EXHIBIT 99.1
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT dated as of September 24, 1996 (the
"Agreement") between Melville Corporation, a New York corporation
("Melville"), Footstar, Inc., a Delaware corporation ("Footstar"), and
Footaction Center, Inc., a California corporation.
W I T N E S S E T H:
WHEREAS, Footstar is presently a wholly owned Subsidiary of
Melville;
WHEREAS, the Board of Directors of Melville has determined that it
is in the best interest of Melville, its shareholders and Footstar that all
shares of Footstar Common Stock owned by Melville be distributed pro rata to
Melville's shareholders;
WHEREAS, Melville and Footstar are concurrently herewith entering
into the Tax Disaffiliation Agreement;
WHEREAS, the parties hereto desire to set forth herein the
principal corporate transactions to be effected in connection with the
Distribution and certain other matters relating to the relationship and the
respective rights and obligations of the parties following the Distribution;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. The following terms, as used herein,
have the following meanings:
"Action" means any claim, suit, action, arbitration, inquiry,
investigation or other proceeding by or before any court, governmental or
other regulatory or administrative agency or commission or any other tribunal.
"Affiliate" means, with respect to any Person, any Person directly
or indirectly controlling, controlled by, or under common control with, such
other Person. For the purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Check Services" has the meaning set forth in Schedule 6.01(A).
"Claims Services" has the meaning set forth in Schedule 6.01(B).
"Commission" means the Securities and Exchange Commission.
"Contributed Subsidiaries" means (i) each of the corporations or
other entities that, as of the Distribution, own or operate Melville's
Meldisco, Footaction, and Xxxx XxXx businesses, divisions or operating units,
(ii) Meldisco (Europe) Purchasing Ltd. ("MEP") and (iii) the respective
Subsidiaries (and holding companies (other than Footstar and Melville)) of the
Persons referred to in clauses (i) and (ii).
"Costs" means, with respect to Services provided hereunder, any
and all (i) costs incurred by Melville or its Affiliates in connection with or
with respect to performing the Services hereunder (including all costs and
charges referred to in the Exhibits hereto) that are consistent with the
nature of costs charged by Melville in connection with the provision by
Melville of comparable services to its Subsidiaries prior to the Distribution
(which costs in the case of Check Services will be those set forth in Schedule
6.01(A)) and (ii) incremental costs of performing or providing any Service
hereunder that are incurred as a result of or otherwise arise from any third
party consent required in connection with (x) the provision of such Service
hereunder or (y) the performance by Melville or its Affiliates of its
obligations with respect thereto.
"Distribution" means a distribution by Melville on the
Distribution Date of all Footstar Common Stock owned by it to the holders of
Melville Common Stock (other than Melville Restricted Shareholders) as of the
Record Date.
"Distribution Agent" means Mellon Shareholder Services, LLC.
"Distribution Date" means the day as of which the Distribution
shall be effected.
"Distribution Documents" means all of the agreements and other
documents entered into in connection with the Distribution as contemplated
hereby, including, without limitation, this Agreement and the Tax
Disaffiliation Agreement.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, permits, licenses and governmental
restrictions, whether now or hereafter in effect, relating to the environment,
the effect of the environment on human health or to emissions, discharges,
releases, manufacturing, storage, processing, distribution, use, treatment,
disposal, transportation or handling of pollutants, contaminants, petroleum or
petroleum products, chemicals or industrial, toxic, radioactive or hazardous
substances or wastes or the clean-up or other remediation thereof.
"FCI" means Footaction Center, Inc., a California corporation.
"Finally Determined" means, with respect to any Action or other
matter, that the outcome or resolution of such Action or matter has been
judicially determined by judgment or order not subject to further appeal or
discretionary review.
"Footstar Business" means (i) the businesses and operations
(including, without limitation, the footwear and footwear-related
manufacturing, purchasing, distribution and sales operations and activities)
(x) associated with the Meldisco (including Pimento), Footaction (including
Open Country and Fan Club) or Xxxx XxXx (including BOQ, Pimento and Smart
Step) retail chains or (y) otherwise of the Footstar Group, in each case
whether conducted prior to, on or after the Distribution Date, and (ii) all
footwear and footwear-related manufacturing operations of the Melville Group
(and the respective predecessors of Persons in the Melville Group) conducted
prior to the Distribution Date; provided that "Footwear Business" shall
exclude any business or activity of Computer Development, Inc., Melville
Equipment Leasing Corporation, MC Retail, Inc., Melville Realty Company and
their direct and indirect Subsidiaries, and any business or activity related
to the Bob's Stores or Marshalls businesses.
"Footstar Common Stock" means the common stock, par value $.01 per
share, of Footstar.
"Footstar Group" means Footstar and its Subsidiaries (including
the Contributed Subsidiaries) as of (and, except where the context clearly
indicates otherwise, after) the Distribution Date (including all predecessors
to such Persons).
"Footstar Liabilities" means all (i) Liabilities of the Footstar
Group under this Agreement, (ii) except as otherwise specifically provided
herein or in the Tax Disaffiliation Agreement, other Liabilities, whether
arising before, on or after the Distribution Date, of or relating to the
Footstar Group or arising from or in connection with the conduct of the
Footstar Business or the ownership or use of assets in connection therewith,
including without limitation any Liabilities arising under or relating to
Environmental Laws, and (iii) Liabilities of the Footstar Group set forth in
Schedule 5.01 hereto. Notwithstanding the foregoing, "Footstar Liabilities"
shall exclude: (x) any Liabilities for Taxes (since such Liabilities shall be
governed by the Tax Disaffiliation Agreement) and (y) any Liabilities
specifically retained or assumed by Melville pursuant to this Agreement.
"Form 10" means the registration statement on Form 10 filed by
Footstar with the Commission on March 27, 1996 to effect the registration of
Footstar Common Stock pursuant to the 1934 Act in connection with the
Distribution, as such registration statement may be amended from time to time.
"Group" means, as the context requires, the Footstar Group or the
Melville Group.
"Guaranteed Lease" has the meaning assigned to such term in
Section 7.01.
"Indemnified Party" has the meaning set forth in Section 4.04.
"Indemnifying Party" has the meaning set forth in Section 4.04.
"Information Statement" means the information statement to be sent
to each holder of Melville Common Stock in connection with the Distribution.
"IRS" means the Internal Revenue Service.
"Lease Guarantee" has the meaning assigned to such term in Section
7.01.
"Liabilities" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under this
Agreement, any law, rule, regulation, any action, order, injunction or consent
decree of any governmental agency or entity, or any award of any arbitrator of
any kind, and those arising under any agreement, commitment or undertaking.
"Losses" means, with respect to any Person, any and all damage,
loss, liability and expense incurred or suffered by such Person (including,
without limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any and all Actions or
threatened Actions).
"Melville Common Stock" means the common stock, par value $1 per
share, of Melville.
"Melville Group" means Melville and its Subsidiaries (other than
any Subsidiary or member of, or other entity in, the Footstar Group).
"Melville Liabilities" means all (i) Liabilities of the Melville
Group under this Agreement and (ii) except as otherwise specifically provided
herein or in the Tax Disaffiliation Agreement, other Liabilities, whether
arising before, on or after the Distribution Date, of or relating to the
Melville Group or arising from or in connection with the conduct of the
businesses of the Melville Group (other than the Footstar Business) or the
ownership or use of assets in connection therewith, including without
limitation any Liabilities arising under or relating to Environmental Laws.
Notwithstanding the foregoing, "Melville Liabilities" shall exclude (x) any
Liabilities for Taxes (since such Liabilities shall be governed by the Tax
Disaffiliation Agreement) and (y) any Liabilities specifically retained or
assumed by Footstar pursuant to this Agreement.
"Melville Restricted Shareholder" has the meaning that is assigned
to such term in the Form 10.
"1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Person" means an individual, corporation, limited liability
company, partnership, association, trust or other entity or organization,
including a governmental or political subdivision or an agency or
instrumentality thereof.
"Record Date" means the date determined by Melville's Board of
Directors (or determined by a committee of such Board of Directors or by the
Chairman of the Board of Melville pursuant to authority delegated to such
committee or Chairman by Melville's Board of Directors) as the record date for
determining the holders of Melville Common Stock entitled to receive the
Distribution.
"Subsidiary" means, with respect to any Person, any other entity
of which securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person.
"Tax" means Tax as such term is defined in the Tax Disaffiliation
Agreement.
"Tax Disaffiliation Agreement" means the Tax Disaffiliation
Agreement dated as of the date hereof between Melville and Footstar.
"Third-Party Claim" has the meaning set forth in Section 4.05.
ARTICLE II
CONTRIBUTIONS TO FOOTSTAR
Section 2.01. Contribution of Contributed Subsidiaries.
Effective prior to or as of the Distribution Date, Melville shall contribute
or transfer to Footstar or to one or more wholly owned Subsidiaries of
Footstar all the outstanding shares of capital stock of, or other ownership
interests in, each of the Contributed Subsidiaries (except for the minority
interest of Kmart Corporation in Meldisco's store subsidiaries).
Section 2.02. Transfers of Certain Other Assets; Assumption of
Certain Tax Liabilities. (a) Effective prior to or as of the Distribution
Date or as soon as practicable after the Distribution Date, subject to receipt
of any necessary consents or approvals of third parties or of governmental or
regulatory agencies or authorities and subject to Section 9.05, (a) Melville
shall, or shall cause the relevant member of the Melville Group to, assign,
contribute, convey, transfer and deliver ("Transfer") to Footstar or to one or
more of Footstar's wholly owned Subsidiaries all of the right, title and
interest of Melville or such member of the Melville Group in and to all assets
held by any member of the Melville Group that relate solely to the Footstar
Business (and not to the businesses of the Melville Group) and Footstar shall
assume and take transfer of all liabilities associated with such assets, and
(b) Footstar shall, or shall cause the relevant member of the Footstar Group
to, Transfer to Melville or to one or more members of the Melville Group all
of the right, title and interest of Footstar or such member of the Footstar
Group in and to all assets held by any member of the Footstar Group that
relate solely to the businesses of the Melville Group (and not to the Footstar
Business) and Melville shall assume and take transfer of all liabilities
associated with such assets.
(b) Effective as of the time of Transfer of any asset by the
Melville Group to the Footstar Group pursuant to Section 2.02(a), the Footstar
Group shall assume all Tax liabilities attributable to such asset and the
businesses related thereto (to the extent attributable to the Footstar
Business) in respect of all periods prior to such time.
Section 2.03. Agreement Relating To Consents Necessary To
Transfer Assets. Notwithstanding anything in this Agreement to the contrary,
this Agreement shall not constitute an agreement to transfer or assign any
asset or any claim or right or any benefit arising thereunder or resulting
therefrom if an attempted assignment thereof, without the necessary consent of
a third party, would constitute a breach or other contravention thereof or in
any way adversely affect the rights of Footstar or Melville thereunder.
Footstar and Melville will, subject to Section 9.05, use their reasonable
efforts to obtain the consent of any third party or any governmental or
regulatory agency or authority, if any, required in connection with the
transfer or assignment pursuant to Section 2.02 of any such asset or any claim
or right or any benefit arising thereunder. If such required consent is not
obtained, or if an attempted assignment thereof would be ineffective or would
adversely affect the rights of the transferor thereunder so that the intended
transferee would not in fact receive all such rights, Footstar and Melville
will cooperate in a mutually agreeable arrangement under which the intended
transferee would obtain the benefits and assume the obligations thereunder in
accordance with this Agreement, including sub-contracting, sub-licensing or
sub-leasing to such transferee, or under which the transferor would enforce
for the benefit of the transferee, with the transferee assuming the
transferor's obligations, any and all rights of the transferor against a third
party thereto.
ARTICLE III
THE DISTRIBUTION
Section 3.01. Cooperation Prior to the Distribution. (a)
Melville and Footstar shall prepare, and Footstar shall file with the
Commission, the Form 10, which shall include or incorporate by reference the
Information Statement which shall set forth appropriate disclosure concerning
Footstar and the Distribution. Melville and Footstar shall use reasonable
efforts to cause the Form 10 to become effective under the 1934 Act as soon as
practicable. After the Form 10 has become effective, Melville shall mail the
Information Statement to the holders of Melville Common Stock as of the Record
Date.
(b) Melville and Footstar shall cooperate in preparing, filing
with the Commission and causing to become effective any registration
statements or amendments thereto that are appropriate to reflect the
establishment of or amendments to any employee benefit and other plans
contemplated by this Agreement.
(c) Melville and Footstar shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement.
(d) Footstar shall prepare, file and pursue an application to
permit listing of the Footstar Common Stock on the New York Stock Exchange.
Section 3.02. Melville Board Action; Conditions Precedent to the
Distribution. Melville's Board of Directors shall, in its discretion,
establish (or delegate authority to establish) the Record Date and the
Distribution Date and any appropriate procedures in connection with the
Distribution. In no event shall the Distribution occur unless the following
conditions shall have been waived by Melville or shall have been satisfied:
(i) the Form 10 shall have become effective under the 1934 Act;
(ii) the Footstar Common Stock to be delivered in the
Distribution shall have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance;
(iii) the Board of Directors of Melville shall be satisfied that
(a) both before and after giving effect to the Distribution, Melville is
not and would not be insolvent within the meaning of Section 510 of the
Business Corporation Law of the State of New York (in that (i) the fair
value of Melville's assets would exceed its liabilities (ii) Melville
would be able to pay its liabilities as they mature and become absolute
and (iii) Melville would not have unreasonably small capital with which
to engage in its business), and (b) the Distribution will be made out of
surplus within the meaning of Section 510 of the Business Corporation
Law of the State of New York (in that Melville's net assets remaining
after the Distribution will exceed the aggregate par value of Melville's
outstanding capital stock);
(iv) Melville's Board of Directors shall have approved the
Distribution and shall not have abandoned, deferred or modified the
Distribution at any time prior to the Record Date;
(v) the contributions referred to in Section 2.01 of this
Agreement shall have been effected;
(vi) Footstar's Board of Directors, as named in the Information
Statement, shall have been elected by Melville, as sole stockholder of
Footstar, and Footstar's certificate of incorporation (the "Restated
Footstar Charter") and bylaws, in substantially the forms attached as
Exhibits A and B, respectively, hereto shall be in effect;
(vii) the Tax Disaffiliation Agreement shall have been duly
executed and delivered by the parties thereto;
(viii) Melville shall have received an opinion of counsel
satisfactory to Melville as to the tax-free nature of the Distribution;
and
(ix) a credit facility shall have been made available to Footstar
by its lenders on terms and in an amount satisfactory to Melville and
Footstar.
Section 3.03. The Distribution. Subject to the terms and
conditions set forth in this Agreement, (i) prior to the Distribution Date,
Melville shall deliver to the Distribution Agent for the benefit of holders of
record of Melville Common Stock on the Record Date, a stock certificate or
certificates, endorsed by Melville in blank, representing all of the then
outstanding shares of Footstar Common Stock owned by Melville, (ii) the
Distribution shall be effective on the Distribution Date and (iii) Melville
shall instruct the Distribution Agent to distribute, on or as soon as
practicable after the Distribution Date, to each holder of record of Melville
Common Stock (other than any Melville Restricted Shareholder) as of the Record
Date 0.2879 shares of Footstar Common Stock for each one share of Melville
Common Stock so held. Footstar agrees to provide all certificates for shares
of Footstar Common Stock that Melville shall require (after giving effect to
Section 3.04) in order to effect the Distribution.
Section 3.04. Subdivision of Footstar Common Stock to Accomplish
the Distribution. Effective upon the filing of the Restated Footstar Charter
with the Secretary of State of the State of Delaware, each share of Footstar
Common Stock then issued and outstanding shall, without any action on the part
of the holder thereof, be subdivided and converted into that number of fully
paid and non-assessable shares of Footstar Common Stock issued and outstanding
equal to the number of shares of Melville Common Stock outstanding on the
Record Date (excluding shares of restricted stock held by Melville employees
expected to remain Melville employees after the Distribution) times 0.2879
divided by the number of shares of Footstar Common Stock outstanding
immediately prior to such filing.
Section 3.05. Fractional Shares. No certificates representing
fractional shares of Footstar Common Stock will be distributed in the
Distribution. The Distribution Agent will be directed to determine the number
of whole shares and fractional shares of Footstar Common Stock allocable to
each holder of Melville Common Stock as of the Record Date. Upon the
determination by the Distribution Agent of such number of fractional shares,
as soon as practicable after the Distribution Date, the Distribution Agent,
acting on behalf of the holders thereof, shall sell such fractional shares for
cash on the open market and shall disburse the appropriate portion of the
resulting cash proceeds to each holder entitled thereto.
ARTICLE IV
INDEMNIFICATION
Section 4.01. Footstar Indemnification of the Melville Group.
(a) Subject to Section 4.03, on and after the Distribution Date, Footstar
shall indemnify, defend and hold harmless the Melville Group and the
respective directors, officers and Affiliates of each Person in the Melville
Group (the "Melville Indemnitees") from and against any and all Losses
incurred or suffered by any of the Melville Indemnitees (i) arising out of, or
due to the failure of any Person in the Footstar Group to pay, perform or
otherwise discharge, any of the Footstar Liabilities or (ii) arising out of or
in connection with the provision by the Melville Group of services to the
Footstar Group under Article VI.
(b) Subject to Section 4.03, Footstar shall indemnify, defend and
hold harmless each of the Melville Indemnitees and each Person, if any, who
controls any Melville Indemnitee within the meaning of either Section 15 of
the 1933 Act or Section 20 of the 1934 Act from and against any and all
Losses caused by any untrue statement or alleged untrue statement of a
material fact contained in the Form 10 or any amendment thereof or the
Information Statement (as amended or supplemented if Footstar shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such Losses are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information furnished to Footstar in writing by Melville expressly for use
therein.
(c) Subject to Section 4.03, on and after the Distribution Date,
FCI shall indemnify, defend and hold harmless each of the Melville Indemnitees
from and against any and all Losses incurred or suffered by any of the
Melville Indemnitees due to the failure of any Person in the Footstar Group to
pay, perform or otherwise discharge its obligations under any of the Guaranteed
Leases or otherwise arising out of or with respect to any of the Guaranteed
Leases or Lease Guarantees.
Section 4.02. Melville Indemnification of Footstar Group. (a)
Subject to Section 4.03, on and after the Distribution Date, Melville shall
indemnify, defend and hold harmless the Footstar Group and the respective
directors, officers and Affiliates of each Person in the Footstar Group (the
"Footstar Indemnitees") from and against any and all Losses incurred or
suffered by any of the Footstar Indemnitees and arising out of, or due to the
failure of any Person in the Melville Group to pay, perform or otherwise
discharge, any of the Melville Liabilities.
(b) Subject to Section 4.03, Melville shall indemnify, defend and
hold harmless each of the Footstar Indemnitees and each Person, if any, who
controls any Footstar Indemnitee within the meaning of either Section 15 of
the 1933 Act or Section 20 of the 1934 Act from and against any and all
Losses caused by any untrue statement or alleged untrue statement of a
material fact contained in the Form 10 or any amendment thereof or the
Information Statement (as amended or supplemented if Footstar shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such Losses are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information furnished to Footstar in
writing by Melville expressly for use therein.
Section 4.03. Insurance; Third Party Obligations; Tax Benefits.
Any indemnification pursuant to Sections 4.01 or 4.02 shall be paid net of the
amount of any insurance or other amounts that would be payable by any third
party to the Indemnified Party (as defined below) in the absence of this
Agreement (irrespective of time of receipt of such insurance or other amounts)
and net of any tax benefit to the Indemnified Party attributable to the
relevant payment or Liability. It is expressly agreed that no insurer or any
other third party shall be (i) entitled to a benefit it would not be entitled
to receive in the absence of the foregoing indemnification provisions, (ii)
relieved of the responsibility to pay any claims to which it is obligated or
(iii) entitled to any subrogation rights with respect to any obligation
hereunder.
Section 4.04. Notice and Payment of Claims. If any Melville
Indemnitee or Footstar Indemnitee (the "Indemnified Party") determines that it
is or may be entitled to indemnification by any party (the "Indemnifying
Party") under Article IV (other than in connection with any Action subject to
Section 4.05), the Indemnified Party shall deliver to the Indemnifying Party a
written notice specifying, to the extent reasonably practicable, the basis for
its claim for indemnification and the amount for which the Indemnified Party
reasonably believes it is entitled to be indemnified. Within 30 days after
receipt of such notice, the Indemnifying Party shall pay the Indemnified Party
such amount in cash or other immediately available funds unless the
Indemnifying Party objects to the claim for indemnification or the amount
thereof. If the Indemnifying Party does not give the Indemnified Party
written notice objecting to such indemnity claim and setting forth the grounds
therefor within such 30-day period, the Indemnifying Party shall be deemed to
have acknowledged its liability for such claim and the Indemnified Party may
exercise any and all of its rights under applicable law to collect such amount.
In the event of such a timely objection by the Indemnifying Party, the amount,
if any, that is Finally Determined to be required to be paid by the
Indemnifying Party in respect of such indemnity claim shall be paid by the
Indemnifying Party to the Indemnified Party in cash within 15 days after such
indemnity claim has been so Finally Determined.
Section 4.05. Notice and Defense of Third-Party Claims.
Promptly following the earlier of (i) receipt of notice of the commencement by
a third party of any Action against or otherwise involving any Indemnified
Party or (ii) receipt of information from a third party alleging the existence
of a claim against an Indemnified Party, in either case, with respect to which
indemnification may be sought pursuant to this Agreement (a "Third-Party
Claim"), the Indemnified Party shall give the Indemnifying Party written
notice thereof. The failure of the Indemnified Party to give notice as
provided in this Section 4.05 shall not relieve the Indemnifying Party of its
obligations under this Agreement, except to the extent that the Indemnifying
Party is prejudiced by such failure to give notice. Within 15 days after
receipt of such notice, the Indemnifying Party may (i) by giving written
notice thereof to the Indemnified Party, acknowledge liability for such
indemnification claim and at its option elect to assume the defense of such
Third-Party Claim at its sole cost and expense or (ii) object to the claim for
indemnification set forth in the notice delivered by the Indemnified Party
pursuant to the first sentence of this Section 4.05; provided that if the
Indemnifying Party does not within such 15-day period give the Indemnified
Party written notice objecting to such indemnification claim and setting forth
the grounds therefor, the Indemnifying Party shall be deemed to have
acknowledged its liability for such indemnification claim. If the
Indemnifying Party has elected to assume the defense of a Third-Party Claim,
(x) the defense shall be conducted by counsel retained by the Indemnifying
Party and reasonably satisfactory to the Indemnified Party, provided that the
Indemnified Party shall have the right to participate in such proceedings and
to be represented by counsel of its own choosing at the Indemnified Party's
sole cost and expense; and (y) the Indemnifying Party may settle or compromise
the Third Party Claim without the prior written consent of the Indemnified
Party so long as such settlement includes an unconditional release of the
Indemnified Party from all claims that are the subject of such Third Party
Claim, provided that the Indemnifying Party may not agree to any such
settlement pursuant to which any remedy or relief, other than monetary damages
for which the Indemnifying Party shall be responsible hereunder, shall be
applied to or against the Indemnified Party, without the prior written consent
of the Indemnified Party, which consent shall not be unreasonably withheld.
If the Indemnifying Party does not assume the defense of a Third-Party Claim
for which it has acknowledged liability for indemnification hereunder, the
Indemnified Party may require the Indemnifying Party to reimburse it on a
current basis for its reasonable expenses of investigation, reasonable
attorney's fees and reasonable out-of-pocket expenses incurred in defending
against such Third-Party Claim and the Indemnifying Party shall be bound by
the result obtained with respect thereto by the Indemnified Party; provided
that the Indemnifying Party shall not be liable for any settlement effected
without its consent, which consent shall not be unreasonably withheld. The
Indemnifying Party shall pay to the Indemnified Party in cash the amount, if
any, for which the Indemnified Party is entitled to be indemnified hereunder
within 15 days after such Third Party Claim has been Finally Determined, in
the case of an indemnity claim as to which the Indemnifying Party has
acknowledged liability or, in the case of any indemnity claim as to which the
Indemnifying Party has not acknowledged liability, within 15 days after such
Indemnifying Party's objection to liability hereunder has been Finally
Determined.
Section 4.06. Contribution. If for any reason the
indemnification provided for in Section 4.01 or 4.02 is unavailable to any
Indemnified Party, or insufficient to hold it harmless, then the Indemnifying
Party shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses in such proportion as is appropriate to reflect all
relevant equitable considerations.
Section 4.07. Non-Exclusivity of Remedies. The remedies provided
for in this Article IV are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any Indemnified Party at law or
in equity.
ARTICLE V
EMPLOYEE MATTERS
Section 5.01. Employee Matters Generally. With respect to
employee matters and employee benefits arrangements, the parties hereto agree
as set forth in Schedule 5.01.
Section 5.02. Restriction on Solicitation or Employment of
Employees. During the period commencing on the Distribution Date and ending on
the second anniversary of the Distribution Date, neither Group shall solicit
to employ or employ any management (other than in-store management) level
employee of the other Group (the "Employer Group"), unless (i) such a
management individual of an Employer Group that is proposed to be solicited
for employment or employed by the other Group shall theretofore have been, or
shall theretofore have received notice that he or she will be, involuntarily
terminated by such Employer Group or (ii) at least six months shall have
elapsed following the cessation of such management individual's employment by
such Employer Group.
ARTICLE VI
CERTAIN TRANSITIONAL SERVICES
Section 6.01. Provision of Services. On the terms and conditions
set forth in this Agreement, in order to assist in effecting an orderly
transition following the Distribution, the Melville Group will provide to or
perform for the Footstar Group and the Footstar Group will purchase from the
Melville Group (and, in the case of tax services, the Footstar Group will
provide to the Melville Group), for the transitional period specified in
Section 6.02, (A) the Check Services as provided in Schedule 6.01(A) below,
(B) claims administration services with respect to general liability insurance
as provided in Schedule 6.01(B) below, and (C) tax services ("Tax Services")
as specified in the Tax Disaffiliation Agreement ((A), (B), and (C) being the
"Services").
Section 6.02. Duration of Provision and Purchase of Services.
The Services shall be offered by the Melville Group and purchased by Footstar
through the first anniversary of the Distribution Date (except for Tax
Services, which are to be offered reciprocally by the parties through December
31, 1997), subject to the right, if any, of a party to terminate its respective
obligation to provide or purchase Services hereunder as provided in Schedule
6.01(A) or 6.01(B) or in the Tax Disaffiliation Agreement and unless the
provision of any such Service is theretofore terminated by Melville pursuant
to Section 9.02 hereof.
Section 6.03. Nature and Scope of Provision of Services. The
nature, scope and timing of provision of Services to be provided by the
Melville Group to the Footstar Group hereunder shall be substantially
consistent with the nature, scope and timing of Melville's comparable services
provided to its Subsidiaries prior to the Distribution.
Section 6.04. Charges and Payment for Services. Except with
respect to Tax Services, Footstar shall pay or reimburse Melville for all
Costs attributable to the provision or performance by Melville of Services
hereunder. Except as provided in Schedule 6.01(B) or in the Tax
Disaffiliation Agreement, (i) all Costs required to be paid or reimbursed to
Melville hereunder shall be invoiced monthly by Melville and (ii) invoiced
amounts shall be due and payable by Footstar in cash within ten (10) days from
date of receipt of such invoice therefor.
Section 6.05. Verification of Services and Costs. (a) Footstar
shall, during normal business hours and with reasonable prior notice to
Melville, have reasonable access to the properties, offices, books and records
of Melville for the purpose of observing that Services are being procured or
performed in accordance with the terms of this Agreement relevant to the
procurement or performance of such Services and to verify Cost amounts.
(b) Melville and Footstar shall, from time to time but not more
often than once each month, review the basis and amounts of Costs charged
hereunder. In the course of such review, the parties shall in good faith, (i)
establish principles for determining Costs to be charged hereunder on a
prospective basis and (ii) determine the amount of any adjustment, if any,
payable by a party to the other with respect to Costs charged and reimbursed
in respect of any preceding period.
Section 6.06. Exculpation; Force Majeure. (a) No Melville
Indemnitee shall be liable to any other Person for any Losses directly or
indirectly arising out of, relating to or in connection with the performance
or non-performance of Services hereunder, except to the extent such Losses are
attributable to the Melville Group's gross negligence or wilful misconduct.
(b) Without limiting the provisions of Section 6.06(a), the
Melville Group shall not be liable to the Footstar Group for any delay or
default in performance of Services where occasioned by any cause of any kind
or extent beyond the Melville Group's control including, by way of example,
but not limitation, any act of God, any act, regulation or law of any
government, war, civil commotion, destruction of production facilities or
materials by fire, earthquake or storm, labor disturbance, epidemic, equipment
breakdown or failure, failure to obtain any consent or approval of a third
party necessary to provide the Services, or failure of suppliers, public
utilities or common carriers ("Force Majeure"). In claiming relief hereunder
Melville shall promptly notify Footstar in writing of the Force Majeure
causing delay or default in performance, the probable extent to which it will
be unable to perform, and the actions it intends to take to remove such Force
Majeure, to the extent reasonably possible to do so. The Melville Group shall
take reasonable action within its control to alleviate the Force Majeure
causing delay or default in performance.
Section 6.07. No Transfer of Proprietary Rights. No assignment
or transfer by a Group of any right or license in or to any technology,
software, intellectual property, know-how or other proprietary right owned,
licensed or held for use by such Group shall occur or be deemed to occur by
virtue of or in connection with the provision or purchase of Services by
either Group hereunder.
ARTICLE VII
CERTAIN AGREEMENTS RELATING TO LEASES
Section 7.01. Continuity of Existing Lease Guarantees.
With respect to each real estate lease under which any Person in the Footstar
Group is a lessee or sublessee and that is in effect prior to the Distribution
and that remains in effect following the Distribution (i) without any renewal
option having been exercised or (ii) by reason of the exercise of any renewal
option provided for in the terms of such lease as in effect as of the
Distribution (collectively, the "Guaranteed Leases"), any lease guarantee of
such Guaranteed Lease provided by Melville or any of its Affiliates and in
effect as of the Distribution (a "Lease Guarantee") will remain in effect
after the Distribution for the duration of the term of such lease and any
extension thereof pursuant to the exercise of any such renewal option.
Melville and its Affiliates shall be indemnified against any Losses arising
from such Guaranteed Leases or Lease Guarantees, as provided in Section
4.01(c).
Section 7.02. No New Melville Lease Guarantees To be Furnished
After The Distribution. Except as expressly provided otherwise in Section
7.01, to the extent that any guarantee is required to be provided after the
Distribution with respect to any real estate or other lease entered into by a
Person in the Footstar Group, such guarantee shall not be furnished by any
Person in the Melville Group.
ARTICLE VIII
ACCESS TO INFORMATION
Section 8.01. Provision of Corporate Records.
Immediately prior to or as soon as practicable following the Distribution
Date, each Group shall provide to the other Group all documents, contracts,
books, records and data (including but not limited to minute books, stock
registers, stock certificates and documents of title) in its possession
relating to such other Group or such other Group's business and affairs;
provided that if any such documents, contracts, books, records or data relate
to both Groups or the business and operations of both Groups, each such Group
shall provide to the other Group true and complete copies of such documents,
contracts, books, records or data.
Section 8.02. Access to Information. From and after the
Distribution Date, each Group shall, for a reasonable period of time, afford
promptly to the other Group and its accountants, counsel and other designated
representatives reasonable access during normal business hours to all
documents, contracts, books, records, computer data and other data in such
Group's possession relating to such other Group or the business and affairs of
such other Group (other than data and information subject to an
attorney/client or other privilege), insofar as such access is reasonably
required by such other Group, including, without limitation, for audit,
accounting, litigation and disclosure and reporting purposes.
Section 8.03. Litigation Cooperation. Each Group shall use
reasonable efforts to make available to the other Group and its accountants,
counsel, and other designated representatives, upon written request, its
directors, officers, employees and representatives as witnesses, and shall
otherwise cooperate with the other Group, to the extent reasonably required in
connection with any legal, administrative or other proceedings arising out of
either Group's business and operations prior to the Distribution Date in which
the requesting party may from time to time be involved.
Section 8.04. Reimbursement. Each Group providing information or
witnesses to the other Group, or otherwise incurring any expense in connection
with cooperating, under Sections 8.01, 8.02 or 8.03 shall be entitled to
receive from the recipient thereof, upon the presentation of invoices
therefor, payment for all out-of-pocket costs and expenses as may be
reasonably incurred in providing such information, witnesses or cooperation.
Section 8.05. Retention of Records. Except as otherwise required
by law or agreed to in writing, each party shall, and shall cause the members
of its respective Group to, retain all information relating to the other
Group's business and operations in accordance with the past practice of such
party. Notwithstanding the foregoing, any party may destroy or otherwise
dispose of any such information at any time, provided that, prior to such
destruction or disposal, (i) such party shall provide not less than 90 days'
prior written notice to the other party, specifying the information proposed
to be destroyed or disposed of, and (ii) if the recipient of such notice shall
request in writing prior to the scheduled date for such destruction or
disposal that any of the information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the information as
was requested at the expense of the requesting party.
Section 8.06. Confidentiality. Each party shall hold and shall
cause its directors, officers, employees, agents, consultants and advisors
("Representatives") to hold in strict confidence all information (other than
any such information relating solely to the business or affairs of such party)
concerning the other party unless (i) such party is compelled to disclose such
information by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law or (ii) such information can be shown to
have been (A) in the public domain through no fault of such party or (B)
lawfully acquired after the Distribution Date on a non-confidential basis from
other sources. Notwithstanding the foregoing, such party may disclose such
information to its Representatives so long as such Persons are informed by
such party of the confidential nature of such information and are directed by
such party to treat such information confidentially. If such party or any of
its Representatives becomes legally compelled to disclose any documents or
information subject to this Section, such party will promptly notify the other
party so that the other party may seek a protective order or other remedy or
waive such party's compliance with this Section. If no such protective order
or other remedy is obtained or waiver granted, such party will furnish only
that portion of the information which it is advised by counsel is legally
required and will exercise its reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded such information. Such party
agrees to be responsible for any breach of this Section by it and its
Representatives.
Section 8.07. Inapplicability of Article VIII to Tax Matters.
Notwithstanding anything to the contrary in Article VIII, Article VIII shall
not apply with respect to information, records and other matters relating to
Taxes, all of which shall be governed by the Tax Disaffiliation Agreement.
ARTICLE IX
CERTAIN OTHER AGREEMENTS
Section 9.01. Intercompany Accounts. All intercompany
receivable, payable and loan balances in existence as of the Distribution Date
between the Melville Group and Footstar Group will be eliminated as provided
in Schedule 9.01 hereto.
Section 9.02. Certain Rights Upon a Third Party Obtaining Above a
Specified Ownership Level of Footstar Common Stock. No Person or group
(within the meaning of Section 13(d) under the 0000 Xxx) of Persons shall
become the beneficial owner (within the meaning of Rule 13d-3 under the 0000
Xxx) of more than 35% of the Footstar Common Stock unless (i) Melville shall
have received prior written notice that such Person or group proposes to
acquire beneficial ownership of more than 35% of the Footstar Common Stock and
(ii) prior to such acquisition such Person or group provides to Melville
(unless waived by Melville in writing) a guarantee, in form and substance
acceptable to Melville, of the obligations of Footstar and the Footstar Group
under this Distribution Agreement. In addition, upon any such Person or group
becoming the beneficial owner of more than 35% of the Footstar Common Stock,
Melville may, at its election, forthwith terminate its provision of any or all
of the Services under Article VI.
Section 9.03. Footstar Guarantee of Footaction Center, Inc. Lease
Indemnity. Footstar hereby unconditionally guarantees (the "Guaranty") to
Melville and the other Persons in the Melville Group (collectively, the
"Guaranteed Parties") that the payment obligations of FCI under Section
4.01(c) shall be promptly performed and complied with in full when due in
accordance with the terms thereof. Upon failure by FCI to make the payments
required to be made by it under Section 4.01(c), for whatever reason, Footstar
shall forthwith pay, within two business days of demand, the amount of the
payments not so made, by wire transfer to the account of Melville designated
to Footstar in writing for such purpose. Demand for payment hereunder shall
be made in writing signed by a duly authorized officer of any Guaranteed Party
and be given to Footstar at the address and in the manner set forth in Section
10.01. Footstar hereby agrees that its obligations under this Section 9.03
shall be unconditional, irrevocable and absolute and, without limiting the
foregoing, shall not be released, discharged or otherwise affected by, the
invalidity, irregularity or unenforceability of any provision of any
Distribution Document, the absence of any action to enforce the same, any
provision of applicable law or regulation purporting to prohibit the
performance by FCI of its obligations under Section 4.01(c), any extension,
renewal, settlement, compromise, waiver or release in respect of any
obligation of FCI under any provision of the Distribution Documents (except in
conformity therewith), any modification or amendment of or supplement to any
Distribution Document (except in conformity therewith), any change in the
corporate existence, structure or ownership of FCI, or any insolvency,
bankruptcy, reorganization or other similar proceeding affecting FCI or its
assets or any resulting release or discharge of any obligation under any
Distribution Document, any waiver or consent by any Guaranteed Party with
respect to any provisions of any Distribution Document, the recovery of any
judgment against FCI or any action to enforce the same, the existence of any
claim, set-off or other rights which Footstar may have at any time against any
Guaranteed Party, whether in connection herewith or with any unrelated
transaction (provided that nothing herein shall prevent the assertion of any
such claim, set-off or other rights by separate suit or counterclaim), or any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of Footstar. Footstar hereby waives diligence,
presentment, demand of payment (other than the demand referred to above), or
filing of claims with a court in the event of insolvency or bankruptcy of FCI,
any right to require a proceeding first against FCI, protest, notice and all
demands (other than the demand referred to above) whatsoever and covenants
that this Guaranty will not be discharged except by complete performance of
the obligations of FCI under Section 4.01(c) or of this Guaranty. If any
Guaranteed Party is required by any court or otherwise to return to Footstar
or FCI, or any receiver, trustee, assignee, liquidator, sequestrator or
similar official charged with maintaining possession or control over property
for one or more creditors acting in relation to Footstar or FCI, any amount
paid by Footstar or FCI to such Guaranteed Party, this Guaranty, to the extent
theretofore discharged, shall be reinstated in full force and effect. Footstar
hereby confirms its right of subrogation in relation to the Guaranteed Parties
in respect of any obligations guaranteed hereby, but agrees to delay the
enforceability of such right until all obligations of FCI under Section
4.01(c) have been satisfied.
Section 9.04. Intellectual Property Rights and Licences. Except
for any license to the "Open Country" trademark granted by the Footstar Group
to Bob's, Inc., neither Group shall have any right or license in or to any
technology, software, intellectual property (including any trademark, service
xxxx, patent or copyright), know-how or other proprietary right owned,
licensed or held for use by the other Group.
Section 9.05. Further Assurances and Consents. In addition to
the actions specifically provided for elsewhere in this Agreement, each of the
parties hereto shall use its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things, reasonably necessary,
proper or advisable under applicable laws, regulations and agreements or
otherwise to consummate and make effective the transactions contemplated by
this Agreement, including but not limited to using its reasonable efforts to
obtain any consents and approvals and to make any filings and applications
necessary or desirable in order to consummate the transactions contemplated by
this Agreement; provided that no party hereto shall be obligated to pay any
consideration therefor (except for filing fees and other similar charges) to
any third party from whom such consents or approvals are requested or to take
any action or omit to take any action if the taking of or the omission to take
such action would be unreasonably burdensome to the party, its Group or its
Group's business.
ARTICLE X
MISCELLANEOUS
Section 10.01. Notices. All notices and other communications to
any party hereunder shall be in writing (including telex, telecopy or similar
writing) and shall be deemed given when received addressed as follows:
If to Melville, to:
Melville Corporation
0 XXX Xxxxx
Xxxxxxxxxx, Xxxxx Xxxxxx 00000
Telecopy: (000) 000-0000
Attention: Chief Financial Officer and
General Counsel
With a copy to:
Xxxxx Xxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
If to Footstar or FCI, to:
Footstar, Inc.
000 XxxXxxxxx Xxxxxxxxx
Xxxxxx, Xxx Xxxxxx 00000
Telecopy: (000) 000-0000
Attention: Chief Financial Officer and
General Counsel
With a copy to:
Xxxxx Xxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
Any party may, by written notice so delivered to the other parties, change the
address to which delivery of any notice shall thereafter be made.
Section 10.02. Amendments; No Waivers. (a) Any provision of
this Agreement may be amended or waived if, and only if, such amendment or
waiver is in writing and signed, in the case of an amendment, by Melville and
Footstar, or in the case of a waiver, by the party against whom the waiver is
to be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
Section 10.03. Expenses. Except as specifically provided
otherwise in this Agreement or the Tax Disaffiliation Agreement (including,
without limitation, in Articles IV and VI, Sections 8.04, 8.05, 9.01, 9.03 and
10.08(c) and Schedules 5.01, 6.01(A) and 6.01(B) of this Agreement), all costs
and expenses incurred in connection with the preparation, execution and
delivery of the Distribution Documents and the consummation of the
Distribution and the other transactions contemplated hereby (including the
fees and expenses of all counsel, accountants and financial and other advisors
of both Groups in connection therewith, and all expenses in connection with
preparation, filing and printing of the Form 10 and the Information Statement)
shall be paid by Melville; provided that Footstar shall be responsible for and
pay the fees, expenses and other amounts payable to the lenders under
Footstar's credit facilities and all other fees and expenses incurred in
connection therewith (including the fees and expenses of Footstar's counsel in
connection with the preparation and negotiation of all documentation relating
to such credit facilities).
Section 10.04. Successor and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that neither party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the consent of the other parties hereto.
Section 10.05. Governing Law. This Agreement shall be construed
in accordance with and governed by the law of the State of New York, without
regard to the conflicts of laws rules of such State.
Section 10.06. Counterparts; Effectiveness. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective when each party hereto
shall have received a counterpart hereof signed by the other parties hereto.
Section 10.07. Entire Agreement. This Agreement and the other
Distribution Documents constitute the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersedes all prior
agreements, understandings and negotiations, both written and oral, between
the parties with respect to the subject matter hereof and thereof. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein or in the other Distribution Documents has been made or
relied upon by any party hereto. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder. To the extent that the provisions of this
Agreement are inconsistent with the provisions of any other Distribution
Document, the provisions of such other Distribution Document shall prevail.
Section 10.08. Tax Disaffiliation Agreement; Set-Off; Payment of
After-Tax Amounts. (a) Except as otherwise provided herein and not
inconsistent with the Tax Disaffiliation Agreement, this Agreement shall not
govern any Tax, and any and all claims, losses, damages, demands, costs,
expenses or liabilities relating to Taxes shall be exclusively governed by the
Tax Disaffiliation Agreement.
(b) If, at the time Footstar is required to make any payment to
Melville under this Agreement, Melville owes Footstar any amount under this
Agreement or the Tax Disaffiliation Agreement, then such amounts shall be
offset and the excess shall be paid by the party liable for such excess.
Similarly, if at the time Melville is required to make any payment to Footstar
under this Agreement, Footstar owes Melville any amount under this Agreement
or the Tax Disaffiliation Agreement, then such amounts shall be offset and the
excess shall be paid by the party liable for such excess.
(c) If any amount paid by Melville, Footstar or their respective
Post-Distribution Affiliates pursuant to Section 4.01 or 4.02 of this
Agreement results in any increased Tax liability or reduction of any Tax Asset
of any member of the Footstar Group, Footstar or its Post-Distribution
Affiliates, or the Melville Group, Melville or its Post-Distribution
Affiliates, respectively, then Melville or Footstar, as the case may be, shall
indemnify the other party and hold it harmless from any interest or penalty
attributable to such increased Tax liability or the reduction of such Tax
asset and shall pay to the other party, in addition to amounts otherwise owed,
100 percent of the After-Tax Amount. All capitalized terms used in this
Section 10.08(c) and not otherwise defined in this Agreement are used as
defined in the Tax Disaffiliation Agreement. This Section 10.08(c) shall be
subject to the dispute resolution provisions contained in Section 16 of the
Tax Disaffiliation Agreement.
Section 10.09. Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated hereby may
be brought in the United States District Court for the Southern District of
New York or any other New York State court sitting in New York County, and
each of the parties hereby consents to the jurisdiction of such courts (and
of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit,
action or proceeding which is brought in any such court has been brought in an
inconvenient form. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 10.01
shall be deemed effective service of process on such party.
Section 10.10. Existing Arrangements. Except as otherwise
contemplated hereby, all prior agreements and arrangements, including those
relating to goods, rights or services provided or licensed, between the
Footstar Group and the Melville Group shall be terminated effective as of the
Distribution Date, if not theretofore terminated. No such agreements or
arrangements shall be in effect after the Distribution Date unless embodied in
the Distribution Documents.
Section 10.11. Termination Prior to the Distribution. The
Melville Board of Directors may at any time prior to the Distribution abandon
the Distribution and, by notice to Footstar, terminate this Agreement (whether
or not the Melville Board of Directors has theretofore approved this Agreement
and/or the Distribution).
Section 10.12. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
IN WITNESS WHEREOF the parties hereto have caused this
Distribution Agreement to be duly executed by their respective authorized
officers as of the date first above written.
MELVILLE CORPORATION
By /s/ Xxxxxxx Xxxxxxx
Name: Xxxxxxx Xxxxxxx
Title: Chief Financial Officer
FOOTSTAR, INC.
By /s/ Xxxxxx Xxxxxxxx
Name: Xxxxxx Xxxxxxxx
Title: Chief Financial Officer
FOOTACTION CENTER, INC.
By /s/ Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: Vice President
Schedule 5.01
EMPLOYEE MATTERS
Section 1. General. Except as otherwise set forth in this Schedule
5.01, (a) Melville shall retain (i) any and all liabilities relating to or
arising out of any employee benefit or compensation arrangement (a "Plan") in
respect of any employee or former employee of Melville and any Affiliate of
Melville who is not a Transferred Employee (as hereinafter defined), and (ii)
any and all liabilities relating to or arising out of any Plan in respect of
all Transferred Employees that were incurred or are otherwise related to any
period prior to and including the Distribution Date and (b) Melville shall
have no liability relating to or arising out of any Plan in respect of
Transferred Employees to the extent that any such liability is incurred or
otherwise relates to any period after the Distribution Date.
Section 2. Employees. With respect to each individual who, as of
the Distribution Date, is employed (including persons absent from active
service by reason of Short Term Disability or Long Term Disability, as
hereinafter defined, or absence not relating to disability, whether paid or
unpaid) in the Footstar Business ("Transferred Employees"), Footstar shall
cause the employment of each Transferred Employee to be continued on the
Distribution Date, provided that nothing stated herein shall limit the right
of Footstar or any Subsidiary to terminate the employment of any Transferred
Employee following the Distribution Date or to reduce or otherwise modify the
position, responsibilities, compensation or benefits of any Transferred
Employee at any time, and provided further that an individual who is employed
as of the Distribution Date by Footstar or any of its Subsidiaries, but on
such date is absent from active service and is receiving Long Term Disability
Benefits (as hereinafter defined) shall not be considered a Transferred
Employee for purposes of the Melville Long Term Disability Plan. The employee
benefit plans and arrangements maintained by Footstar shall give full service
credit for purposes of eligibility and vesting (and in connection with any such
severance or vacation plan or policy, for purposes of determining the level of
benefit) for any service on or prior to the Distribution Date of a Transferred
Employee with Melville and its Subsidiaries. For purposes of this Agreement,
(i) "Short Term Disability" shall mean a condition with respect to which an
employee is receiving benefits, as of the Distribution Date, under either the
Melville Short Term Disability Plan or the Melville Salary Continuation Plan,
and (ii) "Long Term Disability Benefits" shall mean benefits under the
Melville Long Term Disability Plan.
Section 3. Qualified Plans. (a) Melville shall retain all
liabilities and obligations in respect to benefits accrued by Transferred
Employees under Melville's ESOP. Melville shall cause each Transferred
Employee to become 100% vested in the employee's account in Melville's ESOP as
of the Distribution Date. As soon as practicable after the Distribution Date,
Melville shall take such action as may be necessary, if any, to permit each
Transferred Employee to exercise his rights under Melville's ESOP to effect an
immediate distribution of such Transferred Employee's full account balances
under Melville's ESOP or to effect a tax-free rollover of the taxable portion
of the account balances into an eligible retirement plan (within the meaning
of Section 401(a)(31) of the Internal Revenue Code ("Code"), a "Direct
Rollover") maintained by Footstar (the "Footstar Plan") or to an individual
retirement account. Melville and Footstar shall work together in order to
facilitate any such distribution or rollover and to effect a Direct Rollover
for those participants who elect to roll over their account balances directly
into the Footstar Plan; provided that nothing contained herein shall obligate
the Footstar Plan to accept a Direct Rollover in a form other than cash.
(b) On the Distribution Date, or as soon as practicable
thereafter, Footstar shall establish or designate the Footstar Plan in order
to accommodate the Direct Rollovers described above and shall take all action
necessary, if any, to qualify the Footstar Plan under the applicable
provisions of the Code and shall make any and all filings and submissions to
the appropriate governmental authorities required to be made by it in
connection with any Direct Rollover.
(c) As soon as practicable after the Distribution Date, Footstar
shall establish or designate an individual account plan (the "Successor
Individual Account Plan"), which may be the same plan as the Footstar Plan,
for the benefit of Transferred Employees, shall take all necessary action, if
any, to qualify such plan under the applicable provisions of the Code and
shall make any and all filings and submissions to the appropriate governmental
agencies required to be made by it in connection with the transfer of assets
described below. Melville shall cause each Transferred Employee to be 100%
vested in the employee's account balance under Melville's 401(k) Profit
Sharing Plan as of the Distribution Date. No later than the date of the
transfer described herein, Footstar shall make all applicable 401(k), profit
sharing, matching contributions and qualified non-elective contributions
payable under Melville's 401(k) Profit Sharing Plan with respect to
Transferred Employees for periods on or prior to the Distribution Date and
shall be entitled to retain any applicable reserves or accruals relating
thereto. As soon as practicable following the Distribution Date, Melville
shall cause the trustee of Melville's 401(k) Profit Sharing Plan to transfer
in the form of cash or, to the extent applicable, notes representing
outstanding loans made to Transferred Employees under Melville's 401(k) Profit
Sharing Plan (or such other form as may be agreed to by Melville and Footstar)
the full account balances of Transferred Employees (and beneficiaries thereof)
under Melville's 401(k) Profit Sharing Plan (which account balances will have
been credited with appropriate earnings attributable to the period from the
Distribution Date to the date of transfer described herein), reduced by any
necessary benefit or withdrawal payments to or in respect of Transferred
Employees occurring during the period from the Distribution Date to the date
of transfer described herein, to the appropriate trustee as designed by
Footstar under the trust agreement forming a part of the Successor Individual
Account Plan, it being understood that Melville is under no obligation to
effect a distribution, payment or loan under Melville's 401(k) Profit Sharing
Plan in respect of a Transferred Employee who either requests a loan or
terminates employment after the Distribution Date but prior to the date of
transfer described herein if the required distribution, payment or loan, as
the case may be, forms have not been received by Melville prior to the last
day of the month preceding the month in which the transfer described herein
occurs. Melville and Footstar agree to take such actions and enter into such
agreements, if any, that may be necessary to effect the transfer described
herein. In consideration for the transfer of assets described herein, Footstar
shall, effective as of the date of transfer described herein, assume all of
the obligations of Melville in respect of the account balances accumulated by
Transferred Employees under Melville's 401(k) Profit Sharing Plan (exclusive
of any portion of such account balances which are paid or otherwise withdrawn
prior to the date of transfer described herein) with respect to the account
balances transferred to the Successor Individual Account Plan. Melville
hereby indemnifies Footstar, the Company and the Subsidiaries against and
agrees to hold them harmless from any liabilities or claims (including claims
for benefits or for breach of fiduciary duties, but excluding claims for
benefits to the extent of the assets transferred hereunder) relating to
Melville's 401(k) Profit Sharing Plan (or the qualified status of that Plan)
which arose prior to the transfer of assets described herein or which relate
to the operation or administration of that Plan prior to the transfer of
assets. Footstar hereby indemnifies Melville against and agrees to hold it
harmless from any liabilities or claims relating to the qualified status of
the Successor Individual Account Plan or the operation or administration of
that Plan following the transfer of assets described herein.
Section 4. Welfare Plans and Worker Compensation.
(a) Footstar and its Affiliates shall each establish or designate
welfare benefit plans, within the meaning of Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, for the benefit of their
respective Transferred Employees (the "Replacement Welfare Plans") effective
January 1, 1997. Melville shall continue to provide services for Transferred
Employees (and eligible spouses and dependants) under its Plans which provide
medical, dental, life insurance and disability benefits for such period of
time from the Distribution Date to not later than December 31, 1996 (the
"Benefit Transition Period"). Footstar shall pay the cost of such services
during the Benefit Transition Period (including claims run out in respect of
claims incurred both before and after the Distribution Date) and shall
directly fund all medical and dental claims through a bank account set up
solely for such purposes. In addition, Footstar shall be entitled to retain
any applicable reserves or accruals relating to such benefits. Footstar and
its designated Affiliates shall retain or assume all of the obligations for
any retiree benefits under any welfare plan provided Transferred Employees
(and dependants) and retirees (and dependants) terminated while employed by
Footstar and any Affiliate or while employed in the Footstar Business prior to
the Distribution Date. Footstar and its Affiliates shall assume as of the
Distribution Date all the obligations of Melville and any of its Affiliates
for any obligation to provide coverage and benefits for Transferred Employees
and former employees of the Footstar Business and their qualified
beneficiaries under the Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985 and Section 4980B of the Code.
(b) Footstar shall be responsible for all workers compensation
claims, whether arising before or after the Distribution Date, with respect to
any employee or former employee of the Footstar Business, including, but not
limited to, any Transferred Employee. In addition, Footstar shall be entitled
to retain any applicable reserves or accruals relating thereto.
Section 5. Stock Options. Except as otherwise provided in any
agreement with a Transferred Employee, as of the Distribution Date, all
outstanding options issued to Transferred Employees to purchase Melville
Common Stock that have heretofore been granted under any employee stock option
plan of Melville and are exercisable on the Distribution Date shall be
exercisable for a period of 90 days from the Distribution Date.
Section 6. Bonus and Profit Incentive Plans. Except as otherwise
provided in any agreement with a Transferred Employee, Melville shall have no
liability for any bonus or profit incentive awards and Footstar shall be
responsible for all such awards relating to the period beginning on the
Distribution Date.
Section 7. Severance. The continued employment by Footstar and its
Affiliates of Transferred Employees after the Distribution Date shall not be
deemed a severance of employment of such Transferred Employees from Melville
for purposes of any policy, Plan, program or agreement of Melville or any of
its Subsidiaries that provides for the payment of severance, salary
continuation or similar benefits.
Section 8. Supplemental Retirement Benefits as Deferred
Compensation. Footstar and its Affiliates shall assume as of the Distribution
Date all of the obligations and liabilities of Melville and any of its
Affiliates for any Transferred Employee under the Supplemental Retirement
Plans I and II for Select Senior Management of Melville Corporation and the
Deferred Compensation Plan of Melville Corporation and Affiliated Companies,
and any reserve or accrual in respect of such Transferred Employees shall be
retained by or transferred to Footstar.
Section 9. No Third Party Beneficiaries. Neither Transferred
Employees nor any current, former or retired employee of Melville or its
affiliates shall be entitled to enforce the provisions of this Schedule 5.01
against the respective parties as third party beneficiaries thereof.
Schedule 6.01(A)
BAD DEBT COLLECTION AND PREVENTION
Services and Related Agreements
Footstar has requested that Melville provide transitional services
to Footstar pertaining to (i) check authorization, (ii) credit
transaction routing, (iii) check collection and reporting, and
(iv) bad debt collection and prevention ((i), (ii), (iii) and (iv)
collectively being the "Check Services").
On the terms and conditions set forth in this Exhibit and the
Agreement and for the Term set forth below, Melville will provide
to Footstar, and Footstar will purchase from Melville, the Check
Services with respect to the Footstar Business, including services
by Melville (i) using Melville's software system for bad debt
collection and check authorization (the "Bad Debt System") and (ii)
providing unlimited access to the negative check file with respect
to the Footstar Business only and the positive check file with
respect to all Melville businesses.
Access by Footstar to the negative check file can be continued by
Footstar only so long as Footstar continues to perform its
obligations under the ETC/SCAN Service Agreement (the "ETC
Agreement") (since Electronic Transaction Corporation ("ETC") is
the owner of the negative check file). ETC has agreed to allow
Footstar to continue to obtain services under the ETC Agreement
during the transition period, and ETC has informally advised that
such continued services will be at the same ETC rates as have
heretofore been applicable to the Footstar Business (since
Melville's original agreement with ETC covers Footstar).
Notwithstanding anything else contained in this Exhibit or the
Agreement, Melville will have no obligation to provide Footstar
with any access to the negative check file (or access at such
existing rates) if ETC does not permit Footstar such access (or
such access at such existing rates) or Footstar otherwise does not
continue to have any rights under the ETC Agreement.
Ownership of all information in the negative and positive check
file that is contributed by Footstar shall belong to Footstar and
shall be forwarded to Footstar upon its request.
Information relating to Footstar customers will be treated
confidentially so as to preserve confidentiality from, and
preclude any use by, Melville and its Affiliates, except that
Melville shall have unlimited access to Footstar's positive check
file. In addition, Footstar will have unlimited access to
Melville's positive check file, as these positive check files are
presently mutually inclusive.
Separate collection letters and telephone collection calls will be
made on Footstar bad checks.
Charges for services will be (1) $.02 per check authorization
request, (2) $.02 per credit card routing request and (3) $5.78
per returned item received.
Melville will use reasonable efforts to accommodate any required
or requested modification of Melville's Check Authorization,
Credit Routing and/or Collection Management Systems, provided that
Footstar will be responsible for all additional costs, as approved
by Footstar, associated with each such modification unless such
modification is required under the ETC Agreement and Melville
would have made such modification regardless of services related
to this Agreement.
All funds recovered or collected by Melville or its designated
Collection Agencies pursuant to the provision of services
hereunder will be deposited into a Bank of Boston recovery account
that will be opened and maintained at Footstar's expense.
Footstar may request that additional collection agencies be
approved by Melville, and Melville will give reasonable
consideration to such requests.
Footstar agrees to direct all customer inquiries, correspondence
and payments concerning returned checks to the Collections
Department, 000 Xxxxxxxxxx Xxxxxx, X.X. Xxx 0000, Xxxxxxx, XX
00000 or to telephone (000) 000-0000.
Term
The term for the provision and purchase of Check Services
hereunder shall be from the Distribution Date until the first
anniversary of the Distribution Date; provided that (i) Footstar
may terminate the Check Services by giving Melville 60 days'
written notice of such termination and (ii) Melville may terminate
the Check Services hereunder (x) if at any time such termination
is required (or continued provision of Check Services would result
in any penalty or other burdensome consequence or requirement
being imposed) by any federal or state regulatory agency or (y) as
provided in Section 9.02 of the Agreement.
Schedule 6.01(B)
INSURANCE CLAIMS ADMINISTRATION
Services and Related Agreements
On the terms and conditions set forth in this Exhibit and the
Agreement and for the Term set forth below, Melville will provide
to Footstar, and Footstar will purchase from Melville, claims
administration services ("Claims Services") relating to Footstar
general liability insurance claims made prior to the first
anniversary of the Distribution Date.
Melville shall maintain a special bank account (the "Claims
Account") for claims payment in connection with Claims Services.
Melville shall, on a weekly basis, render a statement to Footstar
of the amount of each claim to be paid pursuant to the provision
of Claims Services hereunder. Footstar shall, promptly upon
receipt of such statement, deposit (by wire transfer) the
aggregate amount of the claims covered by such statement into the
Claims Account. Melville shall make payment of claims by checks
drawn on the Claims Account, but shall only release such checks
once funds therefor have been so deposited by Footstar into the
Claims Account. In addition, Melville shall allow Footstar and/or
its agents reasonable access to its books and records relating to
Claims Services in order to perform claim reviews.
Within 15 days after the later of (i) the Distribution and (ii)
receipt by Footstar of an invoice therefor from Melville, Footstar
shall reimburse Melville for all claims handling charges and loss
disbursements made prior to the Distribution (whether billed or
unbilled by the Distribution Date). Additionally, at the close of
each month Melville will xxxx Footstar for all claims reported to
Melville the prior month. Upon termination of this Claims
Services agreement, all fees due and owed by Footstar through
termination will be paid within 15 days after the later of (x) the
termination date and (y) receipt by Footstar of an invoice
therefor from Melville.
Term
The term for the provision and purchase of Claims Services
hereunder shall be from the Distribution Date until the first
anniversary of the Distribution Date, unless theretofore
terminated by Melville as provided in Section 9.02 of the
Agreement or terminated by Footstar upon 30 days' notice to
Melville.
Upon termination, at Footstar's expense and with Melville's
co-operation, all open and outstanding claims will be copied and
moved to a third party processor of Footstar's choosing.
Additionally, Footstar will make arrangements at its expense for
moving and storing of all closed claims previously handled by the
Melville claims unit within a reasonable period of time not to
exceed 60 days.
CLAIMS RUNOUT
For a period of at least five years after the Distribution Date,
the Footstar Group will continue to have insurance coverage with
respect to claims made (i.e. claims runout) after the Distribution
Date in respect of claims or losses incurred or events occurring
prior to the Distribution Date (i) to the extent such claims or
losses are covered under Melville insurance policies under which
the Footstar Group or Footstar Business had coverage up to the
Distribution Date and (ii) on the terms in effect under such
policies at the time such pre-Distribution claims or losses were
incurred or events occurred. Notwithstanding anything else
contained herein, Melville will be liable for any deductible or
retention amounts under its directors and officers liability
insurance policies with respect to claims under such policies in
respect of individuals who were officers, directors and/or
employees of the Melville Group prior to the Distribution and
arising from acts, omissions or events occurring prior to the
Distribution.
Schedule 9.01
INTERCOMPANY ACCOUNTS
Effective January 1, 1996, Melville Corporation ("Melville") transferred the
ownership of its Meldisco and Xxxx XxXx divisions to a newly formed
subsidiary, Xxx Shoe Corporation ("Xxx Shoe"). At the time of this transfer,
these divisions maintained an inter-divisional book investment balance of
$730,004,787.02 with Melville. Xxx Shoe will be a subsidiary of Footstar, Inc.
("Footstar") which is scheduled to be spun off by Melville in the third
quarter of 1996.
Since its inception, Xxx Shoe has borrowed funds from Melville on an
inter-company basis to finance working capital and capital expenditure
requirements. In connection with the spin-off, Footstar and Melville have
agreed that Melville would retain $643,000,000 of the $730,004,787.02
inter-divisional book investment balance and contribute the remaining
$87,004,787.02 as a capital contribution to Footstar and/or its subsidiaries
(each a "Footstar Company"). This equity contribution will be used by the
Footstar Companies to repay a portion of the outstanding loan balance to
Melville. Had this capital contribution and repayment been made on August 7,
1996, the remaining aggregate balance owing to Melville as of such date would
have been $7,058,458.03. Other than this inter-divisional book investment
retention and capital contribution, all credits and debits between Melville
and its subsidiaries (other than the Footstar Companies) (the "Melville
Companies"), on the one hand, and the Footstar Companies, on the other hand,
since January 1, 1996 have been and shall be credited to, and debited from,
this inter-company balance, which will be the only inter-company balance
between the Footstar Companies and the Melville Companies. The net of such
inter-company balance will be repayable to Melville or the Footstar Companies,
as the case may be, on or prior to the spin-off date. That is, if the Footstar
Companies are in a borrowing position with Melville as of the spin-off date,
the Footstar Companies will repay their loan to Melville. If the Footstar
Companies are in an investment position with Melville as of the spin-off date,
Melville will repay this investment to the Footstar Companies.
Based on management's forecasts, it is anticipated that sufficient cash will
be generated by the Footstar Companies prior to the scheduled September 28,
1996 spin-off date to repay any remaining loan balance due to Melville. In
the event the cash flow is not sufficient to repay any such amount, the
Footstar Companies will be required to borrow under the $425,000,000 revolving
credit facility to repay Melville.
