and Threshold adjusted
EBITDA performance was $13,800,000. Actual adjusted EBITDA performance for the
spring 2008 season was $18,344,000, which resulted in a 99% payout. For the fall
2008 season, Target adjusted EBITDA performance was $31,680,000, Maximum
adjusted EBITDA performance was $42,770,000 and Threshold adjusted EBITDA
performance was $23,760,000. Actual adjusted EBITDA performance was $32,543,000,
which resulted in a 108% payout.
  Incentive
awards made to each of the named executive officers for the year ended January
3, 2009 are reflected in the “Non-Equity Incentive Plan Compensation” column of
the Summary Compensation Table below. The range of possible payouts which were
available for fiscal 2008 under the incentive plan is reflected under the
“Estimated Future Payouts Under Non-Equity Incentive Plan Awards” columns of the
Fiscal Year 2008 Grants of Plan Based Awards Table below.
  Retention
Program.
 
 In
order to foster the Company’s objective of retaining its key executives
throughout the critical three-year period preceding the termination of the Kmart
Agreement, the compensation program combined semi-annual retention payments with
severance protection. The severance element of the program consisted of lump sum
cash payments and, for certain named executive officers, restricted stock that
vests upon the occurrence of certain termination events. Each of our named
executive officers is entitled to receive retention payments and severance
protection, which together we call our “retention program.” The amount to be
paid to each named executive officer under each component of the retention
program is reflected in his or her employment agreement and was approved by the
bankruptcy court.
  10
  We
established the retention program to provide short-term financial incentives to
our key executives, including our named executive officers, while also providing
the executives with a sense of greater financial security given their heightened
exposure to possible termination upon the expiration of our agreement with
Kmart. The cost of the retention program was intended to be essentially
equivalent to the change in control severance plan it replaced (see discussion
under “Severance Payments” below). Each individual component of the retention
program is explained below.
  Retention Payments. As part of
our retention program, our named executive officers received a semi-annual
retention payment in cash in July and December of each year from 2006 through
2008. As a result of the negotiations with the Equity Committee during our
bankruptcy proceedings and as approved as part of our Plan of Reorganization,
the amount of the retention payment for each named executive officer was the
same amount as the retention payment approved by the bankruptcy court for
payment during 2005. However, any retention payments actually made to our named
executive officers has or will be deducted from any lump sum cash severance
payment received by the executive upon the occurrence of certain employment
termination events, as further discussed below. The Compensation Committee
increased the annual retention plan payments for 2007 and 2008 for
Mr. Lynch from $87,745 to $100,000 in order to reflect his new increased
responsibilities as Chief Financial Officer.
  Retention
payments are made according to this schedule as long as the named executive
officer remains employed through each payment date. However, as mentioned above,
upon the occurrence of certain employment termination events, our named
executive officers would, in effect, receive a lump sum payment of any unpaid
retention payments due in 2007 and 2008 at the time of termination as part of
their lump sum cash severance payment. The payments were designed to mitigate
the effects of the uncertainties facing Footstar by providing incentives for
certain key associates, including our named executive officers, to remain
employed with the Company through the expiration of the Kmart Agreement. A
description of the triggering events that would cause the Company to pay our
named executive officers this amount is included under the heading “Potential
Payments Upon Termination or Change in Control” below.
  Retention
payments made to our named executive officers in 2008 are reflected in the
“Bonus” column of the Summary Compensation Table below.
  Severance Payments.As part of our retention
program, our named executive officers are entitled to receive a lump sum cash
severance payment, and in the case of the named executive officers who also
participate in our Supplemental Retirement Plan (SERP), the release of
restrictions on shares of restricted Common Stock granted at the time of our
bankruptcy emergence, upon the occurrence of certain employment termination
events. Restricted stock was granted in lieu of a portion of the lump sum cash
severance payment due upon the occurrence of certain employment termination
events. We believed that it was important to offer these competitive levels of
severance protection in order to retain our key executives by providing them
with a sense of financial security in light of the uncertainties facing the
Company.
 
 As
described below, the lump sum cash severance payment levels and the number of
restricted shares granted as part of the retention program were established
using a formula based upon a number of factors negotiated with the Equity
Committee and approved as part of the Plan of Reorganization.
  Prior
to filing for bankruptcy, Mr. Shepard, Mr. Lenich, Ms. Richards
and Mr. Proffitt were each parties to individual employment or change in
control agreements with the Company, which provided severance benefits of two
times base salary plus target bonus in the event of an involuntary termination
following a change in control.
  In May
2004, the bankruptcy court approved fixed dollar basic severance benefits
(“Basic Severance”) equivalent to 18 months of base salary plus target bonus for
Mr. Shepard and Ms. Richards, 12 months base salary and target bonus
for Mr. Lenich and Mr. Proffitt and 6 months base salary and target
bonus for Mr. Lynch.
  11
  In
December 2004, the bankruptcy court ordered that the severance due upon an
involuntary termination following a change in control (“Change in Control
Severance”) be set at two years base salary plus target bonus for
Mr. Shepard and eighteen months base salary plus target bonus for the other
named executive officers.
  As a
result of negotiations with the Equity Committee, and as approved in our Plan of
Reorganization, it was agreed that the lump sum severance amount that an
executive officer would be entitled to receive under our retention program upon
the occurrence of certain termination events would be the value of the Change in
Control Severance approved by the bankruptcy court in December 2004 minus the
value of all semi-annual retention payments that had been previously been made
to the executive officer in 2006 through 2008, as described
above.
  In
addition, each SERP participant agreed to receive a portion of this severance
payment in the form of restricted stock. The amount of severance converted to
restricted stock for each of the four executives was the difference between the
amount of the Change in Control Severance approved by the bankruptcy court in
December 2004 and the value of their Basic Severance approved by the bankruptcy
court in May 2004. The number of restricted shares issued was determined by
dividing this difference by $5.00, as agreed upon with the Equity
Committee.
  The
amount of severance due, including restricted stock was set at a fixed amount
for each executive officer in their employment agreement.
  Accordingly,
effective upon the Company’s emergence from bankruptcy on February 7, 2006,
Mr. Shepard, Mr. Lenich, Mr. Proffitt and Ms. Richards were
granted an award of restricted Common Stock, which comprises part of their
severance payment. Each of these named executive officers has all of the rights
of a stockholder of the Company with respect to the restricted Common Stock,
including the right to vote the stock and receive dividends. As a result, each
of these named executive officers was entitled to receive the cash distributions
declared by our Board including, if not yet terminated, the $5.00 per share cash
distribution paid on April 30, 2007 and the $1.00 per share cash distributions
paid on June 3, 2008 and January 27, 2009, respectively. The value of these cash
distributions to each named executive officer that was granted an award of
restricted Common Stock is included under the “All Other Compensation” column of
the Summary Compensation Table below.
 
 The
restrictions on the stock will only lapse upon the occurrence of certain
employment termination triggering events. A description of the triggering events
which would entitle our named executive officers to severance payments is
included under the heading “Potential Payments Upon Termination or Change in
Control” below.
  Supplemental
Executive Retirement Plan.
 
 Our
SERP was instituted in 1996 and was originally designed to offer key senior
executives a competitive level of retirement income. We also intended the SERP
to act as additional incentive to these executives to continue their employment
with the Company, thereby assuring orderly management succession. Eligibility
for participation in the SERP was limited to executives designated by our
Compensation Committee.
  While
the Company was in bankruptcy, the bankruptcy court authorized the Company to
continue to honor its obligations under the SERP, subject to certain
modifications. No new participants were to be added to the SERP. Of our named
executive officers, Mr. Shepard, Mr. Lenich, Mr. Proffitt and
Ms. Richards were participants in the SERP when the plan was closed to new
participants. Under the court-ordered modification, future benefit calculations
were to reflect the current salary levels, but annual incentive award levels for
benefit calculation purposes were capped at 2004 levels (i.e., 65%, 50%, 45% and
50% for Mr. Shepard, Mr. Lenich, Mr. Proffitt and
Ms. Richards, respectively). In connection with the Company’s emergence
from bankruptcy, it was further ordered by the bankruptcy court that no
participant could receive “normal retirement benefits” under the SERP until the
expiration or earlier termination of the Kmart Agreement. This means that even
if a named executive officer reaches age 60 and has ten years of credited
service with the Company (which is the “normal retirement” condition under the
SERP) his or her right to begin receiving his or her SERP benefits is suspended
until our agreement with Kmart terminated. Participating named executive
officers who have reached the age of 55 (but have not reached “normal”
retirement age) and who have at least ten years of credited service with the
Company, however, may be entitled to receive a lump sum cash payment of their
accrued SERP benefit if the Compensation Committee approves that person’s early
retirement. Of our named executive officers, only Mr. Shepard could have
been eligible for approved early retirement, upon approval from our Compensation
Committee.  However, effective December 31, 2008, his employment with
the Company terminated.
  12
 
 Named
executive officers who participate in the SERP are entitled to a lump sum cash
payment of their accrued SERP benefit upon the occurrence of certain termination
triggering events. The manner of calculating this lump sum payment is described
under “Supplemental Executive Retirement Plan” following the Pension Benefits
Table below and a description of the triggering events which would cause the
Company to pay participating named executive officers this amount are described
under the heading “Potential Payments Upon Termination or Change in Control”
below.
 
 Benefits.
  We
provide the opportunity for all full-time associates, including our named
executive officers, to participate in medical, dental, disability, basic,
supplemental, and dependent life insurance, business travel accident insurance,
and our 401(k) Profit Sharing Plan. Our 401(k) Profit Sharing Plan includes a
profit sharing component under which the Company provides an additional match of
between .50% to 2.00% of eligible compensation to all participating full-time
associates upon the achievement certain pre-established EBITDA
goals.  For 2008, the profit sharing allocation was 0.50% of eligible
compensation. We also provide short-term and long-term disability coverage,
vacation and other paid holidays to eligible associates, including the named
executive officers. These benefit programs are designed to provide certain basic
quality of life benefits and financial protection to Footstar associates and
their eligible dependents. We believe these benefits are both reasonable and
generally comparable to benefits offered at other similar-sized retail
organizations.
 
 Footstar’s
retiree medical plan, which was frozen to new participants in 1992, was
terminated by the Board in April 2008 (effective June 2008) in connection with
the anticipated wind-down of our current footwear business following the
termination of the Kmart Agreement by no later than December 31,
2008.  In light of the plan’s termination, no named executive officers
can receive benefits under the plan.
 
 Perquisites.
 
 We do
not provide significant perquisites or personal benefits to our named executive
officers. The perquisites we do provide include: excess long-term disability
benefits, financial planning services (including tax preparation), and executive
physicals. We also provide a tax gross-up to reimburse our executives for any
additional tax liability incurred by reason of either excess disability benefits
or financial planning services.
  The
cost of the perquisites for our named executive officers is included in the “All
Other Compensation” column of the Summary Compensation Table
below.
 
 Key
Employee Retention Plan Payments in Fiscal 2006
 
 Early
in our bankruptcy proceeding, we identified key employees who we believed were
critical to the preservation of the value of the Company. In May 2004, the
bankruptcy court approved a Key Employee Retention Plan (“KERP”), which was
designed to encourage key employees to remain employed by us throughout the
reorganization process. Under the terms of his or her employment agreement, each
of our named executive officers was entitled to receive any outstanding KERP
payments following our emergence from bankruptcy. KERP payments were made in
2006 upon the Company’s emergence from bankruptcy and are included as
compensation under the “Bonus” column of the Summary Compensation Table for
fiscal year 2006 below.
  13
  Long
Term Incentives-Stock Options-Stock Grants
  We do
not currently have a long term stock grant or stock option program in effect for
key executives, including our named executive officers. The restricted stock
grants, discussed under the “Retention Program” section above, were made to four
of the named executive officers when the Company emerged from bankruptcy and
were made part of the severance package for these named executive
officers.
  Two
earlier stock programs, designed in 1996 to provide eligible associates the
opportunity to achieve a financial stake in the Company, the
Switch-To-Equity-Plan (“STEP”) and the Career Equity Plan (“CEP”), were
discontinued in 2003. Mr. Shepard, Mr. Proffitt and Ms. Richards participated in
the STEP and CEP programs.
  Under
the STEP program, associates could make annual elections to defer for a period
of five years, up to 75% of any annual incentive award earned in deferred shares
of Company Common Stock. The Company would match 50% of this associate deferral
in shares of deferred Common Stock. The associate’s right to receive the Company
match required continuous employment until the end of the five year vesting
period. The final distribution of STEP shares was made on March 26, 2008. Under
the CEP program, selected executives were eligible to receive awards which were
based on achieving pre-selected performance metrics in three-year rolling
performance cycles. Payouts under the CEP program were paid 50% in cash, 25% in
deferred shares that vested in five years and 25% in deferred shares that vested
at retirement. As described in more detail under “Potential Payments Upon
Termination or Change in Control” below, under the terms of our named executive
officer’s employment agreements, had a termination event occurred on the last
day fiscal 2007, STEP and CEP shares: (i) would be subject to accelerated
vesting in the event that the executive is terminated other than for cause and
(ii) would continue to vest as though the executive was still employed by the
Company in the event of the executive’s normal or approved early
retirement.
 
 Dividend
equivalents are paid on STEP and CEP shares, but pursuant to the terms of these
programs, any dividend equivalents are mandatorily reinvested into additional
deferred shares of Common Stock which are paid out at the same time the
underlying shares.  Accordingly, the cash distributions of $5.00,
$1,00 and $1.00 per share, which were paid by the Company to stockholders on
April 30, 2007, June 3, 2008 and January 27, 2009, respectively, were also paid
to CEP program participants that were still participants in such plans as of
such dates (there were no outstanding STEP shares as of June 3, 2008) as a
dividend equivalent and was mandatorily reinvested into additional shares of
Company Common Stock that were credited to the participant’s
account.  Additional CEP shares received as a result of the cash
distribution are paid out at the same time as the underlying
shares.  The value of the cash distribution to each named executive
officer that participated in the CEP program is included under the “All Other
Compensation” column of the Summary Compensation Table below.
  Shares
that vested under these programs in 2008 are included in Option Exercises and
Stock Vested in Fiscal Year 2008 below and shares subject to vesting are
included in Outstanding Equity Awards at Fiscal Year-End 2008
below.
  Stock
and Option Grant Policy
  Any
future equity grants will require approval by the Compensation Committee. In
setting the grant price, the Compensation Committee intends to use the average
of the highest and lowest stock bid price on the date the grant is approved by
the Compensation Committee.
  With
the exception of the shares granted under the  STEP and CEP
programs  described under “Long Term Incentives-Stock Options-Stock
Grants” above, and four equity grants made in 2006, and a grant to Mr. Couchman
described above, no equity grants have been made to the  named
executive officers or other key associates since 2002.
 
 14
  Tax
and Accounting Considerations
  The
Compensation Committee considers the deductibility of executive compensation
under IRC Section 162(m), which provides that the Company may not deduct
compensation of more than $1,000,000 that is paid to certain executives. The
Compensation Committee’s general policy is to structure executive compensation
to be tax deductible. The Compensation Committee also believes that under some
circumstances, such as to attract or retain key executives or to recognize
outstanding performance, it may be important to compensate one or more key
executives above tax deductible limits.
  Stock
Ownership Guidelines
  The
Company has determined not to establish share ownership requirements for its
executives given its recent emergence from bankruptcy and the challenges facing
the Company through the term of the Kmart Agreement. However, as noted under the
“Retention Program” section above, the severance package for several of our
named executive officers consists of restricted stock. These restrictions will
not lapse while the executive remains employed with the
Company.
 
 Compensation
Committee Report
 
 The
Compensation Committee of the Company has reviewed and discussed with management
the above Compensation Discussion and Analysis and, based on its review and
discussion, the Compensation Committee has recommended to the Board that the
Compensation Discussion and Analysis be included in the Annual Report on Form
10-K.
 
 Compensation
Committee of the Board of Directors:
 Michael
O’Hara (Chairperson), Adam Finerman and Steven D. Scheiwe
 
 Compensation
Committee Interlocks and Insider Participation
  No
member of the Compensation Committee has ever been an officer or employee of the
Company, nor is any member of the Compensation Committee an executive officer of
another entity at which one of our executive officers serves on the board of
directors.  Jonathan Couchman resigned as a member of the Compensation
Committee when he became an employee of the Company on December 9,
2009.
  15
  SUMMARY
COMPENSATION TABLE
 
 The
table below summarizes the total compensation paid during fiscal 2008, 2007 and
2006 to, or earned by, each of the named executive officers for fiscal
2008.
 
 Name
      and
                            Principal
                            Position
                          Year
                          Salary
                            ($)
                          Bonus
                            ($)
                            (1)
                          Stock
                            Awards
                            ($)
                            (2)
                          Option
      Awards
                            ($)
                            (3)
                          Non-
      Equity
                            Incentive
      Plan Compensation
                            ($)
                            (4)
                          Change
      in
                            Pension
      Value
                            and
                            Nonqualified
                            Deferred
                            Compensation
      Earnings
                            ($)
                            (5)
                          All
      Other
                            Compensation
                            ($)
                          TOTAL
      ($)Jeffrey
      A. Shepard
                            President & Chief
      Executive
                            Officer
                          2008
                          $676,000
                          $158,438
                          $202,022
                          $0
                          $699,660
                          $147,961
                          $1,433,099
                          (6)
                          $3,317,1802007
                          $676,000
                          $316,876
                          $234,425
                          $17,211
                          $986,960
                          $563,853
                          $831,559
                          
                          $3,626,8842006
                          $670,000
                          $1,068,601
                          $229,041
                          $138,379
                          $1,300,000
                          $355,349
                          $103,324
                          
                          $3,864,694MIchael
      Lynch
                            Senior Vice President &
      Chief
                            Financial
      Officer
                          2008
                          $325,000
                          $100,000
                          $0
                          $0
                          $168,188
                          $0
                          $8,900
                          (7)
                          $602,0882007
                          $325,000
                          $93,873
                          $0
                          $538
                          $237,251
                          $0
                          $11,035
                          
                          $667,6972006
                          $281,646
                          $124,745
                          $0
                          $9,810
                          $241,020
                          $0
                          $11,900
                          
                          $669,121Maureen
      Richards
                            Senior Vice President,
      General
                            Counsel & Corporate
      Secretary
                          2008
                          $354,000
                          $123,750
                          $7,117
                          $0
                          $183,195
                          ($77,642)
                          $36,391
                          (8)
                          $626,8112007
                          $354,000
                          $123,750
                          $9,654
                          $6,024
                          $258,420
                          $193,549
                          $67,695
                          
                          $1,013,0922006
                          $350,769
                          $536,250
                          $12,766
                          $48,433
                          $340,000
                          $111,246
                          $27,634
                          
                          $1,427,098Jonathan
      M. Couchman
                            Chairman
      & Chief Wind Down
                            Officer
      (9)
                          2008
                          $36,539
                          $0
                          $86,158
                          $0
                          $0
                          $0
                          $0
                          
                          $122,697William
      Lenich
                            Executive Vice
      President
                            Merchandising
                          2008
                          $242,308
                          $0
                          $184,993
                          $0
                          $124,740
                          ($25,078)
                          $322,975
                          (10)
                          $849,9382007
                          $504,000
                          $161,666
                          $196,204
                          $0
                          $367,920
                          $142,676
                          $638,655
                          
                          $2,011,1212006
                          $499,616
                          $280,666
                          $179,854
                          $0
                          $485,000
                          $105,624
                          $30,769
                          
                          $1,581,529Randall
      Proffitt
                            Senior Vice President
      Store
                            Operations
                          2008
                          $129,635
                          $0
                          $112,159
                          $0
                          $0
                          $125,872
                          $219,781
                          (11)
                          $587,4472007
                          $321,000
                          $101,082
                          $121,972
                          $3,442
                          $210,897
                          $209,744
                          $404,210
                          
                          $1,372,3472006
                          $318,808
                          $168,582
                          $114,818
                          $27,676
                          $280,350
                          $153,286
                          $19,605
                          
                          $1,083,125
 
 (1)
                The
      amounts in this column for 2008 represent the fixed, semi-annual retention
      payments each named executive officer received under the terms of his or
      her employment agreement with the
Company.
 
 
 (2)
                The
      amounts in this column reflect the dollar amount recognized in the
      indicated fiscal year for financial statement reporting purposes,
      calculated in accordance with FAS 123R (excluding the impact of
      forfeitures related to service-based vesting conditions).  A
      discussion of the assumptions used in calculating these values may be
      found in Note 19 to our audited financial statements in the Form 10-K for
      the fiscal year ended January 3,
2009.
 
 16
  Messrs.
Shepard, Lenich and Proffitt and Ms. Richards received a restricted stock grant
on February 7, 2006 valued at $4.45 per share. The price was determined based
upon Footstar’s average of the highest and the lowest stock price on the date of
grant.  Such restrictions will be lifted only upon involuntary
termination for reasons other than for “cause” or upon approved early or normal
retirement after the expiration of the Kmart Agreement or the original term of
the executive’s employment agreement, whichever is earlier.  Twelve/
thirty-fifths (12/35ths)of
the grant was recognized in fiscal year 2008 for financial statement reporting
purposes calculated in accordance with FAS 123R.  The amounts
reflected in this column also include the amounts recognized in fiscal year 2008
for financial statement reporting purposes calculated in accordance with FAS
123R for deferred shares granted prior to 2003 under the Career-Equity Plan
(“CEP”) and the Switch to Equity Plan (“STEP”).
 
 §
                Mr.
      Shepard: $198,343 Restricted Stock and $3,679
  STEP
 §
                Mr.
      Lenich: $184,993 Restricted
Stock
 §
                Ms.
      Richards: $6,866 Restricted Stock, and $251
  STEP
 §
                Mr.
      Proffitt: $111,687 Restricted Stock, and $472
  STEP
 
 Mr.
Couchman received a Restricted Stock Grant on December 9, 2008 of 169,492 shares
valued at $3.05 per share.  The share price was determined based upon
Footstar’s average of the highest and the lowest stock price on the date of the
grant.  Restrictions were lifted on 50% of the grant on February 28,
2009 and will be lifted on the remainder of the grant as follows: 25% of the
grant on May 31, 2009; 15% of the grant on August 30, 2009: and the remaining
10% on November 30, 2009.  Restrictions will also be lifted upon an
Involuntary Termination Without Cause; Death or Disability; or the Expiration of
the Term of Executive’s Voluntary Termination of Employment as defined in Mr.
Couchman’s Employment Agreement. One-third of the portion of the grant that will
vest on February 28, 2009 was recognized in fiscal year 2008 for financial
statement reporting purposes calculated in accordance with FAS
123R.
 
 (3)
                There
      were no FAS 123R expense relating to options during 2008.  The
      last stock options were granted during 2002 and expensed over the five
      year vesting period which commenced on the Grant Date and ended on the
      fifth anniversary of the Grant Date in
2007.
 
 (4)
                Reflects
      the amount awarded under the Company’s semi-annual non-equity incentive
      program.  In 2008,
 the
spring season award was at 99% of the target award and the fall season award was
at 108% of the target award.  Mr. Proffitt received his Spring
Incentive Award upon termination pursuant to the terms of his Employment
Agreement.  The amount paid to Mr. Proffitt for the Spring period is
included under “All Other Compensation”.
 
 (5)
                Reflects
      the aggregate change in the actuarial present value of the named executive
      officer’s accumulated benefit under the Supplemental Executive
      Retirement Plan (which, for 2008, represents the change in value between
      January 1, 2008 andDecember
      31, 2008, the pension plan measurement dates used for the Company’s
      financial statement reporting purposes).  The Company does not
      offer any Non-Qualified Deferred Compensation
  Plans.
 
 (6)
                Mr.
      Shepard was terminated by the Company on December 31, 2008 pursuant to the
      terms of his
 Employment
Agreement - Section 9(f) “Termination without Cause or Constructive Termination
Without Cause”.  The “All Other Compensation amount for 2008 is
$1,433,099 and includes:
$1,157,813 which amount equals $1,950,000 in retention and severance payments
due less the aggregate of any retention payments already made to Mr. Shepard;
$44,850 paid in cash for the immediate vesting of 13,550 retirement shares in
the CEP program  which amount includes a $1.00 per share cash
distribution paid by the Company on June 3, 2008 on an equal basis to all
stockholders of record; and $19,110 estimated cost for medical, dental and basic
life insurance continuation for 24 months post termination. In addition, the
“All Other Compensation” for 2008 for Mr. Shepard includes: $10,350 for
participation in the Company’s 401(k) Profit Sharing Plan ($9,200 represents the
Company employee contribution match under the plan and $1,150 represents the
tax-deferred profit sharing component calculated at 0.50% of eligible
compensation); $16,649 for financial planning and tax preparation ($10,500 for
services provided and $6,149 for the tax gross-up on the financial planning
portion); $2,650 for an executive physical; $40,774 for excess executive
long-term disability ($22,602 for premiums and $18,172 in tax gross-ups paid by
the Company).  The premium was determined based upon the difference
between the maximum covered compensation under the group plan (a maximum of
$41,666 of monthly compensation) and Mr. Shepard’s actual monthly compensation
calculated using current base salary and target bonus which was $112,666. The
premium of $32,756 covers the $71,000 difference.  The premium was
then grossed-up at 35% to cover Mr. Shepard’s tax liability. In addition, the
“All Other Compensation” amount for 2008 for Mr. Shepard includes the following
amounts received as a result of the $1.00 per share cash distribution paid by
the Company on June 3, 2008 on an equal basis to all stockholders of record: (1)
$130,000 paid on 130,000 shares of restricted stock; (2)  $10,903 paid
on 10,903 previously granted CEP retirement shares (which, per the terms of that
program, was re-invested into 2,646 additional CEP shares that vested and was
paid in cash upon termination of employment).
  17
 
 (7)
                Mr.
      Lynch’s “All Other Compensation” amount for 2008 is $8,900 which includes;
      $8,900 for participation in the Company’s 401(k) Profit Sharing Plan
      ($7,750 representsthe Company employee contribution match under the plan
      and $1,150 represents the tax-deferred profit sharing component calculated
      at0.50%
      of eligible compensation).
 
 (8)
                Ms.
      Richards’ “All Other Compensation” amount for 2008 is $36,391 and
      includes: $10,350 for participation in the Company’s 401(k) Profit Sharing
      Plan ($9,200 represents the Company employee contribution match under the
      plan and $1,150 represents the tax-deferred profit sharing component
      calculated at 0.50% of eligible compensation); $1,975 for excess executive
      long-term disability;  $11,812 for financial planning and tax
      preparation ($8,000 for services provided and $3,812 in tax gross-ups paid
      by the Company on the financial planning portion) and $2,650 for an
      executive physical.
 
 This
amount also includes the following amounts received as a result of the $1.00 per
share cash distribution paid by the Company on June 3, 2008 on an equal basis to
all stockholders of record: (1) $4,500 paid on 4,500 shares of restricted stock;
and (2) $5,104 paid on 5,104 previously granted CEP retirement shares (which,
per the terms of that program, was re-invested into 1,239 additional CEP shares
that will vest at retirement or upon other defined termination
events).
 
 (9)
                Mr.
      Couchman, formerly a non-employee Director and Chairman of the Board of
      Directors, entered into
 an
Employment Agreement with the Company as the Chief Wind Down Officer effective
December 9th, 2008
through December 31, 2008.  Pursuant to that Agreement, Mr. Couchman’s
job title changed effective January 1, 2009 to Chief Executive Officer and
President of the Company, replacing Mr. Shepard who was terminated effective
December 31, 2008.  Furthermore, pursuant to Mr. Couchman’s Employment
Agreement, base salary is paid at the rate of $41,667 for each full month
(pro-rated for any incomplete months) of employment.  Mr. Couchman’s
compensation in 2008 as a non-employee Director is provided in the 2008 Director
Compensation table.
  (10)
                  Mr. Lenich’s employment was terminated by the Company
      on June 28 2008 pursuant to the terms of his Employment Agreement -
      Section 9(f) “Termination without Cause or Constructive Termination
      Without Cause”.  The “All Other Compensation” amount for 2008 is
      $322,974 and includes: $161,666 which amount equals $484,998 in retention
      payments due less the aggregate of any retention payments already made to
      Mr. Lenich Section 9(f) (ii) of the Agreement; and $12,458 estimated cost
      for medical, dental and basic life insurance continuation for 18 months
      post termination. In addition, the “All Other Compensation” for 2008 for
      Mr. Lenich also includes; $10,350 for participation in the Company’s
      401(k) Profit Sharing Plan ($9,200 represents the Company employee
      contribution match under the plan and $1,150 represents the tax-deferred
      profit sharing component calculated at 0.50% of eligible compensation);
      $9,980 for excess executive long-term disability; $2,650 for an executive
      physical; $4,620 for tax preparation; and $121,250  paid on
      121,250 restricted shares of restricted stock as a result of the $1.00 per
      share cash distribution paid by the Company on June 3, 2008 on an equal
      basis to all stockholders of record.
 18
  (11)
                Mr.
      Proffitt’s employment was terminated by the Company on May 31, 2008
      pursuant with Section 9(f) of his Employment Agreement - “Termination
      without Cause or Constructive Termination Without Cause”.  The
      “All Other Compensation” amount for 2008 is $219,781 and includes;
      $109,335 which amount equals $311,497 in retention and severance payments
      due less the aggregate of any retention payments already made to Mr.
      Proffitt; $61,113 for a pro-rated incentive award for the incomplete
      performance period of the year in which Mr. Proffitt’s employment was
      terminated which amount was calculated consistent with Section 9(f)(iii)
      of the Agreement assuming Mr. Proffitt would have received an award equal
      to 100% of his Target Award and then pro-rated for his actual employment
      during the performance period; $21,074 paid in cash for the immediate
      vesting of 4014 retirement shares in the CEP program which amount includes
      a $1.00 per share cash distribution paid by the Company on June 3, 2008 on
      an equal basis to all stockholders of record; and $10,959 estimated cost
      for medical, dental and basic life insurance continuation for 18 months
      post termination.  In addition, the “All Other Compensation” for
      2008 for Mr. Proffitt includes; $9,200 for participation in the Company’s
      401(k) Profit Sharing Plan ($9,200 represents the Company employee
      contribution match under the plan).  There was no Profit Sharing
      component since Mr. Proffitt did not work the minimum required 1,000 hours
      in 2008; $5,450 for tax planning; and $2,650 for an executive
      physical.
  
 19
  2008GRANTS OF PLAN BASED
AWARDS
 
 The
following table provides information concerning the semi-annual performance
awards granted in fiscal 2008 as well as shares granted in connection with the
Career Equity Program (“CEP”) following the mandatory reinvestment of the $1.00
per share cash distribution paid by the Company on June 3, 2008 to all
stockholders of record. Additional details regarding these awards are included
under "Performance Based Incentive Compensation" and “Long Term Incentives−Stock
Options−Stock Grants” in the Compensation Discussion and Analysis
above.
 
 Name
                                          Grant
                                            Date
                                          Estimated
      Future Payouts Under Non-Equity
                                            Incentive
      Plan Awards(1)
                                          All
      Other Stock
                                            Awards:
      Number of
                                            Shares
      Of Stock or Units
                                            (#)
                                            (2)
                                          Grant
      Date Fair
                                            Market
      Value Of
                                            Stock
      and
                                            OptionAwards
                                            ($)
                                            (3)Threshold
                                            ($)
                                          Target
                                            ($)
                                          Maximum
                                            ($)JeffreyA.
                                            Shepard
                                          6/3/2008
                                          
                                          
                                          
                                          2,646
                                          (4)
                                          $10,902Spring
                                          $169,000
                                          $338,000
                                          $676,000Fall
                                          $169,000
                                          $338,000
                                          $676,000Michael
                                            Lynch
                                          Spring
                                          $40,625
                                          $81,250
                                          $162,500Fall
                                          $40,625
                                          $81,250
                                          $162,500Maureen
                                            Richards
                                          6/3/2008
                                          
                                          
                                          
                                          1,239
                                          (4)
                                          $5,105Spring
                                          $44,250
                                          $88,500
                                          $177,000Fall
                                          $44,250
                                          $88,500
                                          $177,000Jonathan
      M.
                                            Couchman
                                          Spring
                                          $0
                                          $0
                                          $0Fall
                                          $0
                                          $0
                                          $0William
                                            Lenich
                                          Spring
                                          $63,000
                                          $126,000
                                          $252,000Fall
                                          $63,000
                                          $126,000
                                          $252,000Randall
                                            Proffitt
                                          Spring
                                          $36,113
                                          $72,225
                                          $144,450Fall
                                          $36,113
                                          $72,225
                                          $144,450
 
 20
  (1)
                These
      columns show the range of total cash payouts targeted for the performance
      periods of January through June (the spring performance period for each
      year listed) and July through December (the fall performance period for
      each year listed) under the Company’s semi-annual performance based
      incentive plan as described in the section titled “Performance-Based
      Incentive Compensation” in the Compensation Discussion and Analysis
      above.  Based on the metrics described in that section,
      performance levels entitling the executives to a 99% of the Target payout
      was achieved for the spring performance period and 108% of the Target
      award payout was achieved for the fall performance period.  The
      actual payout amounts are shown in the Summary Compensation Table in the
      column titled “Non-Equity Incentive Plan
  Compensation.”
 
 (2)
                All
      shares reflected in this column were granted under the Company’s 1996
      Incentive Compensation Plan.
 
 (3)
                The
      amounts in this column reflect the full grant date fair value of the
      deferred shares, computed in accordance with FAS 123R which was $4.12
      (based on the average of the highest and the lowest stock bid price on
      June 3, 2008.
 
 (4)
                Before
      CEP program was discontinued in 2003, selected executives were eligible to
      receive awards which were based on achieving pre-selected performance
      metrics in three-year rolling performance cycles. Payouts under the CEP
      program were paid 50% in cash, 25% in deferred shares that vested in five
      years.  The remaining 25% of the payout was made in deferred
      shares, which for the named executive officers will vest upon retirement
      or termination of employment other than for cause. Deferred shares that
      will vest at retirement or termination of employment other than for cause
      remain outstanding under the CEP program.  Any dividend
      equivalents paid on deferred CEP program shares are mandatorily reinvested
      into shares of deferred Common Stock which vest at the same time the
      underlying shares are paid.
 
 On
June 3, 2008, and on January 27, 2009 respectively, the Company paid a $1.00 per
share cash distribution on an equal basis to all stockholders of record on each
of those dates.  The number of shares received by CEP program
participants as a result of the mandatory reinvestment of this cash distribution
on previously granted CEP program deferred shares is shown in shown in the table
above.  CEP program deferred shares held by named executive officers
prior to the cash distribution were as follows: Mr. Shepard – 10,902 shares and
Ms. Richards – 5,104 shares.  All unvested CEP program shares will
vest upon the participant’s retirement or termination of employment other than
for cause.
 
 The
value of the cash distribution on the CEP program deferred shares is included in
the “All Other Compensation” column of the Summary Compensation Table above.
Additional details regarding the CEP program are included above in the section
titled “Long Term Incentives−Stock Options−Stock Grants” in the Compensation
Discussion and Analysis.
  21
 
 OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END 2008
 
 The table below reflects all
outstanding equity awards for named executive officers as of January 3,
2009.
 
 OPTION
      AWARDS
                                                                    STOCK
      AWARDSName
                                                                    Number
      of
                                                                      Securities
                                                                      Underlying
                                                                      Unexercised
                                                                      Options
      (#)
                                                                      Exercisable
                                                                    Number
      of
                                                                      Securities
                                                                      Underlying
                                                                      Unexercised
                                                                      Options
      (#)
                                                                      Unexcercisable
                                                                    Option
                                                                      Exercise
                                                                      Price
                                                                      ($)
                                                                    Option
                                                                      Expiration
                                                                      Date
                                                                    Number
      of
                                                                      Shares
      or
                                                                      Units
      of
                                                                      Stock
      That
                                                                      Have
      Not
                                                                      Vested
      (#)
                                                                    Market
                                                                      Valueof
                                                                      Shares
      or
                                                                      Units
      of
                                                                      Stock
      That
                                                                      Have
      Not
                                                                      Vested
      ($)(4)Jeffrey
      A. Shepard
                                                                    36,169
                                                                    0
                                                                    $26.10
                                                                    2/27/20123,831
                                                                    0
                                                                    $26.10
                                                                    2/27/201237,835
                                                                    0
                                                                    $46.18
                                                                    2/26/20112,165
                                                                    0
                                                                    $46.18
                                                                    2/26/201131,403
                                                                    0
                                                                    $21.75
                                                                    3/10/20104,597
                                                                    0
                                                                    $21.75
                                                                    2/10/201016,800
                                                                    0
                                                                    $25.16
                                                                    3/2/20093,975
                                                                    0
                                                                    $25.16
                                                                    3/2/2009Michael
      Lynch
                                                                    1,250
                                                                    0
                                                                    $26.10
                                                                    2/27/20122,125
                                                                    0
                                                                    $33.52
                                                                    11/21/2011Maureen
      Richards
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    4,500
      (1)
                                                                    $21,1501,992
      (2)
                                                                    $9,3625,104
      (3)
                                                                    $23,9893,831
                                                                    0
                                                                    $26.10
                                                                    2/27/201210,169
                                                                    0
                                                                    $26.10
                                                                    2/27/201211,835
                                                                    0
                                                                    $46.18
                                                                    2/26/20112,165
                                                                    0
                                                                    $46.18
                                                                    2/26/201113,003
                                                                    0
                                                                    $21.75
                                                                    3/10/20104,597
                                                                    0
                                                                    $21.75
                                                                    3/10/201013,300
                                                                    0
                                                                    $25.16
                                                                    3/2/20093,975
                                                                    0
                                                                    $25.16
                                                                    3/2/2009William
      Lenich
                                                                    0
                                                                    0
                                                                    
                                                                    
                                                                    0Jonathan
      M. Couchman
                                                                    0
                                                                    0
                                                                    
                                                                    0
                                                                    169,492
      (1)
                                                                    $528,815Randall
      Proffitt
                                                                    8,000
                                                                    0
                                                                    $26.10
                                                                    2/27/20128,000
                                                                    0
                                                                    $46.18
                                                                    2/26/20117,200
                                                                    0
                                                                    $27.15
                                                                    3/10/20105,100
                                                                    0
                                                                    $25.16
                                                                    3/2/2009
 
 
 (1)  Represents
restricted shares approved by the Compensation Committee pursuant to Mr.
Couchman’s Employment Agreement.
  (2)
Represents restricted shares approved pursuant to Footstar's Plan of
Reorganization which will vest only upon certain employment termination
events.
 
 (3)
Represents CEP awards which will vest upon retirement or termination of
employment other than for cause or upon a change in control of the Company
(including stockholder approval of the Plan of Dissolution). The closing market
price of Footstar stock on January 2, 2009 ($3.12 per share) was used to
determine the CEP values for grants to be paid after January 3,
2009.
  (4)
Based upon the $3.12 per share closing market price of Footstar stock on January
2, 2009.
  22
  Option
Exercises and Stock Vested
 
 The
stock awards in the table below are from restricted stock grants that have
vested as a result of termination of employment and from the STEP program which
was discontinued in 2003.  For fiscal 2008, no awards under the CEP
program vested.  Additional details regarding these programs are
available under "Long Term Incentive-Stock Options-Stock Grants" in the
Compensation Discussion and Analysis above.
 
 Name
                              STOCK
      AWARDSNumber
      of Shares
                                Acquired
      on Vesting
                                (#)
                              Value
      Realized on Vesting
                                ($)Jeffrey
      A. Shepard
                              130,000
                              $383,500(1)29,232
                              $131,836(2)Michael
      Lynch
                              0
                              $0(3)Maureen
      Richards
                              1,992
                              $8,984(2)Jonathan
      M. Couchman
                              0
                              $0(3)William
      Lenich
                              121,250
                              $497,125(4)0
                              $0(3)Randall
      Proffitt
                              73,203
                              $311,113(5)3,755
                              $16,935(2)
 
 
 (1)
      The value realized on vesting reflects the closing stock price of Footstar
      stock on December 31, 2008, the date of Mr. Shepard’s termination of
      employment, which was $2.95 per
share.
 
 (2)
      The values realized on vesting were calculated based on the average of the
      high and low stock bid price on the STEP vesting date of March 26, 2008,
      which was $4.51 per share.
 
 (3)
      These named executive officers did not receive any shares in 2008 because
      they were not participants in either the STEP or CEP
      programs.
 
 (4)
      The value realized on vesting reflects the closing stock price of Footstar
      stock on June 28, 2008, the date of Mr. Lenich’s termination of
      employment, which was $4.10 per
share.
 
 (5)
      The value realized on vesting reflects the closing stock price on May 30,
      2008, the date of Mr. Proffitt’s termination of employment, which was
      $4.25 per share.
 
 23
  2008
PENSION BENEFITS
 
 The
following table shows present value of accumulated benefits that named executive
officers are entitled to under the SERP. For the valuation method and material
assumptions applied in quantifying the present value of the accumulated benefit
see Note 22 to our audited financial statements in the Form 10-K for the fiscal
year ended January 3, 2009.
 
 
 Name
                    Plan
      Name
                    Number
      of Years Credited Service (#)
                    Present
      Value of Accumulated Benefit ($)
                    Payments
      During Last Fiscal Year ($)Jeffrey
      A. Shepard
                    Supplemental
      Executive Retirement Plan
                    12
                    $3,841,604
                    $0Michael
      Lynch (1)
                    N/A
                    N/A
                    N/A
                    N/AWilliam
      Lenich
                    Supplemental
      Executive Retirement Plan
                    N/A
                    $0
                    $529,336Maureen
      Richards
                    Supplemental
      Executive Retirement Plan
                    12
                    $1,304,052
                    $0Randall
      Proffitt
                    Supplemental
      Executive Retirement Plan
                    N/A
                    $0
                    $1,535,555Jonathan
      M. Couchman (1)
                    N/A
                    N/A
                    N/A
                    N/A
 
 (1)
Mr. Lynch and Mr. Couchman are not eligible for any benefits under the
SERP.
 
 (2)
Mr. Lenich received a Lump Sum SERP payment of $529,336 on December 31,
2008.  This payment was made pursuant to Mr. Lenich’s Employment
Agreement and was based upon his distribution election form dated October 3,
2005 and Section 409A of the Internal Revenue Code.
 
 (3)
Mr. Proffitt received a Lump Sum SERP payment of $1,535,555 on December 5,
2008.   This payment was made pursuant to Mr. Proffitt’s
Employment Agreement and was based upon his distribution election form dated
October 3, 2005 and Section 409A of the Internal Revenue Code.
 
 Employment
Agreements or Arrangements
  All of
our named executive officers are subject to employment agreements with the
Company which are described below other than Mr. Couchman’s employment agreement
which is described above. Additional details regarding a named executive
officer’s rights upon termination and the restrictive covenants contained in
each named executive officer’s employment agreement to the extend still
applicable because the Executive is still employed, are described under the
heading “Potential Payments Upon Termination or Change in Control”
below.
  24
  Employment Agreement with
Mr. Shepard . Mr. Shepard and the Company entered into an
employment agreement on October 28, 2005. The term of Mr. Shepard’s
employment under the agreement commenced upon the effective date of the
Company’s Plan of Reorganization, which was February 7, 2006. On that date,
Mr. Shepard became the Company’s Chief Executive Officer and President of
the Company and waived his rights under his former employment agreement with the
Company.
  Mr. Shepard’s
employment terminated effective December 31, 2008.   Mr.
Shepard’s annual base salary was $676,000. Mr. Shepard was entitled to
participate in the Company’s semi-annual cash incentive program, under which he
could earn at least 100% of his base salary per year if certain targets are
achieved. Mr. Shepard continued to accrue benefits under the Company’s
Supplemental Executive Retirement Plan (“SERP”), as modified during the
bankruptcy proceedings and as further described under “Supplemental Executive
Retirement Plan” following the Pension Benefits Table below. In accordance with
the terms of his agreement, Mr. Shepard received retention payments in the
amount of $158,437.50 in July and December of 2006, 2007 and 2008. Upon the
Company’s emergence from bankruptcy, Mr. Shepard received a Key Employee
Retention Plan payment of $751,725, which had been approved, but not yet paid,
under an order entered in the bankruptcy court on May 6, 2004 and a restricted
stock grant of 130,000 shares of the Company’s Common Stock. The restrictions on
these shares lapsed when Mr. Shepard’s employment was terminated on December 31,
2008.
 
 The
agreement obligates the Company to indemnify Mr. Shepard to the fullest
extent permitted by law including the advancement of expenses.
  Employment Agreements with
Messrs. Lynch, Lenich, Proffitt and Ms. Richards .On December 16, 2005, the
Company entered into employment agreements with Messrs. Lynch, Lenich,
Proffitt and Ms. Richards, our other named executive officers. Except as
noted below, the material terms of the agreements are substantially similar. The
term of each of these named executive officers’ employment under the agreements
commenced upon the effective date of the Company’s Plan of Reorganization, which
was February 7, 2006. On that date, Mr. Lenich, Mr. Proffitt and
Ms. Richards each waived their rights under their former employment or
change in control agreements with the Company. Mr. Lynch was not previously
subject to an employment or change in control agreement with the
Company.
  The
original term of employment under each of the agreements ends on December 31,
2008. However, Mr. Proffitt was terminated pursuant to his Employment Agreement
effective on May 30, 2008 and Mr. Lenich was terminated pursuant to his
Employment Agreement effective on June 28, 2008.  Under the terms of
the employment agreements, the term of employment will be automatically renewed
for successive one-year terms unless at least 60 days prior to the expiration of
the original term of employment or any renewal term, either the executive or the
Company notifies the other party in writing that he or it is electing to
terminate at the expiration of the then current term of employment. Ms. Richards
and Mr. Lynch were notified by the Company on March 13, 2009 that their expected
date of termination of employment is May 15, 2009.
  The
employment agreements provide for payment of an annual base salary that will be
reviewed at the discretion of the Compensation Committee, but limit any
reduction in base salary during the term of the agreement. The current or most
recent annual base salaries for terminated named executive officers are:
Mr. Lynch – $325,000; Mr. Lenich – $504,000; Ms. Richards –
$354,000; and Mr. Proffitt – $321,000. Each named executive officer is or
was entitled to participate in the Company’s semi-annual cash incentive program
under which the executive is or was afforded the opportunity to earn not less
then a set percentage of their base salary per year if certain targets are
achieved. The minimum percentages of base salary that each named executive
officer may earn under the individual terms of the agreements are as follows:
Mr. Lenich – 50%; Ms. Richards – 50%; and Mr. Proffitt – 45%.
Under the terms of his agreement, Mr. Lynch was entitled to earn not less
then 45% of his base salary per year if the targets were achieved, but the
Compensation Committee increased this amount to 50% (effective in 2007) to
reflect his new responsibilities as the Company’s Chief Financial Officer. Each
executive received in July and December of 2006, 2007, and 2008 the retention
payment indicated in the executive’s individual agreement, except that in 2006
(effective in 2007), the Compensation Committee increased Mr. Lynch’s
semi-annual retention bonus from $43,873 to $50,000 to reflect his new
responsibilities as the Company’s Chief Financial Officer.
  25
  Under
the terms of their agreements, Messrs. Lenich and Proffitt and
Ms. Richards continued to accrue benefits under the Company’s Supplemental
Executive Retirement Plan, as modified during the Company’s bankruptcy
proceedings and as further described under “Supplemental Executive Retirement
Plan” following the Pension Benefits table above.  A Lump Sum SERP
payment in the amount of $529,336 was paid on December 31, 2008 to Mr. Lenich
pursuant to his employment agreement and termination of employment effective on
June 28, 2008.  A Lump Sum SERP payment in the amount of $1,535,555
was also paid to Mr. Proffitt on December 5, 2008 pursuant it to his employment
agreement and termination of employment effective on May 30,
2008.  These amounts are detailed in the Pension Benefit table
below.  Messrs. Lenich and Proffitt and Ms. Richards
received a restricted stock grant on February 7, 2006, which was the date of the
Company’s emergence from its bankruptcy proceedings pursuant to the Company’s
Plan of Reorganization. The circumstances under which the restrictions lapse are
described in more detail under the heading “Potential Payments Upon Termination
or Change in Control” below, where other payments and benefits payable to our
named executive officers upon the occurrence of certain triggering events are
further described. The restricted stock grant that these executives received
under the individual terms of the agreements are: Mr. Lenich – 121,250
shares; Ms. Richards – 4,500 shares; and Mr. Proffitt – 73,203 shares.
Pursuant to the provisions of their employment agreements,
Messrs.  Lenich and Proffitt’s rights to these restricted stock shares
vested on June 28, 2008 and May 30, 2008, respectively, the date their
employment terminated.
 
 The
employment agreements provide that if payments made to Mr. Lenich,
Mr. Proffitt or Ms. Richards under the employment agreement become
subject to excise tax, the Company will make an additional “gross up” payment
sufficient to ensure that the net after-tax amount retained by the named
executive officer (taking into account all taxes including those on the gross up
payment) is the same as would have been the case had such excise tax not
applied.
  The
agreements obligate the Company to indemnify the named executive officers to the
fullest extent permitted by law including the advancement of expenses in
connection therewith.
 
 Potential
Payments upon Termination or Change In Control
 
 As
discussed in more detail in the narrative above, the Company entered into
employment agreements with each of its named executive officers. Under the
agreements, other than the one with Mr. Couchman which provides no change in
control benefits, these executives were or are entitled to certain payments and
benefits upon the occurrence of the triggering events that result in the
executive’s termination. The incremental benefits that our current named
executive officers are generally entitled to upon the occurrence of certain
triggering events are described and quantified below. The amounts are estimates
and the actual amounts can only be determined at the time of such executive’s
separation from the Company.
  The
amounts quantified below assume that termination was effective on the
executive’s termination date or as of January 3, 2009 and generally do not
include payments and benefits to which our named executive officers would be
entitled regardless of the termination event or which are available on a
non-discriminatory basis to all salaried employees. The amounts that are not
reflected include:
  o
                Payment
      of base salary earned through the date of termination of employment
      (amounts earned as of the last day of the Company’s fiscal year are
      reflected in the Salary column of the Summary Compensation
      Table).
 
 o
                Payment
      of the balance of any incentive awards earned and not yet paid (amounts
      earned as of the last day of the Company’s fiscal year are reflected in
      the Non-Equity Incentive Plan Compensation column of the Summary
      Compensation Table above).
 
 o
                Other
      or additional benefits then due or already earned or fully vested in
      accordance with applicable plans, programs or
    agreements.
 
 o
                Distributions
      of plan balances under the Company’s 401(k) plan except for Mr. Couchman
      who does not participate in the
plan.
 
 26
  Voluntary
Termination. A named executive officer is not generally entitled to
receive any incremental payments or benefits if he or she voluntarily initiates
his or her termination of employment with the Company (other than for any reason
listed below).
  Termination by
the Company for Cause. Our current named executive officers are not
entitled to any incremental benefits or payments in the event that he or she is
terminated by the Company for cause. For purposes of the executives’ employment
agreements, “cause” generally means that the executive engaged in any of the
following acts or omissions and failed to cure the conduct following written
notification by the Company of its intention to terminate him or her for cause:
(i) the executive willfully and materially breached the confidentiality,
cooperation with regard to litigation, non-competition or non-solicitation
clauses of his or her employment agreement with the Company (this provision does
not apply to Mr. Couchman), (ii) the executive willfully and materially breached
his or her duties and responsibilities in connection with his or her position;
(iii) the executive is convicted of a felony or a misdemeanor involving moral
turpitude (for Mr. Couchman, a felony); (iv) the executive engaged in conduct
that constitutes gross neglect or gross misconduct in carrying out his or her
duties under the agreement, resulting, in either case, in a substantial loss to
the Company or substantial damage to its reputation.
  Mr. Couchman’s
agreement provides that in relation to item (iv) above, Mr. Couchman’s
actions must be willful and must result in material harm to the financial
condition or reputation of the Company. Under the terms of his agreement,
“willful” means that the act or omission was not done in good faith and does not
include any act or failure to act resulting from any incapacity of
Mr. Couchman.
   Death.
  Description of Payments: In
the case of death, Mr. Couchman is entitled to receive base salary through the
date of termination and lapse of any restrictions on any restricted stock. In
the case of death, Mr. Lynch and Ms. Richards are entitled to the following
incremental payments and benefits, to the extent applicable to each named
executive officer:
  o
                A
      lump sum, pro-rata payment of the executive’s incentive award for any
      incomplete performance period of the year in which the executive’s death
      occurs. The amount paid would be based on the assumption that the
      executive would have received an award equal to 100% of the target award
      for such performance period for any incomplete performance period. Because
      the triggering event is assumed to have occurred on the last day of the
      fiscal year, the named executive officer would have earned the incentive
      award due to him or her for the July through December performance period
      based on the Company’s actual results. Therefore, this payment is not
      quantified below. Actual payments received by the named executive officers
      for the July through December performance period are located under the
      Non-Equity Incentive Plan Compensation column of the Summary Compensation
      Table above.
 
 o
                Lapse
      of all restrictions on any restricted stock
  award.
 
 o
                Immediate
      vesting of all outstanding awards under the Company’s Career Equity Plan
      (“CEP”), payable in a cash lump
sum.
 
 o
                Immediate
      vesting of all outstanding options and the right to exercise such stock
      options for a period of one year or for the remainder of the exercise
      period, whichever is less. Because the exercise price of all outstanding
      options exceed the market value of the Company’s Common Stock on January
      3,, 2009, no additional value is assigned to this benefit for
      quantification purposes.
 
 o
                A
      lump sum payment to the named executive officer’s beneficiary payable
      under the Company’s Supplemental Executive Retirement Plan (“SERP”) paid
      in lieu of annuity payments. The lump sum payment is computed using the
      actuarial equivalent of the death benefit determined under the SERP. The
      method for determining this amount is described in more detail under
      “Supplemental Executive Retirement Plan” following the Pension Benefits
      Table above.
  27
  Quantification
of Payments:
 
 Mr. Couchman .
No additional payments would be due.
 
 Mr. Lynch . No
additional payments would be due.
 .
 Ms. Richards .
Total value of payments and benefits: $624,692. This amount is comprised of:
$14,040, which equals the value of the lapse of all restrictions on 4,500 shares
of Common Stock; $25,821, which equals the value of 8,276 shares under the CEP
program that would have vested at normal retirement; and $584,831, which equals
the lump sum value of the SERP death benefit.
  Disability.
For purposes of Mr. Lynch’s and Ms. Richards’ employment agreements,
“disability” generally means a condition that would qualify the executive to
receive benefits under the Company’s Long-Term Disability Plan.
  Description of Payments: If
Mr. Lynch’s or Ms. Richards’ employment is terminated due to disability, then
each individual will be entitled to the same incremental benefits and payments
listed under “Death,” except as noted below, and, to the extent applicable to
each named executive officer, also may be entitled to the following incremental
benefits and payments:
 
 o
                Ms.
      Richards would receive a lump sum payment of her benefit under the
      Company’s Supplemental Executive Retirement Plan (“SERP”), paid in lieu of
      annuity payments. However, the value of the lump sum payment is generally
      equal to the actuarial equivalent lump sum present value of the named
      executive officer’s single life annuity, rather than the SERP death
      benefit described above. The value of the lump sum payment is calculated
      using the factors described under “Supplemental Executive Retirement Plan”
      following the Pension Benefits Table
above.
 
 o
                A
      lump sum payment of the severance amount indicated in the executive’s
      employment agreement minus any retention payments already paid to Mr.
      Lynch or Ms. Richards.
 
 o
                For
      Mr. Lynch or Ms. Richards, continuation of coverage that is equivalent to
      the Company’s current medical, dental and basic life insurance for up to
      18 months. The quantification of this amount represents the present lump
      sum value of this benefit, which was calculated using employer monthly
      rates in effect on January 1, 2009. The quantification of this amount
      represents the total cost to the Company of providing this benefit. Mr.
      Couchman is not entitled to receive any benefits or to any benefit
      continuation.
 
 Quantification of
Payments:
 
 Mr.
Couchman: No additional benefits would be due.
  Mr. Lynch .
Total value of payments and benefits: $424,467. This amount is comprised of:
$400,000, which equals the value of the cash severance payment under
Mr. Lynch’s employment agreement; and $24,467, which equals the total cost
to the Company of the continuation of medical, dental and basic life insurance
for a period of up to 18 months.
 
 Ms. Richards .
Total value of payments and benefits: $1,699,355. This amount is comprised of:
$1,304,052, which equals the lump sum value of the SERP benefit; $371,250, which
equals the value of the cash severance payment under Ms. Richards’
employment agreement; $24,053, which equals the total cost to the Company of the
continuation of medical, dental and basic life insurance for a period of up to
18 months; and the amounts listed for Ms. Richards (except for the SERP
death benefit) under “Death – Quantification of Payments”
above.
  28
  Termination
Without Cause or Constructive Termination Without Cause. For purposes of
our current named executive officers’ employment agreements, termination without
cause generally means that the Company has elected to terminate the executive
for any reason aside from those described under “Termination by the Company for
Cause” above. The term of Mr. Couchman’s employment agreement ends on December
9, 2009.  The Company has provided notice to Mr. Lynch and Ms.
Richards that it expects to terminate such named executive officers employment
on May 15, 2009 and that such termination is a termination without
cause.
  Constructive
termination without cause generally means termination at the executive’s
initiative following the occurrence of one or more of the following events (if
the event occurs without the executive’s written consent and is not cured within
a set period of time following the executive’s advance written notice of such
occurrence): (i) an assignment of any duties to the individual which are
materially inconsistent with his or her status as a senior executive of the
Company; (ii) a decrease in base salary or in the target incentive award annual
opportunity below the percentage of base salary specified in the individual’s
employment agreement; (iii) any other failure by the Company to perform any
material obligation under, or breach by the Company of any material provision
of, the executive’s agreement; (iv) failure to secure the agreement of any
successor corporation to the Company or successor to the Company’s business to
fully assume the Company’s obligations under the individual’s agreement; (v) the
individual’s principal place of employment is re-located outside a 35-mile
radius of his or her principal place of employment as of the effective date of
the individual’s agreement; or (vi) any person or entity acquires the business
of the Company, whether by virtue of the sale of the stock or assets of the
Company, provided that the individual has not been offered comparable employment
from such person or entity.  If the named executive officer declines
an offer of comparable employment, his or her resignation will not be considered
constructive termination without cause.
  Description and Quantification of
Payments: If Mr. Lynch or Ms. Richards is terminated without cause or in
the event that there is a constructive termination of the executive without
cause, he or she will be entitled to the same incremental benefits and payments
listed for that named executive officer under “Disability – Quantification of
Payments” above, and, to the extent applicable to each named executive officer,
also may be entitled to payment described directly below.
  If any
payments made to Mr. Lynch or Ms. Richards become subject to an excise tax under
IRC Section 280G in connection with a change in control of the Company, then the
Company will pay to the executive an additional “gross up” payment sufficient to
ensure that the net after-tax amount retained by the executive is the same as if
the excise tax had not applied. Our current named executive officers may be
entitled to this payment if, as described under section (vi) of “Termination
Without Cause or Constructive Termination Without Cause” directly above, any
person or entity acquires the business of the Company, whether by virtue of the
sale of the stock or assets of the Company and the individual has not been
offered comparable employment from such person or entity. Based on the estimated
amounts being used for this report, at the end of fiscal 2008, none of our named
executive officers would have been subject to an excise tax upon the occurrence
of such an event.
  Approved Early
Retirement orNormalRetirement.  Ms. Richards is entitled to certain payments and
benefits upon approved early retirement or normal retirement, if the executive
satisfies the necessary pre-conditions.  The executive must attain age
60 and have 10 years of service with the Company in order to be entitled to
normal retirement payments and benefits. For purposes of the employment
agreements, approved early retirement means that the executive voluntarily
terminated employment with the Company at or after attaining age 55 (but before
reaching the “normal” retirement age of 60) with at least 10 years of service,
if such voluntary termination is approved in advance by the Compensation
Committee.  At the end of the Company’s 2008 fiscal year,
Ms. Richards would not have been entitled to payments or benefits upon
retirement because she had not attained the age of 55.
 
 Material
Conditions and Obligations Applicable to the Receipt of Payments and
Benefits. As a condition to receiving termination payments and benefits
under any of the above scenarios, Mr. Lynch and Ms. Richards must sign a general
release of any claims against the Company arising out of that executive’s
employment. Each named executive officer is also subject to confidentiality and
“cooperation in litigation” covenants that are not limited in duration. The
employment agreements for Mr. Lynch and Ms. Richards also contain
non-competition and non-solicitation clauses which remain in effect while the
named executive officer is employed with the Company which restricts the named
executive officer from generally engaging in business with Kmart or Sears or
soliciting or otherwise interfering with relationships between the Company and
its employees or agents. If a named executive officer breaches the
confidentiality, cooperation in litigation, non-competition or non-solicitation
clauses the Company has the right to terminate all payments and benefits to the
executive and to seek injunctive relief.
  29
  Director
Compensation
  Process
and Procedures for Director Compensation
 
 While
the Company was in bankruptcy, management worked with the Equity Committee
(which was a committee appointed by the U.S. Trustee to represent the interests
of the Company’s stockholders during the bankruptcy proceedings, and which
included Mr. Couchman, Chairman of our Board and a member of our Compensation
Committee) to develop a new non-employee director compensation program to become
effective upon our emergence from bankruptcy. The Company sought to establish a
competitive compensation program that would attract and retain experienced
leadership to the Company’s Board. When developing the program, the Company also
considered the unique challenges and uncertainties facing the Company in the
period preceding the termination of the Kmart Agreement. In order to give our
directors a meaningful equity ownership position in the Company, thereby better
aligning director compensation with stockholder interests, management and the
Equity Committee designed the 2006 Non-Employee Director Stock Plan as part of
our non-employee director compensation program. Upon the request of management,
the new non-employee director compensation program was reviewed by Mercer Human
Resource Consulting (“Mercer”). At the February 2006 meeting of the Board, our
Board discussed and adopted the new non-employee director compensation program,
which is described below. This program became effective upon our emergence from
bankruptcy pursuant to our Plan of Reorganization.
  Subject
to approval by the Board, the Compensation Committee has been responsible for
establishing policies that govern non-employee director compensation and for
implementing, administering and interpreting non-employee director compensation
plans, programs and policies.
 
 Compensation
Paid to Non-employee Directors
  Non-employee
directors receive a combination of cash and equity compensation.  Mr.
Couchman, currently the only employee serving on the Board, has not received any
separate compensation for his services as a director since becoming an employee
on December 9, 2008.
  Cash Compensation.
Non-employee directors are entitled to receive an annual cash retainer of
$50,000, plus expenses, which is paid quarterly in equal
installments.
 
 The
Chairman of the Board received an additional annual cash retainer of
$40,000.  However, effective January 1, 2009, his only compensation
has been as President and Chief Executive Officer. The Audit Committee Chair
receives an additional annual cash retainer of $10,000. The Board may request
that certain directors perform additional services, from time to time, on behalf
of the Board and may compensate those directors in the manner that the Board
deems appropriate.  In fiscal 2008, Mr. Couchman received an
additional $172,000 for the period from September through December 8, 2008 for
his services as a director of assessing the Company’s preparedness for the
wind-down as mentioned above.
  Each
eligible director may elect, prior to the end of the Company’s first fiscal
quarter of the year, to receive in lieu of his or her cash director fees for
that year, shares of fully vested Common Stock with a fair market value equal to
the amount of those fees. However, with respect to any election made in, 2009,
any shares of  Common Stock issued pursuant to an eligible director’s
election to receive such shares in lieu of cash director fees for the 2009
calendar year,  were issued as restricted stock.  This
restricted stock shall immediately vest upon stockholder approval of the Plan of
Dissolution, but a portion of which may be subject to forfeiture by the director
if (i) the amount of fees for services as a director is thereafter reduced by
the Board in its sole direction or (ii) the director no longer continues as a
director of the Company following such stockholder approval.  If
stockholder approval is not obtained and neither forfeiture event occurs prior
to the end of 2009, all such restricted stock shall fully vest on December 31,
2009.
  30
 
 Restricted Stock. As
described above, the Company maintains an equity plan for its non-employee
directors under which non-employee directors receive an annual grant of 10,000
shares of restricted Common Stock on the date of the annual meeting of
stockholders, unless otherwise recommended by the Compensation Committee and
approved by the Board. Non-employee directors did not receive this grant on the
date of the 2008 Annual Meeting, however, on July 18, 2008, the Compensation
Committee recommended and the Board approved a grant of 12,370 shares of
restricted Common Stock under Director Stock Plan to each non-employee
director.
 
 Unless
the Board determines otherwise at the time of grant, 50% of each award of
restricted Common Stock vests on the first anniversary of the date of grant and
25% of each award vests on the second and third anniversary of the date of
grant. Upon a director’s retirement or upon a change in control of the Company
(which includes stockholder approval of the Plan of Dissolution), all unvested
shares of restricted Common Stock will immediately vest.
  Each
director has all of the rights of a stockholder of the Company with respect to
the restricted Common Stock, including the right to vote the stock and receive
dividends. As a result, with respect to shares of restricted Common Stock held
by them, our non-employee directors were entitled to receive the $1.00 per share
cash distribution paid on June 3, 2008 to all stockholders of record as of the
close of business on May 28, 2008 and will have a right to receive the cash
distribution payable on May 6, 2009 to all stockholders of record as of the
close of business on April 30, 2009 contingent upon stockholder approval of the
Plan of Dissolution at the special meeting of stockholder to be held on May 5,
2009.
 
 Director
Compensation
 
 The
table below summarizes the compensation paid by the Company to non-employee
directors for fiscal 2008.
 
 Name
                                                                        Fees
      Earned or Paid
                                                                          in
      Cash
                                                                          ($)
                                                                        Stock
      Awards ($)
                                                                          (1)
                                                                        All
      Other
                                                                          Compensation
                                                                          ($)
      (2)
                                                                        Total
                                                                          ($)DIRECTORSJonathan
      M. Couchman (3)
                                                                        $    262,420
                                                                        $         89,298
                                                                        $                  23,465
                                                                        $      375,183Eugene
      I. Davis
                                                                        $      50,000
                                                                        $         89,296
                                                                        $                  23,465
                                                                        $      162,761Adam
      W. Finerman (4)
                                                                        $      50,000
                                                                        $         64,806
                                                                        $                  23,465
                                                                        $      138,271Alan
      Kelly (5)
                                                                        $      55,000
                                                                        $         54,704
                                                                        $                  23,465
                                                                        $      133,169Gerald
      F. Kelly, Jr.
                                                                        $      50,000
                                                                        $         53,372
                                                                        $                  23,465
                                                                        $      126,837Michael
      O'Hara
                                                                        $      50,000
                                                                        $         58,733
                                                                        $                  23,465
                                                                        $      132,198Alan
      I. Weinstein (6)
                                                                        $      55,000
                                                                        $         47,297
                                                                        $                  23,465
                                                                        $      125,762Steven
      D. Scheiwe (4)
                                                                        $      50,000
                                                                        $         47,297
                                                                        $                  20,965
                                                                        $      118,262
 
 
 (1)The amounts listed in this
column reflect the dollar amount recognized for financial statement reporting
purposes, calculated in accordance with FAS 123R (excluding the impact of
forfeitures related to service-based vesting conditions).  A
discussion of the assumptions used in calculating these values is set forth in
Note 19 to our audited financial statements in the Form 10-K for the fiscal year
ended January 3, 2009.
 
 31
  All
current non-employee directors received an award of 12,370 shares of restricted
stock on July 18, 2008 with a grant date fair market value (computed in
accordance with FAS 123R) of $48,243. At the end of the fiscal year, the
aggregate number of restricted stock awards outstanding for our current
directors and Mr. Couchman were as follows: Mr. Couchman, 25,352 shares: Mr.
Davis, 25,352 shares; Mr. Finerman 25,352 shares; Mr. Alan Kelly 25,352 shares;
Mr. Gerald F. Kelly Jr. 25,352 shares; Mr. O'Hara 25,352 shares; Mr. Weinstein
25,352 shares; and Mr. Scheiwe 22,852 shares. Our current directors and Mr.
Couchman did not have any option awards outstanding at the end of the fiscal
year.
 
 (2)
“All Other Compensation”, for Mr. Couchman, Mr. Davis, Mr. Finerman, Mr. Alan
Kelly, Mr. Gerald Kelly Mr. O’Hara and Mr. Weinstein includes $23,465 paid as a
cash distribution on June 3, 2008 at $1.00 per share on 23,465 shares of
outstanding restricted stock.  “All Other Compensation” for Mr.
Scheiwe includes $20,965 paid as a cash distribution on June 3, 2008 at $1.00
per share on 20,965 shares of outstanding restricted stock.
 
 (3)  Mr.
Couchman was a Director from January 1, 2008 through December 8,
2008.  Mr. Couchman elected to receive his full retainer ($50,000),
plus his Chairman retainer ($40,000), in 20,000 shares of common
stock.  Mr. Couchman also received $172,420 which was authorized by
the Board for expanded wind down duties -$60,000 for each of the
months of September and October and $52,420 based on $41,667 per month (prorated
for partial months) for the period from November 1 through December 8, 2008. On
December 9, 2008, Mr. Couchman signed an Employment Agreement with the Company
as the Chief Wind Down Officer.  All compensation earned as a Director
is included in the table above.  Compensation earned from December 9,
2008 through December 31, 2008 for Mr. Couchman is included in the Summary
Compensation Table (refer to footnote number nine of the Summary Compensation
Table for additional information).
 
 (4)
Messrs. Finerman and Scheiwe elected to receive their full retainer ($50,000) in
12,285 shares of restricted stock.
 
 (5)
Mr. Alan Kelly no longer served as a director following the 2008 Annual Meeting
of Stockholders and therefore received a cash retainer of $5,000 for services as
Chairman of the Audit Committee for the first half of 2008.
 
 (6)
Mr. Weinstein received a cash retainer of $5,000 for services as Chairman of the
Audit Committee for the last half of 2008 (replacing Mr. Alan Kelly as
Chairman).
  32
 
 ITEM
12.               SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  The
following table sets forth, to the best of our knowledge, information as to the
ownership of our common stock held by (1) each person or entity known by us to
beneficially own more than 5% of the outstanding shares of our common stock; (2)
each of our directors and named executive officers; and (3) all of our directors
and executive officers as a group. Except as otherwise indicated, ownership of
shares by the persons named below includes sole voting and investment power held
by such persons. The percentage of shares owned is based on 21,577,835 shares
outstanding as of April 3, 2009.
 
 SHARES BENEFICIALLY
      OWNED (1)NAME OF BENEFICIAL OWNER
      (2)
                          
                          NUMBER
                          
                          
                          PERCENTJonathan
      M. Couchman
                          
                          
                          1,031,577
                          (4)
                          
                          
                          4.8
                          %Eugene
      I. Davis
                          
                          
                          61,003
                          (4)
                          
                          
                          •Adam
      W. Finerman
                          
                          
                          89,796
                          (4)
                          
                          
                          •Gerald
      F. Kelly, Jr.
                          
                          
                          43,335
                          (4)
                          
                          
                          •Michael
      A. O’Hara
                          
                          
                          43,335
                          (4)
                          
                          
                          •Steven
      D. Scheiwe
                          
                          
                          62,114
                          (4)
                          
                          
                          •Alan
      I. Weinstein
                          
                          
                          43,335
                          (4)
                          
                          
                          •Michael
      J. Lynch
                          
                          
                          3,375
                          (3)
                          
                          
                          •Maureen
      Richards
                          
                          
                          80,769
                          (3)
                          
                          
                          •All
      directors and executive officers as a group (10
    persons)
                          
                          
                          1,458,639
                          
                          
                          
                          6.8
                          %Gates
      Capital Management, Inc.(5), Gates Capital Partners, L.P.(6),
                            ECF
      Value Fund, L.P.(7), ECF Value Fund II, L.P.(8),
                            ECF
      Value Fund International, Ltd.(9) and Jeffrey L.
    Gates(10)
                          
                          
                          1,096,911
                          (11)
                          
                          
                          5.1
                          %Schultze
      Asset Management, LLC and George J. Schultze)
                            300
      Westchester Avenue
                            Purchase,
      NY 10577
                          
                          
                          2,012,659
                          (12)
                          
                          
                          9.3
                          %FMR
      Corp. and Edward C. Johnson 3d
                            82
      Devonshire Street
                            Boston,
      MA 02109
                          
                          
                          2,047,200
                          (13)
                          
                          
                          9.5
                          %
 •
Represents beneficial ownership of less than one percent.
 
 (1)
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes sole voting and investment power
with respect to securities, and includes restricted or deferred
shares.
 
 (2)
The business address of the directors and executive officers is Footstar, Inc.,
933 MacArthur Boulevard, Mahwah, New Jersey 07430 201-934-2000.
 
 (3)
The amounts shown also include the following shares issuable pursuant to stock
options which, as of April 3, 2009, were currently exercisable or would become
exercisable within 60 days: Mr. Lynch, 3,375; Ms. Richards,
45,600.
 
 (4)
The amounts shown also include the following shares issuable pursuant to awards
of restricted stock which would immediately vest upon shareholder approval of
the Plan of Dissolution: Mr. Couchman, 22,852; Mr. Davis, 22,852; Mr. Finerman,
22,852; Mr. Kelly, 22.852; Mr. O’Hara, 22,852; and Mr. Weinstein, 22,852. Also
includes, for each of Messrs. Davis, Finerman and Scheiwe, 17,668 shares of
restricted stock which would immediately vest upon stockholder approval of the
Plan of Dissolution, but a portion of which may be subject to forfeiture by such
person if either (i) the amount of fees for service as a director is thereafter
reduced by the Board in its sole discretion or (ii) such person no longer
continues as a director of the Company following such stockholder
approval.
 
 (5)  1177
Ave. of the Americas, 32nd Floor,
New York, NY 10035.
  33
 
 (6)
1177 Ave. of the Americas, 32nd Floor,
New York, NY 10035.
 
 (7)  c/o
Gates Capital Management, Inc., 1177 Ave. of the Americas, 32nd Floor,
New York, NY 10035.
 
 (8)
c/o Gates Capital Management, Inc., 1177 Ave. of the Americas, 32nd Floor,
New York, NY 10035.
 
 (9)
c/o Trident Fund Services (B.V.I.) Limited, Trident Chambers, Wickhams Cay, P.O.
Box 146, Road Town, Tortola, British Virgin Islands
 
 (10)
c/o Gates Capital Management, Inc., 1177 Ave. of the Americas, 32nd Floor,
New York, NY 10035.
 
 (11)
Based solely on the information reported in the Schedule 13G filed on January
16, 2009 by Gates Capital Management, Inc., Gates Capital Partners, L.P., ECF
Value Fund, L.P., ECF Value Fund II, L.P., ECF Value Fund International, Ltd.
and Jeffrey L. Gates.
 
 (12)
Based solely on the information reported in the Schedule 13D/A filed on March 4,
2009 by Schultze Asset Management, LLC and George J. Schultze.  On
April 30, 2009 Schultze Asset Management, LLC and George J. Schultze filed a
Schedule 13G/A reporting beneficial ownership of 2,225,459
shares.
 
 (13)
Based solely on the information reported in the Schedule 13G/A filed on February
14, 2006.
 
 ITEM
13.          CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE
  Company
Policy and Procedure Regarding Transactions with Related
Persons
  The
Board has determined the absence of any “related person transaction” since the
beginning of 2008 involving any director, director nominee or executive officer
of the Company, any known 5% stockholder of the Company or any immediate family
member of any of the foregoing persons (together “related persons”). A “related
person transaction” generally means a transaction in which the Company was or is
to be a participant and the amount involved exceeds $120,000 (determined without
regard to the amount of profit or loss involved in the transaction) and in which
a related person had or will have a direct or indirect material interest (as
determined under SEC rules related to related person
transactions).
 
 On
March 26, 2007, the Board adopted a written policy for the review and the
approval or ratification of any related person transaction, which applies to any
potential related person transactions which may be proposed after the adoption
date of the policy. The policy applies to the “related person transactions”
described above. Under the policy, a related person transaction requires the
approval or ratification of the Audit Committee (or by the Chair of the Audit
Committee in those situations in which the legal department, in consultation
with the Chief Executive Officer or the Chief Financial Officer, determines that
it is not practicable or desirable for the Company to wait until the next Audit
Committee meeting for approval or ratification). Prior to approving or ratifying
any transaction, the Audit Committee (or, if applicable, the Chair of the Audit
Committee) must determine that the transaction is entered into in good faith and
on fair and reasonable terms to the Company after considering the relevant facts
and circumstances, including to the extent applicable, the related person’s
relationship to the Company, his or her interest in the transaction, and the
material facts and terms of the transaction. No related person is to participate
in the review of a transaction in which he or she may have an
interest.
  During
fiscal year 2008, no transactions were required to have been reviewed and
considered under this policy.
 
 Director
Independence
 
 The
Company is not subject to the listing requirements of any securities exchange or
Nasdaq because the Common Stock of the Company is quoted on the over-the-counter
bulletin board. However, the Board has adopted the independence criteria
established by Nasdaq for determining director independence and, for all Audit
Committee members, the independence requirements of Nasdaq and the SEC for
determining their independence. The Board has determined that of our current
Board members each of Messrs. Davis, Finerman, Gerald Kelly, O’Hara, Scheiwe,
and Weinstein are independent as defined under the listing requirements of
Nasdaq. In making its determinations regarding these directors, the Board
assessed all of the information provided by each director in response to
inquiries concerning his independence and concerning any business, family,
employment, transactional, or other relationship or affiliation of such director
with the Company. A copy of the Company’s Director Independence Standards is
available at the Corporate Governance section of the Company’s website at
www.footstar.com.
  34
 
 ITEM
14.            PRINCIPAL ACCOUNTING FEES
AND SERVICES
 
 The
fees paid or payable for services rendered by Amper, Politziner & Mattia,
P.C. and its affiliates (collectively “Amper Politziner & Mattia”) for
fiscal 2008 and 2007 were as follows:
 
 2008
                                
                                
                                2007Audit
      Fees (1)
                                
                                $
                                672,000
                                
                                
                                $
                                713,000Audit-Related
      Fees (2)
                                
                                $
                                22,000
                                
                                
                                $
                                22,000Tax
      Fees
                                
                                $
                                0
                                
                                
                                $
                                0All
      Other Fees
                                
                                $
                                0
                                
                                
                                $
                                0Total
      fees
                                
                                $
                                694,000
                                
                                
                                $
                                735,000
  (1)
                Audit
      Fees were for professional services rendered for audits of the Company’s
      consolidated financial statements, consents and review of reports filed
      with the SEC. Audit Fees also included the fees associated with an annual
      audit of the Company’s internal control over financial reporting, as
      required by Section 404 of the Sarbanes-Oxley Act of 2002, integrated with
      the audit of the Company’s annual financial
  statements.
 
 (2)
                Audit
      Related Fees consist of fees for audits of the financial statements of our
      employee benefit plans.
 
 The
services performed by our independent registered public accounting firm in
fiscal 2008 were pre-approved in accordance with the pre-approval policy and
procedures adopted by the Audit Committee in 2003. This policy describes the
permitted audit, audit-related, tax and other services that the independent
registered public accounting firm may perform. The policy also requires that
requests or applications to provide services that require specific approval, in
each of the specified categories, be presented to the Audit Committee for
pre-approval together with a statement as to whether such request or application
is consistent with application rules on auditor independence. Any pre-approval
is detailed as to the particular service or category of services and generally
is subject to a budget.
  Any
services for audit, audit-related, tax and other services not contemplated by
those pre-approved services must be submitted to the Audit Committee for
specific pre-approval. Normally, pre-approval is considered at regularly
scheduled meetings. However, the authority to grant specific pre-approval
between meetings, as necessary, has been delegated to the Chairman of the Audit
Committee where fees do not exceed $50,000. The Chairman must update the Audit
Committee at the next regularly scheduled meeting of any services that were
granted specific pre-approval. Any proposed services exceeding the pre-approval
fee levels require specific pre-approval by the Audit Committee. During fiscal
2008, the Audit Committee approved each new engagement of Amper, Politziner
& Mattia, P.C. in advance.
  35
  PART IV
 
  ITEM
15.            EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
  See
accompanying Index to Exhibits.
     36
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
  FOOTSTAR,
      INC.Date:
      May 4, 2009
                      By:
                      /s/ Jonathan
      M. CouchmanJonathan
      M. CouchmanChief
      Executive Officer and President
       37
   
 INDEX
TO EXHIBITS
 
 Number
                      
                      Description31.1
                      *
                      Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                      *
                      Certification
      of Chief Financial Officer — Senior Vice President (Principal Financial
      Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.
  *
                Filed
      herewith
    38