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 December 29, 2007
 
 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 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, 2007, was
approximately $81.5 million based on the closing price on June 29, 2007 of $4.20
per share.
 
 Number of
shares outstanding of common stock, par value $.01 per share, as of March 1,
2008:  21,126,647.
   
 
  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
(“Amended Report”) amends the original Annual Report on Form 10-K of the Company
for the fiscal year ended December 29, 2007, filed with the Securities and
Exchange Commission, or the SEC, on March 13, 2008 (“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
              
              
              4Item
      12.  Security Ownership of Certain Beneficial Owners and
      Management and Related
      Stockholder Matters
              
              
              36Item
      13.  Certain Relationships and Related Transactions, and
      Director Independence
              
              
              38Item
      14.  Principal Accounting Fees and Services
              
              
              39PART
      IVItem
      15.  Exhibits and Financial Statement Schedules
              
              
              40SIGNATURES
              
              
              40
 
  
  
  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 currently consists of nine members divided into three classes
with three directors in each class. 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. The term of Class II directors will expire at
our 2008 annual meeting; the term of Class III directors will expire at our 2009
annual meeting; and the term of Class I directors will expire at our 2010 annual
meeting. Our Second Amended and Restated Certificate of Incorporation provides
that the number of directors will be reduced automatically over time in the
manner set forth in our Second Amended and Restated Certificate of
Incorporation, unless our Board determines otherwise. Accordingly, the size of
Class II will be reduced to two directors at the 2008 annual meeting. In 2007,
the Board determined not to reduce the size of Class I from three directors to
one director. The Board has not made any determinations at this time regarding
the size of Class III of the Board, which will be reduced to two directors when
the term of the current Class III directors expires at the 2009 meeting, unless
the Board determines otherwise, resulting in a seven member
Board.
  Set
forth below are the names of, and certain biographical information regarding,
the directors of the Company.
  Jeffrey A.
      Shepard, 58, Class III
            Director Since
      2005
  Mr.
Shepard was appointed Chief Executive Officer and President of Footstar on
February 7, 2006. He was appointed to Footstar’s Board of Directors in January
2005. He formerly served as President and Chief Executive Officer of our
Meldisco division from 1996 to February 2006. Mr. Shepard was an executive
officer of Footstar at the time it filed for reorganization under Chapter 11 in
March 2004.
 Jonathan M.
      Couchman, 38, Class III
              Director Since
      2006
 Mr.
Couchman was appointed Chairman of the Board of Footstar on February 7, 2006. He
is the Managing Member of Couchman GP LLC, the general partner of Couchman
Investments LP, a private investment partnership established in 2001 and the
Managing Member of Couchman Capital LLC, the co-investment manager of Couchman
International Ltd., a private partnership established in 2001. Mr. Couchman is
also the Managing Member of Couchman Capital Services LLC, the general partner
of Couchman Partners LP, a private investment partnership established in 2001
and the investment manager of Couchman Investments LP and co-investment manager
of Couchman International Ltd. In addition, Mr. Couchman is the President of
Couchman Advisors, Inc., a management and advisory company. Mr. Couchman
presently serves as a director of Golf Trust of America, Inc. He is a member of
the CFA Institute and the New York Society of Security
Analysts.
 Eugene I. Davis,
      53, 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 Boards of Atlas Air Worldwide Holdings, Inc., Atari,
Inc., Foamex International, Inc., and Cadence Innovation, LLC (a designer and
manufacturer of molded plastic components for the automotive industry). Mr.
Davis also serves as a Director of Delta Air Lines, Inc., American Commercial
Lines, Inc., Haights Cross Communication, Knology, Inc., Pliant Corporation,
Rural/Metro Corporation, Salton, Inc., SeraCare Life Sciences, Inc., Silicon
Graphics, 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,
      43, 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.
 Alan Kelly, 59,
      Class II
              Director Since
      2006
 President
of Alan Kelly & Associates, a provider of retail strategy and consulting
services, since January 2002. From 1988 to 2001, he served as an officer of Bata
Ltd., a manufacturer and retailer of footwear, first as the Chief Financial
Officer, then as President of the largest Bata operating group. Mr. Kelly is a
Fellow of the Institute of Chartered Accountants of England and
Wales.
 Gerald F. Kelly,
      60, 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,
      40, Class I
              Director Since
      2006
 President
of Consensus Advisors LLC, an investment banking and financial advisory services
firm, since February 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.
  2
  Steven D.
      Scheiwe, 47, 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), Zemex Minerals Group, Inc. (a
leading North American supplier of mica and clay products for industrial use),
American Restaurant Group, Inc. (an operator of full service restaurants), and
Friedman’s Jewelers, Inc., a fine jewelry 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, 65,
      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 requires the Company’s executive
officers and directors to file reports regarding ownership of the Company’s
Common Stock with the Securities and Exchange Commission, 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
2007.
  Code
of Business Conduct and 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, and to all
other directors, 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 of Directors 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.
  Shareholder
Nominations
  There have been no material changes
to the procedures by which shareholders 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 Securities Exchange
Act of 1934. Mr. Alan Kelly (Chairperson), Mr. Davis and Mr. Weinstein 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
because the Common Stock of the Company is quoted on the over-the-counter
bulletin board. However, the Board of Directors has adopted the independence
criteria established by the Nasdaq Stock Market (“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
of Directors 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 Securities
Exchange Act of 1934. The Board of Directors also has determined that each
member qualifies 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.
  3
  ITEM
11. EXECUTIVE
COMPENSATION
  Compensation
Discussion & Analysis
  Our
Business
  The
family footwear business, where the majority of our business is generated, is
highly competitive. The Company has operated licensed footwear departments in
discount chains since 1961, and is the only major operator of licensed footwear
departments in the United States today. We offer a wide range of quality,
value-priced footwear. The Company’s traditional strength has been in quality
leather footwear which it currently offers under the Thom McAn brand, as well as
seasonal, work, value-priced athletic, women’s casual and children’s
shoes.
  We
sell family footwear through licensed footwear departments and wholesale
arrangements. The licensed footwear operation sells 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 sell a wide variety of family footwear, including men’s, women’s and
children’s dress, casual and athletic footwear, work shoes and slippers. As of
December 29, 2007, we operated licensed footwear departments in 1,388 Kmart
stores, as well as in 859 Rite Aid stores located on the West Coast. The Company
also supplies certain retail stores, including stores operated by Wal-Mart
Stores, Inc. and Rite Aid, with family footwear on a wholesale
basis.
 
 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.
 
 While
the Company was in bankruptcy, the Company and Kmart entered into an agreement,
which amended the original “master” agreement that governed our arrangement with
Kmart. This amended agreement, which we call the “Kmart Agreement,” took effect
beginning January 2, 2005 and allows us to continue operating the footwear
departments in Kmart stores, but also permits termination of the agreement if
the Company fails to meet minimum sales tests, staffing obligations or other
provisions of the agreement. The Kmart Agreement is scheduled to expire on
December 31, 2008. The licensed footwear departments in Kmart comprise
substantially all of our sales and the Company currently anticipates winding
down its business at the end of 2008 when the Kmart Agreement
expires.
 
 In
connection with this anticipated wind-down, in April 2008, the Company entered
into an Intellectual Property Purchase Agreement (the “IP Purchase Agreement”)
with Sears Holdings Corporation (“Sears”) and Sears Brands LLC, a subsidiary of
Sears, and a Master Agreement Amendment (the “Master Agreement Amendment”) with
Kmart, certain affiliates of Kmart, and Sears, which amends the Kmart
Agreement.  Under the terms of the IP Purchase Agreement, the Company
sold to Sears Brands LLC substantially all of the Company’s intellectual
property, including the intellectual property related to the Company’s Kmart
business. Under the IP Purchase Agreement, Sears Brands LLC granted the Company
a royalty-free exclusive license to use the intellectual property to operate the
Company’s Kmart business until the Kmart Agreement is terminated and a
royalty-free, non-exclusive license for a short period following the termination
of the amended Kmart Agreement to sell off any remaining
inventory.  Pursuant to the terms of the Master Agreement Amendment,
Kmart agreed to offer employment (effective at December 31, 2008 in most cases)
to substantially all of the Company’s store managers and district manager level
employees. The Master Agreement Amendment also amends the provisions of the
Kmart Agreement concerning Kmart’s purchase of the inventory associated with the
Kmart business at the termination of the Master Agreement.
  4
  Overview
and Objectives of the Three Year (2006-2008) Compensation
Program
  Footstar’s
Executive Retention Challenges.Our success is 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 face 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.
  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 are 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 is intended to extend through the termination of
our agreement with Kmart.
  The
components of this compensation program as it pertains to each active officer,
including 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 are driven by our business
environment and the unique challenges to executive recruitment and retention
described above. The objectives of our compensation program are
to:
  5
 §
            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
 
 §
            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 and
Mr. Couchman (who was on the Equity Committee and who is now Chairman of
our Board, the Chairperson of our Nominating and Governance Committee, and a
member of our Compensation Committee) worked together to select the persons who
became our directors upon our emergence from bankruptcy (with the exception of
Mr. Shepard, who has 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. Couchman, O’Hara and Scheiwe. 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.
  Also,
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.
  6
  The
Compensation Committee determined not to retain an outside compensation
consultant to advise the Committee on matters related to executive compensation
for 2007 or 2008.  As a result of our dependence on the Kmart business
and the scheduled December 2008 expiration of that relationship, the
Compensation Committee believes that the target compensation levels and
compensation structure developed in the fall of 2006 generally will be
sufficient to retain the Company’s executive officers, including our named
executive officers, through the currently scheduled termination of the Kmart
Agreement. However, the Compensation Committee retains 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 deems appropriate. For example, as
discussed below, in the fall of 2006, the Compensation Committee approved
increases in certain elements of compensation for our Chief Financial Officer to
reflect his new responsibilities.
 
 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 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 continue to reflect the overarching goals of our executive
compensation program during 2007 and 2008 and the Compensation Committee
continues to believe that the positioning established in the fall of 2006 is
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 current executive officers has an employment
agreement, which establishes base compensation levels for each major component
of our compensation program. These agreements are 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 continue 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.
  7
  For
each named executive officer, our compensation program consists of all or some
of the following elements:
 
 §
            Base
      salary;
 §
            Performance-based
      incentive compensation;
 §
            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 will be sufficient
to retain the Company’s executive officers, including our named executive
officers, through the currently scheduled termination of the Kmart Agreement.
Our Chief Executive Officer 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, when the Compensation
Committee reviewed the general compensation structure in late 2006. The
Compensation Committee intends to continue to consider our Chief Executive
Officer’s recommendations prior to its approval of compensation for our
executive officers (other than his own compensation). Our Chief Executive
Officer’s performance also is reviewed by the Compensation Committee, which
recommends any salary increases subject to the review of the Board of Directors.
Our Chief Executive Officer does not participate in making compensation
decisions or setting performance goals for 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 believes that aligning Total Cash Compensation, of which
base salary is a key component, is crucial to remaining competitive and
retaining our core executive team. Base salary levels directly impact awards
under our semi-annual incentive compensation program, which are expressed in
part as a percentage of each executive’s base salary. The Compensation Committee
reviews base salaries at least annually and, utilizing the benchmarking data
provided by the Committee’s compensation consultant in 2006, considers increases
based on individual performance, position, increases in responsibility, and
Company profitability.
  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.
  8
  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 Chief Executive Officer, submits recommendations on
proposed performance metrics for the applicable performance period to the
Compensation Committee, which are subject to adjustment and approval by the
Committee.
  The
incentive awards for 2007 were based on adjusted EBITDA, as described below. The
Compensation Committee believes 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 Compensation Committee determined to continue to base
incentive awards on adjusted EBITDA for the spring 2008 performance cycle, as
described below under “Adjusted EBITDA for the Spring 2008 Performance Cycle”.
The incentive plan also is 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 will forfeit the right to receive
the next semi-annual cash incentive award under the performance-based incentive
plan.
  Adjusted EBITDA as a Performance
Measure.For 2007, 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 7% 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 is one of our principal
      assets.
 
 §
            Upward
      or downward, in the event that store closing levels are above or below
      previously estimated planned closings. This insures that our executives
      are 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
      are above or below planned
levels.
  All
adjustments are made pursuant to formulas approved by the Compensation
Committee.
  We
believe these stated adjustments help achieve the performance objectives that
the plan is designed to encourage.
  Incentive Opportunities at Target
EBITDA.Incentive opportunities under our performance-based incentive
plan are based on the particular adjusted EBITDA targets established by the
Compensation Committee. If adjusted EBITDA equals or exceeds established levels,
incentive awards are 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 that 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 2007, the annual incentive award opportunities, expressed as a percentage of
base salary, for our participating named executive officers, were as
follows:
  9
  §
              Mr.
      Shepard – 100%;
 §
              Mr.
      Lynch – 50%;
 §
              Mr.
      Lenich – 50%;
 §
              Ms.
      Richards – 50%; and
 §
              Mr.
      Proffitt – 45%;
  Seasonal EBITDA Targets and Payout.Our incentive EBITDA targets are set seasonally, rather than annually.
The spring season is January through June and the fall season is 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.
  2007 Targets and Payouts.Target adjusted EBITDA performance established for 2007 was a planned
amount, which corresponded to the financial plan approved by the Board for
fiscal 2007. 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.
  For the
spring 2007 season, Target adjusted EBITDA performance was $23,700,000, Maximum
adjusted EBITDA performance was $32,000,000, and Threshold adjusted EBITDA performance
was $17,780,000. Actual adjusted EBITDA performance for the spring 2007 season
was $26,087,000, which resulted in a 129% payout. For the fall 2007 season,
Target adjusted EBITDA performance was $29,100,000, Maximum adjusted EBITDA
performance was $39,290,000 and Threshold adjusted EBITDA performance was
$21,830,000. Actual adjusted EBITDA performance was $35,578,000, which resulted
in a 163% payout.
  Incentive
awards made to each of the named executive officers for the year ended December
29, 2007 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 2007 under the incentive plan is reflected under the
“Estimated Future Payouts Under Non-Equity Incentive Plan Awards” columns of the
Fiscal Year 2007 Grants of Plan Based Awards Table below.
  Adjusted EBITDA for the Spring 2008
Performance Cycle. As noted above, EBITDA will continue to be utilized as
the applicable performance metric for the spring 2008 performance cycle of our
incentive plan. For the spring 2008 cycle, the calculation of adjusted EBITDA
will continue to exclude the impact of store closing levels that are above or
below previously estimated planned closings, as well as unexpected bankruptcy
related charges and any professional fees that are above or below planned
levels.  In accordance with the Compensation Committee’s
determinations, adjusted EBITDA for the spring 2008 cycle will also exclude the
financial impact of certain events associated with the currently anticipated
wind down of the Company’s business upon the scheduled termination of the Kmart
Agreement at the end of December 2008.  The Compensation Committee
believes that these adjustments to EBITDA are more likely to result in an
incentive award based upon the target adjusted EBITDA performance levels that
correspond to the financial plan for 2008, rather then on unique financial
occurrences related to the currently anticipated wind down of our
business.  As a result, adjusted EBITDA for the spring 2008 cycle will
exclude certain events directly related to the Company’s preparations to wind
down its business including, gains or losses on sales of the Company’s assets,
any gains from the termination of the Company’s retiree medical planand
severance-related charges for planned staff reductions in 2008. In addition, the
Compensation Committee has determined that EBITDA will be adjusted downward if
aged inventory exceeds 5% of total inventory at the end of December 2008 and
will exclude any financial gains or losses recognized as a result of any change
to the normal method of calculating aged inventory reserves. These modifications
are intended to provide additional incentive to our executive officers to
maximize stockholder value upon the expiration of the Kmart Agreement, as Kmart
has agreed to purchase the inventory in our Kmart footwear departments,
excluding, at our option, aged inventory, upon expiration of that
agreement.
  10
  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 combines semi-annual retention payments with severance
protection. The severance element of the program consists of lump sum cash
payments and, for certain executives, 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.
  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 is 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 receive 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 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.
  11
  Retention
payments made to our named executive officers in 2007 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.
  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 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 $5.00 per share
cash distribution declared by our Board in March 2007 to be paid on an equal
basis on April 30, 2007 to all stockholders of record as of the close of
business on April 13, 2007.  The value of the cash distribution
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.
 
 12
  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 terminates. 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
currently be eligible for approved early retirement, if he receives approval
from our Compensation Committee.
 
 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 officer’s 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 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 2007, the
profit sharing allocation was 1.46% 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.  Mr. Proffitt was the only named executive officer that would
have been entitled to benefits under the retiree medical plan, but for its
termination.
  13
  Perquisites.
 
 We do
not provide significant perquisites or personal benefits to our executives. 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.
  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 are
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 distribution of $5.00 per
share, which was made by the Company on April 30, 2007 on an equal basis to all
stockholders of record as of April 13, 2007, was paid to STEP and CEP program
participants as a dividend equivalent and was mandatorily reinvested into
additional shares of Company Common Stock that were credited to the
participant’s account.  Additional STEP and 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 STEP and CEP programs is included under the
“All Other Compensation” column of the Summary Compensation Table
below.
  14
  Shares
that vested under these programs in 2007 are included in Option Exercises and
Stock Vested in Fiscal Year 2007 below and shares subject to vesting are
included in Outstanding Equity Awards at Fiscal Year-End 2007
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 received in 2007 by certain named executive officers
following the mandatory reinvestment of the cash distribution paid by the
Company on April 30, 2007 on shares held under the STEP and CEP programs (as
described under “Long Term Incentives-Stock Options-Stock Grants” above) and the
four equity grants made in 2006 (described under “Retention Program” above), no
equity grants have been made to named executive officers or other key associates
since 2002.
 
 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.
  15
  Summary
Compensation Table
 
 The
table below summarizes the total compensation paid to or earned by each of the
named executive officers for the fiscal years ended December 29, 2007 and
December 30, 2006.
 
 Name
      and Principal Position
              Year
              Salary
                ($)
              Bonus
                ($)
      (1)
              Stock
      Awards
                ($)
      (2)
              Option
      Awards
                ($)
      (3)
              Non-
      Equity Incentive Plan Compensation
                ($)
      (4)
              Change
      in
                Pension
      Value &
                Non-qualified
                Deferred
                Compensation
                Earnings
                ($)
      (5)
              All
      Other Compensation
                ($)
              TOTAL
      ($)Jeffrey
      A. Shepard
                President &
                Chief Executive
                Officer
              2007
              $676,000
              $316,876
              $234,425
              $17,211
              $986,960
              $563,853
              $831,559
      (6)
              $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
              2007
              $325,000
              $93,873
              $0
              $538
              $237,251
              $0
              $11,035
      (7)
              $667,6972006
              $281,646
              $124,745
              $0
              $9,810
              $241,020
              $0
              $11,900
              $669,121William
      Lenich
                Executive Vice President
      Merchandizing
              2007
              $504,000
              $161,666
              $196,204
              $0
              $367,920
              $142,676
              $638,655(8)
              $2,011,1212006
              $499,616
              $280,666
              $179,854
              $0
              $485,000
              $105,624
              $30,769
              $1,581,529Maureen
                Richards
                Senior
      Vice
                President,
                General
      Counsel
                &
      Corporate
                Secretary
              2007
              $354,000
              $123,750
              $9,654
              $6,024
              $258,420
              $193,549
              $67,695(9)
              $1,013,0922006
              $350,769
              $536,250
              $12,766
              $48,433
              $340,000
              $111,246
              $27,634
              $1,427,098Randall
      Proffitt
                Senior
      Vice
                President
      Store Operations
              2007
              $321,000
              $101,082
              $121,972
              $3,442
              $210,897
              $209,744
              $404,210
      (10)
              $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 2007 represent the fixed, semi-annual retention
      payments each named executive officer receives 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 18 to our audited financial statements in the Form 10-K for
      the fiscal year ended December 29, 2007
      filed with the SEC on March 13,
2008.
 
 Certain
      named executive officers 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 theoriginal
      term of the executive’s employment agreement, whichever is
      earlier.  Twelve/ thirty-fifths (12/35ths)of
      the grant was recognized in fiscal year 2007 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 2007 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”).
  16
 §
              Mr.
      Shepard: $210,363 Restricted Stock, $1,990 CEP and $22,072
      STEP
 §
              Mr.
      Lenich: $196,204 Restricted
Stock
 §
              Ms.
      Richards: $7,282 Restricted Stock, $868 CEP and $1,504
      STEP
 §
              Mr.
      Proffitt: $118,455 Restricted Stock, $682 CEP and $2,835
      STEP
 
 NOTE:
                The
      amounts reported in this column for 2006 were updated to correct an error
      in the FAS 123R calculation for the STEP and CEP Plans for that
      period.  Mr. Shepard’s amount changed from $52,671 which was
      originally reported to $36,208, Ms. Richards’ amount changed from $8,805
      which was originally reported to $6,091 and Mr. Proffitt’s amount changed
      from $5,093 which was originally reported to
    $6,234.(3)
              The
      amounts reflected in this column reflect the dollar amount recognized for
      financial statement reporting purposes in 2007 (for options granted in
      2002) and in 2006 (for options granted in 2001 and 2002), 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 18 of our audited financial
      statements in the Form 10-K for the fiscal year ended December
      29, 2007
      filed with the SEC on March 13,
2008.
 
 (4)
              Reflects
      the amount awarded under the Company’s semi-annual non-equity incentive
      program.  In 2007, the spring season award was at 129% of the
      target award and the fall season award was at 163% of the target
      award.
 
 (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 2007, represents the change in value between November 30,
      2006 and December 31, 2007, 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’s “All Other Compensation” amount for 2007 includes:$12,285
      for participation in the Company’s 401(k) Profit Sharing Plan ($9,000
      represents the Company employee contribution match under the plan and
      $3,285 represents the tax-deferred profit sharing component calculated at
      1.46% of eligible compensation); $14,420 for financial planning and tax
      preparation ($10,500 for services provided and $3,920 for the tax gross-up
      on the financial planning portion); $2,500 for an executive physical;
      $59,567 for excess executive long-term disability ($32,756 for premiums
      and $26,811 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.This
      amount also includes the following amounts received as a result of the
      $5.00 per share cash distribution paid by the Company on April 30, 2007 on
      an equal basis to all stockholders of record: (1) $650,000 paid on 130,000
      shares of restricted stock; (2) $67,580 paid on 13,516 previously granted
      Company matching STEP shares (which, per the terms of that program, was
      re-invested into 15,716 additional STEP shares that vested on March 26,
      2008); and (3) $25,207 paid on 5,041 previously granted CEP retirement
      shares (which, per the terms of that program, was re-invested into 5,862
      additional CEP shares that will vest at retirement or upon other defined
      termination events).
  (7)
              Mr.
      Lynch’s “All Other Compensation” amount for 2007 includes $11,035 for
      participation in the Company’s 401(k) Profit Sharing Plan ($7,750
      represents the Company employee contribution match under the
      plan and $3,285 represents the tax-deferred profit sharing component
      calculated at1.46%
      of eligible compensation).(8)
              Mr.
      Lenich’s “All Other Compensation” amount for 2007 includes: $12,285 for
      participation in the Company’s 401(k) Profit Sharing Plan ($9,000
      represents the Company employee contribution match under the plan and
      $3,285 represents the tax-deferred profit sharing component calculated at
      1.46% of eligible compensation); $14,040 for excess executive long-term
      disability; and $6,080 for tax preparation.This
      amount also includes the following amounts received as a result of the
      $5.00 per share cash distribution paid by the Company on April 30, 2007 on
      an equal basis to all stockholders of record: (1) $606,250 paid on 121,250
      shares of restricted stock.
  17
  (9)
              Ms.
      Richards’ “All Other Compensation” amount for 2007 includes: $12,285 for
      participation in the Company’s 401(k) Profit Sharing Plan ($9,000
      represents the Company employee contribution match under the plan and
      $3,285 represents the tax-deferred profit sharing component calculated at
      1.46% of eligible compensation); $2,211 for excess executive long-term
      disability;  $11,795 for financial planning and tax preparation
      ($8,000 for services provided and $3,795 in tax gross-ups paid by the
      Company on the financial planning portion) and $2,500 for an executive
      physical.This
      amount also includes the following amounts received as a result of the
      $5.00 per share cash distribution paid by the Company on April 30, 2007 on
      an equal basis to all stockholders of record: (1) $22,500 paid on 4,500
      shares of restricted stock; (2) $4,605 paid on 921 previously granted
      Company matching STEP shares (which, per the terms of that program, was
      re-invested into 1,071 additional STEP shares that vested on March 26,
      2008); and (3) $11,799 paid on 2,360 previously granted CEP retirement
      shares (which, per the terms of that program, was re-invested into 2,744
      additional CEP shares that will vest at retirement or upon other defined
      termination events).(10)
              Mr.
      Proffitt’s “All Other Compensation” amount for 2007 includes: $12,285 for
      participation in the Company’s 401(k) Profit Sharing Plan ($9,000
      represents the Company employee contribution match under the plan and
      $3,285 represents the tax-deferred profit sharing component calculated at
      1.46% of eligible compensation); $5,450 for tax planning; and $2,500 for
      an executive physical.This
      amount also includes the following amounts received as a result of the
      $5.00 per share cash distribution paid by the Company on April 30, 2007 on
      an equal basis to all stockholders of record: (1) $366,015 paid on 73,203
      shares of restricted stock; (2) $8,680 paid on 1,736 previously granted
      Company matching STEP shares (which, per the terms of that program, was
      re-invested into 2,019 additional STEP shares that vested on March 26,
      2008); and (3) $9,280 paid on 1,856 previously granted CEP retirement
      shares (which, per the terms of that program, was re-invested into 2,158
      additional CEP shares that will vest at retirement or upon other defined
      termination events).
  Employment
Agreements or Arrangements
  All of
our named executive officers are subject to employment agreements with the
Company. Additional details regarding each named executive officer’s rights upon
termination and the restrictive covenants contained in each named executive
officer’s employment agreement are described under the heading “Potential
Payments Upon Termination or Change in Control” below.
  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 agreement is for a term ending on December 31, 2008, and is subject
to automatic renewal for successive one year terms unless either the Company or
Mr. Shepard notifies the other party in writing at least 90 days prior to
expiration that he or it is electing to terminate the agreement at the
expiration of the then current term of employment. Mr. Shepard’s employment
agreement provides for payment of an annual base salary that will be reviewed at
the discretion of the Compensation Committee, but limits any reduction in base
salary during the term of the agreement. His current annual base salary is
$676,000. Mr. Shepard is entitled to participate in the Company’s
semi-annual cash incentive program, under which he may earn at least 100% of his
base salary per year if certain targets are achieved. Mr. Shepard may
continue 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 and 2007 and will receive retention payments in at
least the same amount and on the same dates in 2008, subject to certain
employment continuation conditions. 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 circumstances under which the
restrictions will 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 Mr. Shepard upon the occurrence of certain
triggering events are further described.
  18
  If
payments made to Mr. Shepard 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 Mr. Shepard (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
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 current 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. 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.
  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 annual
base salaries are: Mr. Lynch – $325,000; Mr. Lenich – $504,000;
Ms. Richards – $354,000; and Mr. Proffitt – $321,000. Each executive
is entitled to participate in the Company’s semi-annual cash incentive program
under which the executive is 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 executive 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 and 2007 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. The minimum semi-annual retention payments to
be paid under the individual terms of the agreements are as follows:
Mr. Lenich – $80,833; Ms. Richards – $61,875; and Mr. Proffitt –
$50,541. Each executive is entitled to retention payments of at least these
minimum amounts upon the same dates in 2008, subject to certain employment
continuation conditions.
  Under
the terms of the agreements each executive was entitled to receive, upon the
Company’s emergence from bankruptcy, payment of the Key Employee Retention Plan
amounts, which had been approved, but not yet paid, under an order entered in
the bankruptcy court on May 6, 2004. In February 2006, upon the Company’s
emergence from bankruptcy, the following amounts were paid to each executive in
accordance with the order from the bankruptcy court: Mr. Lynch – $37,000;
Mr. Lenich – $119,000; Ms. Richards – $412,500; and Mr. Proffitt
– $67,500.
  Under
the terms of their agreements, Messrs. Lenich and Proffitt and
Ms. Richards are entitled to continue 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 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 will 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.
 
 19
 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.
 
 Fiscal
Year 2007 Grants Of Plan Based Awards Table
  The
following table provides information concerning the semi-annual performance
awards granted in 2007 as well as shares granted in connection with the Career
Equity Program (“CEP”) and Company match shares granted in connection with the
Switch to Equity Plan (“STEP”) following the mandatory reinvestment of the $5.00
per share cash distribution paid by the Company on April 30, 2007 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
      /
                Season
              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
                Option
      Awards
                ($)
      (3)Threshold
                ($)
              Target
                ($)
              Maximum
                ($)Jeffrey
      A. Shepard
              5/1/2007
              
              
              
              15,716
      (4)
              $67,5805/1/2007
              
              
              
              5,862
      (5)
              $25,207Spring
              $169,000
              $338,000
              $676,000Fall
              $169,000
              $338,000
              $676,000Michael
      Lynch
              Spring
              $40,625
              $81,250
              $162,500Fall
              $40,625
              $81,250
              $162,500William
      Lenich
              Spring
              $63,000
              $126,000
              $252,000Fall
              $63,000
              $126,000
              $252,000Maureen
      Richards
              5/1/2007
              
              
              
              1,071
      (4)
              $4,6055/1/2007
              
              
              
              2,744
      (5)
              $11,799Spring
              $44,250
              $88,500
              $177,000Fall
              $44,250
              $88,500
              $177,000Randall
      Proffitt
              5/1/2007
              
              
              
              2,019
      (4)
              $8,6805/1/2007
              
              
              
              2,158
      (5)
              $9,280Spring
              $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) and July through December (the fall performance period) 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.  Based on the metrics
      described in that section, performance levels entitling the executives to
      a 129% of the Target payout was achieved for the spring performance period
      and 163% of the Target award payout was achieved for the fall performance
      period.  These 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, except for 2,019 shares of STEP and 967
      shares of CEP for Mr. Proffitt which were granted under the Company’s 2000
      Equity Incentive 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 $4.30 per
      share (based on the average of the highest and the lowest stock bid price
      on May 1, 2007).
                
                (4)  
      Before the STEP program was discontinued in 2003, associates could make
      annual elections to defer for a period of five years up to 75% of any
      annual cash incentive award earned in deferred shares of Common Stock and
      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 last five year vesting period for Company matching shares
      granted under the STEP program ended on March 26, 2008.  Any
      dividend equivalents paid on Company matching shares under the STEP
      program are mandatorily reinvested into shares of deferred Common Stock
      which vest at the same time the underlying shares are paid.
                
                On
      April 30, 2007, the Company paid a $5.00 per share cash distribution on an
      equal basis to all stockholders of record.  The number of
      deferred shares received by STEP program participants as a result of the
      mandatory reinvestment of this cash distribution on previously granted
      STEP program Company match shares is shown in the table
      above.  STEP program Company match shares held by named
      executive officers prior to the cash distribution were as follows: Mr.
      Shepard - 13,516 shares; Ms. Richards - 921 shares; and Mr. Proffitt -
      1,736 shares.  All STEP program shares vested on March 26,
      2008.
                
                The
      value of the cash distribution on the STEP program Company match shares is
      included in the “All Other Compensation” column of the Summary
      Compensation Table above. Additional details regarding the STEP program
      are included above in the section titled “Long Term Incentives−Stock
      Options−Stock Grants” in the Compensation Discussion and
      Analysis.
                
                (5) 
       Before the 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 and 25% in deferred shares that will vest upon
      retirement or termination of employment other than for
      cause.  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 vest.
                
                On
      April 30, 2007, the Company paid a $5.00 per share cash distribution on an
      equal basis to all stockholders of record.  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 the table above.  CEP program
      deferred shares held by named executive officers prior to the cash
      distribution were as follows: Mr. Shepard - 5,041 shares; Ms. Richards -
      2,360 shares; and Mr. Proffitt - 1,856 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 2007
 
 The table
below reflects all outstanding equity awards for named executive officers as of
December 29, 2007.
 OPTION
      AWARDS
                        
                        STOCK
      AWARDSName
                        
                        Number
      of
                          Securities
                          Underlying
                          Unexercised
                          Options
      (#)
                          Exercisable
                        
                        
                        Number
      of
                          Securities
                          Underlying
                          Unexercised
                          Options
      (#)
                          Unexercisable
                        
                        
                        Option
                          Exercise
                          Price($)
                        
                        Option
                          Expiration
                          Date
                        
                        Number of
                          Shares or
                          Units
      of
                          Stock That
                          Have
      Not
                          Vested (#)
      *
                        
                        
                        Market
                          Value
      of
                          Shares
      or
                          Units
      of
                          Stock
      That
                          Have
      Not
                          Vested
      ($)Jeffrey A.
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        130,000
                        
                        (1
                        )
                        
                        $
                        611,000Shepard
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        29,232
                        
                        (2
                        )
                        
                        $
                        137,39010,904
                        
                        (3
                        )
                        
                        $
                        51,24936,169
                        
                        
                        
                        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
                        
                        3/10/201016,800
                        
                        
                        
                        0
                        
                        
                        $
                        25.16
                        
                        3/2/20093,975
                        
                        
                        
                        0
                        
                        
                        $
                        25.16
                        
                        3/2/2009Michael
                        
                        
                        1,250
                        
                        
                        
                        0
                        
                        
                        $
                        26.10
                        
                        2/27/2012Lynch
                        
                        
                        2,125
                        
                        
                        
                        0
                        
                        
                        $
                        33.52
                        
                        11/21/2011WilliamLenich
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        121,250
                        
                        (1
                        )
                        
                        $
                        569,875Maureen
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        4,500
                        
                        (1
                        )
                        
                        $
                        21,150Richards
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,992
                        
                        (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
                        
                        3/2/2009Randall
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        73,203
                        
                        (1
                        )
                        
                        $
                        344,054Proffitt
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,755
                        
                        (2
                        )
                        
                        $
                        17,6494,014
                        
                        (3
                        )
                        
                        $
                        18,8668,000
                        
                        
                        
                        0
                        
                        
                        $
                        26.10
                        
                        2/27/20128,000
                        
                        
                        
                        0
                        
                        
                        $
                        46.18
                        
                        2/26/20117,200
                        
                        
                        
                        0
                        
                        
                        $
                        21.75
                        
                        3/10/20105,100
                        
                        
                        
                        0
                        
                        
                        $
                        25.16
                        
                        3/2/2009
  *
              The
      closing market price of Footstar stock on 12/28/07 ($4.70) was used to
      determine the value of unvested stock award grants to be paid after
      12/29/07.
 
 (1)
              Restricted
      shares approved pursuant to Footstar's Plan of Reorganization which will
      vest only upon certain termination
events.
  22
 (2)
              Company
      match shares held under the STEP program which vested on
      3/26/08.
 
 (3)
              CEP
      awards which will vest upon retirement or termination of employment other
      than for cause.
 
 Option
Exercises And Stock Vested Table In Fiscal Year 2007
 
 The
stock awards in the table below are from the CEP program, which was discontinued
in 2003.  The "Value Realized on Vesting" column reflects payouts from
grants that vested in fiscal 2007 in accordance with the terms of the program.
For fiscal 2007, no awards under the STEP 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
                ($)
      (1)Jeffrey
      A. Shepard
              1,220
              $8,015
      (2)Michael
      Lynch
              0
              $0
      (3)William
      Lenich
              0
              $0
      (3)Maureen
      Richards
              532
              $3,495
      (2)Randall
      Proffitt
              418
              $2,746
      (2)
  (1)
              The
      values realized on vesting reflected in this column were calculated based
      on the average of the highest and lowest stock bid price on the vesting
      date of 2/27/07, which was
$6.57.
 
 (2)
              Represents
      the CEP distribution of shares which vested on
  2/27/07.
 
 (3)
              These
      NEOs were not participants in either the STEP or CEP
      program.
  
 23
  2007
Pension Benefits Table
 
 The
following table shows present value of accumulated benefits that named executive
officers are entitled to under the Supplemental Executive Retirement
Plan.
 
 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
              11
              $3,693,643
              $0Michael
      Lynch (1)
              N/A
              -
              -
              -William
      Lenich
              Supplemental
      Executive Retirement Plan
              5
              $554,414
              $0Maureen
      Richards
              Supplemental
      Executive Retirement Plan
              11
              $1,381,694
              $0Randall
      Proffitt
              Supplemental
      Executive Retirement Plan
              11
              $1,409,683
              $0
 
 (1)
Mr. Lynch is not eligible for any benefits under the SERP.
 
 Supplemental
Executive Retirement Plan
  The
Company’s Supplemental Executive Retirement Plan (“SERP”) was instituted in 1996
and provides supplemental benefits to certain senior executive employees whose
compensation exceeds the Internal Revenue Service’s limitations for compensation
that can be considered under the Company’s 401(k) Profit Sharing
Plan.
  During
our bankruptcy proceedings, the bankruptcy court authorized the following
modifications to the SERP, which remained in effect upon our emergence from
bankruptcy:
  o
              The
      SERP is closed to new participants. At the time the SERP was closed, four
      of our current named executive officers participated in the SERP: Mr.
      Shepard, Mr. Lenich, Mr. Proffitt and Ms.
  Richards.
 
 o
              Calculations
      for future benefits under the SERP are to reflect each participant’s
      current salary levels, but bonus levels for the target annual incentive
      awards used to calculate future benefits are capped at the levels in place
      in 2004 (i.e., 65%, 50%, 45% and 50% for Mr. Shepard, Mr. Lenich, Mr.
      Proffitt and Ms. Richards
respectively).
  o
              Eligibility
      for participants to receive SERP benefits upon normal retirement was
      suspended until the expiration or earlier termination of the Kmart
      Agreement. Under the original terms of the SERP, a participating executive
      was entitled to receive unreduced benefits upon his or her normal
      retirement date, which was when the executive reached the age of 60 and
      had at least ten years of credited service with the Company. Of our
      participating named executive officers, only Mr. Proffitt would have been
      eligible for normal retirement benefits under the terms of the unmodified
      SERP as of December 29, 2007. Under the modifications to the SERP,
      however, a participant’s SERP benefits will vest upon approved early
      retirement, which requires approval from our Compensation Committee and
      that the participant has reached the age of 55 (but has not reached the
      “normal” retirement age of 60) and has at least ten years of credited
      service with the Company. As of December 29, 2007, only Mr. Shepard is
      eligible for approved early retirement if approved by the Compensation
      Committee. SERP benefits also vest if the Company terminates a participant
      without cause or if the Company elects not to renew a participant’s
      employment agreement. The term of each named executive officer’s
      employment agreement ends on December 31, 2008. If the participant’s
      employment termination occurs due to constructive termination, death or
      disability, the participant is also entitled to their SERP benefits. Upon
      the occurrence of one of these employment termination events, the SERP
      participant will receive a lump-sum payment of their accrued SERP benefit
      as described below. A description of the employment termination events
      that result in the vesting of a participant’s SERP benefits (as well as a
      quantification of the lump sum amount the participant would have received
      if the termination event occurred on the last day of fiscal 2007) is
      included under the “Potential Payments Upon Termination or Change in
      Control” section below.
  24
  Under
the SERP, as modified, the annual benefit that would have been payable for the
life of the participating executive upon normal retirement is equal to the
lesser of (x) or (y) where:
 
 o
              (x)
      is 50% of the average of the participant’s base salary for the highest
      three years out of the ten years preceding the date of termination, plus
      the annual target incentive award, based on the bonus level in effect
      during 2004, and
 
 o
              (y)
      is 2% of the average of the participant’s base salary for the highest
      three years out of the ten years ending with the year in which the
      participant terminates employment, plus the participant’s full target
      annual incentive award in effect during 2004, multiplied by the number of
      years of credited service with the Company and reduced by the actuarial
      equivalent of any other retirement benefits that have already been paid to
      the executive or are vested on the executive’s termination date. For
      purposes of determining this offset, other retirement benefits do not
      include pre-tax contributions made by the executive to the Footstar 401(k)
      Profit Sharing Plan. Therefore, the executive’s benefit under the SERP is
      only offset by the actuarial equivalent amount of any matching
      contributions and/or profit sharing contributions (and earnings thereon)
      made by the Company on a participant’s behalf under the Footstar 401(k)
      Profit Sharing Plan. The actuarial equivalent of the other retirement
      benefits is a hypothetical single life annuity calculated using (i) the
      1983 Group Annuity Mortality Table blended 50% male and 50% female, and
      (ii) the interest rate that the Pension Benefit Guaranty Corporation uses
      to calculate immediate annuities for the month that benefits will
      commence, minus .5%.
 
 Generally,
the value of the lump sum payment from the SERP that our named executive
officers are entitled to receive upon the occurrence of one of the employment
termination events listed above is equal to the actuarial equivalent of the lump
sum present value of the single life annuity using the factors described above.
The lump sum is paid to the named executive officer in lieu of annuity
payments.
  If the
employment termination event occurs prior to 10 years of service, the executive
generally would receive a lump sum payment equal to the actuarial equivalent of
the benefit determined by a fraction where the numerator is the executive’s
actual years of credited service (but not more than 10) multiplied by the
executive’s normal retirement benefit and the denominator is 10 (thus reducing
the benefit proportionately to the extent the executive’s actual years of
credited service are less than 10). As of December 29, 2007, all participating
named executive officers had 11 years of credited service, other than
Mr. Lenich who had five years.
  If a
participant dies before payment of his or her SERP benefits has commenced, the
participant’s beneficiary or estate generally will receive a lump sum payment
equal to one-half of the participant’s normal retirement benefit (as described
above). If the participant had not attained his early retirement date, the
benefit payable would be actuarially reduced for each year that the
participant’s death preceded his normal retirement date. Under the terms of the
SERP, a participant’s early retirement date is the date that the participant has
reached the age of 55 and has at least 10 years of credited service with the
Company.
  25
  The
terms of the SERP allow the Compensation Committee, in its sole discretion, to
credit additional years of service to a participant. However, the Compensation
Committee has not credited any additional years of service to any current
participants of the SERP.
  The
values reflected in “Present Value of Accumulated Benefit” (column (d)) of the
above table are based on the lump sum present value of a single life annuity
using the factors described above (based on FASB measurement dates of November
30, 2006 to December 31, 2007) for the SERP.
  Potential
Payments upon Termination or Change In Control
 
 As
discussed in more detail in the narrative following the Summary Compensation
Table above, the Company has entered into employment agreements with each of our
current named executive officers. Under the agreements, these executives 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 as of December
29, 2007, 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. For Mr.
      Proffitt, this amount includes retiree medical benefits for Mr. Proffitt
      and/or his spouse under our retiree medical plan, which was closed to new
      participants in October 1992. Although Mr. Proffitt would have been
      entitled to this benefit had a termination event described below occurred
      on December 29, 2007, this plan has since been terminated by the Board of
      Directors on April 2, 2008 with an effective date of June 6, 2008. The
      Company estimates that on December 29, 2007, the present value of this
      benefit to Mr. Proffitt would have been $33,547 (and, in the event of his
      death, the present value of this benefit to his spouse would have been
      $68,747).
 
 o
                  Distributions
      of plan balances under the Company’s 401(k)
  plan.
 
 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). However, in the event that the Company elects to extend
Mr. Shepard’s employment beyond the ten days following his written notice
of his voluntary termination, Mr. Shepard will be entitled to certain
incremental payments, including a single lump sum, pro-rata payment of his
incentive award for the performance period in which Mr. Shepard’s
employment terminates for the additional period employed as a result of such
extension. The incentive award payment will be calculated on the assumption that
Mr. Shepard would have incentive awards for the entire year equal to 100%
of his base salary for such year (or such higher percentage of base salary as is
payable for achievement of targeted performance during the relevant period).
Mr. Shepard would also be entitled to a pro rata retention bonus,
calculated by multiplying the next scheduled retention bonus payable to
Mr. Shepard by a fraction the numerator of which is the number of
additional days Mr. Shepard is employed as a result of such extension and
the denominator of which is the number of days between the last retention bonus
payment and the next scheduled bonus payment.
  26
  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, (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. Shepard, 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. Shepard’s
agreement provides that in relation to item (iv) above, Mr. Shepard’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. Shepard.
  Death.
  Description of Payments: Our
current named executive officers 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 any Company shares under the Company’s Switch to Equity Plan
      (“STEP”) and distribution of all deferred shares and matching shares,
      without restrictions, and 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 December
      29, 2007, 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. Shepard.
Total value of payments and benefits: $2,805,074. This amount is comprised of:
$611,000, which equals the value of the lapse of all restrictions on 130,000
shares of Common Stock; $137,391, which equals the value of the immediate
vesting of 29,232 Company match shares under the STEP program (that vested on
March 26, 2008); $51,249, which equals the value of the 10,904  shares
under the CEP program that would have vested at normal retirement; and
$2,003,434, which equals the lump sum value of the SERP death
benefit.
  Mr. Lynch. No
additional payments would be due.
  Mr. Lenich.
Total value of payments and benefits: $1,124,149. This amount is comprised of:
$569,875, which equals the value of the lapse of all restrictions on 121,250
shares of Common Stock; and $554,274, which equals the lump sum value of the
SERP death benefit.
  Ms. Richards.
Total value of payments and benefits: $636,931. This amount is comprised of:
$21,150, which equals the value of the lapse of all restrictions on 4,500 shares
of Common Stock; $9,362, which equals the value of the immediate vesting of
1,992 Company match shares under the STEP program (that vested on March 26,
2008;  $23,989 program ,which equals the value of 5,104 shares under
the CEP program that would have vested at normal retirement; and $582,430, which
equals the lump sum value of the SERP death benefit.
  Mr. Proffitt. Total value of payments and
benefits: $1,217,673. This amount is comprised of: $344,054, which equals the
value of the lapse of all restrictions on 73,203 shares of Common Stock;
$17,649, which equals the value of the immediate vesting of 3,755 Company match
shares under the STEP program (that vested on March 26,
2008);  $18,866, which equals the value of the 4,014 shares under the
CEP program that would have vested at normal retirement and $837,104, which
equals the lump sum value of the SERP death benefit.
  Disability.
For purposes of our current named executive officers’ 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: A
named executive officer terminated due to disability 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
                  Participating
      named executive officers would receive a lump sum payment of his or 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 the
      named executive officer. As indicated in the quantification shown below,
      part of the lump sum severance payment provided for in each named
      executive officer’s employment agreement represents the value of the
      semi-annual retention payments that the executive would have been entitled
      to receive in July and December of  2008, had he or she remained
      employed with the Company .
 
 o
                  For
      all of our named executive officers, except Mr. Shepard who is entitled to
      this benefit for 24 months, 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, 2008. The quantification of this amount
      represents the total cost to the Company of providing this
      benefit.
  28
  Quantification of
Payments:
  Mr. Shepard
  Mr. Lynch
  Mr. Lenich.
Total value of payments and benefits: $1,217,391. This amount is comprised of:
$475,642, which equals the lump sum value of the SERP benefit; $161,666, which
equals the value of the remaining retention payments for 2008 under
Mr. Lenich’s employment agreement; and $10,208, 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 Mr. Lenich
(except for the SERP death benefit) under “Death – Quantification of Payments”
above.
  Ms. Richards.
Total value of payments and benefits: $1,974,791. This amount is comprised of:
$1,406,824, which equals the lump sum value of the SERP benefit; $371,250, which
equals the value of the cash severance payment and $123,750, which equals the
value of the remaining retention payments for 2008 under Ms. Richards’
employment agreement; $18,466, 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.
  Mr. Proffitt.
Total value of payments and benefits: $2,036,501. This amount is comprised of:
$1,536,620, which equals the lump sum value of the SERP benefit; $8,254, which
equals the value of the cash severance payment and $101,081, which equals the
value of the remaining retention payments for 2008 under Mr. Proffitt’s
employment agreement; and $9,977, which equals the total cost to the Company of
the continuation of dental and basic life insurance coverage for a period of up
to 18 months; and the amounts listed for Mr. Proffitt (except for the SERP
death benefit) under “Death – Quantification of Payments”
above.
  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. In addition, the original term of each named executive officer’s
employment agreement ends on December 31, 2008. Each employment agreement will
automatically renew for successive one year periods. However, the Company may
notify the named executive officer in writing at least 60 days prior to the end
of any term of the named executive officer’s employment agreement that the
Company is electing to terminate the employment agreement at the expiration of
the then current term of employment. In the event that the Company elects to
terminate the named executive officer’s employment agreement in this manner, the
executive’s employment termination following the expiration of the current term
of employment will be treated as 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. Except in the case of Mr. Shepard, if the named
executive officer declines an offer of comparable employment, his or her
resignation will not be considered constructive termination without
cause.
  29
  Description and Quantification of
Payments: If a current named executive officer 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 our current named executive officers 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
(except in the case of Mr. Shepard) 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 2007, none of our named
executive officers would have been subject to an excise tax upon the occurrence
of such an event.
  Approved Early
Retirement or Normal Retirement. All of our named executive officers,
except for Mr. Lynch, are entitled to certain payments and benefits upon
approved early retirement or normal retirement, if the executive satisfies the
necessary pre-conditions. Under the terms of the employment agreements, our
named executive officers are not entitled to normal retirement until the
expiration of the original term of their employment agreement (which, for all of
our named executive officers, is December 31, 2008) or, if earlier, the date the
Company’s agreement with Kmart is terminated (which is anticipated to occur in
December 2008). At or after such date, 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.
  Description of Payments: To
the extent applicable to each named executive officer, an executive who
terminates employment with the Company through normal retirement or approved
early retirement will be entitled to the following incremental benefits and
payments:
 
 o
                  A
      pro-rata incentive award for the period in which termination occurs, based
      on the performance valuation at the end of such period and payable in a
      cash lump sum after results for the period are determined. 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.
  30
 o
                  Continued
      vesting (as if the named executive officer remained employed by the
      Company) for both Company match and participant shares under the STEP
      program and shares that would vest at retirement under the CEP program.
      For purposes of the quantification below, we have assumed that the STEP
      and the CEP shares that would continue to vest as if the named executive
      officer remained employed with the Company would be valued at the same
      price as the closing market value of the Company’s stock as of the last
      day of fiscal 2007. This is an estimate only, and should not be understood
      to be a statement of management’s expectations or estimates of results or
      other guidance.
 
 o
                  Continued
      vesting on all outstanding stock options and the right to exercise such
      options for a period of one year following the named executive officer’s
      termination, or for the remainder of the exercise period (whichever is
      less).
 
 o
                  Participating
      named executive officers would receive a lump sum payment of his or her
      benefit under the Company’s Supplemental Executive Retirement Plan
      (“SERP”), paid in lieu of annuity payments. Generally, the value of the
      lump sum payment is equal to the actuarial equivalent lump sum present
      value of the named executive officer’s single life annuity, calculated
      using the factors described under “Supplemental Executive Retirement Plan”
      following the Pension Benefits Table
above.
 
 o
                  For
      all of our named executive officers, except Mr. Shepard who is entitled to
      this benefit for 24 months, continuation of coverage that is equivalent to
      the Company’s current medical, dental and basic life insurance for up to
      18 months. For Mr. Proffitt, who is eligible to participate in the retiree
      medical plan, coverage would be extended for 18 months for dental and
      basic life insurance only. 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, 2008. The quantification of
      this amount represents the total cost to the Company of providing this
      benefit.
 
 Quantification
of Payments:
 
 Mr. Shepard
  Mr. Lynch. Under
the terms of his employment agreement, Mr. Lynch is not entitled to
payments or benefits upon normal or approved early retirement.
  Mr. Lenich. At
the end of the Company’s fiscal year, Mr. Lenich would not have been
entitled to payments or benefits upon retirement because he did not have 10
years of credited service with the Company.
  Ms. Richards. At
the end of the Company’s fiscal year, Ms. Richards would not have been
entitled to payments or benefits upon retirement because she had not attained
the age of 55.
  Mr. Proffitt .
  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, the named executive officer 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 also contain non-competition and
non-solicitation clauses which remain in effect while the named executive
officer is employed with the Company for a period of: (i) 18 months following
termination without cause or constructive termination without cause (except in
the case of Mr. Shepard who would be subject to the covenants for a period
of 24 months); (ii) one year from the termination date following termination for
cause or voluntary termination; and (iii) the remainder of the term of
employment following normal retirement or early approved retirement. In
addition, each of these agreements contain a non-competition provision which
restricts the named executive officer from generally engaging in business with
Kmart or Sears for a period of one year following the earlier of the
individual’s termination of employment with the Company for any reason or the
termination of the Kmart Agreement. 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.
  31
  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 is responsible for
establishing policies that govern non-employee director compensation and for
implementing, administering and interpreting non-employee director compensation
plans, programs and policies. Our current Compensation Committee intends to
periodically review the appropriateness and competitiveness of the compensation
of our non-employee directors.
 
 Compensation
Paid to Current Board Members
  Non-employee
directors receive a combination of cash and equity compensation.
Mr. Shepard, currently the only management director on the Board, does not
receive any separate compensation for his services as a
director.
  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 receives an additional annual cash retainer of $40,000 and
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 2007,
certain directors who were compensated for such additional services received
$10,000 in cash retainers.
  32
  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.
  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 2007 Annual Meeting, however, on July 18, 2007, the Compensation
Committee recommended and the Board approved a grant of 20,965 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,
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 $5.00 per share
cash distribution declared by our Board in March 2007 to be paid on an equal
basis on April 30, 2007 to all stockholders of record as of the close of
business on April 13, 2007.
 
 Compensation
Paid to Former Board Members
 
 In
connection with Mr. Sywassink’s resignation on March 26, 2007, the Board
agreed in March 2007 to grant 10,000 shares of Common Stock and pay $50,000 (in
the form of shares to be issued at the market price on the date of issuance) to
Mr. Sywassink. These amounts are equal to the annual amounts received by
directors in connection with service as a director. Five-thousand shares of
restricted Common Stock previously granted to Mr. Sywassink for his
services as director vested on an accelerated basis on March 26,
2007.
  33
  Fiscal Year
2007 Director Compensation Table
 
 The
table below summarizes the compensation paid by the Company to non-employee
directors for the fiscal year ended December 29, 2007.
  Name
                      
                      
                      Fees
      Earned or
                        Paid
      in Cash
                        ($)
                      
                      
                      Stock
      Awards
                        ($)
      (1)
                      
                      
                      All
      Other
                        Compensation
                        ($)
      (2)
                      
                      
                      Total
                        ($)CURRENT
      DIRECTORSJonathan
      M. Couchman (3)
                      
                      $
                      90,000
                      
                      
                      $
                      33,938
                      
                      
                      $
                      25,000
                      
                      
                      $
                      148,938Eugene
      I. Davis (4)
                      
                      $
                      60,000
                      
                      
                      $
                      33,939
                      
                      
                      $
                      25,000
                      
                      
                      $
                      118,939Adam
      W. Finerman (5)
                      
                      $
                      50,000
                      
                      
                      $
                      64,105
                      
                      
                      $
                      25,000
                      
                      
                      $
                      139,105Alan
      Kelly (6)
                      
                      $
                      70,000
                      
                      
                      $
                      64,105
                      
                      
                      $
                      25,000
                      
                      
                      $
                      159,105Gerald
      F. Kelly, Jr.
                      
                      $
                      50,000
                      
                      
                      $
                      55,525
                      
                      
                      $
                      25,000
                      
                      
                      $
                      130,525Michael
      O'Hara (7)
                      
                      $
                      60,000
                      
                      
                      $
                      33,938
                      
                      
                      $
                      25,000
                      
                      
                      $
                      118,938Alan
      I. Weinstein (8)
                      
                      $
                      60,000
                      
                      
                      $
                      25,361
                      
                      
                      $
                      25,000
                      
                      
                      $
                      110,361Steven
      D. Scheiwe (9)
                      
                      $
                      38,462
                      
                      
                      $
                      21,547
                      
                      
                      
                      -
                      
                      
                      $
                      60,009FORMER
      DIRECTORSGeorge
      A. Sywassink (10)
                      
                      
                      
                      
                      
                      $
                      104,031
                      
                      
                      $
                      50,000
                      
                      
                      $
                      154,031
 (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 may be found in Note 18 to our audited financial
      statements in the Form 10-K for the fiscal year ended December 29, 2007
      filed
      with the SEC on March 13, 2008.All
      current non-employee directors received an award of 20,965 shares of
      restricted stock with a grant date fair market value (computed in
      accordance with FAS 123R) of $94,028. See footnote (10) to this table
      concerning awards made to Mr. Sywassink during 2007.At
      the end of the fiscal year, the aggregate number of stock awards
      outstanding for our current directors were as follows: Mr. Couchman,
      25,965 shares: Mr. Davis, 25,965 shares; Mr. Finerman 25,965 shares; Mr.
      Alan Kelly 25,965 shares; Mr. Gerald F. Kelly Jr. 25,965 shares; Mr.
      O'Hara 25,965 shares; Mr. Weinstein 25,965 shares; and Mr. Scheiwe 20,965
      shares. Mr. Sywassink did not have any stock awards outstanding at the end
      of the fiscal year.Our
      current directors and Mr. Sywassink did not have any option awards
      outstanding at the end of the fiscal
year.
  (2)
                  "All
      Other Compensation" includes $25,000 paid as a cash distribution on April
      30, 2007 at $5.00 per share on 5,000 shares of outstanding restricted
      stock.
 
 (3)
                  Mr.
      Couchman elected to receive his full retainer ($50,000), plus his Chairman
      retainer ($40,000), in 10,676 shares of Common
  Stock.
 
 (4)
                  Mr.
      Davis was paid a cash retainer of $10,000 for additional director related
      services.
 
 (5)
                  Mr.
      Finerman elected to receive his full retainer ($50,000) in 5,931 shares of
      Common Stock.
 
 (6)
                  Mr.
      Alan Kelly received a retainer of $10,000 for services as Chairman of the
      Audit Committee and $10,000 for additional directed related
      services.
 
 (7)
                  Mr.
      O'Hara received a cash retainer of $10,000 for additional director related
      services.
 
 (8)
                  Mr.
      Weinstein received a cash retainer of $10,000 for additional director
      related services.
 
 (9)
                  Mr.
      Scheiwe joined the Footstar Board on March 27, 2007.  His annual
      cash retainer was pro-rated to reflect his March 27, 2007 starting
      date.
 
 34
 (10)
                  In
      connection with Mr. Sywassink’s resignation from the Board on March 27,
      2007, the Board agreed to grant him 10,000 shares of Common Stock (with a
      grant date fair market value, computed in accordance with FAS 123R, of
      $79,250) and pay him $50,000 in the form of 5,931 shares of Common Stock
      that were issued at the closing market bid quotation on the date of
      issuance. These amounts were equal to the annual amounts then received by
      directors in connection with service as a director. Also in connection
      with his resignation, 5,000 shares of restricted stock that had been
      previously granted to Mr. Sywassink for his services as director vested on
      an accelerated basis. The value of the accelerated vesting is $24,781,
      which reflects the dollar amount recognized for financial statement
      reporting purposes, calculated in accordance with FAS
      123R.
 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.
  The
description of the reimbursement by the Company to Mr. Couchman of certain
of expenses set forth in this Part III, Item 13 under the caption “Transactions
with Related Persons” is incorporated herein by reference.
 
 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)
 Jonathan
M. Couchman
 Steven
D. Scheiwe
 
 
 
 35
 
 ITEM
12.        SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 
 Equity
Compensation Plan Information
 
 (a)
            
            
            (b)
            
            
            (c)Plan
      category
            
            Number
      of securities to
              be
      issued upon exercise
              of
      outstanding options,
              warrants
      and rights
            
            
            Weighted-average
      exercise
              price
      of outstanding
              options,
              warrants
      and rights
            
            
            Number
      of securities
              remaining
      available for
              future
      issuance under
              equity
      compensation plans
              (excluding
      securities
              reflected
      in column (a))Equity
      compensation plans approved by security holders (1)
            
            
            931,830
            
            
            $
            13
            
            
            
            1,579,413
            (3)Equity
      compensation plans not approved by security holders (2)
            
            
            242,075
            
            
            $
            26
            
            
            
            1,649,169
            (4)Total
            
            
            1,173,905
            
            
            $
            15
            
            
            
            3,228,582
  (1)
            1996
      Non-Employee Director Stock Plan, 1996 Incentive Compensation Plan and
      2006 Non-Employee Director Stock
Plan.
 
 (2)
            2000
      Equity Incentive Plan.
 
 (3)
            The
      1996 Incentive Compensation Plan includes 1,443,157 shares available for
      issuance other than upon the exercise of an option or other right. The
      2006 Non-Executive Director Stock Plan includes 136,256 shares available
      for issuance other than upon the exercise of an option or other
      right.
 
 (4)
            The
      2000 Equity Incentive Plan includes 1,649,169 shares available for
      issuance other than upon the exercise of an option or other
      right.
 
 Our 2000
Equity Incentive Plan was adopted by the Board and became effective on
March 10, 2000. The plan provides for grants of stock options and other
stock based awards to our full-time employees other than to any individual who
would be a named executive officer in the proxy statement to be filed with the
SEC in connection with the annual meeting for the applicable year. Participants
in the plan may be granted stock options, stock appreciation rights, restricted
stock, deferred stock, bonus stock, dividend equivalents, or other stock based
awards, performance awards or annual incentive awards. All stock option grants
have an exercise price per share no less than the fair market value per share of
common stock on the grant date and may have a term of no longer than ten years
from grant date. For further information concerning the plan, see Note 18 of
our audited financial statements in the Form 10-K for the fiscal year ended
December 29, 2007 filed with SEC on March 13, 2008.
 
 36
 
 Security
Ownership of Certain Beneficial Owners
 
 The
following table sets forth certain information as to beneficial ownership of the
outstanding Common Stock of the Company as of April 18, 2008, by each person
known to us to own beneficially more than 5% of the outstanding Common Stock, by
each director of the Company, by each of the named executive officers and by all
directors and executive officers of the Company as a group. To our knowledge,
except as otherwise indicated, all persons listed below have sole voting and
investment power with respect to such shares.
  Title
              of
      Class
            Name
      and Address
              of
      Beneficial Owner
            Amount
      and Nature of
              Beneficial
      Ownership (1)
            
            Percent
      of ClassCurrent
      Directors and Named Executive OfficersCommon
      Stock
            Jonathan
      M. Couchman
            
            
            934,461
            
            
            
            4.4
            %Common
      Stock
            Eugene
      I. Davis
            
            
            30,965
            
            
            
            *Common
      Stock
            Adam
      W. Finerman
            
            
            47,825
            
            
            
            *Common
      Stock
            Alan
      Kelly
            
            
            30,965
            
            
            
            *Common
      Stock
            Gerald
      F. Kelly, Jr.
            
            
            30,965
            
            
            
            *Common
      Stock
            Michael
      A. O’Hara
            
            
            30,965
            
            
            
            *Common
      Stock
            Steven
      D. Scheiwe
            
            
            32,076
            
            
            
            *Common
      Stock
            Jeffrey
      A. Shepard
            
            
            385,328
            (2)
            
            
            1.8
            %Common
      Stock
            Alan
      I. Weinstein
            
            
            30,965
            
            
            
            *Common
      Stock
            William
      Lenich
            
            
            121,250
            
            
            
            *Common
      Stock
            Michael
      J. Lynch
            
            
            3,375
            (2)
            
            
            *Common
      Stock
            Randall
      Proffitt
            
            
            122,624
            (2)
            
            
            *Common
      Stock
            Maureen
      Richards
            
            
            99,372
            (2)
            
            
            *All
      Executive Officers and Directors as a Group
              (15
      persons)
            
            
            1,901,136
            
            
            
            8.8
            %5%
      Stockholders:Common
      Stock
            Dimensional
      Fund Advisors LP (3)
              1299
      Ocean Avenue,
              Santa
      Monica, CA 90401
            
            
            1,169,300
            
            
            
            5.5
            %Common
      Stock
            Schultze
      Asset Management, LLC and
              George
      J. Schultze (4)
              3000
      Westchester Avenue, Purchase, NY 10577
            
            
            1,741,197
            
            
            
            8.2
            %Common
      Stock
            FMR
      Corp. and
              Edward
      C. Johnson 3d (5)
              82
      Devonshire Street,
              Boston,
      MA 02109
            
            
            2,016,000
            
            
            
            9.5
            %
  *
      Less than one percent
 
 (1)
            Beneficially
      owned shares include shares over which the named person exercises either
      sole or shared voting power or sole
      or shared investment power and includes restricted or deferred
      shares.
 
 37
  (2)
            The
      amounts shown also include the following shares issuable pursuant to stock
      option which, as of April 18, 2008, were currently exercisable or would
      become exercisable within 60 days: Mr. Shepard, 136,775; Mr. Lynch, 3,375;
      Mr. Proffitt, 28,300; and Ms. Richards,
  62,875.
 
 (3)
            Based
      solely on the information reported in the Schedule 13G/A filed on February
      6, 2008 by Dimensional Fund Advisors
LP.
 
 (4)
            Based
      solely on the information reported in the Schedule 13D/A filed on April
      14, 2008, by Schultze Asset Management, LLC and George J.
      Schultze.
 
 (5)
            Based
      solely on the information reported in the Schedule 13G/A filed on February
      14, 2006 by FMR Corp. and Edward C.
Johnson.
 
  ITEM
13.        CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
  Transactions
with Related Persons
  Since
our emergence from bankruptcy in 2006, the Board of Directors, from time to
time, has evaluated a number of possible alternatives to enhance shareholder
value, including acquisition opportunities, changes in the terms of our
principal contracts, the payment of one or more dividends, and the sale of our
assets or stock. One of the possible alternatives explored by the Company
included a possible acquisition of the stock of the Company by an entity
established and controlled by Mr. Couchman, who is the Chairman of our
Board, a Compensation Committee member, and the Chairperson of the Nominating
and Governance Committee. In connection with this possible alternative, the
independent disinterested directors agreed to reimburse approximately $160,000
of legal and banking expenses incurred by this entity. Ultimately a
determination was made not to proceed with a potential transaction. The Board
was aware of and considered the foregoing in determining that Mr. Couchman
is an independent director.
  Company
Policy and Procedure
  Except
for the transaction described directly above, the Board has determined the
absence of any “related person transaction” since the beginning of 2007
involving any director, director nominee or executive officer of the Company,
any known 5% shareholder 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, is, or will
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 has a direct or indirect material interest (as determined under
SEC rules related to related person transactions).
 
 On
March 26, 2007, the Board of Directors 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 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, their 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.
  No
transactions were required to have been reviewed and considered under this
policy since its adoption, including the transaction involving Mr. Couchman
described under “Transactions with Related Persons” above, because
the policy was not in place at the time of the transaction. The reimbursement of
expenses involving Mr. Couchman described above, however, was reviewed and
approved by the independent disinterested directors.
 
 38
  Director
Independence
 
 The
Company is not subject to the listing requirements of any securities exchange or
the Nasdaq Stock Market 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 the Nasdaq Stock Market (“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. Couchman,
Davis, Finerman, Alan Kelly, 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. When
considering Mr. Couchman’s independence, the Board considered the matter set
forth in this Part III, Item 13 under the caption “Transactions with Related
Persons”, which is incorporated herein by reference. Mr. Sywassink was no longer
a Board member when the Board made its independence determinations. We did not,
and were not specifically required to, determine Mr. Sywassink’s independence
under Nasdaq listing requirements, but we believe he would have qualified as
independent under the listing requirements of Nasdaq.
 
 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.
 
 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 2007 and 2006 were as follows:
 
 2007
            
            
            2006Audit
      Fees (1)
            
            $
            713,000
            
            
            $
            797,578Audit-Related
      Fees (2)
            
            $
            22,000
            
            
            $
            22,100Tax
      Fees
            
            $
            0
            
            
            $
            0All
      Other Fees
            
            $
            0
            
            
            $
            0Total
      fees
            
            $
            735,000
            
            
            $
            819,678
  (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 2007 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.
 
 39
  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
2007, the Audit Committee approved each new engagement of Amper, Politziner
& Mattia, P.C. in advance.
 
 PART IV
 
  ITEM
15.        EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
  See
accompanying Index to Exhibits.
  
  SIGNATURES
  Pursuant
to the requirements 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:
      April 28, 2008
              By:
              /s/ JEFFREY
      A. SHEPARDJEFFREY
      A. SHEPARDChief
      Executive Officer and President
        
 40
 
 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