FOOTSTAR, INC.

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                    Employment Agreement for Jeffrey Shepard


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                                 FOOTSTAR, INC.



                    Employment Agreement for Jeffrey Shepard


                                                                            PAGE
  1.   Definitions.............................................................1
  2.   Term of Employment......................................................2
  3.   Position, Duties and Responsibilities...................................2
  4.   Base Salary.............................................................2
  5.   Annual Incentive Awards.................................................3
  6.   Long-Term Stock Incentive Programs......................................3
  7.   Employee Benefit Programs...............................................3
  5.   Disability..............................................................4
  9.   Reimbursement of Business and Other Expenses; Perquisites...............5
 10.   Termination of Employment...............................................5
 11.   Confidentiality; Cooperation with Regard to Litigation.................14
 12.   Non-competition........................................................15
 13.   Non-solicitation of Employees..........................................16
 14.   Remedies...............................................................16
 15.   Resolution of Disputes.................................................17
 16.   Indemnification........................................................17
 17.   Excise Tax Gross-Up....................................................18
 18.   Effect of Agreement on Other Benefits..................................19
 19.   Assignability; Binding Nature..........................................20
 20.   Representation.........................................................20
 21.   Entire Agreement.......................................................20
 22.   Amendment or Waiver....................................................20
 23.   Severability...........................................................20
 24.   Survivorship...........................................................21
 25.   Beneficiaries/References...............................................21
 26.   Governing Law/Jurisdiction.............................................21
 27.   Notices................................................................21
 28.   Headings...............................................................22
 29.   Counterparts...........................................................22















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                              EMPLOYMENT AGREEMENT

           AGREEMENT, made and entered into as of the __ day of June, 1996 by
and between Footstar, Inc., a Delaware corporation (together with its successors
and assigns permitted under this Agreement, the "Company"), and Jeffrey Shepard
(the "Executive").

                                   WITNESSETH:

           WHEREAS, the Company desires to employ the Executive pursuant to an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;

           NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:

           1. DEFINITIONS.

           (a) "Approved Early Retirement" shall have the meaning set forth in
Section 10(f) below.

           (b) "Base Salary" shall have the meaning set forth in Section 4
below.

           (c) "Board" shall mean the Board of Directors of the Company.

           (d) "Cause" shall have the meaning set forth in Section 10(b) below.

           (e) "Change in Control" shall have the meaning set forth in Section
10(c) below.

           (f) "Confidential Information" shall have the meaning set forth in
Section 11 below.

           (g) "Constructive Termination Without Cause" shall have the meaning
set forth in Section 10(c) below.

           (h) "Effective Date" shall have the meaning set forth in Section 2
below.

           (i) "1996 ICP" shall have the meaning set forth in Section 5 below.

           (j) "Normal Retirement" shall have the meaning set forth in Section
10(f) below.

           (k) "Original Term of Employment" shall have the meaning set forth in
Section 2 below.


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           (l) "Renewal Term" shall have the meaning set forth in Section 2
below.

           (m) "Restriction Period" shall have the meaning set forth in Section
12 below.

           (n) "SERP" shall have the meaning set forth in Section 7 below.

           (o) "Severance Period" shall have the meaning set forth in Section
10(c)(ii) below, except as provided otherwise in Section 10(e) below.

           (p) "Subsidiary" shall have the meaning set forth in Section 11
below.

           (q) "Term of Employment" shall have the meaning set forth in Section
2 below.

           (r) "Termination Without Cause" shall have the meaning set forth in
Section 10(c) below.

           2. TERM OF EMPLOYMENT.

           (a) The term of the Executive's employment under this Agreement shall
commence immediately upon the date on which shares of Company common stock are
distributed to shareholders of Melville Corporation (the "Effective Date") and
end on the third anniversary of such date (the "Original Term of Employment").
The Original Term of Employment shall be automatically renewed for successive
one-year terms (the "Renewal Terms") unless at least 180 days prior to the
expiration of the Original Term of Employment or any Renewal Term, either Party
notifies the other Party in writing that he or it is electing to terminate this
Agreement at the expiration of the then current Term of Employment. "Term of
Employment" shall mean the Original Term of Employment and all Renewal Terms.

           (b) Notwithstanding anything in this Agreement to the contrary, at
least one year prior to the expiration of the Original Term of Employment, the
Parties shall meet to discuss this Agreement and may agree in writing to modify
any of the terms of this Agreement.

           3. POSITION, DUTIES AND RESPONSIBILITIES.

           (a) GENERALLY. Executive shall serve as a senior executive of the
Company. Executive shall have and perform such duties, responsibilities, and
authorities as shall be specified by the Company from time to time and as are
customary for a senior executive of a publicly held corporation of the size,
type, and nature of the Company as they may exist from time to time and as are
consistent with such position and status. Executive shall devote substantially
all of his business time and attention (except for periods of vacation or
absence due to illness), and his best efforts, abilities, experience, and talent
to his position and the businesses of the Company.

           (b) OTHER ACTIVITIES. Anything herein to the contrary
notwithstanding, nothing in this Agreement shall preclude the Executive from (i)
engaging in charitable activities and





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community affairs and (ii) managing his personal investments and affairs,
provided that such activities do not materially interfere with the proper
performance of his duties and responsibilities under this Agreement. Unless
approved in writing by the Board or Chief Executive Officer of the Company, the
Executive may not serve on the board of directors of any corporation or the
board of any association and/or charitable organization.

           4. BASE SALARY.

           The Executive shall be paid an annualized salary, payable in
accordance with the regular payroll practices of the Company, of not less than
$360,000, subject to annual review for increase at the discretion of the
Compensation Committee of the Board ("Base Salary").

           5. ANNUAL INCENTIVE AWARDS.

           The Executive shall participate in the Company's 1996 Incentive
Compensation Plan (the "1996 ICP") with a target annual incentive award
opportunity of no less than 40% of Base Salary or in a successor plan to the
1996 ICP that provides the Executive with an equivalent opportunity. Payment of
annual incentive awards shall be made at the same time that other senior-level
executives receive their incentive awards.

           6. LONG-TERM STOCK INCENTIVE PROGRAMS.

           (a) GENERAL. The Executive shall be eligible to participate in and to
receive stock incentive awards under the 1996 ICP and any successor plan.

           (b) CAREER EQUITY PROGRAM. The Executive shall be eligible to
participate in the Company's Career Equity Program with a target long term
incentive award opportunity of no less than 30% of Base Salary or in a successor
plan or program that provides the Executive with an equivalent opportunity.

           7. EMPLOYEE BENEFIT PROGRAMS.

           (a) GENERAL BENEFITS. During the Term of Employment, the Executive
shall be entitled to participate in such employee pension and welfare benefit
plans and programs of the Company as are made available to the Company's
senior-level executives or to its employees generally, as such plans or programs
may be in effect from time to time, including, without limitation, health,
medical, dental, long-term disability, travel accident and life insurance plans.

           (b) SERP. At or as soon as practicable following (but effective as
of) the Effective Date, the Company shall adopt a supplemental retirement plan
("SERP") providing for, among other things, a lifetime annuity benefit for the
Executive equal to 2% of his average high three of last 10 years' salary plus
actual annual bonus (before any deferrals) for each year (full and partial) of
service with the Company.

           (c) DEFERRAL OF COMPENSATION. The Company shall implement deferral
arrangements, reasonably acceptable to Executive and the Company, permitting
Executive to











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elect to defer receipt, pursuant to written deferral election terms and forms
(the "Deferral Election Forms"), of all or a specified portion of (i) his annual
Base Salary and annual incentive compensation under Sections 4 and 5, (ii) long
term incentive compensation under Section 6 and (iii) shares acquired upon
exercise of options to purchase Company common stock that are acquired in an
exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares otherwise
issuable to Executive in such exercise; PROVIDED, HOWEVER, that such deferrals
shall not reduce Executive's total cash compensation in any calendar year below
the sum of (i) the FICA maximum taxable wage base plus (ii) the amount needed,
on an after-tax basis, to enable Executive to pay the 1.45% medicare tax imposed
on his wages in excess of such FICA maximum taxable wage base. In addition, the
Committee may require mandatory deferral of amounts payable as annual incentive
compensation under Section 5 or long term incentive compensation under Section
6, which deferrals will otherwise be in accordance with this Section 7(c).

           In accordance with such duly executed Deferral Election Forms or the
terms of any such mandatory deferral, the Company shall credit to one or more
bookkeeping accounts maintained for Executive on the respective payment date or
dates, amounts equal to the compensation subject to deferral, such credits to be
denominated in cash if the compensation would have been paid in cash but for the
deferral or in shares if the compensation would have been paid in shares but for
the deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Company common stock
equal to the number of shares credited to Executive's account pursuant to this
Section 7(c) shall be transferred as soon as practicable following such
crediting by the Company to, and shall be held and invested by, an independent
trustee selected by the Company (a "Trustee") pursuant to a "rabbi trust"
established by the Company in connection with such deferral arrangement and as
to which the Trustee shall make investments based on Executive's investment
objectives (including possible investment in publicly traded stocks and bonds,
mutual funds, and insurance vehicles). Thereafter, Executive's deferral accounts
will be valued by reference to the value of the assets of the "rabbi trust";
PROVIDED, HOWEVER, that a portion of the assets of the "rabbi trust" may be used
to reimburse the Company for its reasonable cost of funds resulting from payment
of taxes by the Company relating to "rabbi trust" assets during the period of
deferral and prior to the settlement of Executive's deferral accounts. The
Company shall pay all other costs of administration of the deferral arrangement,
without deduction or reimbursement from the assets of the "rabbi trust."

           Except as otherwise provided under Section 10, in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement) or under the terms of any mandatory
deferral, the Company shall promptly pay to Executive cash equal to the value of
the assets then credited to Executive's deferral accounts, less applicable
withholding taxes, and such distribution shall be deemed to fully settle such
accounts; PROVIDED, HOWEVER, that the Company may instead settle such accounts
by directing the Trustee to distribute the assets of the "rabbi trust." The
Company and Executive agree that compensation deferred pursuant to this Section
7(c) shall be fully vested and nonforfeitable; HOWEVER, Executive acknowledges
that his rights to the deferred











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compensation provided for in this Section 7(c) shall be no greater than those of
a general unsecured creditor of the Company, and that such rights may not be
pledged, collateralized, encumbered, hypothecated, or liable for or subject to
any lien, obligation, or liability of Executive, or be assignable or
transferable by Executive, otherwise than by will or the laws of descent and
distribution, provided that Executive may designate one or more beneficiaries to
receive any payment of such amounts in the event of his death.

           8. DISABILITY.

           (a) During the Term of Employment, as well as during the Severance
Period, the Executive shall be entitled to disability coverage as described in
this Section 8(a). In the event the Executive becomes disabled, as that term is
defined under the Company's Long-Term Disability Plan, the Executive shall be
entitled to receive pursuant to the Company's Long-Term Disability Plan or
otherwise, and in place of his Base Salary, an amount equal to 60% of his Base
Salary, at the annual rate in effect at the commencement date of his Company
long-term disability benefit ("Commencement Date") for a period beginning on the
Commencement Date and ending with the earlier to occur of (A) the Executive's
attainment of age 65 or (B) the Executive's commencement of benefits under the
SERP upon his election to receive such benefits. If (i) the Executive ceases to
be disabled during the Term of Employment (as determined in accordance with the
terms of the Long-Term Disability Plan), (ii) his position or another senior
executive position is then vacant and (iii) the Company requests in writing that
he resume such position, he may elect to resume such position by written notice
to the Company within 15 days after the Company delivers its request. If he
resumes such position, he shall thereafter be entitled to his Base Salary at the
annual rate in effect at the Commencement Date and, for the year he resumes his
position, a pro rata annual incentive award. If he ceases to be disabled and
does not resume his position in accordance with the preceding sentence, he shall
be treated as if he voluntarily terminated his employment pursuant to Section
10(e) as of the date the Executive ceases to be disabled, If the Executive is
not offered his position or another senior executive position after he ceases to
be disabled during the Term of Employment, he shall be treated as if his
employment was terminated without Cause pursuant to Section 10(c) as of the date
the Executive ceases to be disabled.

           (b) The Executive shall be entitled to a pro rata annual incentive
award for the year in which the Commencement Date occurs based on 40% of Base
Salary paid to him during such year prior to the Commencement Date, payable in a
lump sum promptly after the Commencement Date. The Executive shall not be
entitled to any annual incentive award with respect to the period following the
Commencement Date. If the Executive recommences his position in accordance with
Section 8(a), he shall be entitled to a pro rata annual incentive award for the
year he resumes his position and shall thereafter be entitled to annual
incentive awards in accordance with Section 5 hereof.

           (c) During the period the Executive is receiving disability benefits
pursuant to Section 8(a) above, he shall continue to be treated as an employee
for purposes of all employee benefits and entitlements in which he was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6 and 7 above, except that





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the Executive shall not be entitled to receive any annual salary increases or
any new stock incentive awards following the Commencement Date.

           9. REIMBURSEMENT OF BUSINESS AND OTHER EXPENSES; PERQUISITES.

           The Executive is authorized to incur reasonable expenses in carrying
out his duties and responsibilities under this Agreement, and the Company shall
promptly reimburse him for all business expenses incurred in connection
therewith, subject to documentation in accordance with the Company's policy.

           10. TERMINATION OF EMPLOYMENT.

           (a) TERMINATION DUE TO DEATH. In the event the Executive's employment
with the Company is terminated due to his death, his estate or his
beneficiaries, as the case may be, shall be entitled to and their sole remedies
under this Agreement shall be:

               (i) Base Salary through the date of death, which shall be paid in
a single lump sum not later than 15 days following the Executive's death;

               (ii) pro rata annual incentive award for the year in which the
Executive's death occurs assuming that the Executive would have received an
award equal to 40% of Base Salary for such year, which shall be payable in a
lump sum promptly (but in no event later than 15 days) after his death;

               (iii) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time of
his death;

               (iv) Company common stock, issued without restrictions, equal to
any outstanding award of contingent shares as of the date of death, including
any matching grant under the Company's "STEP" program or award under the
Company's "Founders Stock" program;

               (v) immediate vesting of all outstanding stock options and the
right to exercise such stock options for a period of one year following death
(or such longer period as may be provided in stock options granted to other
similarly situated executive officers of the Company) or for the remainder of
the exercise period, if less;

               (vi) immediate vesting of all outstanding awards under the
"Career Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later than 15
days) after his death;

               (vii) the balance of any incentive awards earned as of December
31 of the prior year (but not yet paid), which shall be paid in a single lump
sum not later than 15 days following the Executive's death;



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               (viii) in the event that the Executive's death occurs before he
has met the age and service requirements of the SERP, the Company will provide
his spouse with a 50% survivor annuity as if he had met such age and service
requirements at the time of his death, payable in accordance with the terms of
the SERP but subject to such other adjustments as may be provided in the SERP;

               (ix) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Forms or the
terms of any mandatory deferral; and

               (x) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.

           (b) TERMINATION BY THE COMPANY FOR CAUSE.

               (i) "Cause" shall mean:

                    (A) the Executive's willful and material breach of Sections
11, 12 or 13 of this Agreement;

                    (B) the Executive is convicted of a felony involving moral
turpitude; or

                    (C) the Executive engages in conduct that constitutes
willful gross neglect or willful gross misconduct in carrying out his duties
under this Agreement, resulting, in either case, in material harm to the
financial condition or reputation of the Company.

For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by him not in
good faith, and shall not include any act or failure to act resulting from any
incapacity of Executive.

               (ii) A termination for Cause shall not take effect unless the
provisions of this paragraph (ii) are complied with. The Executive shall be
given written notice by the Company of its intention to terminate him for Cause,
such notice (A) to state in detail the particular act or acts or failure or
failures to act that constitute the grounds on which the proposed termination
for Cause is based and (B) to be given within 90 days of the Company's learning
of such act or acts or failure or failures to act. The Executive shall have 10
days after the date that such written notice has been given to him in which to
cure such conduct, to the extent such cure is possible. If he fails to cure such
conduct, the Executive shall then be entitled to a hearing before the
Compensation Committee of the Board at which the Executive is entitled to
appear. Such hearing shall be held within 15 days of such notice to the
Executive, provided he requests such hearing within 10 days of the written
notice from the Company of the intention to terminate him for Cause. If, within
five days following such hearing, the Executive is furnished written notice by
the Board confirming that, in its judgment, grounds for Cause on the basis of
the original notice exist, he shall thereupon be terminated for Cause. Such
hearing shall not limit any other review as set forth in this Agreement on a DE
NOVO basis.



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               (iii) In the event the Company terminates the Executive's
employment for Cause, he shall be entitled to and his sole remedies under this
Agreement shall be:

                    (A) Base Salary through the date of the termination of his
employment for Cause, which shall be paid in a single lump sum not later than 15
days following the Executive's termination of employment;

                    (B) any incentive awards earned as of December 31 of the
prior year (but not yet paid), which shall be paid in a single lump sum not
later than 15 days following the Executive's termination of employment;

                    (C) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Form or the
terms of any mandatory deferral; and

                    (D) other or additional benefits then due or earned in
accordance with applicable plans or programs of the Company including but not
limited to the SERP.

           (c) TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION WITHOUT
CAUSE PRIOR TO CHANGE IN CONTROL. In the event the Executive's employment with
the Company is terminated without Cause (which termination shall be effective as
of the date specified by the Company in a written notice to the Executive),
other than due to death, or in the event there is a Constructive Termination
Without Cause (as defined below), in either case prior to a Change in Control
(as defined below) the Executive shall be entitled to and his sole remedies
under this Agreement shall be:

               (i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a single lump sum not later than
15 days following the Executive's termination of employment;

               (ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in Base
Salary is the basis for a Constructive Termination Without Cause, then the Base
Salary in effect immediately prior to such reduction), for a period of 18 months
following such termination (the "Severance Period"); provided that the Company
shall, within 30 days following such termination, contribute to a "rabbi trust"
an amount equal to any unpaid severance benefits due under this Section
10(c)(ii) and Section 10(c)(iv) and direct the Trustee thereof to make the
remaining severance payments required hereunder when such payments are due
unless the Company, in its sole discretion, directs the Trustee to return unpaid
severance benefits to the Company because the Executive has breached Sections
11, 12 or 13 hereunder; provided further that the salary continuation payment
under this Section 10(c)(ii) and Section 10(c)(iv) shall be in lieu of any
salary continuation arrangements under any other severance program of the
Company or any other agreement between the Executive and the Company;



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               (iii) pro rata annual incentive award for the year in which
termination occurs assuming that the Executive would have received an award
equal to 40% of Base Salary for such year, payable in a lump sum promptly (but
in no event later than 15 days) following termination;

               (iv) an amount equal to 40% of Base Salary multiplied by 1.5
payable in equal monthly installments over the Severance Period:

               (v) Company common stock, issued without restrictions, equal to
the number of unvested shares of deferred stock relating to any matching grant
under the Company's "STEP" program multiplied by a fraction the numerator of
which is the number of completed years of employment with the Company following
the date on which such matching grant was awarded and the denominator of which
is five;

               (vi) Company common stock, issued without restrictions, equal to
the number of unvested shares of deferred stock awarded to the Executive under
the Company's "Founders Stock" program multiplied by a fraction the numerator of
which is the number of completed years of employment with the Company following
the date on which such award was granted and the denominator of which is five;

               (vii) immediate vesting of all outstanding awards under the
"Career Equity" program relating to completed performance cycles, payable in a
cash lump sum promptly (but in no event later than 15 days) following the
Executive's termination of employment;

               (viii) the right to exercise all outstanding stock options that
are vested as of the date of termination during the Severance Period or for the
remainder of the exercise period, if less;

               (ix) the balance of any incentive awards earned as of December 31
of the prior year (but not yet paid), which shall be paid in a single lump sum
not later than 1 5 days following the Executive's termination of employment;

               (x) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Forms or the
terms of any mandatory deferral;

               (xi) continued participation in all medical, health and life
insurance plans at the same benefit level at which he was participating on the
date of the termination of his employment until the earlier of:

                    (A) the end of the Severance Period; or

                    (B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such coverage
and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit,
basis); provided that (1) if the






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Executive is precluded from continuing his participation in any employee benefit
plan or program as provided in this clause (xi) of this Section 10(c), he shall
receive cash payments equal on an after-tax basis to the cost to him of
obtaining the benefits provided under the plan or program in which he is unable
to participate for the period specified in this clause (xi) of this Section
10(c), (2) such cost shall be deemed to be the lowest reasonable cost that would
be incurred by the Executive in obtaining such benefit himself on an individual
basis, and (3) payment of such amounts shall be made quarterly in advance; and

               (xii) other or additional benefits then due or earned in
accordance with applicable plans and programs of the Company.

                    "Termination Without Cause" shall mean the Executive's
employment is terminated by the Company for any reason other than Cause (as
defined in Section 10 (b)) or due to death.

                    "Constructive Termination Without Cause" shall mean a
termination of the Executive's employment at his initiative as provided in this
Section 10(c) following the occurrence, without the Executive's written consent,
of one or more of the following events (except as a result of a prior
termination):

                    (A) an assignment of any duties to Executive which are
inconsistent with his status as a senior executive of the Company;

                    (B) a decrease in annual Base Salary, target annual
incentive award opportunity below 40% of Base Salary or target long term
incentive award opportunity below 30% of Base Salary;

                    (C) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material provision of, this
Agreement that is not cured within 30 days; or

                    (D) any failure to secure the agreement of any successor
corporation or other entity to the Company to fully assume the Company's
obligations under this Agreement.

In addition, following a Change in Control, "Constructive Termination Without
Cause" shall also mean a termination of the Executive's employment at his
initiative as provided in this Section 10(c) following the occurrence, without
the Executive's written consent, of a relocation of his principal place of
employment outside a 35-mile radius of his principal place of employment as in
effect immediately prior to such Change in Control.

                    A "Change in Control" shall be deemed to have occurred if:

               (i) An acquisition by any Person of Beneficial Ownership of the
shares of common stock of the Company then outstanding (the "Company Common
Stock Outstanding") or the voting securities of the Company then outstanding
entitled to vote generally





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in the election of directors (the "Company Voting Securities Outstanding"), if
such acquisition of Beneficial Ownership results in the Person's Beneficially
Owning 25% or more of the Company Common Stock Outstanding or 25% or more of the
combined voting power of the Company Voting Securities Outstanding; or,

               (ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or dissolution of
the Company, the sale or disposition of all or substantially all of the assets
of the Company or similar corporate transaction (in each case referred to in
this Section 10(c) as a "Corporate Transaction") or, if consummation of such
Corporate Transaction is subject, at the time of such approval by stockholders,
to the consent of any government or governmental agency, the obtaining of such
consent (either explicitly or implicitly); PROVIDED, HOWEVER, that any merger,
consolidation, sale, disposition or other similar transaction to or with
Executive or entities controlled by Executive shall not constitute a Corporate
Transaction; or

               (iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes
of this Section 10(c), that any individual who becomes a member of the Board
subsequent to the Effective Date whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least a majority of
those individuals who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the Incumbent Board; and
PROVIDED, FURTHER, that any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act,
including any successor to such Rule) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board shall in
no event be considered as a member of the Incumbent Board.

               Notwithstanding the provisions set forth in subparagraphs (i) and
(ii) of this Section 10(c), the following shall not constitute a Change in
Control for purposes of this Agreement: (1) any acquisition by or consummation
of a Corporate Transaction with any entity that was a subsidiary of the Company
immediately prior to the transaction or an employee benefit plan (or related
trust) sponsored or maintained by the Company or an entity that was a subsidiary
of the Company immediately prior to the transaction if, immediately after such
transaction (including consummation of all related transactions), the surviving
entity is controlled by no Person other than such employee benefit plan (or
related trust) and/or other Persons who controlled the Company immediately prior
to such transaction; or (2) any acquisition or consummation of a Corporate
Transaction following which more than 50% of, respectively, the shares then
outstanding of common stock of the corporation resulting from such acquisition
or Corporate Transaction and the combined voting power of the voting securities
then outstanding of such corporation entitled to vote generally in the election
of directors is then Beneficially Owned, directly or indirectly, by all or
substantially all of the individuals and entities who were Beneficial Owners,
respectively, of the Company Common Stock Outstanding and Company Voting
Securities Outstanding immediately prior to such acquisition or Corporate
Transaction






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<PAGE>



in substantially the same proportions as their ownership,
immediately prior to such acquisition or Corporate Transaction, of the Company
Common Stock Outstanding and Company Voting Securities Outstanding, as the case
may be.

                    For purposes of this definition:

                    (A) The terms "Beneficial Ownership", "Beneficially Owning",
"Beneficially Owned" and "Beneficial Owners" shall have the meanings ascribed to
such terms in Rule 13d-3 under the Exchange Act (including any successor to
such Rule).

                    (B) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, or any successor act thereto.

                    (C) The term "Person" shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including "group" as defined in Section 13(d) thereof.

               (d) VOLUNTARY TERMINATION. In the event of a termination of
employment by the Executive on his own initiative after delivery of 10 business
days advance written notice, other than a termination due to death, a
Constructive Termination Without Cause, or Approved Early Retirement or Normal
Retirement pursuant to Section 10(f) below, the Executive shall have the same
entitlements as provided in Section 10(b)(iii) above for a termination for
Cause, provided that at the Company's election, furnished in writing to the
Executive within 30 days following such notice of termination, the Company shall
in addition pay the Executive 50% of his Base Salary for a period of 18 months
following such termination in exchange for the Executive not to engage in
competition with the Company or any Subsidiary as set forth in Section 12(a)
below. Notwithstanding any implication to the contrary, the Executive shall not
have the right to terminate his employment with the Company during the Term of
Employment except in the event of a Constructive Termination Without Cause,
Approved Early Retirement or Normal Retirement, and any voluntary termination of
employment during the Term of Employment in violation of this Agreement shall be
considered a material breach.

               (e) TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION WITHOUT
CAUSE FOLLOWING CHANGE IN CONTROL. In the event the Executive's employment with
the Company is terminated without Cause (which termination shall be effective as
of the date specified by the Company in a written notice to the Executive),
other than due to death, or in the event there is a Constructive Termination
Without Cause (as defined above), in either case within two years following a
Change in Control (as defined above), the Executive shall be entitled to and his
sole remedies under this Agreement shall be:

                    (i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a single lump sum not later than
15 days following the Executive's termination of employment;

                    (ii) an amount equal to two times the Executive's Base
Salary, at the annualized rate in effect on the date of termination of the
Executive's employment (or in the






                                      -12-
<PAGE>



event a reduction in Base Salary is the basis for a Constructive Termination
Without Cause, then the Base Salary in effect immediately prior to such
reduction), payable in a cash lump sum promptly (but in no event later than 15
days) following the Executive's termination of employment;

                    (iii) pro rata annual incentive award for the year in which
termination occurs assuming that the Executive would have received an award
equal to 40% of Base Salary for such year, payable in a cash lump sum promptly
(but in no event later than 15 days) following the Executive's termination of
employment;

                    (iv) an amount equal to 40% of Base Salary multiplied by
two, payable in a cash lump sum promptly (but in no event later than 15 days)
following the Executive's termination of employment;

                    (v) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time of
termination of employment;

                    (vi) Company common stock, issued without restrictions,
equal to any outstanding award of contingent shares as of the date of
termination, including any matching grant under the Company's "STEP" program or
award under the Company's "Founders Stock" program;

                    (vii) immediate vesting of all outstanding stock options and
the right to exercise such stock options during the Severance Period or for the
remainder of the exercise period, if less;

                    (viii) immediate vesting of all outstanding awards under the
"Career Equity" program and a pro rata payment of such awards based on target
performance, payable in a cash lump sum promptly (but in no event later than 15
days) following the Executive's termination of employment;

                    (ix) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid), which shall be paid in a
single lump sum not later than 15 days following the Executive's termination of
employment;

                    (x) settlement of all deferred compensation arrangements in
accordance with Executive's duly executed Deferral Election Forms or the terms
of any mandatory deferral;

                    (xi) continued participation in all medical, health and life
insurance plans at the same benefit level at which he was participating on the
date of the termination of his employment until the earlier of:

                         (A) the end of the Severance Period; or



                                      -13-
<PAGE>


                         (B) the date, or dates, he receives equivalent coverage
and benefits under the plans and programs of a subsequent employer (such
coverage and benefits to be determined on a coverage-by-coverage, or
benefit-by-benefit, basis); provided that (i) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this clause (xi) of this Section 10(e), he shall receive cash payments equal
on an after-tax basis to the cost to him of obtaining the benefits provided
under the plan or program in which he is unable to participate for the period
specified in this clause (xi) of this Section 10(e), (2) such cost shall be
deemed to be the lowest reasonable cost that would be incurred by the Executive
in obtaining such benefit himself on an individual basis, and (3) payment of
such amounts shall be made quarterly in advance; and

                    (xii) other or additional benefits then due or earned in
accordance with applicable plans and programs of the Company.

For purposes of any termination pursuant to this Section 10(e), the term
"Severance Period" shall mean the period of 24 months following the termination
of the Executive's employment.

               (f) APPROVED EARLY RETIREMENT OR NORMAL RETIREMENT. Upon the
Executive's Approved Early Retirement or Normal Retirement (as defined below),
the Executive shall be entitled to and his sole remedies under this Agreement
shall be:

                    (i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a single lump sum not later than
15 days following the Executive's termination of employment;

                    (ii) pro rata annual incentive award for the year in which
termination occurs, based on performance valuation at the end of such year and
payable in a cash lump sum promptly (but in no event later than 15 days)
thereafter;

                    (iii) lapse of all restrictions on any restricted stock
award (including any performance-based restricted stock) outstanding at the time
of his termination of employment;

                    (iv) continued vesting (as if the Executive remained
employed by the Company) of any outstanding award of contingent shares as of the
date of termination of employment, including any matching grant under the
Company's "STEP" program or award under the Company's "Founders Stock" program;

                    (v) continued vesting of all outstanding stock options and
the right to exercise such stock options for a period of one year following the
Executive's termination of employment (or such longer period as may be provided
in stock options granted to other similarly situated executive officers of the
Company) or for the remainder of the exercise period, if less;

                    (vi) continued vesting (as if Executive remained employed by
the Company) of all outstanding awards under the "Career Equity" program and a
payment of such






                                      -14-
<PAGE>




awards based on valuation at the end of the performance period, payable in a
cash lump sum promptly (but in no event later than 15 days) thereafter;

                    (vii) the balance of any incentive awards earned as of
December 31 of the prior year (but not yet paid), which shall be paid in a
single lump sum not later than 15 days following the Executive's termination of
employment;

                    (viii) immediate vesting of benefits under the Company's
SERP, with payment of such benefits to be made in accordance with the terms and
conditions of the SERP as in effect at the date of the Executive's termination
(or in accordance with the terms of any subsequent amendment to the SERP which
is more favorable to the Executive or his beneficiary);

                    (ix) settlement of all deferred compensation arrangements in
accordance with the Executive's duly executed Deferral Election Forms or the
terms of any mandatory deferral;

                    (x) continued participation in all medical, health and life
insurance plans at the same benefit level at which he was participating on the
date of the termination of his employment until the earlier of:

                         (A) the Executive's attainment of age 60; or

                         (B) the date, or dates, he receives substantially
equivalent coverage and benefits under the plans and programs of a subsequent
employer (such coverage and benefits to be determined on a coverage-by-coverage,
or benefit-by-benefit, basis); PROVIDED THAT (1) if the Executive is precluded
from continuing his participation in any employee benefit plan or program as
provided in this clause (x) of this Section 10(f), he shall receive cash
payments equal on an after-tax basis to the cost to him of obtaining the
benefits provided under the plan or program in which he is unable to participate
for the period specified in this clause (x) of this Section 10(f), (2) such cost
shall be deemed to be the lowest cost that would be incurred by the Executive in
obtaining such benefit himself on an individual basis, and (3) payment of such
amounts shall be made quarterly in advance; and

                    (xi) other or additional benefits then due or earned in
accordance with applicable plans and programs of the Company.

           "Approved Early Retirement" shall mean the Executive's voluntary
termination of employment with the Company at or after attaining age 55 but
prior to attaining age 60, if such termination is approved in advance by the
Compensation Committee.

           "Normal Retirement" shall mean the Executive's voluntary termination
of employment with the Company at or after attaining age 60.

               (g) NO MITIGATION; NO OFFSET. In the event of any termination of
employment under this Section 10, the Executive shall be under no obligation to
seek other employment;






                                      -15-
<PAGE>



amounts due the Executive under this Agreement shall not be offset by any
remuneration attributable to any subsequent employment that he may obtain.

               (h) NATURE OF PAYMENTS. Any amounts due under this Section 10 are
in the nature of severance payments considered to be reasonable by the Company
and are not in the nature of a penalty.

               (i) EXCLUSIVITY OF SEVERANCE PAYMENTS. Upon termination of the
Executive's employment during the Term of Employment, he shall not be entitled
to any severance payments or severance benefits from the Company or any payments
by the Company on account of any claim by him of wrongful termination, including
claims under any federal, state or local human and civil rights or labor laws,
other than the payments and benefits provided in this Section 10.

               (j) RELEASE OF EMPLOYMENT CLAIMS. The Executive agrees, as a
condition to receipt of the termination payments and benefits provided for in
this Section 10, that he will execute a release agreement, in a form reasonably
satisfactory to the Company, releasing any and all claims arising out of the
Executive's employment (other than enforcement of this Agreement, the
Executive's rights under any of the Company's incentive compensation and
employee benefit plans and programs to which he is entitled under this
Agreement, and any claim for any tort for personal injury not arising out of or
related to his termination of employment).

           11. CONFIDENTIALITY; COOPERATION WITH REGARD TO LITIGATION.

           (a) During the Term of Employment and thereafter, the Executive shall
not, without the prior written consent of the Company, disclose to anyone except
in good faith in the ordinary course of business to a person who will be advised
by the Executive to keep such information confidential or make use of any
Confidential Information, except when required to do so by legal process, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) that requires him to divulge, disclose or make accessible such
information. In the event that the Executive is so ordered, he shall give prompt
written notice to the Company in order to allow the Company the opportunity to
object to or otherwise resist such order.

           (b) During the Term of Employment and thereafter, Executive shall not
disclose the existence or contents of this Agreement beyond what is disclosed in
the proxy statement or documents filed with the government unless and to the
extent such disclosure is required by law, by a governmental agency, or in a
document required by law to be filed with a governmental agency or in connection
with enforcement of his rights under this Agreement. In the event that
disclosure is so required, the Executive shall give prompt written notice to the
Company in order to allow the Company the opportunity to object to or otherwise
resist such requirement. This restriction shall not apply to such disclosure by
him to members of his immediate family, his tax, legal or financial advisors,
any lender, or tax authorities, or to potential future employers to the extent
necessary, each of whom shall be advised not to disclose such information.



                                      -16-
<PAGE>


           (c) "Confidential Information" shall mean all information that is not
known or available to the public concerning the business of the Company or any
Subsidiary relating to any of their products, product development, trade
secrets, customers, suppliers, finances, and business plans and strategies. For
this purpose, information known or available generally within the trade or
industry of the Company or any Subsidiary shall be deemed to be known or
available to the public. Confidential Information shall include information that
is, or becomes, known to the public as a result of a breach by the Executive of
the provisions of Section 11(a) above.

           (d) "Subsidiary" shall mean any corporation controlled directly or
indirectly by the Company and any affiliate of the Company.

           (e) The Executive agrees to cooperate with the Company, during the
Term of Employment and thereafter (including following the Executive's
termination of employment for any reason), by making himself available to
testify on behalf of the Company or any Subsidiary or affiliate of the Company,
in any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, or any Subsidiary or affiliate of the
Company, in any such action, suit, or proceeding, by providing information and
meeting and consulting with the Board or its representatives or counsel, or
representatives or counsel to the Company, or any Subsidiary or affiliate of the
Company, as requested. The Company agrees to reimburse the Executive, on an
after-tax basis, for all expenses actually incurred in connection with his
provision of testimony or assistance.

           12.        NON-COMPETITION.

               (a) During the Restriction Period (as defined in Section 12(b)
below), the Executive shall not engage in Competition with the Company or any
Subsidiary. "Competition" shall mean engaging in any activity, except as
provided below, for a Competitor of the Company or any Subsidiary, whether as an
employee, consultant, principal, agent, officer, director, partner, shareholder
(except as a less than one percent shareholder of a publicly traded company) or
otherwise. A "Competitor" shall mean (i) Payless ShoeSource, Wal-Mart, Kinney
Shoes, Footlocker, Lady Footlocker, Kids' Footlocker, J. Baker/Morse Shoe,
Target, Sears and J .C. Penney (and any successor or successors thereto) or (ii)
the portion of any other corporation or other entity or start-up corporation or
entity that is engaged in the Discount Retail Footwear Business within fifty
(50) miles of any Discount Retail Footwear Business outlet in the United States
of the Company or any Subsidiary, provided that a corporation or entity
described in clause (ii) above shall not be deemed to be a Competitor if the
Executive shall not either directly or indirectly oversee or manage the
activities of such corporation or entity's division or unit engaged in the
Discount Retail Footwear Business. If the Executive commences employment or
becomes a consultant, principal, agent, officer, director, partner, or
shareholder of any entity that is not a Competitor at the time the Executive
initially becomes employed or becomes a consultant, principal, agent, officer,
director, partner, or shareholder of the entity, future activities of such
entity shall not result in a violation of this provision unless (x) such
activities were contemplated at the time the Executive initially became employed
or becomes a consultant, principal, agent, officer, director, partner, or
shareholder of the entity (and the contemplation of such activities was known to
the Executive) or (y) the Executive commences directly or indirectly overseeing
or managing the activities which are competitive with the activities of the




                                      -17-
<PAGE>

Company or Subsidiary. The Executive shall not be deemed indirectly overseeing
or managing the activities which are competitive with the activities of the
Company or Subsidiary so long as he does not regularly participate in
discussions with regard to the competing business. For purposes of the
foregoing, "Discount Retail Footwear Business" shall mean a group of four or
more stores which primarily sells discount footwear.

               (b) For the purposes of this Section 12 and Section 13 below,
"Restriction Period" shall mean the period beginning with the Effective Date and
ending with:

                    (i) in the case of a termination of the Executive's
employment without Cause or a Constructive Termination Without Cause, in either
case prior to a Change in Control, the earlier of (1) the end of the Severance
Period (as such term is defined in Section 10(c)(ii)) and (2) the occurrence of
a Change in Control;

                    (ii) in the case of a termination of the Executive's
employment for Cause, the first anniversary of such termination;

                    (iii) in the case of a voluntary termination of the
Executive's employment pursuant to Section 10(d) above followed by the Company's
election to pay the Executive (and subject to the payment of) 50% of his Base
Salary, as provided in Section 10(d) above, the end of the 18-month period
following such termination;

                    (iv) in the case of a voluntary termination of the
Executive's employment pursuant to Section 10(d) above which is not followed by
the Company's election to pay the Executive such 50% of Base Salary, the date of
such termination;

                    (v) in the case of Approved Early Retirement or Normal
Retirement pursuant to Section 10(f) above, the remainder of the Term of
Employment; or

                    (vi) in the case of a termination of the Executive's
employment without Cause or a Constructive Termination Without Cause, in either
case following a Change in Control, immediately upon such termination of
employment.

           13. NON-SOLICITATION OF EMPLOYEES.

                    During the portion of the Restriction Period following the
termination of the Executive's employment, the Executive shall not induce
employees of the Company or any Subsidiary to terminate their employment. During
the portion of the Restriction Period following the termination of the
Executive's employment, the Executive shall not directly or indirectly hire any
employee of the Company or any Subsidiary or any person who was employed by the
Company or any Subsidiary within 180 days of such hiring.

           14. REMEDIES.

                    In addition to whatever other rights and remedies the
Company may have at equity or in law, if the Executive breaches any of the
provisions contained in Sections 11, 12 or










                                      -18-
<PAGE>



13 above, the Company (a) shall have the right to immediately terminate all
payments and benefits due under this Agreement and (b) shall have the right to
seek injunctive relief. The Executive acknowledges that such a breach would
cause irreparable injury and that money damages would not provide an adequate
remedy for the Company.

           15. RESOLUTION OF DISPUTES.

                    Any disputes arising under or in connection with this
Agreement, other than seeking injunctive relief under Section 14, shall be
resolved by binding arbitration, to be held at an office closest to the
Company's principal offices in accordance with the rules and procedures of the
American Arbitration Association, except that disputes arising under or in
connection with Sections 11, 12 and 13 above shall be submitted to the federal
or state courts in the State of New Jersey. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof.
Pending the resolution of any arbitration or court proceeding, the Company shall
continue payment of all amounts and benefits due the Executive under this
Agreement. All reasonable costs and expenses (including fees and disbursements
of counsel) incurred by the Executive in seeking to enforce rights pursuant to
this Agreement shall be paid on behalf of or reimbursed to the Executive
promptly by the Company, whether or not the

Executive is successful in asserting such rights; PROVIDED, HOWEVER, that no
reimbursement shall be made of such expenses relating to any unsuccessful
assertion of rights if and to the extent that the Executive's assertion of such
rights was in bad faith or frivolous.

           16.        INDEMNIFICATION.

                    (a) COMPANY INDEMNITY. The Company agrees that if the
Executive is made a party, or is threatened to be made a party, to any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director, officer or
employee of the Company or any Subsidiary or is or was serving at the request of
the Company or any Subsidiary as a director, officer, member, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether or not the
basis of such Proceeding is the Executive's alleged action in an official
capacity while serving as a director, officer, member, employee or agent, the
Executive shall be indemnified and held harmless by the Company to the fullest
extent legally permitted or authorized by the Company's certificate of
incorporation or bylaws or resolutions of the Company's Board of Directors or,
if greater, by the laws of the State of Delaware, against all cost, expense,
liability and loss (including, without limitation, attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Executive in connection
therewith, and such indemnification shall continue as to the Executive even if
he has ceased to be a director, member, officer, employee or agent of the
Company or other entity and shall inure to the benefit of the Executive's heirs,
executors and administrators. The Company shall advance to the Executive all
reasonable costs and expenses incurred by him in connection with a Proceeding
within 20 days after receipt by the Company of a written request for such
advance. Such request shall include an undertaking by the Executive to repay the
amount of such advance if it shall ultimately be determined that he is not
entitled to be indemnified against such costs and expenses.






                                      -19-
<PAGE>


                    (b) NO PRESUMPTION REGARDING STANDARD OF CONDUCT. Neither
the failure of the Company (including its board of directors, independent legal
counsel or stockholders) to have made a determination prior to the commencement
of any proceeding concerning payment of amounts claimed by the Executive under
Section 16(a) above that indemnification of the Executive is proper because he
has met the applicable standard of conduct, nor a determination by the Company
(including its board of directors, independent legal counsel or stockholders)
that the Executive has not met such applicable standard of conduct, shall create
a presumption that the Executive has not met the applicable standard of conduct.

                    (c) LIABILITY INSURANCE. The Company agrees to continue and
maintain a directors and officers' liability insurance policy covering the
Executive to the extent the Company provides such coverage for its other
executive officers.

           17. EXCISE TAX GROSS-UP.

                    If the Executive becomes entitled to one or more payments
(with a "payment" including, without Limitation, the vesting of an option or
other non-cash benefit or property), whether pursuant to the terms of this
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to the Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by the Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 17, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
the Executive's adjusted gross income multiplied by the highest applicable
marginal rate of federal, state, or local income taxation, respectively, for the
calendar year in which the Gross-up Payment is to be made.

                    For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise Tax:

                    (i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent compensation consultants, counsel or
auditors of nationally recognized standing ("Independent Advisors") selected by
the Company and reasonably acceptable to the Executive, the Total Payments (in
whole or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered within the









                                      -20-
<PAGE>



meaning of Section 280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to
the Excise Tax;

                    (ii) The amount of the Total Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Total Payments or (B) the total amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and

                    (iii) The value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Independent Advisors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.

                      For purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of the Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in the Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined (but, if previously paid to the taxing authorities, not
prior to the time the amount of such reduction is refunded to the Executive or
otherwise realized as a benefit by the Executive) the portion of the Gross-up
Payment that would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess (plus any interest and penalties payable with respect to
such excess) at the time that the amount of such excess is finally determined.

                    The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; PROVIDED, HOWEVER, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to the Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on










                                      -21-
<PAGE>




the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
PROVIDED, HOWEVER, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest any other
issue raised by the Internal Revenue Service or any other taxing authority. The
Executive shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder.

           18. EFFECT OF AGREEMENT ON OTHER BENEFITS.

                    Except as specifically provided in this Agreement, the
existence of this Agreement shall not be interpreted to preclude, prohibit or
restrict the Executive's participation in any other employee benefit or other
plans or programs in which he currently participates.

           19. ASSIGNABILITY; BINDING NATURE.

                    This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors, heirs (in the case of
the Executive) and permitted assigns. No rights or obligations of the Company
under this Agreement may be assigned or transferred by the Company except that
such rights or obligations may be assigned or transferred in connection with the
sale or transfer of all or substantially all of the assets of the Company,
provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law. The Company further
agrees that, in the event of a sale or transfer of assets as described in the
preceding sentence, it shall take whatever action it legally can in order to
cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
other than his rights to compensation and benefits, which may be transferred
only by will or operation of law, except as provided in Section 24 below.

           20. REPRESENTATION.

                    The Company represents and warrants that it is fully
authorized and empowered to enter into this Agreement and that the performance
of its obligations under this Agreement will not violate any agreement between
it and any other person, firm or organization.







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           21. ENTIRE AGREEMENT.

                    This Agreement contains the entire understanding and
agreement between the Parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the Parties with respect thereto.

           22. AMENDMENT OR WAIVER.

                    No provision in this Agreement may be amended unless such
amendment is agreed to in writing and signed by the Executive and an authorized
officer of the Company. No waiver by either Party of any breach by the other
Party of any condition or provision contained in this Agreement to be performed
by such other Party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing and signed by the Executive or an authorized officer of the
Company, as the case may be.

           23. SEVERABILITY.

                    In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.

           24. SURVIVORSHIP.

                    The respective rights and obligations of the Parties
hereunder shall survive any termination of the Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.

           25. BENEFICIARIES/REFERENCES.

                    The Executive shall be entitled, to the extent permitted
under any applicable law, to select and change a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following the Executive's
death by giving the Company written notice thereof. In the event of the
Executive's death or a judicial determination of his incompetence, reference in
this Agreement to the Executive shall be deemed, where appropriate, to refer to
his beneficiary, estate or other legal representative.


           26. GOVERNING LAW/JURISDICTION.

                    This Agreement shall be governed by and construed and
interpreted in accordance with the laws of New Jersey without reference to
principles of conflict of laws, except insofar as the Delaware General
Corporation Law, federal laws and regulations may be applicable. Subject to
Section 15, the Company and the Executive hereby consent to the jurisdiction of
any or all of the following courts for purposes of resolving any dispute under
this













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Agreement: (i) the United States District Court for New Jersey, (ii) any of
the courts of the State of New Jersey, or (iii) any other court having
jurisdiction. The Company and the Executive further agree that any service of
process or notice requirements in any such proceeding shall be satisfied if the
rules of such court relating thereto have been substantially satisfied. The
Company and the Executive hereby waive, to the fullest extent permitted by
applicable law, any objection which it or he may now or hereafter have to such
jurisdiction and any defense of inconvenient forum.

           27. NOTICES.

                    Any notice given to a Party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below or to such changed address as
such Party may subsequently give such notice of:

                      If to the Company:             Footstar, Inc.
                                                     933 MacArthur Boulevard
                                                     Mahwah, New Jersey  07430
                                                     Attention:  Secretary

                      If to the Executive:           Jeffrey Shepard


           28. HEADINGS.

                    The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.

           29. COUNTERPARTS.

                      This Agreement may be executed in two or more
counterparts.

                      IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first written above.

                                   FOOTSTAR, INC.

                                   By: /s/ J.M. ROBINSON
                                      ------------------------------------------
                                   Name:  J.M. Robinson
                                   Title:  Chairman & Chief Executive Officer


                                   EXECUTIVE

                                   /S/ JEFFREY SHEPARD
                                   --------------------------------
                                   Jeffrey Shepard











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