Bankrupt shoe retailer Footstar Inc on Friday said it was "business as usual" at its Meldisco division despite threats from Kmart Corporation to end the licensing agreement which enables Meldisco to operate the footwear departments at Kmart stores nationwide.

West Nyack-based Footstar Inc, which has been operating under Chapter 11 bankruptcy court protection since March, said in a statement: "We intend to vigorously defend and pursue our right to assume the contract."

It added: ""The relationship between Footstar's Meldisco division and Kmart has been in place for more than 40 years and has been profitable and beneficial for both companies.

"Assumption of the contract makes good business sense, is in the best interests of all of Footstar's stakeholders, and will form a strong basis on which to develop a plan of reorganisation for a stand-alone Meldisco business and emerge from Chapter 11."

Footstar Inc filed a motion with the Bankruptcy Court on 12 August 2004 seeking its approval to assume the Kmart contract.

At the time it said its ability to reorganise depends upon its "continued ability to generate revenues through the sale of footwear at Kmart stores."

In its filing, however, Kmart said that Footstar has "flagrantly breached the trust and confidence" of their business relationship.

It said Footstar has failed to provide Kmart with its annual business plan and monthly cash-balance statements and has not made payments on time.

Footstar operates more than 2,300 footwear departments in Kmart, Rite Aid Corp and other retailers through its Meldisco unit.