Document:

EX-10.2

 

Exhibit D

TRADEMARK ASSIGNMENT

          WHEREAS, Footstar Corporation, a Texas Corporation with a business address at 933 MacArthur
Boulevard, Mahwah, New Jersey 07430 4570 (“Assignor”), is the owner of record of the marks “CUGA”
U.S. Registration No. 1,086,050 and “HYPERFLEX” U.S. Registration No. 2,495,051;

          WHEREAS, Sears Brands, LLC, an Illinois Limited Liability Company (“Assignee”) with a business
address at 3333 Beverly Road, Hoffman Estates, Illinois 60179, wishes to acquire Assignor’s entire
right, title and interest in and to said marks, the registration therefor and the goodwill of the
business associated therewith (the “Trademarks”);

          NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, Assignor does assign, transfer, and
convey to Assignee all of Assignor’s right, title, and interest in and to the Trademarks, together
with the goodwill of the business symbolized by said marks, and all right to damages and profits,
due or accrued, arising out of past infringements of said marks, and the right to sue for and
recover the same.

[signature page follows]

 

 

          Dated
this
                    
day of March, 2008.

	 	 	 	 	 	 	 
	 	 	FOOTSTAR CORPORATION (ASSIGNOR)	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 

(signature)
	 	 
	 
	 	 	 	 	 	 
	 

	 	Printed Name:	 	 	 
	 

	 	Title: 
	 	 

	 	 
	 

	 	 	 

	 	 

 

 

Exhibit 10.2

 

MASTER AGREEMENT AMENDMENT

BY AND AMONG

FOOTSTAR, INC.,

KMART CORPORATION,

AFFILIATES OF KMART CORPORATION SIGNATORY HERETO

AND

SEARS HOLDINGS CORPORATION

 

DATED AS OF APRIL 3, 2008

 

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	1.	 	Amendment of Master Agreement	 	 	1	 
	 
	 	1.1	 	Employee Matters	 	 	1	 
	 
	 	1.2	 	Inventory Procedures Upon Termination	 	 	5	 
	 
	 	1.3	 	Access to Information	 	 	10	 
	2.	 	Representations and Warranties of Footstar	 	 	11	 
	 
	 	2.1	 	Due Incorporation and Authority	 	 	11	 
	 
	 	2.2	 	No Conflicts	 	 	11	 
	 
	 	2.3	 	Brokers	 	 	12	 
	 
	 	2.4	 	Benefit Plans	 	 	12	 
	 
	 	2.5	 	Employment and Labor Matters	 	 	12	 
	 
	 	2.6	 	No Knowledge of Claims	 	 	13	 
	3.	 	Representations and Warranties of Kmart Parties	 	 	13	 
	 
	 	3.1	 	Due Incorporation and Authority	 	 	13	 
	 
	 	3.2	 	No Conflicts	 	 	14	 
	 
	 	3.3	 	Brokers	 	 	14	 
	 
	 	3.4	 	No Knowledge of Claims	 	 	15	 
	 
	 	3.5	 	Certain Parties to the Master Agreement	 	 	15	 
	4.	 	Covenants and Agreements	 	 	15	 
	 
	 	4.1	 	Confidentiality	 	 	15	 
	 
	 	4.2	 	Expenses	 	 	15	 
	 
	 	4.3	 	Public Announcements	 	 	15	 
	 
	 	4.4	 	Further Action	 	 	15	 
	 
	 	4.5	 	Mutual Release	 	 	15	 
	 
	 	4.6	 	Kmart Website Operations	 	 	16	 
	5.	 	Miscellaneous	 	 	16	 
	 
	 	5.1	 	Certain Definitions	 	 	16	 
	 
	 	5.2	 	Consent to Jurisdiction; Service of Process; Waiver of Jury Trial	 	 	18	 
	 
	 	5.3	 	Notices	 	 	19	 
	 
	 	5.4	 	Entire Agreement	 	 	20	 
	 
	 	5.5	 	Waivers and Amendments	 	 	20	 
	 
	 	5.6	 	Governing Law	 	 	21	 
	 
	 	5.7	 	Binding Effect; Assignment	 	 	21	 
	 
	 	5.8	 	Usage	 	 	21	 
	 
	 	5.9	 	Articles and Sections	 	 	21	 
	 
	 	5.10	 	Interpretation	 	 	21	 
	 
	 	5.11	 	Severability of Provisions	 	 	21	 
	 
	 	5.12	 	Counterparts	 	 	22	 
	 
	 	5.13	 	No Third Party Beneficiaries	 	 	22	 
	 
	 	5.14	 	Master Agreement	 	 	22	 

-i- 

 

SECTIONS OF THE DISCLOSURE LETTER

	 	 	 
	1.1b-1

	 	District Managers
	1.1b-2

	 	Store Managers
	1.2a-1

	 	Form of Certificate from Chief Financial Officer of Footstar
	1.2a-2

	 	Documentation to be Delivered by Footstar relating to Licensee
Inventory Value
	1.2a-3

	 	Testing Lab Equipment
	1.3

	 	Reports
	2.4(a)

	 	Benefit Plans
	2.4(e)

	 	Acceleration
	2.5(a)

	 	Business Employees
	2.5(b)

	 	Labor Union Matters

EXHIBITS

	 	 	 
	Exhibit A

	 	Inventory Instructions

-ii- 

 

          MASTER AGREEMENT AMENDMENT, dated as of April 3, 2008 (this “Agreement”), by and among
Footstar, Inc., a Delaware corporation (“Footstar”), Kmart Corporation, a Michigan
corporation (“Kmart”), the affiliates of Kmart signatory hereto (collectively with Kmart,
“Licensor”) and Sears Holdings Corporation, a Delaware corporation (“SHC”).
Capitalized terms used herein but not defined shall have the meanings ascribed to them in Section
5.1.

W I T N E S S E T H:

          WHEREAS, Licensor, Footstar and SHC (solely with respect to Article XX thereof) are party to
that certain Amended and Restated Master Agreement, dated as of August 24, 2005 (the “Master
Agreement”);

          WHEREAS, pursuant to the Master Agreement, Footstar operates the footwear departments in each
of the Stores (as defined in the Master Agreement) of Kmart (the operation of such footwear
departments, the “Business”); and

          WHEREAS, Licensor, SHC and Footstar desire to amend the Master Agreement in certain respects;

          NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in
consideration of the representations, warranties, and covenants herein contained and for other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:

1. Amendment of Master Agreement

          1.1 Employee Matters

          (a) Effective as of the date hereof, Article IV of the Master Agreement shall be amended by
adding the following at the end of Section 4.1 thereof:

          (e) “Subject to the terms of this Section 4.1 (provided it being understood that to the
extent of any conflict between this Section 4.1(e) and Section 4.1(d), this Section 4.1(e)
shall govern), Licensor shall offer employment (effective as of the Buy-Out Date) to
substantially all of the District Managers and substantially all of the Store Managers (with
each such offer made to a Store Manager who is a full time employee to be an offer of
employment on a full time basis), and, subject to payment by Footstar to Kmart of three
hundred thousand dollars ($300,000) on or before the Buy-Out Date, Licensor will provide
each Business Employee hired by Licensor with credit for years of service with Licensee and
its Affiliates for purposes of employee benefit plans of the Licensor, provided that such
credit shall not be provided (i) for purposes of benefit accrual under defined benefit
pension plans, (ii) to the extent it would result in a duplication of benefits, or (iii) to
the extent not provided under a corresponding benefit plan of Licensee. Licensee will use
its commercially reasonable efforts to make the Business Employees available for
interviewing and completion of Licensor’s

 

 

standard hiring procedures beginning no later than October 31, 2008; provided, that
Licensee shall make all District Managers available for interviewing and completion of
Licensor’s standard hiring procedures beginning no later than September 1, 2008;
provided, further, that Licensee shall also make all of its quality
assurance/quality control personnel based in Asia available for interviewing and completion
of Licensor’s standard hiring procedures beginning no later than July 31, 2008, and shall
not make an offer to hire any such quality assurance/quality control personnel before
October 31, 2008 (December 31, 2008 in the case of any quality assurance/quality control
personnel who are U.S. citizens). No later than October 1, 2008, Licensor will inform
Licensee of any District Manager to whom it will not extend an offer and will provide
Licensee with the annual base salary and target bonus contained in each offer of employment
made to any District Manager. No later than December 1, 2008, Licensor will inform Licensee
of any Store Manager to whom it will not make an offer. Licensee will encourage each
Business Employee that is offered employment by Licensor to accept Licensor’s offer of
employment, and shall take no action, including the offering of employment with Licensee, to
induce such employees not to accept employment with Licensor, except for any action that
Licensee is required to take pursuant to a contractual obligation in full force and effect
as of the date hereof. Those Business Employees who accept Licensor’s offer of employment
shall become employed by Licensor as of the Buy-Out Date (referred to in this Agreement as
“Transferred Employees”). Nothing contained herein shall require Licensor to
provide any specific form of benefit or inhibit Licensor’s ability to establish, amend or
terminate any employee benefit plan of Licensor following the Buy-Out Date. Licensor’s
offers of employment to Business Employees contemplated herein shall be at will and nothing
in this Section 4.1 shall prevent Licensor from terminating the employment of any
Transferred Employee at any time for any reason.

          (f) Except as may be required under COBRA due to the application of Treas. Regs.
54.4980B, Licensee acknowledges that Licensor shall not assume any liability related to any
Benefit Plan (hereinafter defined) that is sponsored, maintained or contributed to by
Licensee or any Person who would be considered a single employer with any Licensee pursuant
to Section 414(b), (c), (m) or (o) of the Code (whether former or current) of Footstar. For
the avoidance of doubt, except as may be required under COBRA due to the application of
Treas. Regs. 54.4980B, the Licensee shall retain all liability and responsibility for any
Benefit Plan. Licensee acknowledges that it shall use its commercially reasonable efforts
to maintain in place until June 30, 2009 any Benefit Plan pursuant to which any Business
Employees are eligible for health care continuation coverage under COBRA.

          (g) Licensee shall be responsible for any liabilities or obligations (i) arising under
the WARN Act, if any, and (ii) resulting from or precipitated by layoffs, if any, in respect
of employees of Licensee whose employment was terminated on or prior to the Buy-Out Date.
For the sake of clarity, and without limiting any other provision of this Article IV, the
parties acknowledge and agree that, Licensor shall have no liability for the payment of any
amounts due from Licensee to its current or former employees under agreements with or plans
of Licensee, including termination, severance, and retention payments or, except as may be
required under COBRA due to the application of Treas. Regs. 54.4980B, any obligation to
provide health, disability, life, retirement, or
other benefits (whether covered by insurance or not), nor shall Licensor be deemed a
joint or successor employer with respect to such employees (except that Licensee may

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designate Licensor as a successor employer for purposes of Licensee’s Severance Pay Plan, it
being understood that this parenthetical shall in no way be construed as imposing any
obligations or liabilities upon Licensor with respect to such plan or otherwise).

          (h) In addition to the agreement made under subsection 4.1(g) above as between Licensee
and Licensor, Licensee shall be responsible for the payment of any severance-related pay to,
or other losses and expenses relating to claims made for severance-related pay by, any
Business Employee who does not receive an offer of employment from Licensor or declines an
offer of employment from Licensor.

          (i) Nothing in this Section 4.1, express or implied, is intended to or shall confer
upon any employee or service provider of Licensee any right, benefit or remedy of any nature
whatsoever, nor should anything in this Section 4.1 be construed as an amendment to any
employee benefit plan or arrangement (it being understood that nothing in this paragraph (h)
shall be construed as amending or otherwise modifying any Benefit Plan).

          (j) Notwithstanding anything to the contrary herein, for a period of one (1) year after
the Buy-Out Date, or in the event that this Agreement is terminated prior to such date
(other than a termination on account of a default by Licensee hereunder), for a period of
one (1) year following such termination, neither Licensor nor Sears shall, and neither
Licensor nor Sears shall permit any of its controlled Affiliates, directly or indirectly, to
solicit or employ any of the employees of Licensee who are not Transferred Employees without
the prior written consent of Footstar; provided, however, that nothing
contained herein shall prohibit Licensor or Sears from generally advertising for personnel
in a manner that does not specifically target any employees of Licensee and employing
employees of Licensee who respond to such general personnel advertisements and/or employees
of Licensee who are not otherwise solicited in any manner by Licensor, Sears or any of their
Affiliates.”

          (b) Effective as of the date hereof, Article II of the Master Agreement shall be amended by
adding the following definitions to Section 2.1 thereof:

	 	 	 	 	 
	 

	 	“Affiliate”
	 	shall mean, with respect to any specified Person, any
other Person that directly, or indirectly through one
or more intermediaries, controls, is controlled by or
is under common control with such specified Person.
	 
	 	 	 	 
	 

	 	“Benefit Plan”
	 	shall mean any pension, retirement, savings, profit

sharing, deferred compensation, stock ownership, stock

purchase, stock option, incentive, severance pay,

medical, dental, health, welfare, disability, life,

death benefit, group insurance, bonus, vacation pay,

sick pay, post-retirement medical or life or other

employee benefit plan, program, agreement,

-3-

 

	 	 	 	 	 
	 

	 	 	 	policy or
arrangement (including, without limitation, each
“pension plan” as defined in Section 3(2) of ERISA,
any “welfare plan” as defined in Section 3(1) of ERISA
and any “multiemployer plan” as defined in Section
3(37) of ERISA), whether written or unwritten,
qualified or non-qualified, funded or unfunded,
maintained or contributed to by Footstar or its
subsidiaries (or to which Footstar or its subsidiaries
are party) for the benefit of (or with) Business
Employees or other employees of Footstar and its
subsidiaries.
	 
	 	 	 	 
	 

	 	“Business Employee”
	 	shall mean Licensee’s district manager level
executives, store managers and store associates
employed in connection with, or rendering services to,
the operation of the Footwear Departments, including
the District Managers and Store Managers.
	 
	 	 	 	 
	 

	 	“COBRA”
	 	shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as described in Section
4980B of the Code, sections 601 et seq. of ERISA, each
as amended, and the regulations promulgated
thereunder.
	 
	 	 	 	 
	 

	 	“Code”
	 	shall mean the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
	 
	 	 	 	 
	 

	 	“District Manager”
	 	shall mean an employee of Licensee listed on Section
1.1b-1 of the Disclosure Letter to the Master
Agreement Amendment as updated from time to time by
Licensee to reflect vacancies filled in the ordinary
course and individuals who are no longer employees of
Licensee; provided that any individual hired to fill a
vacancy at the District Manager level shall receive
annual compensation no greater than the compensation
paid to the departing or departed employee; and
provided further that the aggregate number of
individuals listed on Section 1.1b-1 of the Disclosure
Letter to the Master Agreement Amendment shall not at
any time be greater than the number listed thereon as
of the date of the Master Agreement Amendment.

-4-

 

	 	 	 	 	 
	 

	 	“Governmental Body”
	 	shall mean any domestic or foreign national, federal,
state, provincial, or local governmental, regulatory
or administrative authority, department, agency,
commission, court or tribunal.
	 
	 	 	 	 
	 

	 	“Person”
	 	shall mean any individual, corporation, partnership,
limited liability company, limited liability
partnership, joint venture, joint-stock company,
trust, Governmental Body or other entity.
	 
	 	 	 	 
	 

	 	“Store Manager”
	 	shall mean an employee of Licensee listed on Section
1.1b-2 of the Disclosure Letter to the Master
Agreement Amendment as updated from time to time by
Licensee to reflect vacancies filled in the ordinary
course and individuals who are no longer employees of
Licensee; provided that any individual hired to fill a
vacancy at the Store Manager level shall receive
annual compensation no greater than the compensation
paid to the departing or departed employee; and
provided further that the aggregate number of
individuals listed on Section 1.1b-2 of the Disclosure
Letter to the Master Agreement Amendment shall not at
any time be greater than the number listed thereon as
of the date of the Master Agreement Amendment.

          1.2 Inventory Procedures Upon Termination

          (a) Effective as of the date hereof Article IV of the Master Agreement shall be amended by
adding a new Section 4.4 and Section 4.5 as follows:

     “4.4 Inventory Purchase Procedures. In the event that the Buy-Out shall be
required pursuant to Section 4.1 or the Licensor shall otherwise be required to purchase the
Inventory hereunder (including pursuant to Section 4.3(d)) then in such event the following
procedures shall apply with respect to the determination and payment of the Book Value of
the Inventory and the additional consideration to be paid therefore, it being understood
that to the extent of any conflict between this Section 4.4 and any other
section of this Agreement, this Section 4.4 shall govern; provided, that in no event
shall this Section 4.4 require Licensor to purchase Inventory of any type or nature that it
would

-5-

 

not otherwise have been required to purchase pursuant to another section of this
Agreement:

          (a) Prior to the Buy-Out Date, but in no event earlier than twenty-two (22) Business
Days prior to the Buy-Out Date, Licensor and Licensee shall cause RGIS LLC (“RGIS”)
or, if RGIS refuses to be retained, another mutually agreeable, qualified Third Party (the
“Count Firm”) to conduct a physical count of the Inventory (the “Store
Count”) (it being understood that each of Licensor and Licensee shall have the right to
have a representative in attendance during any such count). The Store Count shall be taken
in a manner consistent with the Inventory Instructions attached as Exhibit A to the Master
Agreement Amendment, dated as of April 3, 2008, by and among Footstar, Kmart, the affiliates
of Kmart signatory thereto and Sears (the “Master Agreement Amendment”).

          (b) Not more than five (5) Business Days after the Buy-Out Date, Licensee shall
prepare, or cause to be prepared, and deliver to Licensor (i) a certificate, the form of
which is set forth in Section 1.2a-1 of the Disclosure Letter to the Master Agreement
Amendment, signed by the chief financial officer of Footstar setting forth in reasonable
detail Footstar’s calculation (the “Licensee’s Calculation”) of the aggregate
Inventory Value as of the close of business on the Buy-Out Date (the “Licensee Inventory
Value”), which shall take into account (x) the Inventory Value of the Inventory
accounted for by the Store Count and (y) the Inventory Value of applicable Inventory sold
from each Footwear Department subject to the Store Count from the time when the physical
count was conducted at such Footwear Department through the Buy-Out Date, and (ii)
documentation set forth in Section 1.2a-2 of the Disclosure Letter to the Master Agreement
Amendment that supports, in reasonable detail, Licensee’s determination of the Licensee
Inventory Value.

          (c) The Licensee Inventory Consideration (as defined below) shall be paid by Licensor
to Footstar, within five (5) Business Days of receipt by Licensor of the deliveries set
forth in Section 4.4(b) above, by wire transfer of immediately available funds. The
“Licensee Inventory Consideration” shall be the Licensee Inventory Value,
plus one million three hundred fifty thousand dollars ($1,350,000), minus
nine hundred and fifty thousand dollars ($950,000), minus a shrink adjustment of two
hundred thousand dollars ($200,000).

          (d) If Licensor has any objections to the Licensee’s Calculation, Licensor shall
deliver to Licensee, no later than thirty (30) days after receiving the Licensee’s
Calculation pursuant to Section 4.4(b), a reasonably detailed statement describing
Licensor’s objections, including Licensor’s calculation of the aggregate Inventory Value as
of the close of business on the Buy-Out Date; provided, that, during such thirty
(30) day period, Licensee shall, and shall cause its officers, employees, agents and
accountants to, cooperate with Licensor in connection with its review of the accuracy of the
Licensee’s Calculation. Licensor and Licensee shall use commercially reasonable efforts to
resolve any such objections themselves in good faith. If Licensor and Licensee
are unable to resolve their differences within fifteen (15) Business Days after
Licensee has received Licensor’s statement of objections hereunder, either Licensor or
Licensee

-6-

 

may immediately refer their remaining differences to the Independent Accountant,
who shall determine, solely with respect to the remaining differences so submitted, the
Licensee Inventory Consideration, including the actual aggregate Inventory Value as of the
close of business on the Buy-Out Date. Licensor and Licensee shall instruct the Independent
Accountant to deliver to Licensor and Licensee a written determination of the Licensee
Inventory Consideration, including the actual aggregate Inventory Value as of the close of
business on the Buy-Out Date, no later than the thirtieth (30th) calendar day after the
referral to the Independent Accountant. Licensor and Licensee will furnish to the
Independent Accountant such work papers and other documents and information relating to the
Inventory Value as the Independent Accountant may reasonably request and Licensor and
Licensee will be afforded the opportunity to present to the Independent Accountant any
material relating to the determination and to discuss the determination with the Independent
Accountant (provided that there shall be no ex parte conversations or meetings). The
Independent Accountant, Licensee and Licensor will be required to enter into a customary
engagement letter. The determination by the Independent Accountant will be binding and
conclusive on the parties for all purposes, absent fraud or manifest error. The Independent
Accountant shall address only those issues in dispute, and may not assign a value to any
item greater than the greatest value for such item claimed by either party or lower than the
lowest value claimed by either party. The fees and expenses of the Independent Accountant
shall be borne by the party whose proposed calculation of Licensee Inventory Consideration
differs most from the Licensee Inventory Consideration as determined by the Independent
Accountant.

          (e) The “Final Inventory Consideration” shall be:

          (i) in the event that Licensor does not object to the Licensee’s Calculation in
accordance with the provisions of Section 4.4(d), the Licensee Inventory Consideration
calculated by using the Licensee Inventory Value set forth in the Licensee’s Calculation;
and

          (ii) in the event Licensor does object to the Licensee’s Calculation in accordance with
the provisions of Section 4.4(d), either

                    (A) the Licensee Inventory Consideration calculated by using the Licensee Inventory
Value subsequently agreed to by Licensor and Licensee in accordance with the provisions of
Section 4.4(d), or

                    (B) in the absence of such agreement, the Licensee Inventory Consideration as
determined by the Independent Accountant.

          (f) As promptly as practicable, and in any event no later than two (2) Business Days
following the determination of the Final Inventory Consideration: (i) if the Final
Inventory Consideration is greater than the Licensee Inventory Consideration, then Licensor
shall pay to Licensee an amount equal to such excess, and (ii) if the Licensee Inventory
Consideration is greater than the Final Inventory Consideration, then
Licensee shall pay to Licensor an amount equal to such excess. Notwithstanding

-7-

 

anything herein to the contrary, the parties agree that under no circumstances shall
Licensor be required to pay twice for any item of Inventory.

          (g) In the event that Grant Thornton LLP refuses to be retained as the Independent
Accountant for purposes of Section 4.4(d), Licensor and Licensee (or, if Licensor and
Licensee are unable to so agree within two (2) Business Days of Grant Thornton LLP refusing
to be so retained, Licensor’s and Licensee’s independent accounting firms) shall jointly
select another independent accounting firm of recognized national standing, which firm shall
be deemed to be the “Independent Accountant” for purposes of Section 4.4(d).

          (h) Prior to the Buy-Out Date, Licensee shall use commercially reasonable efforts to
remove (at their own expense and at times and in a manner so as not to unreasonably
interfere with the Store Count or the operation of the Stores by Licensor) all inventory not
being transferred to Licensor hereunder (e.g., Defective Inventory and, if applicable,
Seasonal Inventory) from the stores in which the applicable Footwear Departments are
located; provided, that any such inventory not so transferred prior to the Buy-Out
Date shall be deemed to be abandoned to Licensor at no cost to Licensor. Notwithstanding
anything to the contrary in the Master Agreement, including without limitation, Section
4.1(c), at the Buy-Out Date, Licensee shall leave all fixtures, furnishings, equipment or
other similar property belonging to Licensee in the stores in which the applicable Footwear
Departments are located (the “Personal Property”) and title to such Personal
Property shall transfer to Licensor at the Buy-Out Date; provided that the Personal
Property shall be transferred on an as-is, where-is basis, and Licensee makes no
representations or warranties, whether under this Agreement or otherwise, expressed or
implied, in connection with or with respect to the Personal Property.

          (i) Licensor and Licensee shall share evenly the costs of the Store Count.

          (j) At Licensee’s option (such option to be exercised no later than September 30,
2008), the Inventory to be transferred to Licensor on the Buy-Out Date shall include
Seasonal Inventory (the “Seasonal Inventory Election”). In the event of a Seasonal
Inventory Election:

          (i) the term “Inventory” shall be deemed to include Seasonal Inventory and the
“Inventory Value” of Seasonal Inventory shall be calculated as 40.0% of the otherwise
applicable “Inventory Value” of such Seasonal Inventory; and

          (ii) the Licensee Inventory Consideration and the Final Inventory Consideration shall
be reduced by one million dollars ($1,000,000).

          (k) As of the Buy-Out Date, Licensee shall have satisfied any and all outstanding
payables owed in connection with the Inventory or reserved and set aside amounts adequate to
satisfy any and all payables owed in connection with the Inventory.

          (l) In the event that Licensor is in breach of its obligations under this Section 4.4
to pay the Licensee Inventory Consideration or the Final Inventory

-8-

 

Consideration, as
applicable, when due (the “Due Date”), then, in addition to any other remedies
available at law or in equity, the Licensor shall pay to Licensee interest on the unpaid
amount of Licensee Inventory Consideration or Final Inventory Consideration, as applicable,
at a rate equal to the lesser of (i) 18% annually and (ii) the maximum nonusurious annual
interest rate that may be contracted for, charged, received, or collected on such amount
under applicable law from the period commencing on the Due Date and ending on the date when
the Licensee Inventory Consideration or Final Inventory Consideration, as applicable, has
been fully paid.

          4.5 Testing Lab Equipment. As additional consideration for the payments made
to Footstar pursuant to Section 4.4(c), Footstar shall sell, assign, transfer, convey and
deliver to Kmart or its designated permitted assigns, and Kmart or its designated permitted
assigns shall purchase and assume from Footstar, free and clear of all encumbrances of any
nature, all of Footstar’s right, title and interest in and to all of the properties, assets,
and rights of every nature, kind and description, to all equipment located in Footstar’s
Mahwah, New Jersey facility as of the date of the Master Agreement Amendment set forth on
Section 1.2a-3 of the Disclosure Letter to the Master Agreement Amendment (such equipment,
the “Testing Lab Equipment” and such transaction, the “Testing Lab Sale”).
The Testing Lab Sale shall occur on a date mutually acceptable to Footstar and Kmart that is
within thirty (30) days of Footstar’s written notice to Kmart that such equipment is ready
to be sold, but in any event no later than July 31, 2008. Within five (5) Business Days of
the date of such closing, Kmart shall cause the Testing Lab Equipment to be removed from the
Mahwah, New Jersey facility. From and after the date of the Master Agreement Amendment
through such closing date, Footstar shall maintain (but will be under no obligation to
replace or undertake repairs of) the Testing Lab Equipment in the ordinary course of
business consistent with past practice, subject to ordinary wear and tear, and shall not
sell or convey or otherwise further encumber any of the Testing Lab Equipment or any
interests therein without the prior written consent of Kmart. Subject to the foregoing,
Footstar shall sell and Kmart shall purchase the Testing Lab Equipment on an as-is, where-is
basis, and Footstar makes no representations or warranties, under this Agreement or
otherwise, express or implied, in connection with or with respect to the Testing Lab
Equipment.”

          (b) Effective as of the date hereof, Article II of the Master Agreement shall be amended by
adding the following definitions to Section 2.1 thereof:

	 	 	 	 	 
	 

	 	“Defect”
	 	shall mean any defect, fault or imperfection
(including mis-mated and near-mated shoes) which
causes a product not to be salable in the ordinary
course of business at the everyday retail price.
Display merchandise shall not be presumed to have a
Defect. Notwithstanding the foregoing, products
which have minor wear, minor soiling, minor stains,
minor dents or minor scratches that Licensor and
Licensee or their respective representatives
reasonably determine do not effect the salability of
the

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	 	 	 	goods in the ordinary course of business at the
everyday retail price shall not be considered to
have a Defect.
	 
	 	 	 	 
	 

	 	“Defective Inventory”
	 	shall mean any Inventory with a Defect.
	 
	 	 	 	 
	 

	 	“Inventory”
	 	shall mean all merchandise inventory of the Business
that is located at a Footwear Department; provided
that in no event shall the Inventory include any
merchandise inventory that is Defective Inventory
or, subject to Section 4.4(j), any Seasonal
Inventory.
	 
	 	 	 	 
	 

	 	“Inventory Value”
	 	shall mean the book value of all (or, as the context
may require, less than all) Inventory, calculated in
accordance with GAAP, applied on a consistent basis
(but not taking into account any reserves), but in
any event, and giving effect to all markdowns of any
type whatsoever, excluding (i) distribution and
delivery costs incurred by Licensee and/or its
Affiliates after receipt of such Inventory from
suppliers at a Footstar (or Footstar Affiliate)
distribution center, and (ii) any intercompany
royalty or other intercompany charges between and
among Footstar and its Affiliates (other than
changes that reflect any out-of-pocket cost incurred
by Footstar or an Affiliate and that do not result
in a book value with respect to the applicable item
of Inventory greater than the book value of such
Inventory that would have existed had Footstar and
its Affiliates been consolidated as a single
entity).”

          1.3 Access to Information

          Effective as of the date hereof, Article X of the Master Agreement shall be amended by adding
a new Section 10.4 as follows:

          “10.4 Access to Information. During the Term: (a) Footstar will provide to Kmart or its designated agent (i) reports in the form set forth in Section 1.3 of the Disclosure Letter to the Master Agreement Amendment, on a monthly basis, (ii) business analysis and category analysis (line review forms), for the Fall of 2008
promptly after such analysis is completed and (iii) an aged inventory report, on a monthly basis beginning in August 2008 (collectively, the information in clauses (i)-(iii), the

-10-

 

“Information”); and (b) at the request of Kmart, representatives of Kmart and
Footstar shall meet on a monthly basis to discuss the Information, at a mutually acceptable
time during normal business hours, and at a mutually acceptable place, or via
teleconference.”

2. Representations and Warranties of Footstar

          Except as set forth in the corresponding sections or subsections of the disclosure letter
delivered to Kmart by Footstar on the date hereof (the “Disclosure Letter”), Footstar
represents and warrants to the Licensor as of the date hereof, that:

          2.1 Due Incorporation and Authority

          Footstar is a corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation. Footstar has all requisite corporate power and authority to enter
into this Agreement, carry out its obligations hereunder and consummate the transactions
contemplated hereby. The execution and delivery by Footstar of this Agreement, the performance by
Footstar of its obligations hereunder and the consummation by Footstar of the transactions
contemplated hereby have been duly authorized by the board of directors of Footstar and no other
corporate proceedings on the part of the board of directors of Footstar are necessary to authorize
the execution and delivery of this Agreement or to consummate the other transactions contemplated
hereby. This Agreement has been duly executed and delivered by Footstar, and, assuming the due
authorization, execution and delivery hereof by the Licensor and SHC, this Agreement constitutes
the legal, valid and binding obligation of Footstar, enforceable against Footstar in accordance
with its terms, except to the extent that its enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).

          2.2 No Conflicts

          The execution and delivery by Footstar of this Agreement, the consummation of the transactions
contemplated hereby, and the performance by Footstar of this Agreement in accordance with its terms
will not (with or without notice or lapse of time or both):

          (a) violate the certificate of incorporation or by-laws of Footstar;

          (b) require Footstar to obtain any consents, approvals, authorizations or actions of, or make
any filings with or give any notices to, any Governmental Bodies or any other Person, except where
the failure to obtain any such consent, make any such filing or give such notice would not
reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect;

          (c) violate or result in the breach of any of the terms and conditions of, cause the
termination of or give any other contracting party the right to terminate, or constitute (or with
notice or lapse of time, or both, constitute) a default under, any contract, lease, loan
agreement, mortgage, security agreement, guarantee, indenture or other agreement or instrument to
which Licensee is a party or by or to which Licensee or any of its properties is or may be bound or
subject, except for breaches, terminations or defaults that would not reasonably be expected to

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have, either individually or in the aggregate, a Material Adverse Effect; or

          (d) violate any Requirement of Law to which Footstar is subject, except for violations that
would not reasonably be expected to, either individually or in the aggregate, be material.

          2.3 Brokers

          Footstar has not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.

          2.4 Benefit Plans

          (a) Section 2.4(a) of the Disclosure Letter contains a complete and accurate list of all
Benefit Plans in which any Business Employee participates or to which any Business Employee is
subject or party, and Footstar has made available to the Licensor or the Licensor’s counsel a copy
of each such Benefit Plan and, if applicable, a copy of the most recent summary plan description.

          (b) There does not now exist, nor do any circumstances exist that would reasonably be expected
to result in, any liabilities under (i) Title IV of ERISA, (ii) Section 302 of ERISA, or (iii)
Sections 412 and 4971 of the Code, in each case, that would reasonably be expected to be a
liability of Kmart following the Buy-Out Date.

          (c) Each Benefit Plan, the administrator and fiduciaries of each Benefit Plan, and Footstar
has complied with the applicable requirements of ERISA (including, but not limited to, the
fiduciary responsibilities imposed by Part 4 of Title I, Subtitle B of ERISA), the Code and any
other applicable rules and regulations governing each Benefit Plan, except for such noncompliance
as is not likely to have a Material Adverse Effect; and each Benefit Plan has at all times been
properly administered in substantial compliance with its terms and in accordance with all such
rules and regulations, except for such impropriety as is not likely to have a Material Adverse
Effect.

          (d) No Benefit Plan requires or obligates the Licensor to assume the benefits or to have any
liability thereunder except as required under COBRA or other Requirements of Law.

          (e) Except as set forth in Section 2.4(e) of the Disclosure Letter, neither the execution and
delivery of this Agreement nor the actions contemplated hereby (including the amendment of the
Master Agreement) will (either alone or in conjunction with any other event) result in or cause the
accelerated vesting, funding or delivery of, or an increase the amount or value of, any payment or
benefit to any Business Employee.

          2.5 Employment and Labor Matters

          (a) Section 2.5(a) of the Disclosure Letter contains a complete and accurate list of all the
Business Employees as of March 28, 2008. Footstar has made available to the

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Licensor or its counsel a complete and accurate list, showing for each Business Employee the position held and
aggregate annual compensation for the last fiscal year and such Business Employee’s service
recognized by Footstar and its Affiliates for purposes of the Benefit Plans (including service with
predecessor employers, if applicable). Except as listed in Section 2.5(a) of the Disclosure
Letter, no Business Employee is party to an employment agreement.

          (b) Except as would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, (i) no work stoppage, work slowdown, picketing, handbilling, consumer
boycott or labor strike against Footstar and involving the Business Employees (A) has, since
January 1, 2005, occurred, (B) is pending, or (C) has been threatened in writing, (ii) Footstar is
not involved in or threatened in writing with, any labor dispute, grievance, or litigation relating
to employment, labor, safety, discrimination, wage-hour, breach of contract or retaliation
allegations with respect to Business Employees, including charges of unfair labor practices or
discrimination complaints, (iii) no unfair labor practice charges or complaints against Footstar
with respect to any Business Employees are pending, or, to Footstar’s Knowledge, threatened, before
the National Labor Relations Board, (iv) Footstar is not presently a party to or bound by any
collective bargaining agreement or union contract with respect to Business Employees, (v) no
collective bargaining agreement or other similar agreement with respect to Business Employees is
being negotiated by Footstar, (vi) no union organizational campaign presently exists with respect
to any Business Employees and, to Footstar’s Knowledge, no question concerning representation
presently exists respecting such Business Employees and except as otherwise set forth in Section
2.5(b) of the Disclosure Letter, and (vii) to Footstar’s Knowledge, (A) no charges with respect to
or relating, directly or indirectly, to Footstar or the Business are pending before any
Governmental Body (including the Equal Employment Opportunity Commission, OFCCP or any comparable
state or local agency responsible for the enforcement of fair employment practices) and (B)
Footstar has not received written notice of the intent of any federal, state or local agency
responsible for the enforcement of labor or employment laws to conduct an investigation, audit or
review and no such investigation, audit or review is in progress.

          2.6 No Knowledge of Claims

          Footstar does not have any knowledge of any breach of the Master Agreement by Licensor which
breach exists or existed on or prior to the date hereof.

3. Representations and Warranties of Kmart Parties

     Kmart, SHC and each other party hereto that is a Licensor (collectively, the “Kmart
Parties”), jointly and severally, represent and warrant to Footstar as follows:

     3.1 Due Incorporation and Authority

     Each Kmart Party is an entity duly organized, validly existing and in good standing under the
laws of the state of its organization. Each Kmart Party has all requisite corporate, limited
partnership or limited liability company, as applicable, power and authority to enter into this
Agreement, carry out its obligations hereunder and consummate the transactions contemplated hereby.
The execution and delivery by each Kmart Party of this Agreement, the

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performance by each Kmart
Party of its obligations hereunder and the consummation by each Kmart Party of the transactions
contemplated hereby have been duly authorized by all requisite corporate action on the part of each
Kmart Party and no other corporate proceedings on the part of each Kmart Party are necessary to
authorize the execution and delivery of this Agreement or to consummate the other transactions
contemplated hereby. This Agreement has been duly executed and delivered by each Kmart Party, and,
assuming the due authorization, execution and delivery hereof by Footstar, this Agreement
constitutes the legal, valid and binding obligation of each Kmart Party, enforceable against each
Kmart Party in accordance with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors rights generally or by
general principles of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).

          3.2 No Conflicts

          The execution and delivery by the Kmart Parties of this Agreement, the consummation of the
transactions contemplated hereby, and the performance by the Kmart Parties of this Agreement in
accordance with its terms will not (with or without notice or lapse of time or both):

          (a) violate the certificate of incorporation or by-laws (or other governing documents) of any
Kmart Party;

          (b) require any Kmart Party to obtain any material consents, approvals, authorizations or
actions of, or make any filings with or give any notices to, any Governmental Bodies or any other
Person, except where the failure to obtain any such consent, make any such filing or give such
notice would not reasonably be expected to have, either individually or in the aggregate, a
material adverse effect on the Kmart Parties taken as a whole;

          (c) violate or result in the breach of any of the terms and conditions of, cause the
termination of or give any other contracting party the right to terminate, or constitute (or with
notice or lapse of time, or both, constitute) a material default under, any contract, lease, loan
agreement, mortgage, security agreement, guarantee, indenture or other agreement or instrument to
which any Kmart Party is a party or by or to which any Kmart Party or any of their respective
properties is or may be bound or subject, except for breaches, terminations or defaults that would
not reasonably be expected to have, either individually or in the aggregate, a material adverse
effect on the Kmart Parties taken as a whole; or

          (d) violate any Requirement of Law to which any Kmart Party is subject, except for violations
that would not reasonably be expected to, either individually or in the aggregate, be material.

          3.3 Brokers

          No Kmart Party has incurred, nor will any Kmart Party incur, directly or indirectly, any
liability for brokerage or finders’ fees or agents’ commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.

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          3.4 No Knowledge of Claims

          No Kmart Party has any knowledge of any breach of the Master Agreement by Footstar which
breach exists or existed on or prior to the date hereof.

          3.5 Certain Parties to the Master Agreement

          Kmart of North Carolina LLC, and Kmart of Texas L.P. have been dissolved.

4. Covenants and Agreements

          4.1 Confidentiality

          Each party hereto hereby reaffirms the confidentiality letter agreement, dated February 13,
2008 (the “Confidentiality Agreement”), between Footstar and SHC, and agrees to fulfill its
obligations thereunder. Each of the Kmart Parties agrees to be bound by the terms of the
Confidentiality Agreement as if an original party thereto.

          4.2 Expenses

          Except as otherwise specifically provided herein, the Kmart Parties and Footstar each shall
bear their respective fees, costs and expenses incurred in connection with the preparation,
execution and performance of this Agreement and all related documents contemplated hereby and the
transactions contemplated hereby and thereby, including all fees and expenses of their
Representatives.

          4.3 Public Announcements

          No party to this Agreement shall make, or cause to be made, any press release or public
announcement in respect of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media in respect of this Agreement without prior approval of the other
party, which approval shall not be unreasonably withheld or delayed, unless such disclosure is
required by applicable Requirements of Law or the rules of any stock exchange or by the request of
any Governmental Body. The parties shall cooperate, using commercially reasonable efforts, as to
the timing and contents of any such announcement, including any such announcement required by
applicable Requirements of Law or the rules of any stock exchange.

          4.4 Further Action

          Each party, at the request of the other party, shall execute such documents and take such
further actions as may be reasonably required to carry out the provisions hereof and give effect to
the transactions contemplated hereby.

          4.5 Mutual Release

          The Kmart Parties on the one hand and Footstar on the other hand hereby release each other and
their respective officers, directors, stockholders, Affiliates, employees, agents and

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attorneys and each of them (collectively, the “Released Parties”) from any and all actions, causes of
action, suits, debts, dues, sums of money, accounts, reckoning, bonds, bills, liabilities,
specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses,
damages, judgments, extents, executions, claims and demands relating to, arising out of or in
connection with any breach of the Master Agreement by the Released Parties, which breach exists or
existed on or prior to the date hereof and is known by such releasing party as of the date hereof,
including the matter referenced in Section 4.5 of the Disclosure Letter (each, a “Released
Claim”), and agrees not to bring or threaten to bring or otherwise join in any Released Claim
against the Released Parties or any of them.

          4.6 Kmart Website Operations

          The Kmart Parties represent, warrant, covenant and agree that, prior to the Master Agreement
Termination Date, none of the Kmart Parties shall market or sell footwear products on the Kmart
website www.kmart.com, any successor Kmart websites or other addresses featuring the Kmart name
(the “Kmart Websites”); provided that nothing in this Section 4.6 shall limit the Kmart
Parties’ ability to market or sell Excluded Footwear (as defined in the Master Agreement) or
advertise Licensed Footwear (as defined in the Master Agreement) on the Kmart Websites.

5. Miscellaneous

          5.1 Certain Definitions

          (a) Except as set forth below, capitalized terms used herein and not otherwise defined have
the meanings set forth in the Master Agreement. As used in this Agreement, the following terms
have the following meanings:

          “Affiliate” means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is controlled by or is under
common control with such specified Person.

          “Benefit Plan” means any pension, retirement, savings, profit sharing, deferred
compensation, stock ownership, stock purchase, stock option, incentive, severance pay, medical,
dental, health, welfare, disability, life, death benefit, group insurance, bonus, vacation pay,
sick pay, post-retirement medical or life or other employee benefit plan, program, agreement,
policy or arrangement (including, without limitation, each “pension plan” as defined in Section
3(2) of ERISA, any “welfare plan” as defined in Section 3(1) of ERISA and any “multiemployer plan”
as defined in Section 3(37) of ERISA), whether written or unwritten, qualified or non-qualified,
funded or unfunded, maintained or contributed to by Footstar or its Subsidiaries (or to which
Footstar or its Subsidiaries are party) for the benefit of, or with, Business Employees or other
employees of Footstar and its Subsidiaries.

          “Business Employees” means Footstar’s district manager level executives, store
managers and store associates employed in connection with, or rendering services to, the Business.

          “Business Day” means any day that is not a Saturday, Sunday or other day on

-16-

 

which banks located in New York City, New York are authorized or obligated to close.

          “Claim” means a suit, claim, action, proceeding, inquiry, investigation, litigation,
demand, charge, complaint, grievance, arbitration, indictment, or grand jury subpoena.

          “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985 as described
in Section 4980B of the Code, sections 601 et seq. of ERISA, each as amended, and the regulations
promulgated thereunder.

          “Code” means the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.

          “Contract” means any written or oral agreement, lease (including leases for real
and/or personal property) or instrument or other contractual arrangement (but not including
employee benefit plans).

          “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the
regulations promulgated thereunder.

          “Governmental Body” means a domestic or foreign national, federal, state, provincial,
or local governmental, regulatory or administrative authority, department, agency, commission,
court or tribunal.

          “Material Adverse Effect” means any change, event, occurrence, fact, condition, effect
or development that is materially adverse to the Business, the results of operations of the
Business or the condition (financial or otherwise) of the Business, taken as a whole, but in each
case shall exclude any change, event, occurrence, fact, condition, effect or development resulting
from or arising out of: (a) any change in any Requirements of Law or GAAP or interpretation
thereof applicable to Footstar; (b) any change in general economic conditions in the industries in
which Footstar operates or affecting United States or foreign economies in general; (c) any
outbreak or escalation of hostilities (including any declaration of war by the United States) or
act of terrorism; (d) the entry into or announcement of this Agreement and/or the consummation of
the transactions contemplated hereby or thereby; (e) the failure, in and of itself, of Footstar to
meet any projections, forecasts, published analyst estimates or expectations of Footstar’s
revenues, earnings or other financial performance or results of operations for any period; or (f)
any actions taken, or failure to take action, in each case, to which Licensor has expressly
consented or requested in writing; other than, in each of cases (a) through (c), any change, event,
circumstance or development which, individually or in the aggregate, has or is reasonably expected
to have a materially disproportionate effect on Footstar taken as a whole relative to other
industry participants in the United States.

          “Person” means any individual, corporation, partnership, limited liability company,
limited liability partnership, joint venture, joint-stock company, trust, Governmental Body or
other entity.

          “Representative” means, with respect to a particular Person, any director, officer,
manager, partner, member, employee, agent, consultant, advisor or other representative of such
Person, including legal counsel, accountants, and financial advisors.

-17-

 

          “Requirements of Law” any domestic, foreign, federal, state or local statute, law,
rule, regulation, order, writ, ordinance, judgment, governmental directive, injunction, decree or
other requirement of any Governmental Body.

          “Footstar’s Knowledge” means the actual knowledge of Jonathan Couchman, Jeff Shepard,
Mike Lynch, Dennis Lee and Maureen Richards.

          “Master Agreement Termination Date” means the Termination Date as defined in the
Master Agreement or, if earlier, the date that the Master Agreement is otherwise terminated by the
mutual consent of the parties thereto.

          “Subsidiaries” of a Person means any and all corporations, partnerships, limited
liability companies, trusts and other entities, whether incorporated or unincorporated, with
respect to which such Person, directly or indirectly, legally or beneficially, owns (i) a right to
a majority of the profits of such entity or (ii) securities having the power to elect a majority of
the board of directors or similar body governing the affairs of such entity.

          (b) The following capitalized terms are defined in the following Sections of this Agreement:

	 	 	 
	Term	 	Section
	Agreement
	 	Preamble
	Business
	 	Recitals
	Confidentiality Agreement
	 	4.1
	Disclosure Letter
	 	2
	Footstar
	 	Preamble
	Kmart
	 	Preamble
	Kmart Party
	 	3
	Kmart Websites
	 	4.6
	Licensor
	 	Preamble
	Master Agreement
	 	Recitals
	Released Claims
	 	4.5
	Released Parties
	 	4.5
	SHC
	 	Preamble

     5.2 Consent to Jurisdiction; Service of Process; Waiver of Jury Trial

     (a) The Kmart Parties and Footstar irrevocably and unconditionally consent to submit to the
jurisdiction of the state and federal courts located in New York County in the State of New York
for any litigation arising out of or relating to this Agreement and the transactions contemplated
hereby (and agree not to commence any litigation relating hereto except in such courts).

     (b) Any and all service of process and any other notice in any such Claim shall be effective
against any party if given personally or by registered or certified mail, return receipt requested,
or by any other means of mail that requires a signed receipt, postage prepaid,

-18-

 

mailed to such party as herein provided. Nothing herein contained shall be deemed to affect the right of any party to
serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed
against any other party in any other jurisdiction.

          (c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY.

          (d) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE WAIVER IN SECTION 5.2(c), (ii) SUCH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (iii) SUCH PARTY MAKES SUCH WAIVER VOLUNTARILY AND
(iv) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS, AGREEMENTS AND CERTIFICATIONS IN SECTION 5.2(c) AND THIS SECTION 5.2(d).

          5.3 Notices

          Any notice or other communication required or permitted hereunder shall be in writing and
shall be deemed to have been duly given (a) on the day of delivery if delivered in person, or if
delivered by facsimile upon confirmation of receipt, (b) on the first (1st) Business Day following
the date of dispatch if delivered by a nationally recognized express courier service guaranteeing
next business day delivery, or (c) on the fifth (5th) Business Day following the date of mailing if
delivered by registered or certified mail, return receipt requested, postage prepaid. All notices
hereunder shall be delivered as set forth below, or pursuant to such other instructions
as may be designated by notice given in accordance with this Section 5.3 by the party to
receive such notice:

          (a) if to Licensor or to SHC, to:

Kmart Corp.

c/o Sears Holdings Corporation

3333 Beverly Road, B6-210B

Hoffman Estates, Illinois 60179

Attention: General Counsel

Facsimile: (203) 621-3006

with a copy to (which shall not constitute notice):

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

-19-

 

Attention: Scott K. Charles, Esq.

Facsimile: (212) 403-1000

          (b) if to Footstar, to:

Footstar, Inc.

933 MacArthur Blvd.

Mahwah, New Jersey 07430

Attention: Maureen Richards

Facsimile: (201) 934-2642

with a copy to (which shall not constitute notice):

Akin Gump Strauss Hauer & Feld LLP

590 Madison Avenue

New York, New York 10022

Attention: Patrick J. Dooley, Esq.

Ira Rosenblatt, Esq.

Facsimile: (212) 872-1002

          5.4 Entire Agreement

          This Agreement (including the Disclosure Letter and any exhibits hereto), the Master
Agreement, the Confidentiality Agreement and any other collateral agreements executed in connection
with the consummation of the transactions contemplated hereby, contain the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior agreements, written
or oral, with respect thereto. Any exception or disclosure made by Footstar in the Disclosure
Letter with regard to a representation of Footstar shall be deemed made with respect to any other
representation by such party to which such exception or disclosure is reasonably apparent. The
information contained in this Agreement, the Disclosure Letter, and
any exhibits hereto is disclosed solely for purposes of this Agreement, and no information
contained herein or therein shall be deemed to be an admission by any party hereto or any third
party of any matter whatsoever (including, without limitation, any violation of any Requirement of
Law or breach of contract). Any cost estimates, projections or other forward-looking statements
contained or referred to in this Agreement or in the Disclosure Letter and Exhibits hereto or in
any materials that have been provided to the Kmart Parties by Footstar are not and shall not be
deemed to be representations or warranties of Footstar.

          5.5 Waivers and Amendments

          This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof
may be waived, only by a written instrument signed by the Kmart Parties and Footstar or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege,

-20-

 

nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any
other such right, power or privilege.

          5.6 Governing Law

          This Agreement and all Claims with respect thereto shall be governed by and construed in
accordance with the laws of the State of New York without regard to any conflict of laws rules
thereof that might indicate the application of the laws of any other jurisdiction.

          5.7 Binding Effect; Assignment

          This Agreement shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns. This Agreement is not assignable by any party without the prior
written consent of the other parties.

          5.8 Usage

          All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular
or plural, as the context may require. All terms defined in this Agreement in their singular or
plural forms have correlative meanings when used herein in their plural or singular forms,
respectively. Unless otherwise expressly provided, the words “include,” “includes” and “including”
do not limit the preceding words or terms and shall be deemed to be followed by the words “without
limitation.”

          5.9 Articles and Sections

          All references herein to Articles and Sections shall be deemed references to such parts of
this Agreement, unless the context shall otherwise require. The Article and Section headings in
this Agreement are for reference only and shall not affect the interpretation of this Agreement.

          5.10 Interpretation

          The parties acknowledge and agree that (a) each party and its counsel reviewed and negotiated
the terms and provisions of this Agreement and have contributed to its revision, (b) the rule of
construction to the effect that any ambiguities are resolved against the drafting party shall not
be employed in the interpretation of this Agreement, and (c) the terms and provisions of this
Agreement shall be construed fairly as to all parties, regardless of which party was generally
responsible for the preparation of this Agreement.

          5.11 Severability of Provisions

          If any provision or any portion of any provision of this Agreement shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining provisions of this
Agreement shall not be affected thereby. If the application of any provision or any portion of any
provision of this Agreement to any Person or circumstance shall be held invalid or unenforceable,
the application of such provision or portion of such provision to Persons or

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circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby.

          5.12 Counterparts

          This Agreement may be executed by the parties hereto in separate counterparts, each of which
when so executed and delivered shall be an original, but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all, of the parties hereto.

          5.13 No Third Party Beneficiaries

          No provision of this Agreement is intended to, nor shall, confer any third party beneficiary
or other rights or remedies upon any Person other than the parties hereto. Without limiting the
generality of the foregoing, no provision of this Agreement shall create any third party
beneficiary rights in any employee or former employee of Footstar or any of its Subsidiaries
(including any beneficiary or dependent thereof) in respect of continued employment by Footstar or
any of its Subsidiaries or otherwise.

          5.14 Master Agreement

          Except as expressly amended, modified or waived by this Agreement, all of the terms,
representations, warranties, covenants and conditions of the Master Agreement shall remain
unmodified and unwaived by the terms of this Agreement, and are and shall continue to be and
remain, in full force and effect in accordance with their respective terms, and are hereby
ratified, approved and confirmed in all respects.

[Remainder of Page Intentionally Left Blank]

-22-

 

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

	 	 	 	 	 
	 	KMART CORPORATION

 	 
	 	By:  	/s/
William R. Harker
 	 
	 	 	Name:  	William R. Harker 	 
	 	 	Title:  	Director, Senior Vice President and General Counsel 	 
	 
	 	SEARS HOLDINGS CORPORATION

 	 
	 	By:  	/s/
William R. Harker
 	 
	 	 	Name:  	William R. Harker 	 
	 	 	Title:  	Senior Vice President,  General Counsel 
and
Corporate Secretary 	 
	 
	 	FOOTSTAR, INC.

 	 
	 	By:  	/s/ Jeffrey A. Shepard
 	 
	 	 	Name:  	Jeffrey A. Shepard 	 
	 	 	Title:  	President 	 
	 
	 	KMART STORES OF ILLINOIS LLC

 	 
	 	By:  	/s/ William R. Harker
 	 
	 	 	Name:  	William R. Harker 	 
	 	 	Title:  	Senior Vice President and  General Counsel of Kmart Corporation, its member 	 
	 
	 	
KMART OF MICHIGAN, INC.

 	 
	 	By:  	/s/ William R. Harker
 	 
	 	 	Name:  	William R. Harker 	 
	 	 	Title:  	President 	 
	 

Signature Page to Master Agreement Amendment

 

 

	 	 	 	 	 
	 	KMART OF WASHINGTON LLC

 	 
	 	By:  	/s/ William R. Harker
 	 
	 	 	Name:  	William R. Harker  	 
	 	 	Title:  	Senior Vice President and General Counsel of
Kmart Corporation, its member 	 
	 
	 	KMART STORES OF TEXAS LLC

 	 
	 	By:  	/s/ William R. Harker
 	 
	 	 	Name:  	William R. Harker  	 
	 	 	Title:  	Senior Vice President and General Counsel of
Kmart Corporation, its member 	 
	 
	 	KMART OF PENNSYLVANIA, L.P.

 	 
	 	By:  	       KMART CORPORATION, its member
 	 
	 	 	 	 
	 	By:  	      /s/ Robert A. Riecker
 	 
	 	 	Name:  	Robert A. Riecker 	 
	 	 	Title:  	Vice President 	 
	 

Signature Page to Master Agreement Amendment

 

 

Exhibit A

Account Procedures

	 	 	 
	Account Name:

	 	Footstar — Meldisco w/ Shelf
	 
	 	 
	Account Number:

	 	810-314
	 
	 	 
	Version:

	 	3/24/08
	 
	 	 
	Type of Inventory:

	 	Barcode with shelf totals
	 
	 	 
	Scheduled by:

	 	Key Account Management
	 
	 	 
	Account Manager:

	 	Nilsa Fernandez cell # 646-594-8461

Joe Bobrowski cell # 219-712-5081
	 
	 	 
	Account Administrator:

	 	Sharon Hazen office # 860- 645-3917

Ann Delort office # 847-286-6385

 

			
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

Table of Contents

	 	 	 	 	 
	SUPPLIES & EQUIPMENT NEEDED
	 	 	3	 
	 
	 	 	 	 
	Supplies
	 	 	3	 
	Equipment
	 	 	3	 
	 
	 	 	 	 
	GENERAL INFORMATION
	 	 	4	 
	 
	 	 	 	 
	Client Information
	 	 	4	 
	Client Expectations/Concerns
	 	 	4-5	 
	STAFFING CHART
	 	 	5	 
	 
	 	 	 	 
	SUPERVISORS INSTRUCTIONS
	 	 	6	 
	 
	 	 	 	 
	pre-Inventory Briefing
	 	 	7	 
	Store Set-up
	 	 	7-8	 
	FLOW PLAN
	 	 	8	 
	Audit Program Description
	 	 	 9	 
	Interim Reporting
	 	 	10	 
	Recounts
	 	 	10	 
	Adjustments
	 	 	11	 
	Additional Information
	 	 	11	 
	Closeout, Balancing, Wrap-up
	 	 	12	 
	Output Distribution
	 	 	12	 
	 
	 	 	 	 
	STORE RESPONSIBILITIES
	 	 	13	 
	 
	 	 	 	 
	EXHIBIT 1 – SIZE CONVERSION CHART
	 	 	14	 
	 
	 	 	 	 
	EXHIBIT 2 – SAMPLE PRICE TICKETS
	 	 	15	 
	 
	 	 	 	 
	EXHIBIT 3 – ELECTRONIC EVALUATION QUESTIONS
	 	 	16	 
	 
	 	 	 	 
	EXHIBIT 4 – CONFIRMATION CALL CHECKLIST
	 	 	17	 
	 
	 	 	 	 
	OFFICE PROCEDURES
	 	 	18	 

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	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

Supplies & Equipment Needed

Supplies

Ray 2000 Worksheets

Runner Control Sheets

Shelf Barcode Area Tickets: 4236.10 Area Tickets – Shelf Total Barcode

It is encouraged to utilize 4-digit area tickets as long as the last 3-digits fall into the
required ranges on page 7 of these procedures. The lead digit and check digit will be stripped
to form a 3-digit area number (for example – 6001-2 will be scanned and the Audit will strip the
leading 6 and ending 2 to form area #001)

NOTE: Handwritten area numbers are not to be used – only bar-coded area tickets.

Tags (any color)

RGIS Inventory Stickers — for use on Packaway boxes only.

Search Sheets – internal searches only

Markers

Scotch Tape

Printer Paper

Completed copy of the Confirmation Call Checklist (Exhibit 4) –pg 17

Equipment

Notebook Computer

Barcode Readers

Audit 12’s and above

Printer – (for travel stores a back-up printer and cable must be taken to the inventory as well)

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	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

General Information

Client Information

Meldisco is the leased shoe departments found inside over 1,100 K-Mart stores nationwide and
are operated by Footstar Corporation. There are no stores called Meldisco – these are shoe
departments located inside of K-Mart stores.

Stores are scheduled for 1 to 4 inventories per year as requested by the client. RGIS is to
staff the store for a 5 hour maximum count completion time. Current production is 485 units
per hour, RGIS offices are to staff based on the estimated inventory level and previous
production with a minimum staffing of 1 Auditor per every 2,500 units of inventory.

It has been determined that the most efficient inventories are staffed for a 3-3 1/2 hour sales
floor count with 1-2 hours in the backroom.

Backrooms vary in size by store and depending on the time of the year. The Pre-Inventory
confirmation must include completion of the confirmation checklist (page 18) which reviews
backroom carton merchandise and backroom condition. The RGIS Supervisor must review the
backroom upon arrival to the store to determine the most effective plan for a timely
completion. There are typically numerous cartons of shoes present in the backrooms which have
to be opened an each shoe box scanned individually.

Client Expectations

Inventory start times will be scheduled for either 5:30 a.m or 10:30 p.m.; such time to be
mutually agreed to by the Store Coach and Footwear Manager on a store by store basis. The only
exceptions to this are store closing inventories and special requests from the client. All
stores are scheduled Monday through Friday.

Store Confirmation is to be completed 7-10 days before the scheduled inventory with the Store
Coach or designee and the Footwear Manager or designee or District Manager only. The PIV
checklist must be reviewed. Do not ask for the store manager when calling the store – ask for
the Meldisco Footwear Manager. If you are unable to make contact with the Footwear manager
within this period notify the Account Manager, Nilsa Fernandez.

The RGIS Supervisor must arrive early enough to place area tickets and have all equipment
ready for an on-time start up. All RGIS Auditors must arrive promptly and be ready to start
counting at the inventory start time.

BAR-CODES SHELF AREA TICKETS ARE TO BE USED IN EVERY INVENTORY!!!

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	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

Client Concerns:            ** IMPORTANT REVIEW **

	 	-	 	Lasers must be used in every inventory. NO EXCEPTIONS! Failure to use
lasers will result in the cancellation of the inventory.
	 
	 	-	 	RGIS must use the bar-coded shelf area tickets for all inventories – NO
EXCEPTIONS!
	 
	 	-	 	RGIS Supervisors must insure RGIS Business Devopment is informed of any technical
issues causing delays to the inventory or the inability to provide reports.
	 
	 	-	 	Printer issues delaying reports – back up printers are to be present at all
travel locations.
	 
	 	-	 	Backroom boxes must be opened and each item scanned.
	 
	 	-	 	F1 summaries must be provided upon completion of the sales floor and the backroom for review.
	 
	 	-	 	Bar-Coded Shelf Area tickets must be placed as noted under store set up in these
procedures.
	 
	 	-	 	The RGIS supervisor must sign off on both audit forms as they are required for
Sox compliance.

Staffing Chart

Inventories are to be staffed with 1 auditor for each 2,500 units of product.

	 	 	 	 	 	 	 
	Estimated Units	 	Auditors	 	Estimated Units	 	Auditors
	0 – 2,500
	 	1
	 	20,001 – 22,500
	 	9
	2,501 – 5,000
	 	2
	 	22,501 – 25,000
	 	10
	5,001 – 7,500
	 	3
	 	25,001 – 27,500
	 	11
	7,501 – 10,000
	 	4
	 	27,501 – 30,000
	 	12
	10,001 – 12,500
	 	5
	 	30,001 – 32,500
	 	13
	12,501 – 15,000
	 	6
	 	32,501 – 35,000
	 	14
	15,001 – 17,500
	 	7
	 	35,001 – 37,500
	 	15
	17,501 – 20,000
	 	8
	 	37,501 – 40,000
	 	16

For each additional 2,500 units, please add 1 additional RGIS auditor.

5

 

			
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

RGIS Supervisor Instructions:

Prior to Inventory:

	 	1	 	Pick up Bar-Coded Shelf Area Tickets (Form 4236 or 4235) from District Office.
	 
	 	1	 	Review that you have the correct Area Ranges (see page 8 – set up) for Bar-Coded
Shelf Area Tickets.
	 
	 	1	 	Plan to arrive at the store 15-30 minutes prior to inventory start time.
	 
	 	1	 	Update RGIS Portable with Meldisco upload and download Audits prior to arrival to
the store.

Upon Arrival to the Store/ Sales floor count:

	 	1	 	Introduce yourself to the Store Coach or designee and the Footwear Manager or
designee.
	 
	 	1	 	Place Area Tickets for Sales Floor according to store set (see page 8)
	 
	 	1	 	Hold a pre-inventory meeting with the RGIS team and include the Store Coach or
designee and the Footwear Manager or designee.
	 
	 	1	 	It is also important that a second pre inventory meeting be held with the auditors
prior to counting in the stockroom.
	 
	 	1	 	Assign Auditors to Areas.
	 
	 	1	 	Within the first hour of counting transmit each auditor and provide the Meldisco
manager/Dm with a detailed printout on each auditor.
	 
	 	1	 	RGIS is to conduct and document one internal 5-item search on each counter within
the first 30 minutes of counting to insure the correct data is being captured (Meldisco
will not participate in this internal check). If errors are found, a follow up search
must be conducted
	 
	 	1	 	Once you have ensured that all Auditors are counting properly, if you have not
completed hanging the area tickets in the backroom – complete this.

As the count is being completed:

	 	1	 	Be sure you are placing Auditors into the stockroom as soon as possible while
ensuring the sales floor count is completed within 4-hours.
	 
	 	1	 	Run Range Checks and generate a sales floor F1 Summary for the store to walk with
upon completion of the sales floor.
	 
	 	1	 	Ensure the Store Coach or designee and the Footwear Manager or designee is
satisfied with the sales floor count
	 
	 	1	 	When the backroom count is completed run range checks and generate a backroom F1
summary for the store to review.
	 
	 	1	 	Complete Close Out process – page 12.

6

 

			
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

   Pre-Inventory Briefing

Ensure a prompt start up of counting at the scheduled inventory start time. A pre-inventory
meeting must be held with all Auditors in the presence of the Meldisco DM/ Manager.

Review the below:

	 	–	 	This is a barcode validation inventory capturing Area Number, Shelf, Barcode/SKU,
and Quantity. Most areas will be scanned Auto-Qty and each item will need to be scanned
individually. The only exceptions are a few areas of shoe care products prepared by the
store for Multi-Qty input and approved by the Meldisco Manager.
	 
	 	–	 	Auditors need to know that the Meldisco Barcode on the product must be scanned – Do
Not Scan Shoe Box Barcode on the Sales Floor Open Stock!!
	 
	 	–	 	Within the 1st hour of the inventory transmit each counter and generate
a detail printout for auditing of each counter.
	 
	 	–	 	The only acceptable areas where the Shoe Box Barcode can be scanned are in the
overheads and for the cased products in the stockroom. In the stockroom, all
cases/cartons must be opened and the individual shoe box scanned – be aware that some
cartons carry 2 rows of shoe boxes so you will need to check underneath the top box and
scan each box.
	 
	 	–	 	Some product such as slippers will be found in plastic bags.
	 
	 	–	 	If no bar-coded ticket is found, please call out “SKU Check”. Do not attempt to key
enter a style No. or SKU without approval from a Kmart and Meldsico associate.
	 
	 	–	 	Do not inventory wallets, belts or socks if they are in the shoe department. This
merchandise belongs to Kmart.

Store Set-up

Prior to the audit, Footstar will physically separate and remove all damaged and mismated
items.

RGIS is responsible for placing the Area Tickets prior to the start of counting. Allow at
least 15 minutes (depending on store size) for placing sales floor tickets. Area tickets
should be taped to the fixture and not to the merchandise. Specific area number ranges are
required to be used to assist in tracking and reporting statistical data for store
merchandise. The below ranges must be used without exception:

	 	 	 	 	 
	•
	 	Sales Floor	 	001 – 299
	•
	 	Overheads	 	300 – 349
	•
	 	Backroom Bins	 	350 – 399
	•
	 	Trailers	 	400 – 599
	•
	 	Backroom Cases	 	600 – 998
	•
	 	Overrides (Trouble Area)	 	999             (overrides are only allowed in area 999)

			
	 	 	 
	Confidential
	 	September 23, 2007,

7

 

			
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

RGIS will scan up to a 4-digit bar-coded RGIS Area Ticket (4-digits, 5 long with check digit).
The Audit strips the lead digit & check digit storing the last 3 digits to memory.

Examples: Area 5001-1 is written to F1 as 001; Area 5300-4 is written to F1 as 300.

HANDWRITTEN AREA TICKETS ARE NOT TO BE USED – BARCODED ONLY!!

The Area Ticket Placement guidelines below must be strictly followed:

BACKROOM

	 	•	 	Every 4 feet or natural breaks on shelving units (each area can be counted
as one shelf)
	 
	 	•	 	Due to space constraints, it is suggested to place a ticket on STACKS OF
CASES.
	 
	 	•	 	Insure the correct numbering sequence is used.

SALESFLOOR

	 	•	 	1 ticket per each end cap (each end cap area can be counted as one shelf)
	 
	 	•	 	1 ticket per each side of a rack (each row must be entered as a shelf in
these areas)
	 
	 	•	 	1 ticket along wall areas utilizing natural breaks or every 10-16 feet.
(each row must be entered as a shelf in these areas – shelf totals required)
	 
	 	•	 	Each aisle with hanging merchandise – 1 tag per 4 feet — no more than 100
units; each row must also be entered as a shelf.

Flow Plan

	 	1.	 	The sales floor is to be completed first in all inventories. Please scan the
Overheads last.
	 
	 	2.	 	The backroom is counted after the sales floor and in the following order:

	 	•	 	Cases / Packaways
	 
	 	•	 	Bins / Individually Stacked Shoe Boxes
	 
	 	•	 	Trailers / Auxiliary Storage Areas

	 	3.	 	Stores with a lot of carton merchandise in the backroom should be staffed with
adequate staffing to begin the backroom at the same time as the sales floor while still
completing the sales floor within 4-hours.
	 
	 	4.	 	Review flow to be counted with the Store Coach or designee and the Footwear Manager
or designee.

			
	 	 	 
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8

 

			
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

   Audit Program Table

     Control #1 (Main Program) ~ Auto Qty

     The program and program check are as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	•

	 	F1
	 	AREA
	 	112-4
	 	LTH=4
	 	IND=112
	•

	 	F2
	 	SHELF
	 	 	2	 	 	LTH=2	 	 
	•

	 	F3
	 	BARCODE
	 	131-12
	 	LTH=12
	 	IND=131       INLOOP
	•

	 	F4
	 	SKU/SIZE
	 	 	11	 	 	LTH=11
	 	IND=00
	•

	 	F5
	 	PRICE
	 	 	7	 	 	LTH=6
	 	IND=50
	•

	 	F6
	 	QUANTITY
	 	90-1
	 	LTH=1
	 	IND=90
	•	 	LOOP TO F3	 	 	 	 	 	 	 	 

Control #2 (Supervisor Only) ~ Multi-Qty

This program is used for Shoe Care products –and Laces only as approved by the store.
The program is identical to Control #1 except quantity and toggle is available.
Override is only allowed in area #999.

Invalids found as Auditors are scanning must be removed to a trouble area to be counted under
the trouble area #999.

Program functionality and data entry is as follows:

F1 – AREA:

	 	•	 	Scan the 4-digit barcode on the area ticket.
	 
	 	•	 	4-digit area numbers (5 w/ check digit) will be scanned into the Audit as
3-digits.
	 
	 	•	 	Example – area ticket number is 6001-2 (lead digit and check digit are stripped
and Audit stores 001 on F1).
	 
	 	•	 	Only area numbers 1 – 999 will be stored and are validated at point of entry.

F2 – SHELF:

	 	•	 	All gondola sides and pegged merchandise will be counted by shelf. The only
exception to this is the end caps. One shelf can be used for end caps.

F3 – BARCODE:

	 	•	 	Scan the barcode on the ticket attached to the shoe as the first priority on
the sales floor.
	 
	 	•	 	The box barcode may only be scanned on the overhead and cased stockroom
product.
	 
	 	•	 	If the UPC-A is valid, then STYLE/SIZE (F4) and PRICE (F5) will be extracted.

			
	 	 	 
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9

 

			
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

	 	•	 	If no UPC is available then call out for “Sku Check”. Do not attempt to key
enter a style number without approval from the Meldisco associate.
	 
	 	•	 	If the 8-digit Style/Size is invalid overrides are allowed in Area 999 and will
require the entry of:
	 
	 	 	 	Ø A 5, 6, or 8-digit Style number AND 3-digit Size number on F4 and Retail Price on F5.
	 
	 	•	 	Accessory items without size information must have “000” as the size.
	 
	 	•	 	The Size Conversion Chart (Exhibit 1) on page 15 must be used to determine size.
	 
	 	•	 	SIZES KEYED ARE VALIDATED TO CONVERSION CHART VALUES!
	 
	 	•	 	Override is allowed only in area 999 and price is required on all overrides.

F4 – STYLE/SIZE

	 	•	 	STYLE/SIZE entries are extracted from the file on all valid entries.
	 
	 	•	 	Use the SIZE CONVERSION CHART attached for correct numeric conversion.
	 
	 	•	 	Any SIZE keyed is validated against the Size Conversion Chart.

F5 – PRICE

	 	•	 	Price is extracted on all valid barcodes.
	 
	 	•	 	It is necessary to key price in area 999 on all overridden entries.

F6 – QUANTITY

	 	•	 	Auto-Quantity is used in all areas except Laces or any prelists provided for packaways.
	 
	 	•	 	Toggle is available on the CTRL 2 program.

To obtain your readings depress CTRL-1 for shelf totals

Interim Reports

RGIS will generate a detail printout on each Auditor within the first hour of the count and a
second printout on each counter approximately 1/2 way through the count for the Store
Coach or designee and the Footwear Manager or designee for auditing. The store personnel will
use these printouts to conduct recounts. Discrepancies will be noted and returned to RGIS for
correction.

Upon completion of the sales floor and overheads produce an F1 Range Check for the sales floor
/ overheads and account for all missing or out of range areas. Once complete and all sales
floor / overhead areas have been accounted for, generate an F1 Summary Report for these areas
only and provide to the Store Coach or designee and the Footwear Manager or designee to walk
the areas with.

Once the backroom is complete, repeat the same process as conducted for the sales floor /
overheads for the backroom.

Recounts

All RGIS Auditors must verify their piece counts 100% upon completion of an area and their
piece count must match the scanned total prior to moving to a new area.

			
	 	 	 
	Confidential
	 	September 23, 2007,

10

 

			
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

   Adjustments

Adjustments are completed through the data alteration menu on the notebook. Adjustments can be
done for F1 and F6 or by deleting the entire F1 and recounting. Items that were missed can be
added by keying them into a live Audit and transmitting.

   Additional Information

	 	–	 	Bar-coded Shelf Area Tickets are required to be used for all areas of this inventory!
	 
	 	–	 	An RGIS inventoried sticker should be placed on each Packaway box to show it as entered.
	 
	 	–	 	All other boxes in the backroom must be opened and each item scanned.
	 
	 	–	 	Damages and mismates are not to be included in the count.
	 
	 	–	 	Do not count any merchandise on layaway except for current RTS.
	 
	 	–	 	The barcode on the shoe box may be scanned ONLY on overhead and cased product.
	 
	 	–	 	DO NOT SCAN THE BOX BARCODE ON THE SALESFLOOR OPEN STOCK!
	 
	 	–	 	RGIS will be required to enter any product that is sold during the inventory. For
stores opened 24 hours this will include any product sold after midnight.
	 
	 	 	 	Keying from the Pick list.
	 
	 	 	 	During the audit, there is a possibility that an item will be sold before it is counted or
included in the inventory figures. Any product sold before it has been counted by the
audit service, must be manually keyed in.
	 
	 	 	 	The Associates should keep track of the items that are taken out of the department by
customers. Once the sales floor has been counted, an “on demand pick list” should be printed.
The Shoe mart Department should provide the RGIS with the printed “on demand pick list” and
any items listed by the staff (but not on the pick list) and have the items scanned or keyed
into the inventory.
	 
	 	 	 	 Cancellation of Inventories
	 
	 	 	 	Nilsa Fernandez must be notified immediately if it is determined that an inventory may
be subject to cancellation for any reason.

	 	–	 	Inventories may be subject to cancellation if the following occurs:

	 	•	 	Lack of preparation to the point an accurate count cannot be obtained.

			
	 	 	 
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	Footstar-Meldisco 810-314
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	 	•	 	Substantial unprepared cases in the stockroom that would inhibit completion.
	 
	 	•	 	RGIS not arriving on time to complete the count in a timely manner.
	 
	 	•	 	Equipment failure causing the inventory not to be completed in a timely manner.
	 
	 	•	 	Severe scanning issues that would hinder the completion/accuracy of the inventory.
	 
	 	•	 	Failure to report to the store with lasers or proper equipment to complete the inventory.
	 
	 	•	 	Natural disaster and/or weather circumstances.

The final decision to cancel any inventory must be made between Footstar ~ Meldisco Corporate,
Sears Holdings Corporate and RGIS Key Account Management.

Electronic Evaluations

	 	–	 	Electronic Evaluations are used in all Meldisco stores and found on page 16.

Closeout, Balancing, Wrap-up

	 	–	 	Verify that all recounts are done and all adjustments have been made.
	 
	 	–	 	Walk the store with the Store Coach or designee and the Footwear Manager or designee
to visually verify the completeness of the count.
	 
	 	–	 	Questions concerning tagging and inclusion of items are to be answered at this time.
	 
	 	–	 	Run a final Area Range Check to insure that all areas have been counted and transmitted.
	 
	 	–	 	Explanations for Missing and Out of Range areas are to be documented.
	 
	 	–	 	Run the Closeout and balance all totals with Audit Control Center.
	 
	 	–	 	After the close-out has been completed, generate 3 copies of the following reports:

	 	•	 	F1 Summary Report
	 
	 	•	 	F1 Range Check Report
	 
	 	•	 	Override / Invalid Summary
	 
	 	•	 	Location Summary

	 	–	 	Once reports are run and the client satisfied, complete the Electronic Evaluation questions.
	 
	 	–	 	Ask the Footwear Manager to complete the PIQA survey.
	 
	 	–	 	Allow the manager, coach or designee 100% privacy in completing the PIQA survey.
	 
	 	–	 	Transmit Closeout to RGIS.
	 
	 	–	 	Be sure to balance the final store total with Audit Control Center.

			
	 	 	 
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	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!
	 	 	 

Output Distribution

	 	–	 	The following reports are to be left with the Footwear Manager:

	 	•	 	F1 Summary Report
	 
	 	•	 	F1 Range Check Report
	 
	 	•	 	Override / Invalid Summary
	 
	 	•	 	Location Summary

	 	–	 	Be sure to include the following reports in the packet for return to the District Office:

	 	•	 	Missing and Out of Range Area Report.
	 
	 	•	 	Close-out Report
	 
	 	•	 	F1 Summary Report
	 
	 	•	 	Override / Invalid Summary
	 
	 	•	 	Location Summary

The RGIS Supervisor must sign 2 forms provided by the Store Coach or designee and the Footwear
Manager or designee prior to departing from the inventory:

	 	•	 	Audit Cut-Off Form
	 
	 	•	 	Audit Information Form

Store Responsibilities

Sales Floor:

	 	–	 	All merchandise has to be checked for proper ticketing (SKU, Size, and Price).
	 
	 	–	 	Overhead merchandise must be checked for correct contents (SKU, Size, and Price).
	 
	 	–	 	A correct UPC label must be placed on the outside of each box.
	 
	 	–	 	Department must be neat, organized.
	 
	 	–	 	Special attention must be made to all hanging displays.
	 
	 	–	 	Clearance should be checked for correct tickets and groups per S.O.P.
	 
	 	–	 	Tickets exposed on all open boxed merchandise the day prior to the audit.
	 
	 	–	 	List of outlying merchandise locations.
	 
	 	–	 	Entire store checked for stray shoes.

Stockroom:

	 	–	 	All UPC labels must be correct.
	 
	 	–	 	Tickets exposed on egg-crated merchandise whenever possible.
	 
	 	–	 	Packaway cases in stockroom will be pre-labeled for RGIS to count and should be
checked for correct contents (SKU, Size, & Price).
	 
	 	–	 	UPC labels for each pair in the case are to be placed on the outside of each Packaway case.
	 
	 	–	 	Footwear associates and RGIS will work together to scan the product in Trailer/Auxiliary areas.
	 
	 	–	 	Carton merchandise must be arranged for accessibility and opened so that it
is accessible to the RGIS counting team.
	 
	 	–	 	RGIS will not count mismates and damages.

			
	 	 	 
	Confidential
	 	September 23, 2007,

13

 

			
	 	 	 
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!
	 	 	 

Exhibit 1 – Size Conversion Chart

NUMERIC SIZES

	 	–	 	All sizes will be keyed as a 3-digit number.
	 
	 	–	 	This program will only accept sizes 1 through 14 1/2.
	 
	 	–	 	Size conversions are as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SIZE	 	ENTER	 	SIZE	 	ENTER	 	SIZE	 	ENTER
	1
	 	 	010	 	 	 	6	 	 	 	060	 	 	 	10	 	 	 	100	 
	1 1/2
	 	 	015	 	 	 	6 	1/2 	 	 	065	 	 	 	10 	1/2 	 	 	105	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2
	 	 	020	 	 	 	7	 	 	 	070	 	 	 	11	 	 	 	110	 
	2 1/2
	 	 	025	 	 	 	7 	1/2 	 	 	075	 	 	 	11 	1/2 	 	 	115	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	3
	 	 	030	 	 	 	8	 	 	 	080	 	 	 	12	 	 	 	120	 
	3 1/2
	 	 	035	 	 	 	8 	1/2 	 	 	085	 	 	 	12 	1/2 	 	 	125	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	4
	 	 	040	 	 	 	9	 	 	 	090	 	 	 	13	 	 	 	130	 
	4 1/2
	 	 	045	 	 	 	9 	1/2 	 	 	095	 	 	 	13 	 1/2	 	 	135	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	5
	 	 	050	 	 	 	 	 	 	 	 	 	 	 	14	 	 	 	140	 
	5 1/2
	 	 	055	 	 	 	 	 	 	 	 	 	 	 	14 	 1/2	 	 	145	 

ACCESSORY ITEMS

No size available, then enter “000” or “999” as the size.

ALPHA SIZES

	 	–	 	Alpha sizes will mainly be concentrated to the Accessories areas.

	 	 	 	 	 
	SIZE	 	ENTER
	XS
	 	 	200	 
	S
	 	 	300	 
	M
	 	 	400	 
	L
	 	 	500	 
	XL
	 	 	600	 
	XXL
	 	 	700	 

	 	–	 	ALL SIZES MUST BE PRECEDED BY A 5, 6, or 8-DIGIT STOCK NUMBER!

			
	 	 	 
	Confidential
	 	September 23, 2007,

14

 

			
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

Exhibit 2 – Sample Price Tickets

128 TYPE

	 	 	 
	IIIIIIIIIIIIIIIIIIIIIIIIII
	 	SIZE 110
	483421108848
	 	8848
	 
	 	FACTORY
	 
	 	 
	 
	 	48342
	 
	 	STYLE

	 	 	 	 	 	 	 
	BARCODE
	 	Digits 1 through 5	 	SKU No.	 	(48342)
	 
	 	Digits 6 through 8	 	SIZE	 	(110)
	 
	 	Digits 9 through 12	 	FACTORY No.	 	 

UPC – VERSION A

	 	 	 	 	 
	10 1/2

SIZE
	 	 	 	 
	 
	 	 	 	 
	4
	 	 	 	 
	1

	 	 

	 	 
	8

	 	 

	 	 
	1

	 	 

	 	 
	0

	 	 

	 	 
	5

	 	 

	 	 
	1

	 	 

	 	 
	2

	 	 

	 	 
	3

	 	 

	 	 
	4

	 	 

	 	 
	5

	 	 

	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	$10.99
	 	 

SIZE = 105

SKU = 12345

SHOE CARE TICKET

	 	 	 
	IIIIIIIIIIIIIIIIII

	 	 
	1000043364

	 	 

	 	 	 
	SKU = 43364

	 	If unable to scan Shoecare ticket, enter 5 digit SKU followed by “999”.
	SIZE = 999
	 	 

					
	 	 	 	 	 
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	 	September 23, 2007,

 

 

			
	 	 	 
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

Exhibit 3 – Electronic Evaluation Questions

	 	 	 	 	 	 	 
	•

	 	Were all tags exposed on open stock sales floor merchandise?	 	 	 	 
	 

	 	 	 	 

	 	 
	•

	 	Was paper removed from shoeboxes on floor?	 	 	 	 
	 

	 	 	 	 

	 	 
	•

	 	Were any empty boxes encountered on the Overheads?	 	 	 	 
	 

	 	 	 	 

	 	 
	•

	 	If so, how may empty boxes were discovered.	 	 	 	 
	 

	 	 	 	 

	 	 
	•

	 	Was the pegged merchandise neat and orderly?	 	 	 	 
	 

	 	 	 	 

	 	 
	•

	 	Was ALL backroom merchandise accessible?	 	 	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 	 	 
	•

	 	If not, please explain in detail:	 	 	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 	 	 
	•

	 	Did store associates assist in moving the backroom cases?	 	 	 	 
	 

	 	 	 	 

	 	 
	•

	 	Did the store have the PACKAWAYS pre-counted?	 	 	 	 
	 

	 	 	 	 

	 	 
	•

	 	Did RGIS hand write any area numbers on the area tickets?	 	 	 	 
	 

	 	 	 	 

	 	 
	•

	 	If yes, please explain why handwritten tags were used.	 	 	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 	 	 
	•

	 	Comments:	 	 	 	 
	 

	 	 	 	 

	 	 

					
	 	 	 	 	 
	Confidential
	 	16
	 	September 23, 2007,

 

 

			
	 	 	 
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

Exhibit 4 – Confirmation Call Checklist

	 	 	 	 	 	 	 	 	 
	Store Number:

	 	 	 	Location:	 	 	 	 
	 

	 	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	Date of Confirmation:

	 	 	 	Name of Caller:	 	 	 	 
	 

	 	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 
	Time of Confirmation:

	 	 	 	Confirmed with:	 	 	 	 
	 

	 	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	1.	 	 	Confirm Inventory Date:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	2.	 	 	Confirm Inventory Start time:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	3.	 	 	Approximate number of cartons in the Stockroom:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	4.	 	 	Stockroom cartons must be accessible and opened for RGIS:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	5.	 	 	Insure a good effort is placed on exposing barcodes in stockroom.	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	6.	 	 	How many trailers are present:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	7.	 	 	Approximately how many cases are in the trailers?	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	8.	 	 	Will more shipments be received prior to inventory?	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	9.	 	 	Provide RGIS district phone # to call if shipments are received:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	10.	 	 	Review estimated units provided in Oracle.	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	11.	 	 	Number of auditors scheduled to count the store:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	12.	 	 	Number of Kmart and Footwear associates scheduled to assist:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	13.	 	 	Comments:	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	   
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 

This form is to be completed in its entirety. A copy should be placed in the inventory packet and
a copy kept on file at the District office. Do not send this form to Business Development.

					
	 	 	 	 	 
	Confidential
	 	17
	 	September 23, 2007,

 

 

			
	 	 	 
	Footstar-Meldisco 810-314
	 	Accuracy is our Primary Concern!

Office Procedures

	 	 	 	 	 
	 

	 	Account Name:
	 	Footstar-Meldisco
	 
	 	 	 	 
	 

	 	Account Number:
	 	810-314
	 
	 	 	 	 
	 	 	Reports kept at District Office:
	 
	 	 	 	 
	 

	 	 	 	Missing and Out of Range Areas Report
	 

	 	 	 	Closeout Report
	 

	 	 	 	F1 Summary Report
	 

	 	 	 	Override / Invalid Summary
	 

	 	 	 	Location Summary

	 	 	 	 	 
	 

	 	Confirmation Instructions:
	 	All stores must be verbally confirmed with the Store Coach or
designee and the Footwear Manager or designee 7 to 12 days prior to the actual
inventory. Please complete the PIV checklist and maintain a copy for reference if
needed.

					
	 	 	 	 	 
	Confidential
	 	18
	 	September 23, 2007,EX-4.1

 

	CUSIP 98400G 10 4

 

 

	The Corporation will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional, or other special rights of each
class of stock or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full according to
applicable laws or regulations: TEN COM — as tenants in common UNIF GIFT MIN ACT — . Custodian .
TEN ENT — as tenants by the entireties (Cust) (Minor) JT TEN
— as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act
        .. in common (State) Additional abbreviations may also be used though not in the above list. For
value received, hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF
ASSIGNEE) Shares of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within
named Corporation with full power of substitution in the premises. Dated Signature Signature
NOTICE THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF : THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER. SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00140-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00140-of-00352.parquet"}]]