<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TOYS "R" US, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
TOYS "R" US, INC.
461 FROM ROAD
PARAMUS, NJ 07652-3524
MICHAEL GOLDSTEIN
CHIEF EXECUTIVE OFFICER
April 19, 1996
Dear Stockholder:
I am pleased to invite you to our Company's 1996 Annual Meeting of
Stockholders on Wednesday, June 5, 1996, beginning at 10:00 AM. The meeting
will be held at the Long Island Marriott Hotel, located at 101 James Doolittle
Boulevard, Uniondale, New York.
1996 marks a time of important changes for our Company. We are particularly
excited to discuss our Babies "R" Us stores, our Concept 2000 stores, and our
Toys "R" Us superstore. Immediately following the meeting, we will tour our
first, newly opened, Babies "R" Us store in Westbury, Long Island, located
approximately 5 minutes by car from the Long Island Marriott. I hope you will
be able to attend the meeting and visit our Babies "R" Us store.
Directions and a map to the Long Island Marriott Hotel are included on the
back of this letter and can be easily detached from the proxy along the
perforated line. Please bring this map with you to the meeting as it will serve
as your admittance pass to the meeting. Additionally, in order to better
accommodate you, we ask that you contact us at 1-800-236-0397 to advise us that
you plan on attending the 1996 meeting.
Thank you for your interest.
Sincerely
/s/ Michael Goldstein
<PAGE>
[GRAPHIC OF MAP APPEARS HERE]
PLEASE PRESENT FOR ADMITTANCE INTO THE MEETING
<PAGE>
[LOGO OF TOYS "R" US(R)]
461 FROM ROAD
PARAMUS, NEW JERSEY 07652
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
JUNE 5, 1996
----------------
To the Stockholders of
TOYS "R" US, INC.
The Annual Meeting of Stockholders of Toys "R" Us, Inc. (the "Company") will
be held at the Long Island Marriott Hotel, 101 James Doolittle Boulevard,
Uniondale, New York 11553, on Wednesday, June 5, 1996 at 10:00 A.M., for the
following purposes:
1. to elect directors;
2. to consider and act upon a proposal to approve the 1995 grant of
options to each of Michael Goldstein and Robert C. Nakasone under a
new stock option agreement and plan;
3. to consider and act upon a proposal to amend the Company's Non-
Employee Directors' Stock Option Plan; and
4. to consider and transact such other business as may properly be
brought before the meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on April 15, 1996 will
be entitled to vote at the meeting.
Andre Weiss
Secretary
April 19, 1996
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED, SELF-
ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
TOYS "R" US, INC.
461 FROM ROAD
PARAMUS, NEW JERSEY 07652
----------------
ANNUAL MEETING OF STOCKHOLDERS
JUNE 5, 1996
----------------
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Toys "R" Us,
Inc., a Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held at the Long Island Marriott Hotel, 101 James Doolittle
Boulevard, Uniondale, New York 11553, on Wednesday, June 5, 1996 at 10:00 A.M.,
or at any adjournment or adjournments thereof.
A stockholder who executes a proxy may revoke it at any time before it is
voted. Attendance at the meeting shall not have the effect of revoking a proxy
unless the stockholder so attending shall, in writing, so notify the secretary
of the meeting at any time prior to the voting of the proxy. A proxy that is
properly signed and not revoked will be voted for the nominees for election as
directors listed herein unless contrary instructions are given or the persons
named in the proxy elect to exercise their discretionary authority to
accumulate votes in favor of less than all nominees. As to the other matters to
be presented at the meeting, all proxies received pursuant to this solicitation
will be voted except as to matters where authority to vote is specifically
withheld. Where a choice is specified as to a proposal, they will be voted in
accordance with such specification, and if no instructions are given, the
persons named in the proxy intend to vote FOR approval of each of (i) the
proposal to approve the grant of options to Messrs. Goldstein and Nakasone and
(ii) the proposal to amend the Company's Non-Employee Directors' Stock Option
Plan (together, the "Proposals"). The Board of Directors knows of no other
business to come before the meeting, but if other matters properly come before
the meeting, the persons named in the proxy intend to vote thereon in
accordance with their best judgment.
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, directors, officers and employees of the Company may
solicit proxies by telephone or otherwise. The Company will reimburse brokers
or other persons holding stock in their names or in the names of their nominees
for their charges and expenses in forwarding proxies and proxy material to the
beneficial owners of such stock. It is anticipated that the mailing of this
Proxy Statement will commence on or about April 19, 1996.
VOTING SECURITIES
The Company had outstanding 273,469,926 shares of common stock ("Common
Stock") at the close of business on April 15, 1996, which are the only
securities of the Company entitled to be voted at the meeting. Each share of
Common Stock is entitled to one vote (except as stated below under "Election of
Directors") on each matter as may properly be brought before the meeting. Only
stockholders of record at the close of business on April 15, 1996 will be
entitled to vote.
With regard to the election of directors, votes may be cast in favor of or
withheld from each nominee. Directors are elected by a plurality of the votes
cast in the election. Votes that are withheld will be excluded entirely from
the vote and will have no effect. Abstentions may be specified on any proposal
other than the election of directors and will be counted as present for
purposes of determining the existence of a quorum regarding such proposal.
Pursuant to applicable law, abstentions will have the same effect as a negative
vote.
<PAGE>
Under the rules of the New York Stock Exchange, brokers who hold shares in
street name have the authority to vote on certain "routine" matters when they
have not received instructions from beneficial owners. Brokers that do not
receive instructions are entitled to vote on the election of directors and the
Proposals. Under applicable law, a broker non-vote will have no effect on the
outcome of the election of directors or the Proposals.
Proxies identifying individual stockholders are confidential except: (i) as
necessary to determine compliance with law or assert or defend legal claims;
(ii) as necessary to allow the inspector of elections to certify the results of
a vote; (iii) in the event that a stockholder expressly authorizes disclosure
with respect to his or her vote; (iv) in certain circumstances in a contested
proxy solicitation; or (v) in the event that a stockholder makes a written
comment on a proxy card or an attachment to it. The Company retains an
independent organization to tabulate stockholder votes and to certify voting
results.
PRINCIPAL STOCKHOLDERS
As of April 15, 1996, there were no persons, entities or groups known to the
Company to be the beneficial owner of more than five percent of the Common
Stock. This determination was based on a review of all statements filed with
respect to the Company since the beginning of the past fiscal year with the
Securities and Exchange Commission pursuant to Section 13(d) or 13(g) of the
Securities Exchange Act of 1934, as amended.
ELECTION OF DIRECTORS
In accordance with the recommendation of its Nominating Committee, the Board
of Directors proposes for election at the Annual Meeting of Stockholders the 10
persons listed below to serve (subject to the Company's By-Laws) as directors
of the Company until the next annual meeting and until the election and
qualification of their successors. All such nominees with the exception of
RoAnn Costin are current directors of the Corporation and, with the additional
exception of Norman S. Matthews, were elected by the stockholders at the annual
meeting held in 1995. If any such person should be unwilling or unable to serve
as a director of the Company (which is not anticipated) the persons named in
the proxy will vote the proxy for substitute nominees selected by them unless
the number of directors has been reduced to the number of nominees willing and
able to serve.
In electing directors, holders of Common Stock have cumulative voting rights;
that is, each holder of record of Common Stock shall be entitled to as many
votes as shall equal the number of shares owned of record multiplied by the
number of directors to be elected, and may cast all of such votes for a single
director or may distribute them among all or some of the directors to be voted
for, as such holder sees fit. Unless contrary instructions are given, the
persons named on the proxy will have discretionary authority to accumulate
votes in the same manner.
2
<PAGE>
Certain information for each nominee for director is set forth below:
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
OWNED AS OF
MARCH 12, PERCENT
PRINCIPAL OCCUPATION, EMPLOYMENT, ETC. 1996 OF CLASS
-------------------------------------- ------------ --------
<S> <C> <C>
Robert A. Bernhard.............................................. 41,841(a)(b) *
Private real estate developer since prior to 1991; director
of the Company since 1980; age 69 years.
RoAnn Costin.................................................... 500 *
President of Reservoir Capital Management, Inc., an invest-
ment management firm, since April 1992; Senior Vice President
of The Putnam Companies, a Boston investment group, since
prior to 1991 to April 1992; Nominee for director of the Com-
pany; age 43 years.
Michael Goldstein............................................... 681,375(c) *
Vice Chairman of the Board and Chief Executive Officer of the
Company since February 1994 (also Chief Administrative Offi-
cer of the Company since prior to 1991 to February 1994 and
Chief Financial Officer since prior to 1991 to January 1993);
director of the Company since 1989; age 54 years.
Milton S. Gould................................................. 33,554(b) *
Of Counsel to the New York City law firm of LeBoeuf, Lamb,
Greene & MacRae since March 1994; Senior Partner of the New
York City law firm of Shea & Gould since prior to 1991 to
March 1994; director of the Company since 1978; age 86 years.
Shirley Strum Kenny............................................. 9,787(b)(d) *
President of The State University of New York at Stony Brook
since September 1994; President of Queens College of The City
University of New York since prior to 1991 to August 1994;
director of the Company since 1990; director of Computer As-
sociates International, Inc.; age 61 years.
Charles Lazarus................................................. 1,411,491(e) *
Chairman of the Board since prior to 1991; Chief Executive
Officer of the Company since prior to 1991 to February 1994;
director of the Company since 1969; director of Automatic
Data Processing, Inc. and Loral Corporation; age 72 years.
Norman S. Matthews.............................................. -0- *
Independent retail consultant since prior to 1991; President
of Federated Department Stores, Inc. from 1987 to 1988 and
Vice Chairman of the Board of Federated Department Stores,
Inc. from 1983 to 1988; director of the Company since Decem-
ber 1995; director of Lechters Inc., Loehman's Inc., Finlay
Fine Jewelry Corporation, Progressive Corp. and Eye Care Cen-
ters of America, Inc.; age 63 years.
Howard W. Moore................................................. 98,000(f) *
President of Howard Moore Associates, business consultants,
since prior to 1991; director of the Company since 1984; age
65 years.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
OWNED AS OF
MARCH 12, PERCENT
PRINCIPAL OCCUPATION, EMPLOYMENT, ETC. 1996 OF CLASS
-------------------------------------- ------------ --------
<S> <C> <C>
Robert C. Nakasone.............................................. 724,155(g) *
President and Chief Operating Officer since February 1994;
Vice Chairman of the Board and President of Worldwide Toy
Stores of the Company since prior to 1991 to February 1994;
director of the Company since 1989; director of Staples,
Inc.; age 48 years.
Harold M. Wit................................................... 14,727(b) *
Managing Director, Director and a member of the Executive
Committee of Allen & Company Incorporated, investment bank-
ers, since prior to 1991; director of the Company since 1978;
age 67 years.
</TABLE>
- --------
(a) Includes 5,422 shares owned by a profit sharing plan of which Mr. Bernhard
is the sole beneficiary. Also includes 28,919 shares beneficially owned by
his wife, as to which shares Mr. Bernhard disclaims beneficial ownership.
(b) Includes 7,000 shares with respect to which such person has the right to
acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares are
deemed outstanding.
(c) Includes 582,804 shares with respect to which Mr. Goldstein has the right
to acquire beneficial ownership upon exercise of currently exercisable
options. Also includes 65,313 shares beneficially owned and required to be
held for a minimum of two years from the date on which such shares were
deposited in a trust established by the Company (the "Grantor Trust"); Mr.
Goldstein does not have voting power with respect to the shares held in the
Grantor Trust. The percentage of Mr. Goldstein's aggregate ownership is
calculated on the basis that all such shares are deemed outstanding.
(d) Includes 1,000 shares beneficially owned by a trust of which Ms. Kenny is
co-trustee, as to which shares Ms. Kenny disclaims beneficial ownership,
and the percentage is calculated on the basis that such shares are deemed
outstanding.
(e) Includes 1,125,000 shares with respect to which Mr. Lazarus has the right
to acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares are
deemed outstanding.
(f) Includes 67,000 shares with respect to which Mr. Moore has the right to
acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares are
deemed outstanding.
(g) Includes 531,324 shares with respect to which Mr. Nakasone has the right to
acquire beneficial ownership upon exercise of currently exercisable
options. Also includes 124,548 shares beneficially owned and required to be
held for a minimum of two years from the date on which such shares were
deposited in the Grantor Trust; Mr. Nakasone does not have voting power
with respect to the shares held in the Grantor Trust. Additionally,
includes 2,925 shares beneficially owned by his minor children as to which
shares Mr. Nakasone disclaims beneficial ownership. The percentage of Mr.
Nakasone's aggregate ownership is calculated on the basis that all such
shares are deemed outstanding.
- --------
* Less than 1% of the outstanding Common Stock.
The address of each person named in the table above is c/o Toys "R" Us, Inc.,
461 From Road, Paramus, New Jersey 07652.
As of March 12, 1996, all present executive officers and directors of the
Company as a group (17 persons) owned beneficially 3,935,726 shares of Common
Stock (including 3,462,402 shares with respect to which such persons had the
right to acquire beneficial ownership as of such date and shares beneficially
owned by the family members of certain executive officers and directors as to
which shares such executive officers and directors disclaim beneficial
ownership), which constituted approximately 1.44% of the shares deemed
4
<PAGE>
outstanding on that date. Except for shares beneficially owned by such family
members and shares deposited in the Grantor Trust, such executive officers and
directors have sole voting power and sole investment power with respect to such
shares. In addition, as of March 12, 1996, Named Officers (as hereinafter
defined) not identified in the table above, Roger V. Goddu, President--U.S. Toy
Store Merchandising Division, owned beneficially 303,823 shares of Common Stock
(including 301,550 shares with respect to which Mr. Goddu had the right to
acquire beneficial ownership as of such date and 2,273 shares beneficially
owned by certain family members of Mr. Goddu, as to which Mr. Goddu disclaims
beneficial ownership); Richard L. Markee, President of Kids "R" Us and Babies
"R" Us Divisions, owned beneficially 170,358 shares of Common Stock (including
170,300 shares with respect to which Mr. Markee had the right to acquire
beneficial ownership as of such date); and Gregory R. Staley, President of Toys
"R" Us International Division, owned beneficially 137,944 shares of Common
Stock (including 137,300 shares with respect to which Mr. Staley had the right
to acquire beneficial ownership as of such date) (each less than 1% of the
shares deemed outstanding on such date).
The Board of Directors held six meetings during the Company's last fiscal
year. The Board of Directors has an Executive Committee, a Nominating
Committee, an Audit Committee, a Management Compensation and Stock Option
Committee (the "Compensation Committee"), and an Operating Committee.
The Executive Committee currently has as its members Michael Goldstein,
Milton S. Gould, Charles Lazarus, Robert C. Nakasone and Harold M. Wit. The
Executive Committee of the Board of Directors has and may exercise all the
powers and authority of the full Board of Directors, subject to certain
exceptions. The Executive Committee took action once by unanimous written
consent during the Company's last fiscal year.
The Nominating Committee currently has as its members three directors who are
not officers or employees of the Company: Robert A. Bernhard, Shirley Strum
Kenny and Harold M. Wit (Chairperson). The Nominating Committee recommends to
the Board of Directors the individuals to be nominated for election as
directors at the annual meeting of stockholders and has the authority to
recommend the individuals to be elected as directors to fill any vacancies or
additional directorships which may arise from time to time on the Board of
Directors. The Nominating Committee considers nominations made in accordance
with the procedure in the following paragraph. The Nominating Committee held
one meeting during the Company's last fiscal year.
The Company's By-Laws provide that nominations for the election of directors
may be made by any stockholder in writing, delivered or mailed by first class
mail to the Secretary of the Company, Toys "R" Us, Inc., 461 From Road,
Paramus, New Jersey 07652, not less than 14 days nor more than 50 days prior to
the meeting, except that if less than 21 days' notice of the meeting is given,
such written notice shall be delivered or mailed not later than the close of
the tenth day following the day on which notice of the meeting was mailed. Each
notice shall set forth (i) the name, age, business address and, if known,
residence address of each nominee proposed in such notice, (ii) the principal
occupation or employment of each such nominee, and (iii) the number of shares
of stock of the Company which is beneficially owned by each such nominee. If
the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedure, such nomination shall be disregarded.
The Audit Committee currently has as its members three directors who are not
officers or employees of the Company: Shirley Strum Kenny, Norman M. Schneider
and Harold M. Wit (Chairperson). The Audit Committee held two meetings during
the Company's last fiscal year. The Audit Committee (i) reviews the procedures
employed in connection with the internal auditing program and accounting
procedures, (ii) consults with the independent auditors, (iii) reviews the
reports submitted by such independent auditors and (iv) makes such reports and
recommendations to the Board of Directors as it may deem appropriate.
The Compensation Committee currently has as its members four directors who
are not current or former officers or employees of the Company: Robert A.
Bernhard, Milton S. Gould, Norman S. Matthews and Norman M. Schneider. The
Compensation Committee held four meetings and took action twelve times by
unanimous written consent during the Company's last fiscal year. The
Compensation Committee reviews management compensation standards and practices
and functions as the independent committee under certain
5
<PAGE>
of the Company's compensation plans. (See "Report of the Compensation Committee
on Executive Compensation.")
The Operating Committee consists of three directors and has as its members
Charles Lazarus, Michael Goldstein and Robert C. Nakasone. The Operating
Committee is authorized to incur indebtedness on behalf of the Company within
limits established by the full Board. The Operating Committee took action three
times by unanimous written consent during the Company's last fiscal year.
As a consequence of the proposed changes to the Board of Directors of the
Company since the 1995 Annual Meeting of Stockholders, the Company anticipates
that the composition of the committees of the Board of Directors, to become
effective as of the meeting of the Board of Directors scheduled for June 5,
1996, immediately after the 1996 Annual Meeting of Stockholders, will be as
follows: The Executive Committee: Charles Lazarus (Chairperson), Michael
Goldstein, Norman S. Matthews, Robert C. Nakasone and Harold M. Wit; the
Nominating Committee: Shirley Strum Kenny (Chairperson), RoAnn Costin and
Robert A. Bernhard; the Audit Committee: Harold M. Wit (Chairperson), RoAnn
Costin and Shirley Strum Kenny; and the Compensation Committee: Robert A.
Bernhard (Chairperson), Milton S. Gould and Norman S. Matthews.
COMPENSATION OF DIRECTORS
Directors who are not officers or employees of the Company or any of its
subsidiaries ("Non-Employee Directors") each receive $20,000 per annum for
service on the Board and an additional $1,000 for attending any meetings of the
Board and any committee meetings held on a date other than the date of Board
meetings. Directors who are also officers or employees of the Company receive
no additional compensation for services as a director, committee participation
or special assignments.
In addition, effective November 1, 1995, each Non-Employee Director was
granted options to purchase 1,000 shares of Common Stock under the Company's
Non-Employee Directors' Stock Option Plan (the "Director's Plan"). Subject to
certain conditions, one-fifth of such options become exercisable on a
cumulative basis on each anniversary of the date of grant at an exercise price
of $22.06 per share, the market value of Common Stock on the date of grant.
Options expire ten years after the date of grant. If the proposed amendment to
the Director's Plan is approved by the stockholders, (i) Norman S. Matthews,
who was elected to the Board of Directors on December 6, 1995, will receive an
option to purchase 10,000 shares of Common Stock with an exercise price of
$23.44 per share, the market value of Common Stock on December 6, 1995; (ii)
RoAnn Costin, if duly elected to the Board of Directors at the 1996 Annual
Meeting of Stockholders, will receive on June 5, 1996, an option to purchase
10,000 shares of Common Stock with an exercise price equal to the fair market
value of the Common Stock on such date; and (iii) effective November 1, 1996,
each Non-Employee Director will be granted an option to purchase 2,500 shares
of Common Stock (instead of options to purchase 1,000 shares of Common Stock
currently granted annually), with an exercise price equal to the fair market
value of the Common Stock on such date. See "Proposal to Amend the Company's
Non-Employee Directors' Stock Option Plan."
Effective January 31, 1994, Charles Lazarus terminated his employment as
Chief Executive Officer of the Company and, pursuant to his employment
agreement, exercised his right to become a consultant to the Company for a
five-year period. As a consultant, Mr. Lazarus is obligated to render such
consulting services as may be requested by the Board of Directors at such times
as may be mutually convenient for the Company and Mr. Lazarus. Mr. Lazarus is
entitled to receive as compensation during the five-year consulting period the
following amounts: for the first year an amount equal to his total compensation
(base salary and incentive compensation) received for the full fiscal year
prior to his becoming a consultant (for the fiscal year ended January 29, 1994)
and for the second through fifth years, 90%, 80%, 70% and 60% of such amount,
respectively. Therefore, for the fiscal year ended February 3, 1996, Mr.
Lazarus received $7,076,277 in consulting fees. The employment agreement also
provides that Mr. Lazarus is entitled to receive a payment of $200,000 a year
for five years commencing at the termination of his consulting period and is
obligated to refrain from competing either directly or indirectly with any
business carried on by the Company during the term of his consulting period and
for three years thereafter.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, for the Company's last three fiscal years,
the annual and long-term compensation of those persons who were, at February 3,
1996, (i) the chief executive officer, and (ii) the other four most highly
compensated executive officers of the Company (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------ ------------
NAME AND PRINCIPAL FISCAL STOCK ALL OTHER
POSITION YEAR ENDED SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
------------------ ---------- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Michael Goldstein............ 2/3/96 800,000 135,375(2) 303,430(3) 299,711
Vice Chairman of the Board 1/28/95 800,000 402,700 -0- 16,500
and Chief Executive Officer 1/29/94 175,000 772,753 425,000 25,942
Robert C. Nakasone........... 2/3/96 800,000 135,375(2) 332,901(3) 303,932
President and Chief 1/28/95 800,000 402,700 -0- 16,500
Operating Officer 1/29/94 210,000 772,753 425,000 25,942
Roger V. Goddu............... 2/3/96 435,577 57,000(2) 197,800 118,214
President of U.S. Toy Store 1/28/95 375,000 141,574 30,000 16,500
Merchandising Division 1/29/94 200,000 257,584 190,000 25,942
Richard L. Markee............ 2/3/96 366,154 49,875(2) 147,800 103,036
President of Kids "R" 1/28/95 350,000 166,420 30,000 16,500
Us and Babies "R" Us 1/29/94 275,000 157,885 72,500 25,942
Divisions
Gregory R. Staley(4)......... 2/3/96 306,539 49,875(2) 99,800 64,355
President of Toys "R"
Us International Division
</TABLE>
- --------
(1) "All Other Compensation" represents the Company's contributions to the "TRU"
Partnership Employees' Savings and Profit Sharing Plan (the "Profit Sharing
Plan") and, as to fiscal year ended February 3, 1996, to its Supplemental
Executive Retirement Plan (the "SERP") for the accounts of the Named
Officers. See "Report of the Compensation Committee on Executive
Compensation."
(2) Amounts relate to long-term performance unit awards. See "Report of the
Compensation Committee on Executive Compensation."
(3) See footnotes 1 and 2 of "Option Grants in Last Fiscal Year" table on page
8.
(4) Prior to August 28, 1995, Mr. Staley was not an executive officer of the
Company.
7
<PAGE>
The following table sets forth information concerning grants of stock options
to the Named Officers for the Company's fiscal year ended February 3, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------- ------------
SHARES OF
COMMON STOCK % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE GRANT DATE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION PRESENT
GRANTED(#) FISCAL YEAR(4) (PER SHARE)($) DATE VALUE ($)(5)
------------ --------------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Michael Goldstein....... 270,000(1) 1.94 25.44 5/17/2005 2,361,591
33,430(2) .24 28.13 2/02/1998 223,041
Robert C. Nakasone...... 270,000(1) 1.94 25.44 5/17/2005 2,361,591
62,901(2) .45 28.13 2/02/1998 419,668
Robert V. Goddu......... 197,800(3) 1.42 25.44 5/17/2005 1,730,084
Richard L. Markee....... 147,800(3) 1.06 25.44 5/17/2005 1,292,752
Gregory R. Staley....... 55,800(3) .40 25.44 2/17/2004 488,062
19,000(3) .14 25.44 5/17/2005 166,186
25,000(3) .18 24.94 5/30/2005 214,368
</TABLE>
- --------
(1) Option grant subject to stockholder approval. See "Proposal to Approve the
1995 Grant of Options to Each of Michael Goldstein and Robert C. Nakasone."
Upon exercise of the options, the number of shares having a value equal to
the aggregate fair market value over the exercise price of the options is
generally subject to forfeiture if the grantee does not remain with the
Company until the fifth anniversary from the date the options were granted.
(2) Restoration options received pursuant to the Toys "R" Us, Inc. 1994 Stock
Option and Performance Incentive Plan, as amended (the "1994 Plan"). See
"Report of the Compensation Committee on Executive Compensation."
(3) Non-qualified stock options granted May 1995 under the 1994 Plan. Such
options became exercisable six months after the date of grant. Upon exercise
of the options, the number of shares having a value equal to the aggregate
fair market value over the exercise price of the options is generally
subject to forfeiture if the grantee does not remain with the Company until
the fifth anniversary from the date the options were granted. See "Report of
the Compensation Committee on Executive Compensation."
(4) Based on a total of 13,909,565 options granted to 31,811 employees of the
Company.
(5) The hypothetical present values on grant date are calculated under the
modified Black-Scholes Model, which is a mathematical formula used to value
options traded on stock exchanges. This formula considers a number of
factors in hypothesizing an option's present value. Factors used to value
original 1995 options at date of grant include the stock's expected
volatility rate (27%), risk-free rate of return (6.7%), current dividend
yield (0%), projected time of exercise (7 years) and projected risk of
forfeiture rate for vesting period (5% per annum). Restoration option values
are calculated using the same model and factors as original options, except
that the projected date of exercise is the remaining term of the prior
option (2.6 years) and the stock's expected volatility rate (28%) and risk-
free rate of return (5.7%) are calculated at date of grant of the
restoration option.
8
<PAGE>
The following table sets forth information concerning the exercise of options
by the Named Officers and the value of unexercised options of the Named
Officers for the Company's fiscal year ended February 3, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK VALUE OF
VALUE UNDERLYING UNEXERCISED
SHARES OF REALIZED ($) UNEXERCISED IN-THE-MONEY
COMMON (MARKET PRICE OPTIONS AT OPTIONS AT
STOCK AT EXERCISE FY-END (#) FY-END ($)
ACQUIRED ON LESS EXERCISE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) PRICE) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Michael Goldstein....... 64,197 878,215(1) 681,733 4,260,491
545,000(2) 0
Robert C. Nakasone...... 120,792 1,652,435(1) 722,211 4,354,601
545,000(2) 0
Roger V. Goddu.......... -- -- 301,550(3) 383,063
250,000 0
Richard L. Markee....... -- -- 170,300(3) 17,400
117,500 0
Gregory R. Staley....... -- -- 137,300(3) 106,425
7,500 0
</TABLE>
- --------
(1) The amounts set forth under "Value Realized" for Messrs. Goldstein and
Nakasone are in the form of shares of the Company's Common Stock which are
being held in trust by the Company for two years from date of exercise.
Such shares were acquired under the provisions of the restoration option
feature of the 1994 Plan, which encourages continuing employee ownership of
the Company's Common Stock.
(2) Included in the totals for "Unexercised Options--Unexercisable" for Messrs.
Goldstein and Nakasone are 270,000 options, subject to stockholder approval
at the 1996 Annual Meeting of Stockholders. See "Proposal to Approve the
1995 Grant of Options to Each of Michael Goldstein and Robert C. Nakasone."
Once approved, the options become exercisable, and upon exercise, the
shares acquired having a value equal to the aggregate fair market value
over the exercise price of the options are generally subject to forfeiture
if the grantee does not remain with the Company until the fifth anniversary
from the date such options were granted.
(3) Included in the totals for "Unexercised Options--Exercisable" are 197,800,
147,800, and 99,800 options for Messrs. Goddu, Markee, and Staley,
respectively. Such options, although exercisable, provide that the shares
acquired upon the exercise of such options having a value equal to the
aggregate fair market value over the exercise price of such options are
generally subject to forfeiture if the grantee does not remain with the
Company until the fifth anniversary from the date such options were
granted.
9
<PAGE>
REPORT OF THE MANAGEMENT COMPENSATION AND STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee is composed entirely of independent outside
directors, none of whom is currently or was formerly an executive officer or
employee of the Company. The Board of Directors has delegated to the Committee
the authority to review and consider the Company's management compensation
standards and practices and to recommend to the Board of Directors on an annual
basis the compensation to be paid to the Chief Executive Officer and the other
executive officers of the Company. The Committee's responsibilities include
administering the Company's stock option plans and agreements and approving all
grants to be made in connection therewith, and administering, setting
performance goals and approving awards under the Toys "R" Us, Inc. Management
Incentive Compensation Plan (the "Incentive Plan").
The Company's executive compensation program is based on its pay for
performance policy and has been designed to:
. attract high-caliber talent at both the entry and mid-career levels to
meet the organization's executive resource needs;
. attract and retain top-performing executives at the corporate level and in
each of the divisions;
. provide compensation opportunities that are fair and competitive with
those offered by comparable organizations;
. motivate and reward executives based on corporate, division and/or
individual annual and long-term business performance, strategic progress
and the creation of stockholder value; and
. reinforce the mutuality of interest with the Company's stockholders by
linking a major portion of total compensation to the financial results of
the Company or relevant division and the market value of the Common Stock.
In accordance with the responsibilities delegated by, and subject to the
oversight of the Board of Directors, at the beginning of the year, the
Compensation Committee reviews the Company's near and long-term strategies and
objectives with the Chief Executive Officer. These form the basis for adopting
or modifying division and corporate annual operating income and net income plan
goals recommended by the Chief Executive Officer. Based on this review, the
Compensation Committee establishes the Company's total compensation structure
for the year, including the elements and level of compensation opportunities
and the variable portion of "at risk" pay for performance and equity
participation. The Compensation Committee considers, among other matters,
marketplace pay levels and practices, as well as the Company's need to continue
to attract, retain and motivate employees. Such compensation structure is
discussed with the Board of Directors, which is asked to ratify base salary
amounts for officer level employees, including the Company's executive
officers.
At year-end, the Compensation Committee, in consultation with the Chief
Executive Officer, assesses results achieved and strategic progress relative to
previously approved goals, taking into consideration prevailing economic and
business conditions and opportunities, performance by comparable organizations,
and stockholder value. No particular weightings are assigned by the
Compensation Committee to any such factors. Based on this assessment, the
Committee reviews and considers the Chief Executive Officer's year-end
compensation proposals.
In 1995, the Compensation Committee was assisted in its review and evaluation
by Pearl Meyer & Partners, Inc. ("Pearl Meyer"), executive compensation
consultants retained by the Compensation Committee to serve as outside experts
in the discharge of its responsibilities. Pearl Meyer provided advice to the
Compensation Committee with respect to the reasonableness, fairness and
competitiveness of compensation awarded to executive officers of the Company,
including the Chief Executive Officer. In so
10
<PAGE>
doing, Pearl Meyer reviewed with the Compensation Committee survey data
regarding compensation levels and practices by a peer group of comparable
companies, including (i) the companies in the Standard & Poors Specialty Retail
Index appearing in the Common Stock Performance Graph contained herein that
Pearl Meyer considered relevant for these purposes and (ii) other organizations
regarded by Pearl Meyer as the marketplace for critical management talent at
the Company.
COMPENSATION OF EXECUTIVE OFFICERS
Total compensation for target performance under the Company's compensation
program for executive officers for 1995 was generally positioned at the 50th to
the 75th percentile of the peer group, depending upon the individuals level,
position, responsibilities and the degree of difficulty and challenge
associated with 1995's performance objectives. The Compensation Committee has
balanced the program with a high proportion of compensation based on variable
performance incentives so that actual annual and long-term compensation levels
will vary from year to year below and above those of the peer group directly
with results achieved by the Company and the individual.
The Company's 1995 compensation program for executive officers, including the
Chief Executive Officer, was comprised of base salary, annual cash incentive,
and long-term incentive compensation in the form of stock options and
performance unit awards. Over two-thirds of the targeted regular total
compensation of the Chief Executive Officer and all other executive officers of
the Company for 1995 was based upon achieving performance targets relating to
annual and long-term business goals and the market price of the Common Stock.
BASE SALARIES. Salaries are established in consideration of the Company's
overall financial performance as well as the competitive marketplace (as
discussed above) at the appropriate level relative to the position,
responsibilities and performance of each executive officer. The Compensation
Committee is aware that the responsibilities and contributions of certain of
the Company's executive officers transcend those generally associated with
similar positions in the peer group. The base salaries of the Chief Executive
and Chief Operating Officers were not increased in 1995.
ANNUAL CASH INCENTIVES. Executive officers, including the Chief Executive
Officer, participate in the Incentive Plan under which annual cash incentives
are awarded based entirely on achievement relative to targeted performance
goals for the year. For 1995, the performance goal was based upon corporate
consolidated pre-tax earnings for all executive officers, and division or
combined division and corporate pre-tax earnings for certain executive officers
who also have divisional responsibilities. Because the threshold earnings goals
set by the Compensation Committee were not achieved for 1995, no bonuses were
awarded under the foregoing program for 1995 to any executive officer of the
Company, including the Chief Executive Officer.
STOCK OPTION AND PERFORMANCE UNIT AWARDS AND OTHER MATTERS. During 1995, the
Compensation Committee grew increasingly concerned regarding the Company's
ability to attract and motivate qualified executive officers and other key
employees and about the risk of losing such critical talent in a period of
increasing competition, depressed market prices for the Company's Common Stock
and difficult business conditions. Accordingly, the Compensation Committee
commissioned Pearl Meyer to prepare a special in-depth study of the Company's
long-term compensation plans and practices. The study indicated that the
Company's overall and long-term compensation had fallen significantly below
those of other retailers. Accordingly, the Compensation Committee took certain
actions, as described below, in order to retain and motivate its executive
officers and other key employees to achieve the Company's long-term performance
goals.
Stock Options. Stock options have long been a cornerstone of the Company's
program for executive officer and employee compensation. Through this incentive
to create stockholder value and become an owner of Toys "R" Us Common Stock,
the Compensation Committee created and strengthened the mutuality of interest
over the years between the Company's employees and stockholders in the
Company's growth in real value over the long-term.
11
<PAGE>
As a result of the Pearl Meyer special study, the Compensation Committee made
supplementary grants of nonqualified stock options in 1995 to executive
officers, including the Chief Executive Officer, and other key employees which
the Compensation Committee believed would serve to reinforce the Company's
ability to retain and motivate its highly qualified management team. Such stock
options have an exercise price of $25.44 per share, the market price of the
Company's Common Stock on the date of grant, and became exercisable six months
after the date of grant. The shares received upon exercise of such options
having an aggregate market value in excess of the aggregate exercise price of
the options so exercised are generally subject to forfeiture if the optionee
does not remain with the Company until the fifth anniversary from the date of
option grant.
In order to promote increased executive share ownership by encouraging the
early exercise of options and retention of shares, the Compensation Committee
amended the 1994 Plan to provide for the grant of non-qualified stock options
upon the exercise of options. Under this feature, if an executive uses shares
of Common Stock already owned to pay for the exercise price of a stock option
and/or the related withholding taxes, the executive will receive a new option
(a "Restoration Option") for an equal number of shares of Common Stock at the
then current market price. A Restoration Option grant does not dilute
stockholders' holdings of Company shares since the number of shares of Common
Stock and options held by an executive prior to exercise is not increased. A
Restoration Option becomes fully exercisable six months after the date of grant
and is subject to the same forfeiture provisions as the original options. The
term of a Restoration Option is the remaining life of the original option at
the time the original option is exercised. The Compensation Committee has
reserved the authority to impose certain penalties on an executive who
exercises an original option, receives a Restoration Option and sells shares
representing the profits realized upon exercise of the original option within
two years following such exercise.
Performance Unit Awards. To enable the Company to offer its executive
officers and other key employees long-term incentive opportunities on a
performance basis which are competitive with those provided by its peer
companies, the Compensation Committee established a long-term performance
program that will be phased in over a three-year period by granting units under
the Incentive Plan to those whose decisions and performance are critical to the
future success of the Company. Each unit awarded annually represents the right
to receive a payment in cash and/or stock (at the discretion of the
Compensation Committee) based upon the attainment of earnings per share levels
exceeding an earnings per share hurdle established by the Compensation
Committee for the designated performance period. During the first year of this
long-term incentive plan, the awards were measured on one year results.
Therefore, such amounts are shown under "Annual Compensation--Bonus" in the
Summary Compensation Table. For 1995, the Compensation Committee, as part of
its year-end review, determined that the results achieved would be computed
before giving effect to the Company's year-end restructuring charge of $270
million. The Compensation Committee also amended the Incentive Plan to permit
awards to be deferred or paid in the form of Common Stock, provided such awards
remain deductible under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code").
Performance unit awards by the Compensation Committee are made within a
guideline which takes into account competitive practices and the position's
responsibilities, current performance and future potential of each individual
executive officer, including the Chief Executive Officer.
Deferred Plan. The Compensation Committee also established a deferred
compensation plan for certain management employees in order to encourage long-
term ownership of Common Stock and to provide a method for capital accumulation
by such management employees. Unvested shares acquired upon exercise of stock
options are required to be held until the forfeiture period with respect to
such shares expires. Such shares are held in a grantor trust established by the
Company for the purpose of holding assets deferred under the deferred
compensation plan. The deferred compensation plan also permits management
employees to defer receipt of their salary, awards under the Incentive Plan and
other compensation.
SERP. Since 1986, the benefits to management employees under the Company's
qualified retirement plan have been reduced as a result of restrictions imposed
by the Code. The Compensation Committee established the SERP to restore those
benefits lost during the three most recent years and to restore benefits
12
<PAGE>
to such employees to a level that they would have received under the "TRU"
Partnership Employees' Savings and Profit Sharing Plan in the absence of the
tax law changes limiting the amount of contributions that may be made under a
qualified retirement plan.
TAX CONSIDERATIONS. The Compensation Committee intends that all compensation
paid to executive officers, to the extent possible, will qualify for
deductibility under Section 162(m) of the Code, which limits, in certain
circumstances, the deductibility of compensation in excess of $1 million paid
to certain executive officers.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer participates in the Company's executive
compensation plans on the same basis as all other executive officers and key
employees. In determining the Chief Executive Officer's compensation
opportunities and performance goals, the Compensation Committee conducts the
same type of competitive review and analysis as it does for other executive
officers. For 1995, the Compensation Committee established the Chief Executive
Officer's total compensation (base salary, annual incentive and performance
units plus regular stock options) for target performance between the 50th and
the 75th percentiles for chief executive officers of the peer group companies
based upon the advice of Pearl Meyer. However, due to corporate pre-tax
earnings below the threshold level, no annual incentive was awarded to the
Chief Executive Officer; however, a performance unit award was made as
indicated above.
Both the Chief Executive Officer and the Chief Operating Officer participated
in the 1995 stock option grants discussed above, which in the case of these two
senior executive officers is subject to ratification by stockholders at the
1996 Annual Meeting of Stockholders. See "Proposal to Approve the 1995 Grant of
Options to Each of Michael Goldstein and Robert C. Nakasone."
Robert A. Bernhard
Milton S. Gould
Norman M. Schneider
Members of the Management
Compensation and Stock
Option Committee during 1995
13
<PAGE>
FIVE-YEAR STOCKHOLDER RETURN COMPARISON
Set forth below is a line-graph presentation comparing the cumulative
stockholder return on the Company's Common Stock, on an indexed basis, against
the cumulative total returns of the S&P Composite-500 Stock Index and the S&P
Specialty Retail Index for the period of the Company's last five fiscal years
(January 31, 1991 = 100):
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN ON TOYS "R" US, INC.
COMMON STOCK, S&P COMPOSITE-500 AND S&P SPECIALTY RETAIL INDICES
TOTAL SHAREHOLDER RETURNS - DIVIDENDS REINVESTED
------------------------------------------------
Annual Return Percentage
Years Ending
Company/Index Jan92 Jan93 Jan94 Jan95 Jan96
===================================================================
Toys R Us, Inc. 20.09 17.11 -5.19 -19.86 -24.79
S&P 500 Index 22.69 10.58 12.88 0.53 38.56
Retail (Specialty) 35.07 31.48 -2.25 -0.61 -6.77
Indexed Returns
Years Ending
Company/Index Jan91 Jan92 Jan93 Jan94 Jan95 Jan96
===========================================================================
Toys R Us, Inc. 100 120.09 140.64 133.33 106.85 80.37
S&P 500 Index 100 122.69 135.67 153.14 153.96 213.33
Retail (Specialty) 100 135.07 177.58 173.59 172.53 160.86
CERTAIN TRANSACTIONS
In connection with the annual solicitation of proxies (as required by law)
and to receive updated lists of stockholders, the Company reimburses all
brokers or other persons holding stock in their names or in the names of their
nominees for expenses incurred in forwarding proxies and proxy material to the
beneficial owners of such stock. In the past fiscal year, approximately
$266,500 was so reimbursed to Automatic Data Processing, Inc., of which Charles
Lazarus, Chairman of the Board of Directors of the Company, is a director. Such
reimbursements are not material to the Company. In the ordinary course of
business, the Company purchases merchandise from Colgate-Palmolive Company and
its competitors. Reuben Mark, a director of the Company, is Chairman and Chief
Executive Officer of Colgate-Palmolive Company. Such purchases are all on bases
comparable to transactions with other vendors and are not material to the
Company. Mr. Mark is not included in the slate of nominees to be a director of
the Company for the following year.
An Australian subsidiary of the Company is leasing a distribution center and
office space in Australia from an Australian subsidiary of Colgate-Palmolive
Company. The lease term is eight years (of which five years are remaining). The
lease payments were the Australian dollar equivalent of approximately
US$1,161,000 in the Company's fiscal year ended February 3, 1996 and are
expected to increase over the term to a maximum of approximately US$1,376,000
per fiscal year, subject to market adjustments. The terms of the lease are at
fair market value and are not material to the Company.
COMPLIANCE WITH SECTION 16(A)
The Company believes that all persons who were subject to Section 16(a) of
the Securities Exchange Act, as amended, for the past fiscal year complied with
the filing requirements thereof. In making this disclosure, the Company has
relied on written representations of its directors and executive officers and
its ten percent holders (if any) and copies of the reports that they have filed
with the Securities and Exchange Commission.
14
<PAGE>
PROPOSAL TO APPROVE THE 1995 GRANT OF OPTIONS
TO EACH OF MICHAEL GOLDSTEIN AND ROBERT C. NAKASONE
GENERAL
The following description of the proposed Stock Option Agreement and Plan
(the "Option Agreement") is a summary and is qualified in its entirety by
reference to the Option Agreement, which is attached hereto as Exhibit A.
On May 17, 1995, the Committee approved the Option Agreement and granted
options (the "Options") to purchase 270,000 shares of Common Stock to each of
Michael Goldstein and Robert C. Nakasone, subject to stockholder approval at
the 1996 Annual Meeting. The Options become exercisable upon such approval and
contain an exercise price of $25.44 per share, the average market price on the
date of the grant. The Options expire on May 16, 2005. The Options provide that
upon exercise prior to May 17, 2000, the number of shares having a value equal
to the aggregate market price on the date of exercise in excess of the
aggregate purchase price paid to exercise the Option (the "Profit Shares")
shall be deposited in a grantor trust established by the Company and the
balance, if any, of the shares (the "Purchase Shares") will be delivered to the
holder of those Options.
The Profit Shares, together with any property attributable thereto
(including, without limitation, dividends and distributions thereon), will be
delivered to the executive or his beneficiary on the earlier of: (a) May 17,
2000 if the executive has been continuously employed by the Company through
such date; (b) the executive's termination of employment with the Company by
reason of death, "disability", or "retirement"; (c) a merger or consolidation
of the Company with another corporation, or an acquisition of the property or
stock of the Company by another corporation, or a separation, reorganization or
liquidation of the Company, in each case only if so determined by a majority of
the members of the Board of Directors who have served on the Board of Directors
for at least two years prior to such event; or (d) a determination by the
Compensation Committee, in its sole discretion, to make delivery on an earlier
date, subject, under certain circumstances, to elections the executive may have
made to further defer the receipt of the Profit Shares. If the Option is
exercised prior to May 17, 2000 and the executive's employment with the Company
is terminated prior to May 17, 2000 for any reason not described in the
preceding clause (b), (c), or (d), the Profit Shares, together with any
property attributable thereto, will be returned to the Company and forfeited by
the executive without any delivery or payment made to the executive.
For purposes of the Option Agreement, "disability" means a termination of
employment because of a long-term or total disability, as determined by the
Committee, and "retirement" means a termination of employment by an employee
(i) who is at least 60 years of age and has at least 15 years of service with
the Company, or (ii) with the written consent of the Committee. The Option
Agreements permit the exercise price of the Options to be paid (i) in cash,
(ii) by delivery of Common Stock valued at market price on the date of
exercise, or (iii) by a combination of cash and Common Stock. The Option
Agreements also provide that Mr. Goldstein or Mr. Nakasone, as the case may be,
shall be entitled to the grant of Restoration Options (see "Report of the
Compensation Committee on Executive Compensation") if the exercise price, or
any withholding taxes incurred in connection with the exercise of the Options,
is paid with shares of Common Stock; provided, among other things, that the
market price of the Common Stock is at least 133% of the exercise price of the
Options on the date of exercise. The Board of Directors granted these Options
in consideration for each person's outstanding contributions to the Company, to
provide additional motivation for the future and, in part, to induce each of
them to remain with the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Under current Federal income tax law, the tax consequences of the exercise of
Options depends on whether Messrs. Goldstein and Nakasone exercise the Options
using Common Stock or cash. The Company anticipates that the Options will be
exercised using Common Stock because (i) tax on the Profit Shares would be
accelerated if cash is used to exercise the Options and (ii) Restoration
Options may be available if the Options are exercised using Common Stock.
15
<PAGE>
If Messrs. Goldstein and Nakasone exercise their Options using Common Stock,
they would (i) recognize ordinary income when they receive the Profit Shares in
an amount equal to the market price of such shares on the delivery date, and
(ii) not recognize income when they receive the Purchase Shares (i.e., upon
exercise) because the Purchase Shares represent the Common Stock used to
exercise the Option.
If Messrs. Goldstein and Nakasone exercise their Options prior to May 17,
2000 using cash, they would (i) recognize ordinary income when they receive the
Profit Shares in an amount equal to the difference between the option price and
the market price on the delivery date, and (ii) recognize ordinary income when
they receive the Purchase Shares in an amount equal to the difference between
the option price and the market price on the delivery date. Finally, if Messrs.
Goldstein and Nakasone exercise their Options on or after May 17, 2000 using
cash, they would recognize ordinary income in an amount equal to the difference
between the option price and the market price on the exercise date.
In all cases, the Company would be entitled to a deduction at the time
Messrs. Goldstein and Nakasone recognize income in an amount equal to such
income.
VOTE REQUIRED
Stockholder approval is required as a condition to listing the shares on the
New York Stock Exchange. Approval of the Option Agreement requires the
affirmative vote of a majority of the votes cast at the meeting by the holders
of the outstanding shares of Common Stock entitled to vote thereon who are
present in person or by proxy. THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE THEIR SHARES FOR THE PROPOSAL TO GRANT THE OPTIONS.
16
<PAGE>
PROPOSAL TO AMEND THE COMPANY'S NON-EMPLOYEE
DIRECTORS' STOCK OPTION PLAN
GENERAL
The following description of the Non-Employee Directors' Stock Option Plan
(the "Directors Plan") and the proposed amendment thereto (the "Amendment") is
a summary and is qualified in its entirety by reference to the Amended and
Restated Directors' Plan (as proposed to be amended, the "Amended Plan"), which
is attached hereto as Exhibit B.
The Directors' Plan was originally adopted by the Board of Directors on
September 19, 1990 and was approved by the Company's stockholders at the 1991
Annual Meeting of Stockholders. The Directors' Plan provides for the granting
of options to purchase an aggregate of not more than 200,000 shares (subject to
adjustment in certain circumstances) of Common Stock to members of the Board of
Directors of the Company who are not employees of the Company or any of its
subsidiaries ("Non-Employee Directors"). The Directors' Plan is designed to
provide a means of giving existing and new Non-Employee Directors an increased
opportunity to acquire an investment in the Company, thereby maintaining and
strengthening their desire to remain with or join the Company's Board of
Directors and stimulating their efforts on the Company's behalf.
At the December 6, 1995, meeting of the Board of Directors, it was noted that
the Company's total director compensation lagged behind that of comparable
companies, and that some increase was necessary to continue to attract and
retain outside directors. Consequently, the Board of Directors adopted the
Amendment, subject to the approval of such adoption by the stockholders. The
Amendment provides for: (a) upon the date of his or her election or
appointment, the grant of an option to purchase 10,000 shares of Common Stock
to each new Non-Employee Director who is elected or appointed as a director of
the Company on or after December 6, 1995 (a "New Director"); (b) commencing on
November 1, 1996, an annual grant of an option to purchase 2,500 shares of
Common Stock to each Non-Employee Director; and (c) commencing on November 1,
1996, an additional annual grant of an option to purchase 1,000 shares of
Common Stock to each Non-Employee Director who serves as a Chairperson of any
of the Committees of the Board of Directors.
If the Amendment is approved by the stockholders: (i) Norman S. Matthews, as
a New Director, will have received, effective December 6, 1995, the option
described in (a) above, having an exercise price of $23.44 per share, the
market value of Common Stock on December 6, 1995; (ii) RoAnn Costin, if duly
elected to the Board of Directors at the 1996 Annual Meeting of Stockholders,
will receive, on June 5, 1996, the option described in (a) above, having an
exercise price equal to the market value of the Common Stock on such date;
(iii) all Non-Employee Directors will receive, effective November 1, 1996, the
option described in (b) above, having an exercise price equal to the market
value of the Common Stock on such date; and (iv) Robert A. Bernhard, Shirley
Strum Kenny, and Harold M. Wit, as Chairpersons of the Compensation Committee,
the Nominating Committee and the Audit Committee, respectively, will each
receive the option described in (c) above.
Prior to the adoption of the Amendment, (i) new Non-Employee Directors
received an option to purchase 5,000 shares of Common Stock; (ii) all Non-
Employee Directors received an annual grant of an option to purchase 1,000
shares of Common Stock; and (iii) no additional options were granted to Non-
Employee Directors who served as Committee Chairpersons.
The remaining provisions of the Amended Plan are unchanged. The exercise
price of options granted under the Amended Plan is 100% of the fair market
value of such shares on the date of grant. One-fifth of the shares of Common
Stock covered by an option becomes exercisable on a cumulative basis on each
anniversary of the date of grant if the holder thereof has been a Non-Employee
Director of the Company at all times since such date of grant; provided,
however, that if the holder of an option ceases to be a Non-Employee Director
prior to the date that an option is fully exercisable by reason of retirement,
death or disability, in each case, if such holder has been a member of the
Board of Directors for at least five years prior to the date of such cessation,
all of the shares of Common Stock covered by the option will become immediately
exercisable.
17
<PAGE>
The options will expire no later than 10 years from the date of grant and no
options may be granted after September 19, 2000. Payment for shares of Common
Stock purchased upon exercise of an option must be made in full upon exercise,
in cash. Adjustments in the number of shares that may be issued and sold under
the Amended Plan and in outstanding options will be made to reflect stock
dividends, recapitalizations and similar events. Options are not transferable
other than by will or the laws of descent and distribution.
If a Non-Employee Director terminates his or her service on the Board of
Directors for any reason (other than retirement, death or disability), any
exercisable option that has not expired may be exercised at any time until the
earlier of (i) the fifth anniversary of the date of termination and (ii) the
date of expiration of such option with respect to the number of shares of
Common Stock that were exercisable on the date the Non-Employee Director
terminated his or her service with the Company; provided, however, that such
option will terminate immediately if such former Non-Employee Director becomes
a director, officer, agent or owner of a competitor of the Company.
The Amended Plan is administered by the Board of Directors, which has the
full and final authority to interpret the Amended Plan and to adopt and amend
such rules and regulations for the administration of the Amended Plan as the
Board may deem desirable. In addition, the Board of Directors has the right to
amend, suspend or terminate the Amended Plan at any time; provided, however,
that unless first duly approved by the holders of Common Stock entitled to vote
thereon, no amendment or change may be made in the Amended Plan: (i) increasing
the maximum number of shares for which options may be granted under the Amended
Plan; (ii) increasing the number of shares subject to an option; (iii) reducing
the purchase price previously specified for the shares subject to options; (iv)
extending the period during which options may be granted or exercised under the
Amended Plan; or (v) changing the class of persons eligible to receive options
under the Amended Plan.
The Amended Plan is not subject to any of the requirements of the Employee
Retirement Income Security Act of 1974, as amended. The Amended Plan is not,
nor is it intended to be, qualified under Section 401(a) of the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Options granted or to be granted under the Amended Plan will be "non-
qualified" stock options and are not intended to qualify as incentive stock
options under Section 422 of the Code. An optionee will realize no income at
the time he or she is granted a non-qualified stock option. Such conclusion is
predicated on the assumption that, under existing Treasury Department
regulations, a non-qualified stock option, at the time of its grant, has no
readily ascertainable fair market value. Ordinary income will be realized when
a non-qualified stock option is exercised. The amount of such income will be
equal to the excess of the fair market value on the exercise date of the shares
of Common Stock issued to an optionee over the option price. The optionee's
holding period with respect to the shares acquired will begin on the date of
exercise.
The tax basis of stock acquired upon the exercise of any option will be equal
to the sum of (i) the exercise price of such option and (ii) the amount
included in income with respect to such option. Any gain or loss on a
subsequent sale of the stock will be either long-term or short-term capital
gain or loss, depending on the optionee's holding period for the stock disposed
by the optionee.
The Company will be entitled, subject to the usual rules as to reasonableness
of compensation, to a deduction for Federal income tax purposes at the same
time and in the same amount as the optionee is considered to have realized
ordinary income in connection with the exercise of the option. The deduction
will be allowed for the taxable year of the Company in which or with which ends
the taxable year of the optionee in which such ordinary income is recognized.
VOTE REQUIRED
Approval of the Amendment requires the affirmative vote of a majority of the
votes cast at the meeting by the holders of the outstanding shares of Common
Stock entitled to vote thereon who are present in person or by proxy. THE BOARD
OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE THEIR SHARES FOR THE
PROPOSAL TO ADOPT THE AMENDMENT.
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APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed and designated Ernst &
Young LLP, independent auditors, New York, New York, to audit the consolidated
financial statements of the Company for the fiscal year ending February 1,
1997.
Representatives of Ernst & Young LLP are expected to be present at the
meeting and will be afforded the opportunity to make a statement if they desire
to do so, and such representatives are expected to be available to respond to
appropriate questions.
SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders to be presented at the annual meeting to be held in
1997 must be received for inclusion in the Company's proxy statement and form
of proxy by December 27, 1996.
By order of the Board of Directors
Andre Weiss
Secretary
April 19, 1996
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EXHIBIT A
TOYS "R" US, INC.
STOCK OPTION AGREEMENT AND PLAN
STOCK OPTION AGREEMENT AND PLAN, dated as of May 17, 1995, between TOYS "R"
US, INC., a Delaware corporation (the "Company"), and Michael Goldstein and
Robert Nakasone (each, an "Employee").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") and the
Management Compensation and Stock Option Committee (the "Committee") have
determined that Employee has made innumerable valuable contributions to the
Company during the Employee's years of service; and
WHEREAS, the Board and the Committee desire to reward the Employee for
outstanding contributions to the success of the Company and desire to provide
additional motivation for the future and to induce the Employee to remain as a
full-time employee with the Company; and
WHEREAS, the Board and the Committee have determined to grant the Employee a
non-qualified option as described in this Agreement (the "Option"), the
exercisability of which shall be subject, among other things, to the approval
of this Agreement by the stockholders of the Company; and
WHEREAS, the Board and the Committee desire that the compensation arising
from the exercise of the Option shall qualify as "performance-based
compensation" for purposes of Section 162(m) of the Internal Revenue Code of
1986, as amended;
NOW, THEREFORE, in consideration of the covenants set forth herein and for
other good and valuable consideration, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition shall have
the same meanings used in the Company's 1994 Stock Option and Performance
Incentive Plan; provided that this Agreement is not being entered into and the
Option is not being granted pursuant to such Plan.
2. Option Grant. Subject to and under the terms and conditions set forth in
this Agreement, the Employee is hereby granted the Option to purchase from the
Company 270,000 shares of Common Stock at a purchase price of $25.44 per share
(the "Shares").
3. Exercisability of Option. The Option shall become exercisable in whole or
in part commencing upon the approval by the stockholders of the Company and
ending, except as provided in paragraph 8, May 16, 2005.
4. Forfeiture Conditions. To the extent the Option is exercised prior to May
17, 2000, the number of Shares having an aggregate Market Price on the date of
exercise in excess of the aggregate purchase price then paid to exercise the
Option (the "Profit Shares") shall be issued to a grantor trust created by the
Company and allocated to the Employee's account therein. Such Profit Shares,
together with any property attributable thereto (including, without limitation,
dividends and distributions thereon), shall be delivered to the Employee on the
earlier of (a) May 17, 2000 if the Employee has been continuously employed by
the Company through such date; (b) the Employee's termination of employment
with the Company by reason of (i) death, (ii) Disability, or (iii) Retirement
(as such terms are hereinafter defined); (c) a merger or consolidation of the
Company with another corporation, or an acquisition of the property or stock of
the Company by another corporation, or a separation, reorganization or
liquidation of the Company, in each case only if so determined by a majority of
the members of the Board who have served on the Board for at
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least two years prior to such event; or (d) a determination by the Committee,
in its sole discretion, to make delivery on an earlier date, subject in each
case to any election the Employee may have made to further defer the receipt of
the Profit Shares pursuant to the Partnership Group Deferred Compensation Plan
(the "Deferred Compensation Plan"). If the Option is exercised prior to May 17,
2000 and the Employee's employment with the Company is terminated prior to May
17, 2000 for any reason not described in the preceding clause (b), the Profit
Shares, together with any property attributable thereto, shall be returned to
the Company and forfeited by the Employee without any delivery or payment made
to the Employee. Shares issuable upon exercise of the Option that are not
Profit Shares shall be issued and delivered to the Employee.
5. Payment of Purchase Price. Any exercise of the Option shall be pursuant to
(a) written notice to the Company accompanied by payment in full of the
purchase price or (b) any other method of exercise from time to time permitted
to be used by the Committee in the administration of the Company's stock option
plans. The purchase price may be paid (i) in cash, (ii) by delivery to the
Company of shares of the Company's Common Stock valued at the Market Price on
the date of exercise (excluding shares acquired from the Company less than six
months prior to such date pursuant to option exercises or payment of
partnership units under the Management Incentive Compensation Plan), (iii) by
delivery to the Company of shares of the Company's Common Stock valued at the
Market Price on the date of exercise, which shares have been issued to a
grantor trust created by the Company and allocated to the Employee's account
therein (excluding shares acquired from the Company less than six months prior
to such date pursuant to option exercises or payment of partnership units under
the Management Incentive Compensation Plan), or (iv) by a combination of cash
and such stock. Shares of the Company's Common Stock that are owned jointly by
the Employee or owned by the Employee's spouse may be delivered to the Company
as the purchase price (or a portion thereof) as permitted by (ii) and (iv)
above, provided that any joint owner of such stock (other than the Employee) or
the Employee's spouse, as the case may be, consents in writing to such delivery
for the exercise of the Option, to the restrictions set forth herein and to the
Profit Shares being registered in the name of the Employee. Upon receipt of
written notice of exercise and payment, the Company shall deliver to the
Employee a certificate or certificates for such shares, subject to paragraph 4
hereof and any deferral election made by the Employee in accordance with the
Deferred Compensation Plan. If shares are delivered as permitted by (iii)
above, an equivalent number of shares shall be returned to the grantor trust
referred to above, allocated to the Employee's account therein, and remain
subject to the same conditions and restrictions as applied to the shares so
delivered. It shall be a condition to the performance of the Company's
obligation to issue or transfer Common Stock after exercise of this Option that
the Employee pay, or make provision satisfactory to the Company for the payment
of, any taxes which the Company is obligated to collect with respect to the
issue or transfer of Common Stock upon exercise.
6. Stock Retention Features.
(a) Restoration Options. To the extent (i) the purchase price of the Option
or any Restoration Option related thereto (as hereinafter defined) is paid
through the delivery of shares of Common Stock in accordance with paragraph 5
("Payment Shares") and/or (ii) shares of Common Stock are paid or surrendered
in satisfaction of any withholding taxes incurred in connection with the
exercise of the Option or any related Restoration Option or later recognition
of income relating to deferred income arising from such exercise and any
amounts earned thereon ("Withholding Tax Shares"), the Employee shall be
automatically granted, if then employed by the Company or any of its
subsidiaries, non-qualified stock options ("Restoration Options") to purchase a
number of shares of Common Stock equal to the sum of the Payment Shares and the
Withholding Tax Shares; provided, however, that (i) the number of shares of
Common Stock to be acquired upon such exercise shall be at least 1,000 (subject
to adjustment at the discretion of the Committee), (ii) on the date of such
exercise the aggregate Market Price of such Common Stock is at least 133%
(subject to adjustment at the discretion of the Committee) of the aggregate
purchase price paid for such Common Stock, and (iii) unless otherwise
determined by the Committee in its sole discretion, the number of Restoration
Options granted in connection with such later recognition of income shall in no
event exceed the number of Withholding Tax Shares that would have been paid or
surrendered if income had been recognized on the
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date of exercise. The purchase price per share of the Restoration Option shall
be the Market Price of the Common Stock on the date the Restoration Option is
granted, and the Restoration Option shall become exercisable six months after
the date of grant if the Employee has been continuously employed through such
date. The Restoration Option shall have a maximum term equal to the remaining
term of the Option, measured from the date on which the Option was exercised
but subject to the same post-employment termination provisions of the Option
described in paragraph 8. Any Restoration Option granted in connection with the
exercise of a Restoration Option shall have a maximum term equal to the
remaining term of the prior Restoration Option, measured from the date on which
the prior Restoration Option was exercised but subject to the same post-
employment termination provisions of the Option described in paragraph 8. In
determining the maximum term of Restoration Options granted on different dates
in connection with the later recognition of income relating to deferred income
arising from option exercises and any amounts earned thereon, the limitation on
Restoration Options described in clause (iii) shall be applied on a first-in
first-out basis unless otherwise determined by the Committee in its sole
discretion. Any Profit Shares arising from the exercise of a Restoration Option
prior to May 17, 2000 shall be subject to the same forfeiture conditions
described in paragraph 4.
(b) Penalties for Premature Transfers. If the Employee sells, transfers,
assigns or otherwise disposes of shares of Common Stock acquired upon exercise
of the Option or any Restoration Option, in either case in excess of the number
of shares of Common Stock underlying any Restoration Option granted in
connection with such exercise during the two-year period following such
exercise (or such lesser period as corresponds with the remaining term of the
Restoration Option), the Committee may, in its discretion, preclude the
Employee from payment of the purchase price of any options held by the Employee
other than by delivery of cash and/or take any other action with respect to the
Employee's compensation (including, without limitation, the future grant of
options) as it deems appropriate; provided, however, that this provision shall
not proscribe transfers by will or the laws of descent and distribution, or the
delivery of Common Stock in payment of the exercise price of any options held
by the Employee; provided further, however, that if any shares subject to this
paragraph 6(b) are delivered in payment of the exercise price of options, in
addition to the shares of Common Stock otherwise subject to this paragraph
6(b), an equivalent number of shares issued shall remain subject to this
paragraph 6(b). Nothing in this paragraph 6(b) shall be construed to modify the
forfeiture conditions described in paragraph 4. The Employee agrees that any
action taken by the Committee hereunder shall not constitute any breach of any
obligation or duty owed by the Company to the Employee. Notwithstanding the
foregoing, the Employee may waive the grant of a Restoration Option by filing a
written waiver with the Company within ten days following the date of such
grant, in which case the two-year restrictions described above shall not apply
with respect to any shares issued in connection with the exercise of an option
as to which a Restoration Option has been waived.
7. Nontransferability of Option. The Option shall not be assignable or
transferable by the Employee except by will or by the laws of descent and
distribution, unless the prior written consent of the Committee is given.
During the life of the Employee, the Option shall be exercisable by the
Employee only.
8. Termination of Employment. Unless otherwise determined by the Committee in
its sole discretion, the Option shall terminate after 30 days following
termination of employment of the Employee with the Company or a subsidiary,
unless such termination of employment occurs by reason of (i) Disability, (ii)
Retirement, or (iii) death. The Option shall not be affected by any change of
employment as long as the Employee continues to be employed by either the
Company or a subsidiary. Nothing in this Agreement shall confer on the Employee
any right to continue in the employ of the Company or any subsidiary or
interfere in any way with the right of the Company or any subsidiary to
terminate employment of the Employee at any time.
(a) Disability. In the event of the Disability of the Employee, whether or
not the Option is otherwise exercisable on the date of Disability, the Option
shall be exercisable in full at any time on or prior to May 16, 2005, at which
time the Option shall terminate. "Disability" shall mean any termination of
employment with
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the Company or a subsidiary because of a long-term or total disability, as
determined by the Committee in its sole discretion. The decision of the
Committee shall be final and conclusive.
(b) Retirement. In the event of the Retirement of the Employee, whether or
not the Option is otherwise exercisable on the date of Retirement, the Option
shall be exercisable in full at any time on or prior to May 16, 2005, at which
time the Option shall terminate. "Retirement" shall mean a termination of
employment with the Company or a subsidiary either (i) on a voluntary basis by
an Employee who is at least 60 years of age and has at least 15 years of
service with the Company or a subsidiary or (ii) otherwise with the written
consent of the Committee in its sole discretion. The decision of the Committee
shall be final and conclusive.
(c) Death. In the event of the death of the Employee while employed by the
Company or any subsidiary, if such death occurs before the Option is exercised,
the Option, whether or not otherwise exercisable on the date of death, shall be
exercisable in full by the beneficiary designated by the Employee for such
purpose (the "Designated Beneficiary") or if no Designated Beneficiary shall be
appointed or if the Designated Beneficiary shall predecease the Employee, by
the Employee's personal representatives, heirs or legatees at any time within
three (3) years from the date of death, at which time the Option shall
terminate. In the event of the death of the Employee following a termination of
employment due to Retirement or Disability, if such death occurs before the
Option is exercised, the Option, whether or not otherwise exercisable on such
date, shall be exercisable in full by the Employee's Designated Beneficiary, or
if no Designated Beneficiary shall be appointed or if the Designated
Beneficiary shall predecease the Employee, by the Employee's personal
representatives, heirs or legatees to the same extent the Option would have
been exercisable by the Employee following such termination of employment.
(d) Cause. The Committee may, in its sole discretion, cause the Option to be
forfeited upon the Employee's termination of employment if the Employee was
terminated for one (or more) of the following reasons: (i) the Employee's
conviction, or plea of guilty or nolo contendere to the commission of a felony,
(ii) the Employee's commission of any fraud, misappropriation or misconduct
which causes demonstrable injury to the Company or a subsidiary, (iii) an act
of dishonesty by the Employee resulting or intended to result, directly or
indirectly, in gain or personal enrichment at the expense of the Company or a
subsidiary, (iv) any breach of the Employee's fiduciary duties to the Company
as an employee or officer, or (v) a violation by the Employee of the Toys "R"
Us Ethics Agreement or any other serious violation of a Company policy. It
shall be within the sole discretion of the Committee to determine whether the
Employee's termination was for one of the foregoing reasons, and the decision
of the Committee shall be final and conclusive.
9. No Rights as Stockholder. Except as set forth in paragraph 4, the Employee
shall have no rights as a stockholder with respect to any shares issuable upon
exercise of the Option until the date a stock certificate is issued to the
Employee for such shares. Except as otherwise expressly provided in this
Agreement, no adjustment shall be made for cash dividends or rights for which
the record date is prior to the date such stock certificate is issued.
10. Antidilution Adjustments. In the event that dividends payable in Common
Stock during any fiscal year of the Company exceed in the aggregate 10% of the
Common Stock issued and outstanding at the beginning of the year, or in the
event there is during any fiscal year of the Company one or more splits,
subdivisions, or combinations of shares of Common Stock resulting in an
increase or decrease by more than 10% of the shares outstanding at the
beginning of the year, the number of shares deliverable upon the exercise
thereafter of the Option shall be increased or decreased proportionately, as
the case may be, without change in the aggregate purchase price. Common Stock
dividends, splits, subdivisions or combinations during any fiscal year which do
not exceed in the aggregate 10% of the Common Stock issued and outstanding at
the beginning of such year shall be ignored for purposes of this Agreement. All
adjustments for any fiscal year shall be made as of the last day of such year.
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11. Mergers and Reorganizations. In case the Company is merged or
consolidated with another corporation, or in case the property or stock of the
Company is acquired by another corporation, or in case of a separation,
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company hereunder, shall either (i) make appropriate provisions for the
protection of the Option by the substitution on an equitable basis of
appropriate stock of the Company, or appropriate stock of the merged,
consolidated, or otherwise reorganized corporation, provided only that the
excess of the aggregate Market Price of the shares subject to the Option
immediately after such substitution over the purchase price thereof is not less
than the excess of the aggregate Market Price of the shares subject to the
Option immediately before such substitution over the purchase price thereof, or
(ii) give written notice to the Employee that the Option must be exercised
within 60 days of the date of such notice or the Option will be terminated. In
any such case the Board of Directors may, in its discretion, waive the
applicable waiting period before the Option becomes exercisable.
12. Regulatory Approvals. The Option shall be subject to the requirement
that, if at any time the Board of Directors shall determine, in its discretion,
that the listing, registration or qualification of the shares issuable upon
exercise of the Option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the granting
of the Option or the issue, transfer, or purchase of shares under the Option,
the Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors.
13. Investment Representation. Upon exercise of the Option, the Employee will
acquire the Shares for his account and not with a view to the distribution
thereof, and he will not sell or otherwise dispose of the Shares unless the
Shares are registered under the Securities Act of 1933, as amended (the "Act"),
or he shall furnish the Company with an opinion of counsel reasonably
satisfactory to the Company that such registration is not required, and a
legend to such effect may be placed on the certificate for the Shares.
14. Registration Rights.
(a) On or before January 1, 1997, the Company at its sole cost and expense,
shall prepare and file a registration statement under the Act on Form S-3
including therein all of the Shares underlying the Option, and will use its
best efforts to cause the registration statement to become effective, and to
remain effective for such period of time as may be legally required to permit a
so-called "shelf-registration" of the Shares under the Act pursuant to Rule 415
(or such other similar rule in effect from time to time); provided, however,
that the Company shall have no liability to the Employee in the event it is no
longer eligible or fails to meet the requirements for continued use of Form S-3
(or any form adopted in lieu thereof) or Rule 415 (or successor rule).
(b) In the event that the Company no longer qualifies for use of a Form S-3
registration statement, the Company agrees that at the written request of the
Employee, it shall, one time, at its sole cost and expense, and for one
additional time, at the Employee's cost and expense (or shared expense with any
other stockholder whose stock is included therein), prepare and file a
registration statement under the Act including the Shares underlying the
Option, and will use its best efforts to cause the registration statement to
become effective and to remain effective until any offering of the Shares is
completed; provided, however, that the Company shall not be required to file
any such registration statement or to maintain its effectiveness if the Company
is unable to furnish at no additional cost to it financial statements otherwise
available in the ordinary course of its business, and in such event the Company
may delay filing the registration statement or causing it to remain effective
until such time as such financial statements are available.
(c) The Company may include in any registration statement filed herein
additional shares of Common Stock or other securities of the Company owned by
other stockholders of the Company; provided, however, that if such additional
shares or securities are included in a registration statement for which the
Employee is required to pay the costs thereof pursuant to subparagraph (b)
above, the Employee shall be required to pay only his pro-rata costs of the
registration statement.
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(d) If the offering pursuant to any registration statement provided for
herein is made through underwriters, the Company agrees to enter into an
underwriting agreement in customary form with such underwriters in which the
Company and the underwriters and each person who controls such underwriters and
each person within the meaning of the Act grant to each other customary
reciprocal indemnitees against liabilities under the Act.
(e) The Employee hereby agrees to indemnify the Company against liability
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact in any registration statement provided for herein, or the
omission or alleged omission to state in such registration statement any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, if such statement or omission was made by
the Company in reliance upon and in conformity with information furnished for
use in such registration statement by or on behalf of the Employee.
(f) The Company hereby agrees to indemnify the Employee against liability
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact in any registration statement provided for herein, or the
omission or alleged omission to state in such registration statement any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, other than any such statement or omission
included in such registration statement by the Company in reliance upon and in
conformity with information furnished for use in such registration statement by
or on behalf of the Employee.
(g) The Company shall not be required to register any Shares pursuant to this
paragraph 14, or maintain the effectiveness thereof, if in the reasonable
opinion of counsel to the Company (and, if the Employee requests, concurred in
by his counsel), the Employee may sell the number of Shares he desires to sell
at such time without registration of such Shares under the Act.
(h) The Employee agrees that if requested by the Company he will, at any time
and from time to time, delay the sale of any of the Shares for a period of up
to 90 days to permit the Company to make a public offering of any of its
securities.
15. Liability; Indemnification. No member of the Committee, nor any person to
whom ministerial duties have been delegated, shall be personally liable for any
action, interpretation or determination made with respect to this Agreement,
and each member of the Committee shall be fully indemnified and protected by
the Company with respect to any liability he or she may incur with respect to
any such action, interpretation or determination, to the extent permitted by
applicable law and to the extent provided in the Company's Certificate of
Incorporation and Bylaws, as amended from time to time, or under any agreement
between any such member and the Company.
16. Severability. In the event that any provision of this Agreement shall be
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of this Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
17. Governing Law. To the extent not preempted by Federal law, this Agreement
shall be construed in accordance with and governed by the laws of the State of
New York.
18. Interpretation. The interpretation and decision with regard to any
question arising under this Agreement or with respect to the Option made by the
Committee shall be final and conclusive on the Employee.
19. Notices. All notices hereunder shall be sufficiently made if personally
delivered to the Employee or sent by regular mail addressed (a) to the Employee
at the Employee's address as set forth in the books and records of the Company
or any subsidiary, or (b) to the Company or the Committee at the principal
office of the Company clearly marked "Attention: Management Compensation and
Stock Option Committee."
20. Successors. This Agreement shall be binding upon the Company and its
successors and assigns.
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IN WITNESS WHEREOF, this Agreement has been executed by the Company by one of
its duly authorized officers as of the date specified above.
TOYS "R" US, INC.
By:
-------------------------
Title:
----------------------
I hereby acknowledge receipt of the Option and agree to the provisions set
forth in this Agreement.
-------------------------------------
Signature of Employee
-------------------------------------
Signature of Employee
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EXHIBIT B
TOYS "R" US, INC.
AMENDED AND RESTATED NON-EMPLOYEE
DIRECTORS' STOCK OPTION PLAN
The bold and underlined language is part of the Amendment, and was not part
of the original Directors' Plan.
1. PURPOSE
The purpose of the Toys "R" Us, Inc. Non-Employee Directors' Stock Option
Plan (the "Plan") is to secure for Toys "R" Us, Inc. (the "Corporation") and
its stockholders the benefits of the incentive inherent in increased ownership
of common stock, par value $.10 per share (the "Common Stock"), of the
Corporation by the members of the Board of Directors (the "Board") of the
Corporation who are not employees of the Corporation or any of its
subsidiaries ("Non-Employee Directors"). It is expected that such ownership
will provide such Non-Employee Directors with a more direct stake in the
future welfare of the Corporation and encourage them to remain directors of
the Corporation. It is also expected that the Plan will encourage qualified
persons to become directors of the Corporation.
2. ADMINISTRATION
The Plan shall be administered by the Board. The Board shall have all the
powers vested in it by the terms of the Plan, such powers to include authority
(within the limitations described herein) to prescribe the form of the
agreement embodying awards of stock options made under the Plan (the
"Options," which term shall include the September 19, 1990 Options (as
hereinafter defined)). Subject to the provisions of the Plan, the Board shall
have the power to construe the Plan, to determine all questions arising
thereunder, and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable. Any decision of the Board
in the administration of the Plan, as described herein, shall be final and
conclusive. The Board may act only by a majority of its members in office,
except that the members thereof may authorize any one or more of their number
or the Secretary or any other officer of the Corporation to execute and
deliver documents on behalf of the Board. No member of the Board shall be
liable for anything done or omitted to be done by such member or by any other
member of the Board in connection with the Plan, except for such member's own
willful misconduct or as expressly provided by statute.
3. AMOUNT OF STOCK
The stock which may be issued and sold under the Plan shall not exceed
200,000 shares of Common Stock, subject to adjustment as provided in Section
8. The Common Stock to be issued may be either authorized and unissued shares
or issued shares acquired by the Corporation. If Options granted under the
Plan terminate or expire without being exercised in whole or in part, new
Options may be granted covering the shares not purchased under such lapsed
Options.
4. ELIGIBILITY
Each Non-Employee Director shall be eligible to receive an Option in
accordance with Section 5. Each Option granted under the Plan shall be
evidenced by an agreement in such form as the Board shall prescribe from time
to time in accordance with the Plan and shall comply with the terms and
conditions set forth in Sections 5, 6 and 7.
5. GRANT OF OPTIONS
(a) Each Non-Employee Director as of September 19, 1990 shall receive an
Option (a "September 19, 1990 Option") to purchase for 10 years 5,000 shares
of Common Stock, subject to adjustment as provided in Section 8.
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<PAGE>
(b) Each new Non-Employee Director (who is not a recipient of a September 19,
1990 Option), upon the date of his or her election or appointment as a director
of the Corporation, shall receive an Option to purchase for 10 years 5,000
shares of Common Stock, subject to adjustment as provided in Section 8;
PROVIDED, HOWEVER, THAT EACH NEW NON-EMPLOYEE DIRECTOR, UPON THE DATE OF HIS OR
HER ELECTION OR APPOINTMENT AS A DIRECTOR OF THE CORPORATION, IF SUCH ELECTION
OR APPOINTMENT OCCURS ON OR AFTER DECEMBER 6, 1995, SHALL, IN LIEU OF THE
FOREGOING, RECEIVE AN OPTION TO PURCHASE FOR 10 YEARS 10,000 SHARES OF COMMON
STOCK, SUBJECT TO ADJUSTMENT AS PROVIDED IN SECTION 8.
(c) Each year on November 1, commencing on November 1, 1991, each Non-
Employee Director shall automatically receive an Option to purchase for 10
years 1,000 shares of Common Stock, subject to adjustment as provided in
Section 8; PROVIDED, HOWEVER, THAT, IN LIEU OF THE FOREGOING, EACH YEAR ON
NOVEMBER 1, COMMENCING ON NOVEMBER 1, 1996, EACH NON-EMPLOYEE DIRECTOR SHALL
AUTOMATICALLY RECEIVE AN OPTION TO PURCHASE FOR 10 YEARS 2,500 SHARES OF COMMON
STOCK, SUBJECT TO ADJUSTMENT AS PROVIDED IN SECTION 8.
(D) EACH YEAR ON NOVEMBER 1, COMMENCING ON NOVEMBER 1, 1996, EACH NON-
EMPLOYEE DIRECTOR WHO SERVES AS THE CHAIRPERSON TO ANY OF THE COMMITTEES OF THE
BOARD OF DIRECTORS SHALL AUTOMATICALLY RECEIVE AN OPTION TO PURCHASE FOR 10
YEARS 1,000 SHARES OF COMMON STOCK FOR EACH SUCH COMMITTEE, SUBJECT TO
ADJUSTMENT AS PROVIDED IN SECTION 8.
6. EXERCISE PRICE
The Option exercise price per share shall be 100% of the fair market value of
a share of Common Stock, subject to adjustment as provided in Section 8. As
used herein, fair market value shall be the average of the high and low prices
of the Common Stock on the date of determination (if the Common Stock is then
traded on a national securities exchange or in the NASDAQ National Market
System) or, if not so traded, the average of the closing bid and asked prices
thereof on such day or, if the Common Stock is not traded on the date of
determination, on the last preceding date on which the Common Stock is traded.
7. TERMINATION OF OPTIONS AND LIMITATIONS ON EXERCISE
(a) No Option shall be exercisable until and unless the Plan is approved by
the Corporation's stockholders at the Corporation's 1991 Annual Meeting of
Stockholders, and, unless the Plan is so approved, all Options will terminate
and be of no further force or effect on the earlier to occur of (i) the day
after the Corporation's 1991 Annual Meeting of Stockholders and (ii) December
31, 1991; PROVIDED, HOWEVER, THAT NO OPTIONS GRANTED IN EXCESS OF THE NUMBER OF
OPTIONS AUTHORIZED FOR GRANT UNDER THE PLAN AS IN EFFECT PRIOR TO DECEMBER 6,
1995 SHALL BE EXERCISABLE UNTIL AND UNLESS THE AMENDMENT TO THE PLAN (THE
"AMENDMENT"), DATED AS OF DECEMBER 6, 1995, IS APPROVED BY THE CORPORATION'S
STOCKHOLDERS AT THE CORPORATION'S 1996 ANNUAL MEETING OF STOCKHOLDERS, AND,
UNLESS THE AMENDMENT IS SO APPROVED, ALL SUCH EXCESS OPTIONS WILL TERMINATE AND
BE OF NO FURTHER FORCE OR EFFECT ON THE EARLIER TO OCCUR OF (I) THE DAY AFTER
THE CORPORATION'S 1996 ANNUAL MEETING OF STOCKHOLDERS AND (II) DECEMBER 31,
1996.
(b) One-fifth of the total number of shares of Common Stock covered by an
Option shall become exercisable on a cumulative basis on each anniversary of
the date of grant if the holder thereof has been a Non-Employee Director of the
Corporation at all times since such date of grant; provided, however, that if
the holder of an Option ceases to be a Non-Employee Director prior to the date
that an Option is fully exercisable by reason of (i) retirement after reaching
age 60 at least six months after the date of grant (ii) death or (iii)
disability, in each case, if he has been a member of the Board for at least
five years prior to the date of such cessation (even if such cessation occurs
prior to the approval of the Plan by the Company's stockholders and subject to
the subsequent approval of stockholders), all of the shares of Common Stock
covered by the Option will become immediately exercisable.
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<PAGE>
(c) Subject to Section 7(d), if a person shall cease to be a Non-Employee
Director for any reason while holding an Option that has not expired and has
not been fully exercised:
(i) such person, or in the case of his death or adjudication of
incompetency, his executors, administrators, distributees, guardian or
legal representative, as the case may be, may, at any time until the
earlier to occur of the (y) fifth anniversary of the date of cessation and
(z) the termination of such Option pursuant to Section 7(e)(i), exercise
the Option with respect to any shares of Common Stock as to which it was
exercisable pursuant to Section 7(b) on the date the person ceased to be
such a Non-Employee Director; and
(ii) the Option will thereupon terminate as to the number of shares of
Common Stock which are not exercisable pursuant to Section 7(b) on the date
of such cessation.
(d) If a person shall cease to be a Non-Employee Director for any reason
while holding an Option that has not expired and has not been fully exercised,
such Option will terminate immediately if the holder thereof Participates in
any business which is engaged, directly or indirectly (through subsidiaries,
joint ventures or other entities), in the retail sales of toys or children's
clothing on a large scale or which derived (on a combined or pro forma basis,
if applicable) more than 10 percent of its revenues from the retail sale of
toys or children's clothing during the most recent fiscal year of such
business. For purposes of this Section 7(d) the term "Participate In" shall
mean: "directly or indirectly, for his own benefit or for, with or through any
other person, firm or corporation, owns, manages, operates, controls, loans
money to or participates in the ownership, management, operation or control of,
or is connected as a director, officer, employee, partner, consultant, agent,
independent contractor or otherwise with, or acquiesces in the use of his name
in." Notwithstanding the foregoing, however, the provisions of this Section
7(d) will not be deemed breached merely because the Option holder owns not more
than one percent of the outstanding common stock of a corporation, if at the
time of its acquisition by the Option holder, such stock is listed on a
national securities exchange, is reported on NASDAQ or is regularly traded in
the over-the-counter market by a member of a national securities exchange.
(e) No Option or any part of an Option shall be exercisable:
(i) after the expiration of 10 years from the date the Option was
granted; and
(ii) unless written notice of the exercise is delivered to the
Corporation specifying the number of shares to be purchased, and payment in
full by check or bank draft is made for the shares of Common Stock being
acquired thereunder at the time of exercise.
(f) An Option shall not be transferable by the optionee otherwise than by
will or the laws of descent and distribution and shall be exercisable during
his lifetime only by him or his guardian or legal representative.
(g) For purposes of this Section 7, disability shall have the meaning
provided in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
(a) If the outstanding Common Stock is hereafter changed by reason of
reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination, exchange of shares, or the like, or dividends
payable in shares of the Common Stock, an appropriate adjustment shall be made
by the Board in the aggregate number of shares available under the Plan, in the
number of shares subject to Options to be granted thereafter pursuant to
Sections 5(a), 5(b), 5(c) AND 5(D), and in the number of shares and price per
share subject to outstanding Options. If the Corporation shall be reorganized,
consolidated or merged with another corporation, or if all or substantially all
of the assets of the Corporation shall be sold or exchanged, the holder of an
Option shall, after the occurrence of such a corporate event, be entitled to
receive upon the exercise of his Option the same number and kind of shares of
stock or the same amount of property, cash or securities as he would have been
entitled to receive upon the happening of any such corporate event as if he had
exercised such Option and had been, immediately prior to such event, the holder
of the number of shares covered by such Option.
B-3
<PAGE>
(b) Any adjustment in the number of shares shall apply proportionately to
only the unexercised portion of any Option granted hereunder. If fractions of a
share would result from any such adjustment, the adjustment shall be revised to
the next higher whole number of shares.
9. MISCELLANEOUS PROVISIONS
(a) Except as expressly provided for in the Plan, no Non-Employee Director or
other person shall have any claim or right to be granted an Option under the
Plan. Neither the Plan nor any action taken hereunder shall be construed as
giving any Non-Employee Director any right to be retained in the service of the
Corporation.
(b) The Corporation shall not be obligated to deliver any shares of Common
Stock hereunder until they have been listed on each securities exchange on
which the Common Stock may then be listed, or until there has been
qualification under or compliance with such state or federal laws, rules or
regulations as the Corporation may deem applicable.
(c) It shall be a condition to the obligation of the Corporation to issue
shares of Common Stock upon exercise of an Option, that the optionee (or any
person entitled to act under Sections 7(c) and 7(f)) pay to the Corporation,
upon its demand, such amount, if any, as may be requested by the Corporation
for the purpose of satisfying any liability to withhold federal, state, local
or foreign income or other taxes. If the amount requested is not paid, the
Corporation may refuse to issue shares of Common Stock.
(d) The expenses of the Plan shall be borne by the Corporation.
(e) If an Option is exercised by the executors, administrators, legatees or
distributees of the estate of a deceased optionee or by the guardian or legal
representative of an optionee, the Corporation shall be under no obligation to
issue stock thereunder unless and until the Corporation is satisfied that the
person or persons exercising the Option are the duly appointed legal
representatives of the optionee or of the deceased optionee's estate or the
proper legatees or distributees of such estate.
10. AMENDMENT OR DISCONTINUANCE
The Plan may be amended at any time and from time to time by the Board as the
Board shall deem advisable including, but not limited to amendments necessary
to qualify for any exemption or to comply with applicable law or regulations;
provided, however, that the Plan shall not be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code of
1986, as amended, or the regulations thereunder, or the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder; and
provided, further, that except as provided in Section 8, the Board may not,
without further approval by the stockholders of the Corporation, increase the
maximum number of shares of Common Stock as to which Options may be granted
under the Plan, increase the number of shares subject to an Option, reduce the
minimum Option exercise price described in Section 6, extend the period during
which Options may be granted or exercised under the Plan or change the class of
persons eligible to receive Options under the Plan. No amendment of the Plan
shall materially and adversely affect any right of any optionee with respect to
any Option theretofore granted without such optionee's written consent.
11. TERMINATION
The Plan shall terminate upon the earliest to occur of (a) the adoption of a
resolution of the Board terminating the Plan, (b) September 19, 2000 and (c)
December 31, 1991 if the Plan has not been approved by the Corporation's
stockholders at the Corporation's 1991 Annual Meeting of Stockholders.
12. EFFECTIVE DATE OF PLAN
The Plan shall become effective as of September 19, 1990, provided that the
Corporation's stockholders shall have approved the Plan at the Corporation's
1991 Annual Meeting of Stockholders.
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<PAGE>
[LOGO OF TOYS "R" US(R)]
461 FROM ROAD
PARAMUS, NEW JERSEY 07652
[LOGO] PRINTED ON
RECYCLED PAPER
<PAGE>
This page consists of an admission ticket to the Annual Meeting and a map with
directions to the Long Island Marriott Hotel.
<PAGE>
[FRONT SIDE OF PROXY CARD]
TOYS "R" US, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 5, 1996
The undersigned hereby appoints MICHAEL GOLDSTEIN and ROBERT C.
NAKASONE, jointly and severally, proxies, with power of substitution, to vote at
the Annual Meeting of Stockholders of TOYS "R" US, INC. to be held June 5,
1996 (including adjournments), with all the powers the undersigned would possess
if personally present, as specified on the reverse side with respect to the
election of directors (including discretionary authority to accumulate votes)
and the other matters to be considered, and in accordance with their
discretion on any other business that may come before the meeting, and revokes
all proxies previously given by the undersigned with respect to the shares
covered hereby.
Election of Directors. Nominees:
Robert A. Bernhard, RoAnn Costin, Michael Goldstein, Milton S. Gould,
Shirley Strum Kenny, Charles Lazarus, Norman S. Matthews, Howard W. Moore,
Robert C. Nakasone and Harold M. Wit.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. IN EITHER EVENT PLEASE
SIGN AND RETURN THIS CARD.
SEE REVERSE
SIDE
<PAGE>
[REVERSE SIDE OF PROXY CARD]
[X] Please mark your votes
as in this example.
The Board of Directors Recommends a Vote "FOR" Proposals 1, 2 and 3.
1. Election of Directors FOR WITHHELD
(see reverse). [_] [_]
For, except vote withheld from the following nominee(s):
--------------------------------------------------------------
2. Proposal to Approve the 1995 Grant of FOR AGAINST ABSTAIN
Options to Each of Michael Goldstein [_] [_] [_]
and Robert C. Nakasone Under a New
Stock Option Agreement and Plan.
3. Proposal to Amend the Company's FOR AGAINST ABSTAIN
Non-Employee Directors' Stock Option [_] [_] [_]
Plan.
4. In their discretion upon such other business as may properly be brought
before the meeting.
If this proxy is properly executed and returned, the shares represented hereby
will be voted, if not otherwise specified (or unless discretionary authority to
accumulate votes is exercised), this proxy will be voted for the named persons
nominated as directors and for proposals (2) and (3).
Please date and sign below exactly as name appears on this proxy. Executors,
administrators, trustees, etc. should give full title. If shares are held
jointly, each holder should sign.
Date __________________
_______________________________
Signatures
_______________________________
Signatures
