Footstar and Kmart Settle Suit

New York City, Kmart will get $45 million. Footstar, which operates footwear departments in Kmart and is operating under bankruptcy protection, will get to keep selling shoes in Kmart stores. That’s the agreement in a nutshell between the two companies that have engaged in a prolonged disagreement over Footstar’s role in the discount chain.

Under the agreement, Footstar, which distributes licensed brands including Thom McAnn and Joe Boxer, will pay Kmart a “cure” amount of $45 million to resolve existing claims and will restructure the terms under which Kmart is compensated for sales in the Footstar Shoemart departments, which will be based on a percentage of sales rather than a percentage of sales and profits. Footstar will retain the right to operate in Kmart stores through Dec. 31, 2008, at which time Kmart will purchase substantially all of the remaining store inventory from Footstar at an amount equal to the book value of the inventory. Footstar’s proprietary brand names will remain the property of Footstar. In addition, Kmart has agreed not to dispose of more than an agreed upon number of existing Kmart stores, unless Footstar is provided with compensation as provided in the settlement.

The original Footstar-Kmart contract ran through 2012.

“The settlement preserves our business base for the next three-and-a-half years,” said Dale Hilpert, Footstar chairman and CEO.