Foot Locker (FL)

Performance-Based Annual Cash Bonus

We pay performance-based annual cash bonuses to our named executive officers under the Annual Incentive Compensation Plan (“Annual Bonus Plan”) in order to provide incentive for them to work toward the Company’s achievement of annual performance goals established by the Compensation Committee.

Target payments under the Annual Bonus Plan for named executive officers were set for 2007 as follows:

If the Company does not achieve threshold performance, as was the case in 2007, then no annual bonus is paid. Executives who do not receive a “meets expectations” rating or higher in their annual performance review are normally ineligible to receive an annual bonus payment for that year.

In 2007, the Compensation Committee increased the target payment under the Annual Bonus Plan for the named executive officers other than the Chief Executive Officer to 75 percent of base salary from 50 percent after having reviewed the likely status of pay-outs under the Company’s incentive plans, including the Long-Term Plan, for 2007 and considering the need to provide appropriate financial incentive to the Company’s senior executive group. This also resulted in an increase in both threshold and maximum payment levels for this group. The Chief Executive Officer’s payment levels were unchanged from the prior year. The Compensation Committee expects to review the appropriate target payment under the Annual Bonus Plan each year.

Our Annual Bonus Plan allows the Compensation Committee, in establishing performance targets under the plan, to choose one or more performance measures from a list of nine factors that have been approved by our shareholders. For 2007, for the named executive officers other than Mr. Halls, the Compensation Committee established a performance target under the Annual Bonus Plan based upon the Company’s achievement of prescribed levels of pre-tax income and return-on-invested-capital. Seventy percent of a participant’s award is based upon the pre-tax income target and 30 percent on the return-on-invested-capital target. All bonus targets and calculations are based on pre-tax income from continuing operations. The Annual Bonus Plan targets for 2007 were as follows:

Thus, if the Company had achieved pre-tax income of $399 million and return-on-invested-capital of 8.4 percent in 2007, the Chief Executive Officer would have received an annual bonus of 125 percent of his base salary and the other named executive officers (other than Mr. Halls) would have received annual bonuses of 75 percent of base salary. Bonus pay-outs are calculated on the basis of straight-line interpolation between the threshold, target, and maximum points. As the Company achieved neither the threshold level of pre-tax income nor the threshold level of return-on-invested-capital in 2007, we did not pay bonuses to corporate participants in the Annual Bonus Plan for 2007.

21

Mr. Halls’s target under the Annual Bonus Plan for 2007 was based upon the achievement by the operating divisions for which he has responsibility of a prescribed level of division profit. Division profit is a non-GAAP financial measure. It reflects income from continuing operations before income taxes, corporate expense, non-operating income, and net interest expense. A reconciliation of division profit to income from continuing operations is contained in the segment information footnote to our financial statements.

One of the performance measures we use in determining annual bonuses, return-on-invested-capital (ROIC), is also a non-GAAP financial measure. For purposes of calculating the annual bonus, we define ROIC as follows:

Certain items used in the calculation of ROIC, such as the implied interest portion of operating lease payments, certain unusual or non-recurring items, average estimated asset base of capitalized operating leases, and 13-month average inventory, while calculated from the financial records of the Company, cannot be calculated from our audited financial statements. Prior to the Compensation Committee determining whether bonus targets have been achieved, the Company’s independent registered public accounting firm, at the request, and for the restricted use, of the Compensation Committee, reviews the bonus calculations.

The performance targets established by the Compensation Committee are based upon the business plan and budget reviewed and approved each year by the Finance and Strategic Planning Committee and the Board of Directors. We believe that these targets are reasonably demanding as evidenced by our pay-out history over the past five years. During that time, we have paid an annual bonus to corporate officers between threshold and target once, between target and maximum twice, and we have paid no annual bonus twice.

Performance-based Annual Cash Bonus

We pay performance-based annual cash bonuses to our named executive officers under the Annual Incentive Compensation Plan (“Annual Bonus Plan”) in order to provide incentive for them to work toward the Company’s achievement of annual performance goals established by the Compensation Committee.

Target payments under the Annual Bonus Plan for named executive officers other than the Chief Executive Officer were set for 2006 at 50 percent of an executive’s base salary. Annual bonus amounts for the named executive officers other than the Chief Executive Officer may range from 12.5 percent of base salary if threshold performance is achieved to 87.5 percent of base salary if maximum performance is achieved. The Chief Executive Officer’s target payment is 125 percent of base salary, with a range from 31.25 percent of base salary at threshold to 200 percent at maximum. If the Company does not achieve threshold performance, as was the case in 2005, then no annual bonus is paid. Executives who do not receive a “meets expectations” rating or higher in their annual performance review are normally ineligible to receive an annual bonus payment for that year.

Our Annual Bonus Plan allows the Compensation Committee, in establishing performance targets under the plan, to choose one or more performance measures from a list of nine factors that have been approved by our shareholders. For 2006, the Compensation Committee established a performance target under the Annual Bonus Plan based upon the achievement of a prescribed level of combined pre-tax income and return-on-invested-capital. The Company must achieve 90 percent of target performance before a threshold-level bonus is paid, and the maximum pay-out level is reached if performance reaches 120 percent of the target.

The performance target established by the Compensation Committee is based upon the business plan and budget reviewed and approved each year by the Finance and Strategic Planning Committee and the Board of Directors. In the past three years, the targets established under the Annual Bonus Plan have required year-over-year improvement in pre-tax income in the range of 12 percent to 24 percent and year-over-year improvement in return-on-invested-capital in the range of 4.1 percent to 4.3 percent for payment of the target pay-out.

We believe that these targets are reasonably demanding as evidenced by our pay-out history over the past five years. During that time, we have paid an annual bonus to corporate officers between threshold and target once and between target and maximum three times. In one year we did not pay our corporate officers an annual bonus because the threshold performance level was not achieved.

The payment under the Annual Bonus Plan for 2006 for the named executive officers other than Mr. Halls was at slightly above the threshold level (39.61 percent of base salary in the case of Mr. Serra

18

and 15.84 percent in the case of Messrs. Mina, McHugh, and Bahler). This payment was based upon the Company’s pre-tax income and return-on-invested-capital performance in 2006 as compared to targets established by the Compensation Committee at the beginning of the year. As Mr. Halls served as President and Chief Executive Officer of our Champs Sports division for most of the year, he did not receive an annual bonus payment under the Annual Bonus Plan for 2006. He did receive a retention bonus of $250,000 for 2006.