SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
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Commission file number 1-11609
TOYS "R" US, INC.
Incorporated pursuant to the Laws of Delaware
Internal Revenue Service - Employer Identification No. 22-3260693
461 From Road, Paramus, New Jersey 07652
(201) 262-7800
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.10 par value New York Stock Exchange
Registrant has filed all reports to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
At April 13, 1998, the aggregate market value of voting stock held by
non-affiliates was $8,092,191,726 based on the 279,041,094 shares of Common
Stock which were outstanding at that date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended January 31, 1998 are incorporated by reference into Parts I and II of
this Form 10-K.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held June 3, 1998, are incorporated by reference into Part
III of this Form 10-K.
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INDEX
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PAGE
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PART I.
Item 1. Business...................................................... 2
Item 2. Properties.................................................... 5
Item 3. Legal Proceedings............................................. 6
Item 4. Submission of Matters to a Vote of Security Holders........... 7
PART II.
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters........................ 7
Item 6. Selected Financial Data....................................... 7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 7
Item 7a. Qualitative and Quantitative Disclosures About Market Risk.... 7
Item 8. Financial Statements and Supplementary Data................... 8
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................. 8
PART III.
Item 10. Directors and Executive Officers of the Registrant............ 8
Item 11. Executive Compensation........................................ 11
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................. 11
Item 13. Certain Relationships and Related Transactions................ 11
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................ 11
1
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PART I
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ITEM 1. BUSINESS
Toys "R" Us, Inc. and its subsidiaries (the "Company") is the world's
premier retailer of children's products, bringing toys, apparel and baby needs
to children and their families. As of January 31, 1998, the Company was engaged
in the operation of 1,454 children's specialty retail stores consisting of 1,013
United States locations comprised of 698 toy stores under the name "Toys "R"
Us", 215 children's clothing stores under the name "Kids "R" Us," 98
infant-toddler stores under the name "Babies "R" Us", and two superstores
combining all of the "R" Us" formats mentioned above under the name "Toys "R" Us
KidsWorld". Internationally, the Company operates 441 toy stores, including
franchise stores, under the name "Toys "R" Us." The Company is incorporated in
the state of Delaware.
(a) General Development of the Business
Merger with Baby Superstore
On February 3, 1997, the Company acquired Baby Superstore, Inc. ("Baby
Superstore") in a tax-free exchange of common stock valued at approximately $376
million. The Baby Superstore acquisition was accounted for as a purchase for
financial reporting purposes as of February 1, 1997. For a further discussion of
Baby Superstore, see "Item 1. Business - Narrative Description of the Business -
Babies "R" Us."
Worldwide Restructuring
The Company has substantially completed its 1995 restructuring program
action plan, including the strategic inventory repositioning, the closing of 3
toy stores and 7 Kids "R" Us stores in the United States and the franchising of
9 Toys "R" Us stores in the Netherlands, pending certain regulatory approvals.
In addition, the Company consolidated 3 distribution centers and various
administrative facilities in the United States and Europe. At January 31, 1998,
the Company had approximately $62 million of liabilities remaining for its
restructuring program primarily relating to long-term lease obligations and
other commitments. The Company believes these reserves are adequate to complete
the restructuring program.
(b) Financial Information About Geographic Segments
Information about geographic segments, as set forth in the notes to the
Consolidated Financial Statements on page 22 of the Company's 1997 Annual
Report, is incorporated herein by reference.
(c) Narrative Description of the Business
See the section "Store Locations" on page 27 of the Company's 1997
Annual Report, which section is incorporated herein by reference.
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Toys "R" Us - United States
Toys "R" Us - United States ("Toys "R" Us") operates in 49 states and
Puerto Rico and sells both children's and adult's toys, games, bicycles,
sporting goods, VHS video tapes, electronic and video games, small pools, books,
infant and juvenile furniture and similar items, as well as educational and
entertainment computer software for children. The overall merchandising
philosophy of Toys "R" Us is the development of strong consumer recognition and
acceptance of its name by the use of mass media advertising that promotes its
broad selection.
Toys "R" Us believes the flexibility afforded by its
warehouse/distribution system and by ownership of its own fleet of trucks
provides maximum efficiency and capacity, particularly in light of the
seasonality of its business. Toys "R" Us utilizes a computerized inventory
system which allows management to constantly monitor the current activity and
inventory in each region and in each store. This system permits management to
allocate merchandise to each store and keep the stores adequately stocked at all
times. In 1996, an improved replenishment system was installed in approximately
one-third of the United States toy stores. This system pinpoints the exact
location of merchandise throughout the store. Ninety-two additional United
States toy stores have installed this system in 1997. Furthermore, during
1997 Toys "R" Us introduced a state of the art centralized distribution system
in Lees Summit, Missouri. Substantially all video game and computer software
merchandise are nationally distributed through this facility for all domestic
divisions. This facility has enabled Toys "R" Us to improve its in-stock
position and timeliness of replenishments of these products through this
facility.
Most Toys "R" Us stores conform to a 46,000 square feet prototype
design, with 30,000 and 20,000 square feet stores opened in smaller markets, and
are generally freestanding units or located in strip malls. Of its 698 stores,
609 are in the traditional format and 89 are designed in its "Concept 2000"
format. In addition, there are 2 KidsWorld superstores incorporating the "Toys
"R" Us, "Babies "R" Us" and "Kids "R" Us store concepts all under one roof,
averaging approximately 90,000 square feet.
Toys "R" Us opened 19 new toy stores and closed 1 store in 1997. The
Company will continue its long range growth plan by opening approximately 5 new
toy stores in the United States in 1998. The Company utilizes demographic data
to determine which markets to enter.
Toys "R" Us - International
Toys "R" Us - International ("International") operates or franchises
toy stores in 26 countries outside the United States. These stores generally
conform to prototypical designs similar to those used by Toys "R" Us.
International owns and maintains its own fleet of tractors and trailers in most
of the countries in which it operates stores. International also employs
computerized inventory systems similar to those utilized by Toys "R" Us. As part
of the Company's long range growth plans, International added 45 toy stores,
including 18 franchise stores in 1997. The Company plans to continue its
International expansion with approximately 35 new toy stores in 1998, including
approximately 15 franchise stores. The Company utilizes demographic data to
determine which markets to enter.
3
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Kids "R" Us
Kids "R" Us children's clothing stores feature brand name and private
label first quality children's clothing. These stores conform to prototypical
designs consisting of approximately 15,500 to 21,500 square feet and are
typically freestanding units or located in strip centers. Using demographic data
to determine which markets to enter, Kids "R" Us opened 3 children's clothing
stores in 1997.
Babies "R" Us
The Company launched its new Babies "R" Us division with six stores
opened in 1996. These stores target the newborn to preschool market in a 38,000
to 42,000 square feet prototype that offers up to 40 room settings of juvenile
furniture such as cribs and dressers as well as playards, bumper seats, high
chairs, strollers, car seats, infant toddler and preschool toys, infant plush,
and gifts. These stores devote over 5,000 square feet of specialty name brand
and private label clothing and a wide range of feeding supplies, health and
beauty aides and infant care products. In addition, a computerized baby
registry service is offered. Babies "R" Us is designed with low profile
merchandise displays in the center of the stores providing a sweeping view of
the entire merchandise selection.
The Company accelerated the growth of the Babies "R" Us division with
the acquisition of Baby Superstore, a leading large format retailer of newborn
to preschool products in the United States. At the date of acquisition, Baby
Superstore operated 76 stores in 23 states, primarily in the southeast and
midwest. The Company has converted substantially all of the existing Baby
Superstore stores to the Babies "R" Us operating format. The Company opened 19
Babies "R" Us stores and closed 3 of the acquired Baby Superstore stores in
1997, and plans on opening approximately 15 to 20 stores in 1998. The Company
utilizes demographic data to determine which markets to enter.
(d) Trademarks
"TOYS "R" US", "KIDS "R" US", and "BABIES "R" US", as well as various
of the Company's family of "R" Us marks either have been registered, or have
trademark applications pending, with the United States Patent and Trademark
Office and with the trademark registries of many foreign countries. The Company
believes that its rights to these properties are adequately protected.
(e) Seasonality
Retail sales of toy and toy related products are highly seasonal, with
a majority of retail sales occurring during the period from September through
December. Consequently, a large portion of the Company's sales and earnings
occur during its fourth quarter.
See the quarterly financial data contained on page 26 of the Company's
1997 Annual Report, which section is incorporated herein by reference.
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(f) Working Capital
For a discussion of the Company's working capital requirements, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 12 and 13 of the Company's 1997 Annual Report, which
section is incorporated herein by reference.
(g) Competition
All aspects of the retailing industry are highly competitive. All of
the merchandise sold by the Company, in markets in which the Company operates,
is available from various retailers at competitive prices. The Company's
competitors consist of other specialty retailers of toy and children related
products, department stores and discount and supercenter type retail stores.
(h) Employees
At January 31, 1998, the total number of persons employed by the
Company was approximately 68,000. The number of persons employed by the Company
increased to approximately 116,000 during the 1997 Holiday Season.
ITEM 2. PROPERTIES
See the Note, "Leases," in the Company's Notes to Consolidated
Financial Statements included on page 19 of the Company's 1997 Annual Report,
which note is incorporated herein by reference. Also see the section "Store
Locations" on page 27 of the Company's 1997 Annual Report, which section is
incorporated herein by reference.
Toys "R" Us - United States
A significant portion of the properties operated by Toys "R" Us are
owned. Toys "R" Us either purchases or leases properties depending on the
economic terms available. Where properties are leased, Toys "R" Us generally has
long-term leases with multiple renewal options. Toys "R" Us operates 698 toy
stores, 438 of which are owned and 260 are leased. Toys "R" Us also operates 2
KidsWorld stores, 1 of which is owned and 1 is leased. Toys "R" Us operates 17
distribution centers, 14 of which are owned and 3 are leased. These distribution
centers average approximately 443,000 square feet each in size and are
strategically located throughout the United States to efficiently service these
stores.
The Company also leases corporate offices in Paramus and Rochelle Park,
New Jersey and owns a data center in Parsippany, New Jersey. The Company
recently purchased a new office building in Montvale, New Jersey which will
replace the Rochelle Park office.
Toys "R" Us - International
International operates 367 stores, excluding 16 joint ventures and 58
franchised stores, 111 of which are owned and 256 are leased. International also
operates 12 distribution centers, 4 of which are owned and 8 are leased.
5
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Kids "R" Us
Kids "R" Us operates 215 children's clothing stores, 99 of which are
owned and 116 are leased. Kids "R" Us operates 4 distribution centers, including
a new center in Lawrenceville, Georgia, 3 of which are owned and 1 is leased.
These distribution centers average approximately 281,000 square feet each in
size.
Babies "R" Us
Babies "R" Us operates 98 juvenile retail stores, 10 of which are owned
and 88 are leased. Babies "R" Us stores are serviced by existing Toys "R" Us and
Kids "R" Us distribution centers discussed above.
ITEM 3. LEGAL PROCEEDINGS
On July 12, 1996, an arbitrator rendered an award in favor of Yusuf
Ahmed Alghanim & Sons, W.L.L. ("Alghanim") and against the Company and awarded
Alghanim $46 million plus interest from December 1994. This award was rendered
in connection with a dispute between Alghanim and the Company involving rights
under a 1982 license agreement for toy store operations in the Middle East.
Accordingly, the Company recorded a provision of $60 million in 1996
representing all expected costs in connection with this matter. The Company
contested this award in the United States District Court. That motion was denied
on December 13, 1996 and the arbitration award was confirmed. On September 10,
1997, the Second Circuit affirmed the District Court's decision. The Company
sought review in the Supreme Court of the United States. On February 23, 1998,
the Supreme Court denied review. The Company paid the judgment on February 26,
1998.
On May 22, 1996, the Staff of the Federal Trade Commission (the "FTC")
filed an administrative complaint against the Company alleging that the Company
is in violation of Section 5 of the Federal Trade Commission Act for its
practices relating to warehouse clubs. The complaint alleges that the Company
reached understandings with various suppliers that such suppliers not sell to
the clubs the same items that they sell to the Company. The complaint also
alleges that the Company "facilitated understandings" among the manufacturers
that such manufacturers not sell to clubs. The complaint seeks an order that the
Company cease and desist from this practice. The matter was tried before an
administrative law judge in the period from March through May of 1997. On
September 30, 1997, the administrative law judge filed an Initial Decision
upholding the FTC's complaint against the Company.
The Company has appealed the Initial Decision to the Commissioners of
the FTC. That appeal was argued on February 19, 1998. The Company will be
entitled to have the United States Court of Appeals review any adverse decision
by the FTC.
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After the filing of the FTC complaint, several class action suits were
filed against the Company in State courts in Alabama and California, alleging
that the Company has violated certain state competition laws as a consequence of
the behavior alleged in the FTC complaint. After the Initial Decision was handed
down, more than thirty purported class actions were filed in federal and state
courts in various jurisdictions alleging that the Company has violated the
federal antitrust laws as a consequence of the behavior alleged in the FTC
complaint. In addition, the attorneys general of thirty-eight states, the
District of Columbia and Puerto Rico have filed a suit against the Company in
their capacity as representatives of the consumers of their states, alleging
that the Company has violated federal and state antitrust laws as a consequence
of the behavior alleged in the FTC complaint. These suits seek damages in
unspecified amounts and other relief under state and/or federal law.
The Company believes that both its policy and its conduct in connection
with the foregoing are within the law. The Company also believes that these
actions will not have a material adverse effect on its financial condition,
results of operations or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market prices and other information with respect to the Company's
common stock are hereby incorporated by reference to page 26 of the Company's
1997 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is hereby incorporated by reference to page 3
of the Company's 1997 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Management's discussion and analysis of results of operations and
financial condition is hereby incorporated by reference to pages 12 and 13
of the Company's 1997 Annual Report.
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Qualitative and quantitative disclosures about market risk is hereby
incorporated by reference to page 13 of the Company's 1997 Annual Report.
7
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are hereby
incorporated by reference to pages 14 to 23 of the Company's 1997 Annual Report.
(a) Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997
(b) Consolidated Statements of Earnings for each of the three years in the
period ended January 31, 1998
(c) Consolidated Statements of Cash Flows for each of the three years in the
period ended January 31, 1998
(d) Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended January 31, 1998
(e) Notes to Consolidated Financial Statements; and
(f) Report of Ernst & Young LLP.
Individual financial statements of the registrant's subsidiaries are
not furnished because consolidated financial statements are furnished. The
registrant is primarily a holding company, the expenses and obligations of which
are paid by its consolidated subsidiaries through a fee based on expenses
incurred for its consideration for management services provided to such
subsidiaries by the registrant. All subsidiaries of the registrant are at least
80% owned.
Financial statements of 50%-owned joint ventures are not submitted
because such companies, considered in the aggregate, are not considered a
significant subsidiary as defined in Regulation S-X.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors of the Company is hereby
incorporated herein by reference to the section, "Election of Directors", in the
Company's 1997 Proxy Statement.
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Executive Officers of the Company
(a) The following persons are the executive officers of the Company as of
April 15, 1998, having been elected to their respective offices by
the Board of Directors of the Company to serve until the election and
qualification of their respective successors:
Name Age Position with the Company
---- --- -------------------------
Robert C. Nakasone 50 Chief Executive Officer
Bruce W. Krysiak 47 President and Chief Operating
Officer, and President of U.S.
Toy Store Division
Louis Lipschitz 53 Executive Vice President and
Chief Financial Officer
Michael J. Madden 49 Executive Vice President -
President of Operations of
U.S. Toy Store Division
Richard L. Markee 45 Executive Vice President -
President of Kids "R" Us and
Babies "R" Us Divisions
Gregory R. Staley 50 Executive Vice President -
President of Toys "R" Us
International Division
Keith Van Beek 51 Executive Vice President -
President of Merchandising and
Marketing of U.S. Toy Store Division
Roger Gaston 42 Senior Vice President -
Human Resources
Joseph J. Lombardi 36 Vice President - Controller
(b) The following is a brief account of the business experience during the
past five years for each of the executive officers of the Company:
Mr. Nakasone has been employed by the Company for more than five years.
Effective February 1998, he became Chief Executive Officer. From February 1994
to February 1998, he was President and Chief Operating Officer. From prior to
1993 to February 1994, he was Vice Chairman of the Board and President of
Worldwide Toy Stores.
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Mr. Krysiak has been employed by the Company since April 1998 as President
and Chief Operating Officer and President of U.S. Toy Store Division. From
January 1997 to April 1998, he was President and Chief Operating Officer of
Dollar General Corporation. From April 1995 to June 1996, he was Chief Operating
Officer of Circle K Corporation. From prior to 1993 to December 1994, he was
Chairman of Giant Joint Venture.
Mr. Lipschitz has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President and Chief Financial
Officer. From February 1993 to January 1996, he was Senior Vice President -
Finance and Chief Financial Officer.
Mr. Madden has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President of the Company and
President of Operations of U.S. Toy Store Division. From March 1995 to January
1996, he was Group Vice President of Store Operations - U.S. Toy Store Division.
From February 1993 to February 1995, he was Senior Vice President, Regional
Operations and Distribution - U.S. Toy Store Division.
Mr. Markee has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President of the Company and
has served as President of Kids "R" Us Division since March 1993 and Babies "R"
Us Division since its inception in September 1995.
Mr. Staley has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President of the Company and
has served as President of Toys "R" Us International Division since August 1995.
From prior to 1993 to July 1995, he was Senior Vice President - General
Merchandise Manager for Toys "R" Us International Division.
Mr. Van Beek has been employed by the Company for more than five years.
Effective February 1998, he became Executive Vice President of the Company and
President of Merchandising and Marketing of U.S. Toy Store Division. Effective
August 1995, he became President - Toys "R" Us (Canada) Ltd. From prior to 1993
to August 1995, he was Vice President - Business Development of Toys "R" Us
International Division.
Mr. Gaston has been employed by the Company since December 1996 as Senior
Vice President - Human Resources. From September 1993 to November 1996, he was
Executive Vice President - Human Resources of Carson, Pirie, Scott and Company.
From prior to 1993 to August 1993, he was Group Vice President - Human Resources
and Administration of Finest Supermarkets-AHOLD, USA.
Mr. Lombardi has been employed by the Company since August 1995 as Vice
President - Controller. From October 1994 to July 1995, he was a Partner with
Ernst & Young LLP, a public accounting firm, and was a Senior Manager with Ernst
& Young LLP, since prior to 1993 to September 1994.
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ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is hereby
incorporated herein by reference to the sections, "Election of Directors",
"Compensation of Directors", "Executive Compensation", "Summary Compensation
Table", "Option Grants in Last Fiscal Year", "Aggregated Option Exercises in
Last Fiscal Year and Fiscal Year-End Option Values" and "Long-Term Incentive
Plans - Awards in Last Fiscal Year" in the Company's 1997 Proxy Statement. The
sections, "Report of the Management Compensation and Stock Option Committee on
Executive Compensation" and "Five-Year Stockholder Return Comparison", in the
Company's 1997 Proxy Statement are not incorporated by reference herein. Such
sections are furnished solely for information and shall not be deemed to be
soliciting material or to be "filed" as a part of this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management is hereby incorporated by reference to the sections,
"Principal Stockholders" and "Election of Directors", in the Company's 1997
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) The response to this portion of Item 14 is set forth in Item 8 of
Part II of this report on Form 10-K.
(2) Financial Statement Schedules have been omitted because they are
inapplicable, not required, or the information is included elsewhere in the
financial statements or notes thereto.
(3) See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the accompanying Index
to Exhibits upon payment by such stockholder of the Company's reasonable
expenses in furnishing any such exhibit.
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(b) Cautionary Statement Regarding Forward Looking Information
All of the statements made on this Form 10-K, other than historical facts,
are forward looking statements made in reliance on the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. As
such, they involve risks and uncertainties that could cause actual results
to differ materially. The Company's forward looking statements are based on
assumptions about many important factors, including ongoing competitive
pressures in the retail industry, changes in consumer spending, general
United States economic conditions (such as higher interest rates and
consumer confidence), the anticipated decline in credit results from
historical levels and normal business uncertainty. While the Company
believes that its assumptions are reasonable, it cautions that it is
impossible to predict the impact of certain factors which could cause
actual results to differ materially from expected results.
(c) Reports on Form 8-K
On January 8, 1998, the Company filed a Form 8-K in connection with the
Company's announced adoption of a Stockholder Rights Plan.
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SIGNATURES
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TOYS "R" US, INC.
(Registrant)
By Louis Lipschitz, Executive Vice President
and Chief Financial Officer
Date: April 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 24th day of April, 1998.
Signature Title
--------- -----
Michael Goldstein Chairman of the Board
Robert C. Nakasone Director and Chief Executive Officer
(Principal Executive Officer)
Bruce W. Krysiak Director, President and Chief
Operating Officer
Louis Lipschitz Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
Joseph J. Lombardi Vice President - Controller
(Principal Accounting Officer)
Robert A. Bernhard Director
RoAnn Costin Director
Calvin Hill Director
Shirley Strum Kenny Director
Charles Lazarus Director, Chairman Emeritus
Norman S. Matthews Director
Howard W. Moore Director
Arthur B. Newman Director
The foregoing constitute all of the Board of Directors and the Principal
Executive, Financial and Accounting Officers of the Registrant.
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INDEX TO EXHIBITS
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The following is a list of all exhibits filed as part of this Report:
Exhibit No. Document
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2A Agreement and Plan of Merger, dated as of December 8,
1995, by and among registrant, Toys "R" Us - Delaware,
Inc. (f/k/a Toys "R" Us, Inc.) and TRU Interim, Inc.
Incorporated herein by reference to Exhibit 2.1 to
registrant's Registration of Securities of Certain
Successor Issuers on Form 8-B dated January 3, 1996
(the "Form 8-B").
2B Agreement and Plan of Merger, dated as of October 1,
1996, and as amended and restated as of December 26,
1996, among registrant, BSST Acquisition Corp., Baby
Superstore, Inc. and Jack P. Tate. Incorporated by
reference to Annex A to the Proxy Statement/Prospectus
Statement No. 333-18863.
3A Restated Certificate of Incorporation of registrant
(filed on January 2, 1996). Incorporated herein by
reference to Exhibit 3.1 to the Form 8-B.
3B Amended and Restated By-Laws of registrant (as of
January 1, 1996). Incorporated herein by reference to
Exhibit 3.2 to the Form 8-B. An amendment dated March
11, 1997 to Amended and Restated By-Laws is filed
herewith.
4 i) Form of Indenture dated as of January 1, 1987 between
registrant and United Jersey Bank, as Trustee,
pursuant to which securities in one or more series in
an unlimited amount may be issued by registrant.
Incorporated herein by reference to Exhibit 4(a) to
Registration Statement No. 33-11461.
Ii) Form of the registrant's 8 1/4% Sinking Fund
Debentures due 2017. Incorporated herein by reference
to Exhibit 4(a) to Registration Statement No.33-11461.
Iii) Form of Indenture between registrant and United Jersey
Bank, as Trustee, pursuant to which one or more series
of debt securities up to $300,000,000 in principal
amount may be issued to registrant. Incorporated
herein by reference to Exhibit 4 to registrant's
Registration Statement No. 33-42237.
Iv) Form of registrant's 8 3/4% Debentures due 2021.
Incorporated herein by reference to Exhibit 4 to
registrant's Report on Form 8-K dated August 29, 1991.
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Exhibit No. Document
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4 v) Substantially all other long-term debt of registrant
(which other debt does not exceed on an aggregate
basis 10% of the total assets of the registrant and
its subsidiaries on a consolidated basis) is
evidenced by, among other things, (i) industrial
revenue bonds issued by industrial development
authorities and guaranteed by registrant, (ii)
mortgages held by third parties on real estate owned
by registrant, (iii) stepped coupon guaranteed bonds
held by a third party and guaranteed by registrant
and (iv) an agreement under which registrant
guaranteed certain yen-denominated loans made by a
third party subsidiary of registrant. Registrant will
file with the Securities and Exchange Commission (the
"Commission")copies of constituent documents relating
to such upon request of the Commission.
10A* Stock Option Plan of the registrant, as amended as of
April 22, 1993. Incorporated herein by reference to
Exhibit 10A to registrant's Annual Report on Form
10-K for the year ended January 30, 1993.
10B* Employment Agreement dated March 14, 1978 between
registrant and Charles Lazarus and an amendment
thereto dated November 20, 1979 (incorporated herein
by reference to Exhibit 2 in Schedule 13D dated
February 1, 1980 filed by Charles Lazarus, et al).
An amendment dated March 23, 1982 to such employment
agreement (incorporated herein by reference to
Exhibit 10B to registrant's Annual Report on Form
10-K for the year ended January 31, 1982, Commission
File Number 1-1117). An amendment dated December 7,
1982 to such employment agreement (incorporated
herein by reference to Exhibit 10B to registrant's
Annual Report on Form 10-K for the year ended January
30, 1983, Commission File Number 1-1117). An
amendment dated April 10, 1984 to such employment
agreement (incorporated herein by reference to
Exhibit 10B to registrant's Annual Report on Form
10-K for the year ended January 29, 1989, Commission
File Number 1-1117).
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
15
<PAGE>
Exhibit No. Document
----------- --------
10C* Form of Indemnification Agreement between
registrant and each director. Incorporated herein
by reference to Exhibit 10F to registrant's Annual
Report on Form 10-K for the year ended February 1,
1987, Commission File Number 1-1117.
10D* Stock Option Agreement dated as of February 1,
1988 between registrant and Robert Nakasone.
Incorporated herein by reference to Exhibit 10G to
registrant's Annual Report on Form 10-K for the
year ended January 31, 1988, Commission File
Number 1-117. The first amendment dated as of
April 1, 1989 to such agreement (incorporated
herein by reference to Exhibit 10G to registrant's
Annual Report on Form 10-K for the year ended
January 29, 1989, Commission File Number 1-1117).
The second amendment dated as of September 19,
1989 to such agreement (incorporated herein by
reference to Exhibit 10G to registrant's Annual
Report on Form 10-K for the year ended January 28,
1990, Commission File Number 1-1117).
10E* Stock Option Agreement dated as of February 1,
1988 between registrant and Michael Goldstein
(incorporated herein by reference to Exhibit 10H
to registrant's Annual Report on Form 10-K for the
year ended January 31, 1988, Commission File
Number 1-1117). The first amendment dated as of
April 1, 1989 to such agreement (incorporated
herein by reference to Exhibit 10H to registrant's
Annual Report on Form 10-K for the year ended
January 29, 1989, Commission File Number 1-1117).
The second amendment dated as of September 19,
1989 to such agreement (incorporated herein by
reference to Exhibit 10H to registrant's Annual
Report on Form 10-K for the year ended January 28,
1990, Commission File Number 1-1117).
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
16
<PAGE>
Exhibit No. Document
----------- --------
10F* Stock Option Plan and Agreement dated as of March
14, 1989 between registrant and Charles Lazarus,
and a First Amendment thereto dated as of
September 19, 1989. Incorporated by reference to
Exhibit 10I to registrant's Annual Report on Form
10-K for the year ended January 28, 1990,
Commission File Number 1-1117.
10G* Non-Employee Directors' Stock Option Plan as
adopted by the Board of Directors on September 19,
1990 and approved by the registrant's stockholders
on June 3, 1991, and amended and restated as of
December 6, 1995. Incorporated herein by reference
to Exhibit 10A to registrant's Proxy Statement for
the year ended February 3, 1996.
10H* Stock Option Plan and Agreement dated as of
December 2, 1992 between the registrant and Robert
C. Nakasone. Incorporated herein by reference to
Exhibit 10I to registrant's Annual Report on Form
10-K for the year ended January 30, 1993.
10I* Stock Option Plan and Agreement dated as of
December 2, 1992 between the registrant and
Michael Goldstein. Incorporated herein by
reference to Exhibit 10J to registrant's Annual
Report on Form 10-K for the year ended January 30,
1993.
10J* Toys "R" Us, Inc. 1994 Stock Option and
Performance Incentive Plan effective November 1,
1993, as amended. Incorporated herein by
reference to Exhibit 4.1 to registrant's
Registration Statement No. 33-64315.
10K* Toys "R" Us, Inc. Management Incentive
Compensation Plan adopted March 28, 1994
(incorporated herein by reference to Exhibit 10L
to registrant's Annual Report on Form 10-K for the
year ended January 29, 1994). The first amendment
to such plan adopted on April 20, 1995
(incorporated herein by reference to Exhibit 10.11
to the Form 8-B).
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
17
<PAGE>
Exhibit No. Document
----------- --------
10L* Toys "R" Us, Inc. Partnership Group Deferred
Compensation Plan effective as of May 17,
1995. Incorporated herein by reference to
Exhibit 10.13 to the Form 8-B.
10M* Toys "R" Us, Inc. Grantor Trust Agreement
dated as of October 1, 1995 between registrant
and American Express Trust Company.
Incorporated herein by reference to Exhibit
10.14 to the Form 8-B.
10N* Toys "R" Us, Inc. Supplemental Executive
Retirement Plan, effective as of December 6,
1995. Incorporated by reference to Exhibit 10N
to registrant's Annual Report on Form 10-K for
the year ended February 3, 1996.
10O Shareholders Agreement, dated October 1, 1996,
by and among registrant, Jack P.Tate and Linda
M. Robertson. Incorporated by reference to
Exhibit A to Exhibit 2 to registrant's
Quarterly Report on Form 10-Q for the quarter
ended November 2, 1996, File No. 1-11609 (the
"Form 10-Q").
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
18
<PAGE>
Exhibit No. Document
----------- --------
10P* Retention Agreements
--------------------
- Retention Agreement between Toys "R" Us,
Inc. and Roger Gaston dated as of May 1, 1997.
- Retention Agreement between Toys "R" Us,
Inc. and Louis Lipschitz dated as of May 1,
1997.
- Retention Agreement between Toys "R" Us,
Inc. and Michael J. Madden dated as of May 1,
1997.
- Retention Agreement between Toys "R" Us,
Inc. and Richard L. Markee dated as of May 1,
1997.
- Retention Agreement between Toys "R" Us,
Inc. and Gregory R. Staley dated as of May 1,
1997.
Each incorporated herein by reference to
Exhibit 10P to registrant's Quarterly Report
on Form 10-Q for the quarterly period ended
May 3, 1997.
10Q Form of Rights Agreement, dated as of January
7, 1998, between Toys "R" Us, Inc. and
American Stock Transfer & Trust Company, which
includes as Exhibit A the Form of Rights
Certificate and, as Exhibit B, the Summary of
Rights to Purchase Common Stock (incorporated
herein by reference to Exhibit 1 to
registrant's Report on Form 8-K dated January
7, 1998).
10R* Retention Agreement between Toys "R" Us, Inc.
and Michael Goldstein dated as of February 25,
1998.
10S* Retention Agreement between Toys "R" Us, Inc.
and Robert C. Nakasone dated as of February
25, 1998.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14 (c) hereof.
19
<PAGE>
Exhibit No. Document
----------- --------
10T* Retention Agreement between Toys "R" Us, Inc.
and Keith Van Beek dated as of February 25,
1998.
10U* Retention Agreement between Toys "R" Us, Inc.
and Bruce W. Krysiak dated as of February 12,
1998.
13 Registrant's Annual Report to Stockholders for
the year ended January 31, 1998. Except for
the portions thereof that are expressly
incorporated by reference into this report,
such Annual Report is furnished solely for the
information of the Commission and is not to be
deemed "filed" as part of this report.
21 Subsidiaries of registrant.
23 Consent of Independent Auditors, Ernst & Young
LLP.
27.1 Financial Data Schedule for the year ended
January 31, 1998.
27.2 Financial Data Schedule for the year ended
February 1, 1997 - Restated.
27.3 Financial Data Schedule for the year ended
February 3, 1996 - Restated.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14 (c) hereof.
20
<PAGE>
EXECUTION COPY
RETENTION AGREEMENT
BETWEEN
TOYS "R" US, INC.
AND
MICHAEL GOLDSTEIN
DATED AS OF
February 25, 1998
<PAGE>
EXECUTION COPY
TOYS "R" US, INC.
RETENTION AGREEMENT
AGREEMENT (this "Agreement"), by and between Toys "R" Us,
Inc., a Delaware corporation (the "Company"), and Michael Goldstein
("Goldstein"), dated as of February 25, 1998. Capitalized terms used in
this Agreement and in Exhibit A hereto that are not defined in the
operative provisions shall have the meanings ascribed to them on Exhibit
B hereto.
1. Employment Period. The Company hereby agrees to
continue to employ Goldstein and Goldstein hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this
Agreement, for the Employment Period. The term "Employment Period" means
the period commencing on the date hereof and ending on the last day of
the Company's 1999 fiscal year as automatically extended for successive
additional one-fiscal year periods unless, at least six months prior to
the scheduled expiration of the Employment Period, the Company, based
upon a determination by the Committee, shall give notice to Goldstein
that the Employment Period shall not be so extended.
2. Terms of Employment. (a) Position. (i) Commencing on
the date hereof and for the remainder of the Employment Period, Goldstein
shall serve as the Chairman of the Board. Goldstein shall be based in
Northeastern New Jersey.
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to which Goldstein is entitled,
Goldstein agrees to devote full time during normal business hours to the
business and affairs of the Company up to June 30, 1998, and thereafter
to devote up to 500 hours each year (pro rated for partial years) during
normal business hours to the business and affairs of the Company, and to
use his best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, Goldstein may, so long
as such activities do not interfere with the performance of his
responsibilities to the Company in accordance with this Agreement,
continue the corporate directorships on which Goldstein serves, if any,
as of the date hereof and such other corporate directorships as are
consented to by the Committee. It is expressly understood and agreed
that to the extent that any such activities have been conducted by
Goldstein with the knowledge of the Company prior to a Change of Control,
the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to a Change of Control
shall not thereafter be deemed to violate this Agreement.
(b) Compensation. (i) Base Salary. During the
Employment Period, Goldstein shall receive his Annual Base Salary, which
<PAGE>
will be paid in accordance with the Company's regular payroll policies as
in effect from time to time.
(ii) Incentive Bonus. Goldstein shall also be
eligible, for each fiscal year ending during the Employment Period, to
receive (A) an annual incentive bonus, in accordance with targets
established by the Committee, of one-hundred percent (100%) of Annual
Base Salary at the target and up to two-hundred percent (200%) of Annual
Base Salary and (B) long-term incentive awards pursuant to the Company's
incentive Plans and subject to the terms thereof at a level commensurate
with his current grants and his current position adjusted to take into
account the actual Annual Base Salary in any fiscal year. Each such
incentive bonus shall be paid in accordance with the Company's incentive
Plans.
(iii) Participation in Other Plans. During the
Employment Period, Goldstein shall continue to participate in all other
Plans at a level commensurate with his participation in such Plans as of
the date hereof, including continued vesting of outstanding option grants
and profits shares.
(iv) Stock Units. As further inducement for
Goldstein to enter into this Agreement and to continue in the employ of
the Company, the Company has granted to Goldstein stock units contingent
on performance and future service, pursuant to the Stock Unit Agreement
executed and delivered by the Company on the date hereof in the form
attached as Annex A hereto.
(v) Partnership Plan Units. During the
Employment Period Goldstein shall be granted units under the Partnership
Plan in accordance with targets established by the Committee in an amount
equal to forty percent (40%) of the actual Annual Base Salary for any
fiscal year at such target.
(vi) Expense Reimbursement. The Company shall
reimburse Goldstein, upon submission of appropriate evidence of
incurrence, his reasonable business expenses and disbursements incurred
in the course of the performance of his duties.
(vii) Office. During the employment period,
Goldstein shall be entitled to retain his office or a comparable office,
and shall be entitled to part-time secretarial services.
(viii) Automobile Lease. Until June 30, 1998,
Goldstein shall be entitled to his current benefits relating to his
automobile and driver. Beginning July 1, 1998, during the Employment
Period, the Company shall reimburse Goldstein's expenses in leasing,
maintaining and insuring an automobile on a basis equivalent to his
current automobile benefit.
<PAGE>
3. Termination of Employment.
(a) Notice of Termination. Any termination by the
Company for Cause, or by Goldstein for Good Reason, shall be communicated
by Notice of Termination to the other party hereto given in accordance
with this Agreement. The failure by Goldstein or the Company to set
forth in the Notice of Termination any fact or circumstance that
contributes to a showing of Good Reason or Cause shall not waive any
right of Goldstein or the Company, respectively, hereunder or preclude
Goldstein or the Company, respectively, from asserting such fact or
circumstance in enforcing Goldstein's or the Company's rights hereunder.
(b) Termination for Death, Disability or Retirement.
Goldstein's employment shall terminate upon his death, Disability or
Retirement during the Employment Period. In the event of such
termination:
(i) the Company shall make a lump sum cash
payment to Goldstein (or, in the event that termination results from the
death of Goldstein, to his estate) within 30 days after the Date of
Termination in an amount equal to the sum of:
(A) Goldstein's pro rata Annual Base
Salary payable through the Date of Termination to
the extent not already paid;
(B) the targeted amount of Goldstein's
annual bonus, long-term incentive awards and
Partnership Plan Units that would have been awarded
with respect to the fiscal year in which the Date of
Termination occurs, in each case absent the termination
of Goldstein's employment, prorated for the portion of
such fiscal year through the Date of Termination taking
into account the number of complete months during such
fiscal year through the Date of Termination;
(C) Goldstein's actual earned annual bonus
and long-term incentive awards and Partnership Plan
Units for any completed fiscal year or period not
theretofore paid; and
(D) the account balance provided for under
the Plans, including the Company's supplemental
executive retirement plan, which shall be fully vested;
and
(ii) (1) all unvested options held by
Goldstein shall vest on the Date of Termination, (2) all unvested
profit shares held by Goldstein or for the benefit of Goldstein by a
grantor trust established by the Company shall vest on the Date of
Termination and shall be promptly delivered to Goldstein or his estate,
<PAGE>
(3) any other unvested equity based award (including, without
limitation, restricted stock and stock units) held by Goldstein shall
vest on the Date of Termination and shall be delivered to Goldstein or,
in the event of termination due to death, his estate, entirely in the
form of Common Stock, $.10 par value per share ("Common Stock") of the
Company immediately to his estate in the event of termination due to
death, or, in the event of termination due to Retirement or Disability
upon the later of May 1, 2002, or the expiration of the period that
Goldstein's activities are restricted under Section 10(c), subject to
his compliance with the terms of this Agreement through such date, (4)
any options held by Goldstein may be exercised until the expiration date
of such options and (5) Goldstein shall not be entitled to any
additional grants of any stock options, restricted stock, or other
equity based or long-term awards; and
(iii) Goldstein (and his spouse and dependent
children) will be entitled to continuation of health benefits under the
Plans at a level commensurate with Goldstein's current position and if
Goldstein (or his spouse and dependent children upon his death) elects
to receive such health benefits, Goldstein shall pay the premium charged
to former employees of the Company pursuant to Section 4980B of the
Code; provided, that the Company can amend or otherwise alter the Plans
to provide benefits to Goldstein that are no less than those
commensurate with Goldstein's current position; provided, that to the
extent such benefits cannot be provided to Goldstein under the terms of
the Plans or the Plans cannot be so amended in any manner not adverse to
the Company, the Company shall pay Goldstein, on an after-tax basis, an
amount necessary for Goldstein to acquire such benefits from an
independent insurance carrier; and provided further, that the
obligations of the Company under this clause (iii) shall be terminated
if, at any time after the Date of Termination, Goldstein is employed by
or is otherwise affiliated with a party that offers comparable health
benefits to Goldstein.
(c) Resignation by Goldstein Without Good Reason. If
Goldstein desires to resign from his position as Chairman of the Board of
the Company without Good Reason, Goldstein shall provide the Company with
a Notice of Termination at least six (6) months prior to the commencement
of the Transition Period. In the event of such resignation:
(i) Goldstein shall continue to be nominated by
the Company as a director of the Board and will serve as a member of the
Board if elected by the Company's stockholders to serve during the
Transition Period. For as long as Goldstein serves as a director of the
Company during the Transition Period, he shall receive the same
compensation in the same form and at the same times as would be paid to
him if he were a non-employee director of the Company, however, if he is
not elected or chooses not to serve as a director during the Transition
Period, he shall continue to be employed by the Company during the
balance of the Transition Period for nominal compensation;
<PAGE>
(ii) the Company shall make a lump sum cash
payment to Goldstein within 30 days after the commencement of the
Transition Period in an amount equal to the sum of:
(A) Goldstein's pro rata Annual Base
Salary payable through the Date of Termination to the
extent not already paid;
(B) Goldstein's actual earned annual
bonus and long-term incentive awards for any completed
fiscal year or period not theretofore paid or deferred
unless the Committee determines not to permit the
cancellation of such deferral; and
(C) the account balance provided for
under the Plans, including the Company's supplemental
executive retirement plan, which shall be fully vested;
and
(iii) (1) all unvested options held by
Goldstein that otherwise do not vest on the commencement of the
Transition Period shall continue to vest in accordance with their terms
during the Transition Period, and all remaining unvested options held by
Goldstein shall be forfeited at the end of such Transition Period, (2)
all unvested profit shares held by Goldstein or for the benefit of
Goldstein by a grantor trust established by the Company that otherwise
do not vest upon commencement of the Transition Period shall continue to
vest in accordance with their terms during the Transition Period at the
rate of 20% per annum and all remaining unvested profit shares shall be
forfeited at the end of such two-year period provided that, if permitted
by the terms of any such trust, any unvested profit shares shall
continue to be held by such grantor trust until such profit shares vest
pursuant to this clause (iii) and any such unvested profit share that
would otherwise vest in accordance with this clause (iii) but that is
not permitted to be so held shall vest immediately, (3) any other
unvested equity based award (including, without limitation, restricted
stock and stock units) held by Goldstein shall be forfeited, (4) any
other vested equity award (including, without limitation, restricted
stock and stock units) shall be delivered to Goldstein upon the later of
May 1, 2002 and the expiration of the period that Goldstein's activities
are restricted under Sections 10(c) and (d), subject to his compliance
with the terms of this Agreement through such date, (5) any options held
by Goldstein that are vested upon commencement of the Transition Period
or vest thereafter pursuant to this clause (iii) may be exercised until
the earlier of (x) 30 days after the expiration of the Transition Period
and (y) the expiration date of such options, and (6) Goldstein shall not
be entitled to any additional grants of any stock options, restricted
stock or other equity based or long-term awards; and
<PAGE>
(iv) Goldstein, his spouse and dependent
children will be entitled to the benefits set forth under Section
3(b)(iii).
(d) Termination by the Company for Cause. If
Goldstein's employment shall be terminated for Cause during the
Employment Period, the Employment Period shall terminate without further
obligations to Goldstein other than the obligation to pay him all
payments and benefits due, in accordance with the Company's Plans
through the Date of Termination. All stock units held by Goldstein,
whether or not vested, shall be forfeited on the Date of Termination.
(e) Termination by the Company Without Cause or by
Goldstein for Good Reason. If Goldstein's employment shall be
terminated by the Company without Cause during the Employment Period, or
by Goldstein for Good Reason, then:
(i) the Company shall make a lump sum cash
payment to Goldstein within 30 days after the Date of Termination of (x)
Goldstein's pro rata Annual Base Salary payable through the Date of
Termination to the extent not theretofore paid, (y) the targeted amount
of Goldstein's annual incentive bonus, long-term incentive awards and
Partnership Plan Units that would have been payable with respect to the
fiscal year in which the Date of Termination occurs in each case absent
the termination of Goldstein's employment, prorated for the portion of
such fiscal year through the Date of Termination taking into account the
number of complete months during such fiscal year through the Date of
Termination and (z) Goldstein's actual earned annual incentive bonus,
long-term incentive awards and Partnership Plan Units for any completed
fiscal year or period not theretofore paid or deferred;
(ii) the Company shall pay to Goldstein in
equal installments, made at least monthly, over the twenty-four months
following the Date of Termination, an aggregate amount equal to (1) two
times Goldstein's Annual Base Salary in effect on the Date of
Termination, (2) two times the targeted amount of the annual incentive
bonus that would have been paid or accrued to Goldstein with respect to
the Company's fiscal year in which such Date of Termination occurs and
(3) two times the targeted amount of the long-term incentive award and
Partnership Plan Units that would have been paid or accrued to Goldstein
with respect to such fiscal year;
(iii) the Company shall continue to provide, in
the manner and timing provided for in the Plans (other than as provided
in clauses (i), (ii), (iv) and (v) of this Section 3(e)), the benefits
provided under the Plans that Goldstein would receive if Goldstein's
employment continued for two years after the Date of Termination,
assuming for this purpose that Goldstein's compensation is the amount
paid pursuant to clause (ii) above, and Goldstein shall be fully vested
in any account balance and all other benefits under the Plans; provided,
<PAGE>
however, that the benefits provided under this clause (iii) shall be
limited to the amounts permitted by law or as would otherwise not
potentially adversely impact on the tax qualification of any Plans;
provided, further, that if such benefits may not be continued under the
Plans, the Company shall pay to Goldstein an amount equal to the
Company's cost had such benefits been continued.
(iv) (1) all unvested options held by
Goldstein shall vest on the Date of Termination, (2) all unvested profit
shares held by Goldstein or for the benefit of Goldstein by a grantor
trust established by the Company shall vest on the Date of Termination,
(3) any other unvested equity based award (including, without
limitation, restricted stock and stock units) held by Goldstein shall
vest on the two year anniversary date of the Date of Termination on a
pro rata basis determined by a fraction, the numerator of which is the
number of months elapsed from the grant of such equity award through the
Date of Termination plus the twenty-four months after the Date of
Termination and the denominator of which is the total number of months
in the vesting period for such award, and shall be delivered to
Goldstein entirely in the form of Common Stock upon the later of May 1,
2002 and the expiration of the period of that Goldstein's activities are
restricted under Section 10(c), subject to compliance with this
Agreement through such date, (4) any options held by Goldstein that are
vested on the Date of Termination or vest thereafter pursuant to this
clause (iv) may be exercised until the expiration date of such options
and (5) Goldstein shall not be entitled to any additional grants of any
stock options, restricted stock, or other equity based or long-term
awards; and
(v) Goldstein, his spouse and dependent
children shall be entitled to the benefits set forth under Section
3(b)(iii).
4. Obligations of the Company Relating to a Change of
Control.
(a) Notwithstanding any provision of this Agreement or
any Plan, in no event shall any compensation or benefits, individually or
in the aggregate, to which Goldstein would be entitled be less favorable
for the two years following a Change of Control than to which Goldstein
would have been entitled based upon the most favorable of the Company's
Plans in effect for Goldstein at any time during the 120-day period
immediately preceding such Change of Control.
(b) If Goldstein's employment shall have been
terminated by the Company (other than for Cause) or by Goldstein for Good
Reason during a Change of Control Period:
<PAGE>
(i) the Company shall make a lump sum cash
payment to Goldstein within 30 days after the Date of Termination in an
amount equal to the sum of the amounts provided by Sections 3(e)(i), (ii)
and (iii) except that all references therein to "two times" shall be
"three times"; and
(ii) (1) all unvested options held by Goldstein
shall vest on the Date of Termination, (2) all unvested profit shares
held by Goldstein or for his benefit by a grantor trust shall vest on the
Date of Termination, (3) any other unvested equity awards (including,
without limitation, restricted stock and stock units) held by Goldstein
shall vest immediately and be promptly delivered to Goldstein entirely in
the form of Common Stock, (4) any options held by Goldstein may be
exercised until the expiration date of the options, and (5) Goldstein
shall not be entitled to any additional grants of any stock options,
restricted stock, and other equity based or long term awards; and
(iii) Goldstein, his spouse and dependent
children shall be entitled to the benefits set forth in Section
3(b)(iii).
5. Release Agreement. The benefits pursuant to Section 3
are contingent upon Goldstein (i) executing a Separation and Release
Agreement (the "Release Agreement") upon or after any Date of
Termination, a copy of which is attached as Exhibit A to this Agreement
and (ii) not revoking or challenging the enforceability of the Release
Agreement or this Agreement.
6. Offset. The Company shall have the right to offset the
amounts required to be paid to Goldstein under this Agreement against any
amounts owed by Goldstein to the Company, and nothing in this Agreement
shall prevent the Company from pursuing any other available remedies
against Goldstein.
7. Nonexclusivity of Rights. Nothing in this Agreement
shall prevent or limit Goldstein's continuing or future participation in
any Plan for which Goldstein may qualify nor shall anything herein limit
or otherwise affect such rights as Goldstein may have under any contract
or agreement with the Company. Amounts that are vested benefits or that
Goldstein is otherwise entitled to receive under any Plan, contract or
agreement with the Company at or subsequent to the Date of Termination
shall be payable in accordance with such Plan, or contract or agreement
except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees.
(a) No Obligation to Mitigate. In no event shall
Goldstein be obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to Goldstein under any of the
provisions of this Agreement, and, except as specifically provided in
<PAGE>
this Agreement, such amounts shall not be reduced whether or not
Goldstein obtains other employment.
(b) Expenses of Contests. (i) The following shall
apply for any dispute arising hereunder, under the Release Agreement or
under the Stock Unit Agreement prior to a Change of Control: Other than
with respect to claims brought by Goldstein against, or defenses by
Goldstein of any claim of, the Company with respect to this Agreement,
the Release Agreement or the Stock Unit Agreement that were determined to
have been made or asserted by Goldstein in bad faith or frivolously, the
Company agrees to pay all reasonable legal and professional fees and
expenses that Goldstein may reasonably incur as a result of any contest
by Goldstein, by the Company or others of the validity or enforceability
of, or liability under, any provision of this Agreement, the Release
Agreement or the Stock Unit Agreement (including as a result of any
contest by Goldstein about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code
or any successor Section of the Code.
(ii) The following shall apply for any dispute
arising hereunder, under the Release Agreement or under the Stock Unit
Agreement upon or following a Change of Control: The Company agrees to
advance to Goldstein all reasonable legal and professional fees and
expenses that Goldstein may reasonably incur as a result of any contest
by Goldstein, by the Company or others of the validity or enforceability
of, or liability under, any provision of this Agreement, the Release
Agreement or the Stock Unit Agreement (including as a result of any
contest by Goldstein about the amount of any payment pursuant to this
Agreement), plus, in each case, interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code
or any successor Section of the Code.
(iii) Goldstein shall reimburse the Company for
its reasonable legal and professional fees and expenses, and in the case
of advances made pursuant to paragraph (ii) above, shall refund the
Company the amount of such advances, to the extent there is a final
determination that such fees, expenses or advances relate to claims
brought by Goldstein against, or defenses by Goldstein of any claim of,
the Company with respect to this Agreement, the Release Agreement or the
Stock Unit Agreement that were determined to have been made or asserted
by Goldstein in bad faith or frivolously.
9. Certain Additional Payments by the Company. Anything
in this Agreement to the contrary notwithstanding, in the event that any
actual or constructive payment or distribution by the Company to or for
the benefit of Goldstein (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, the Stock Unit
Agreement or otherwise) is subject to the excise tax imposed by Section
4999 of the Code or any successor provision of the Code (the "Excise
<PAGE>
Tax"), then the Company shall make the payments described on Exhibit C
hereto.
10. Restrictions and Obligations of Goldstein. (a)
Consideration for Restrictions and Covenants. The parties hereto
acknowledge and agree that the principal consideration for the agreement
to make the payments provided in Sections 3 and 4 hereof from the Company
to Goldstein and the grant to Goldstein of the stock units of the Company
as set forth in Section 2 hereof is Goldstein's compliance with the
undertakings set forth in this Section 10. Specifically, Goldstein
agrees to comply with the provisions of this Section 10 irrespective of
whether Goldstein is entitled to receive any payments under Section 3 or
4 of this Agreement.
(b) Confidentiality. The confidential and proprietary
information and in any material respect trade secrets of the Company are
among its most valuable assets, including but not limited to, its
customer and vendor lists, database, computer programs, frameworks,
models, its marketing programs, its sales, financial, marketing, training
and technical information, and any other information, whether
communicated orally, electronically, in writing or in other tangible
forms concerning how the Company creates, develops, acquires or maintains
its products and marketing plans, targets its potential customers and
operates its retail and other businesses. The Company has invested, and
continues to invest, considerable amounts of time and money in obtaining
and developing the goodwill of its customers, its other external
relationships, its data systems and data bases, and all the information
described above (hereinafter collectively referred to as "Confidential
Information"), and any misappropriation or unauthorized disclosure of
Confidential Information in any form, would irreparably harm the Company.
Goldstein shall hold in a fiduciary capacity for the benefit of the
Company all Confidential Information relating to the Company and its
business, which shall have been obtained by Goldstein during Goldstein's
employment by the Company and which shall not be or become public
knowledge (other than by acts by Goldstein or representatives of
Goldstein in violation of this Agreement). After termination of
Goldstein's employment with the Company, Goldstein shall not, without the
prior written consent of the Company or as may otherwise be required by
law or legal process, communicate, divulge or use any such information,
knowledge or data to anyone other than the Company and those designated
by it.
(c) Non-Solicitation or Hire. During the Employment
Period and for a three-year period following the Date of Termination,
Goldstein shall not, directly or indirectly (i) employ or seek to employ
any person who is at the Date of Termination, or was at any time within
the six-month period preceding the Date of Termination, an officer,
general manager or director or equivalent or more senior level employee
of the Company or any of its subsidiaries or otherwise solicit,
encourage, cause or induce any such employee of the Company or any of its
subsidiaries to terminate such employee's employment with the Company or
<PAGE>
such subsidiary for the employment of another company (including for this
purpose the contracting with any person who was an independent contractor
(excluding consultant) of the Company during such period) or (ii) take
any action that would interfere with the relationship of the Company or
its subsidiaries with their suppliers and franchisees without, in either
case, the prior written consent of the Company's Board of Directors, or
engage in any other action or business that would have a material adverse
effect on the Company; provided, however, that if Goldstein terminates
the Agreement for "Good Reason" or the Company terminates Goldstein's
employment hereunder without Cause, the obligations under this
Section 10(c) shall survive for only a two-year period following the Date
of Termination.
(d) Non-Competition and Consulting. (i) During the
Employment Period and for a two-year period following the Date of
Termination, Goldstein shall not, directly or indirectly:
(x) engage in any managerial, administrative,
advisory, consulting, operational or sales activities in a
Restricted Business anywhere in the Restricted Area,
including, without limitation, as a director or partner of
such Restricted Business, or
(y) organize, establish, operate, own, manage,
control or have a direct or indirect investment or ownership
interest in a Restricted Business or in any corporation,
partnership (limited or general), limited liability company
enterprise or other business entity that engages in a
Restricted Business anywhere in the Restricted Area; and
(z) interfere with, disrupt or attempt to
disrupt the relationship, contractual or otherwise, between
the Company and any customer, supplier, lessor, lessee,
employee, consultant, research partner or investor of the
Company.
(e) Litigation Assistance. Goldstein agrees to
cooperate with the Company and its counsel in regard to any litigation
presently pending or subsequently initiated involving matters of which
Goldstein has particular knowledge as a result of your employment with
the Company. Such cooperation shall consist of Goldstein making himself
available at reasonable times for consultation with officers of the
Company and its counsel and for depositions or other similar activity
should the occasion arise. Goldstein shall not receive any additional
compensation for rendering such assistance. Reasonable travel costs and
out-of-pocket expenses in connection with such cooperation shall be
reimbursed by the Company. The obligations under the Section 10(e) shall
survive for a five-year period following the Date of Termination.
<PAGE>
(f) Exceptions. Sections 10(c) and (d) shall not
bind Goldstein during any period following the termination of Goldstein's
employment if there has been a Change of Control, irrespective of whether
the Change of Control occurs before or after the Date of Termination.
(g) Permitted Investments. Nothing contained in
Section 10(d) shall prohibit or otherwise restrict Goldstein from
acquiring or owning, directly or indirectly, for passive investment
purposes not intended to circumvent this Agreement, securities of any
entity engaged, directly or indirectly, in a Restricted Business if
either (i) such entity is a public entity and such Executive (A) is not a
controlling Person of, or a member of a group that controls, such entity
and (B) owns, directly or indirectly, no more than 3% of any class of
equity securities of such entity or (ii) such entity is not a public
entity and Goldstein (A) is not a controlling Person of, or a member of a
group that controls, such entity and (B) does not own, directly or
indirectly, more than 1% of any class of equity securities of such
entity.
(h) Definitions. For purposes of this Section 10:
(i) "Restricted Business" means, (A) if
Goldstein's employment is terminated for Cause or if Goldstein terminates
his employment other than for Good Reason, any retail store or mail order
business or any business, in each case if it is involved in the
manufacture or marketing of toys, juvenile or baby products, juvenile
furniture or children's clothing or any other business in which the
Company may be engaged on the Date of Termination, and (B) if Goldstein's
employment is terminated for any other reason, Restricted Business shall
be limited to any such entity if it derives 10% or more of its revenues
in the aggregate from such products and/or business in its most recent
fiscal year.
(ii) "Restricted Area" means any country in
which the Company or its subsidiaries owns or franchises any retail store
operations or otherwise has operations on the Date of Termination.
(i) Relief. The parties hereto hereby acknowledge
that the provisions of this Section 10 are reasonable and necessary for
the protection of the Company and its subsidiaries. In addition,
Goldstein further acknowledges that the Company and its subsidiaries will
be irrevocably damaged if such covenants are not specifically enforced.
Accordingly, Goldstein agrees that, in addition to any other relief to
which the Company may be entitled, the Company will be entitled to seek
and obtain injunctive relief (without the requirement of any bond) from a
court of competent jurisdiction for the purposes of restraining Goldstein
from any actual or threatened breach of such covenants. In addition,
without limiting the Company's remedies for any breach of any restriction
on Goldstein set forth in Section 10, except as required by law,
Goldstein shall not be entitled to any payments set forth in Section 3 or
4 hereof if Goldstein willfully breaches in any material respect any of
the covenants applicable to Goldstein contained in this Section 10,
Goldstein will immediately return to the Company such payments previously
received upon such a breach, and, in the event of such breach, the
Company will have no obligation to pay any of the amounts that remain
payable by the Company under Section 3 or 4.
11. Successors. (a) This Agreement is personal to
Goldstein and without the prior written consent of the Company shall not
be assignable by Goldstein otherwise than by will or the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by Goldstein's legal representatives.
(b) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns.
(c) The Company will, within thirty days after a
Change of Control, and the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company
within thirty days after any such event of succession to, assume
expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid that assumes and agrees to perform
this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) Governing Law. This Agreement
shall be governed by and construed in accordance with the laws of the
State of New Jersey, without reference to principles of conflict of laws.
(b) Captions. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect.
(c) Amendment. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(d) Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
(i) If to Goldstein, to the address on file with
the Company; and
(ii) If to the Company, to it at Toys "R" Us,
Inc., 461 From Road, Paramus, New Jersey 07652, Attention: Senior Vice
President - Human Resources;
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications shall
be effective when actually received by the addressee.
<PAGE>
(e) Assistance to Company. At all times during and
after the Employment Period and at the Company's expense for significant
out-of-pocket expenses actually and reasonably incurred by Goldstein in
connection therewith, Goldstein shall provide reasonable assistance to
the Company in the collection of information and documents and shall make
Goldstein available when reasonably requested by the Company in
connection with claims or actions brought by or against third parties or
investigations by governmental agencies based upon events or
circumstances concerning Goldstein's duties, responsibilities and
authority during the Employment Period.
(f) Severability of Provisions. Each of the sections
contained in this Agreement shall be enforceable independently of every
other section in this Agreement, and the invalidity or nonenforceability
of any section shall not invalidate or render unenforceable any other
section contained in this Agreement. Goldstein acknowledges that the
restrictive covenants contained in Section 10 are a condition of this
Agreement and are reasonable and valid in geographical and temporal scope
and in all other respects. If any court or arbitrator determines that
any of the covenants in Section 10, or any part of any of them, is
invalid or unenforceable, the remainder of such covenants and parts
thereof shall not thereby be affected and shall be given full effect,
without regard to the invalid portion. If any court or arbitrator
determines that any of such covenants, or any part thereof, is invalid or
unenforceable because of the geographic or temporal scope of such
provision, such court or arbitrator shall reduce such scope to the
minimum extent necessary to make such covenants valid and enforceable.
(g) Withholding. The Company may withhold from any
amounts payable under this Agreement such Federal, state, local or
foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(h) Waiver. Goldstein's or the Company's failure to
insist upon strict compliance with any provision hereof or any other
provision of this Agreement or the failure to assert any right Goldstein
or the Company may have hereunder shall not be deemed to be a waiver of
such provision or right or any other provision or right of this
Agreement.
(i) Arbitration. Except as otherwise provided
for herein, any controversy arising under, out of, in connection with,
or relating to, this Agreement, and any amendment hereof, or the breach
hereof or thereof, shall be determined and settled by arbitration in New
York, New York, by a three person panel mutually agreed upon, or in the
event of a disagreement as to the selection of the arbitrators, in
accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association. Any award rendered therein shall specify the
findings of fact of the arbitrator or arbitrators and the reasons of
such award, with the reference to and reliance on relevant law. Any
such award shall be final and binding on each and all of the parties
<PAGE>
thereto and their personal representatives, and judgment may be entered
thereon in any court having jurisdiction thereof.
IN WITNESS WHEREOF, Goldstein has hereunto set Goldstein's
hand and the Company has caused these presents to be executed in its name
on its behalf, all as of the day and year first above written.
MICHAEL GOLDSTEIN
/s/ Michael Goldstein
TOYS "R" US, INC.
By: /s/ Robert C. Nakasone
Name: Robert C. Nakasone
Title: Chief Executive Officer
<PAGE>
EXHIBIT A
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is
entered into as of this __ day of ___________________________, 19__,
between TOYS "R" US, INC., a Delaware corporation, and any successor
thereto (collectively, the "Company") and Michael Goldstein
("Goldstein").
Goldstein and the Company agree as follows:
1. The employment relationship between Goldstein and the
Company terminated on __________________________________ (the
"Termination Date").
2. In accordance with Goldstein's Retention Agreement (the
"Retention Agreement"), the Company has agreed to pay Goldstein certain
payments and to make certain benefits available after the Date of
Termination.
3. In consideration of the above, the sufficiency of which
Goldstein hereby acknowledges, Goldstein, on behalf of Goldstein and
Goldstein's heirs, executors and assigns, hereby releases and forever
discharges the Company and its members, parents, affiliates,
subsidiaries, divisions, any and all current and former directors,
officers, employees, agents, and contractors and their heirs and
assigns, and any and all employee pension benefit or welfare benefit
plans of the Company, including current and former trustees and
administrators of such employee pension benefit and welfare benefit
plans, from all claims, charges, or demands, in law or in equity,
whether known or unknown, which may have existed or which may now exist
from the beginning of time to the date of this letter agreement,
including, without limitation, any claims Goldstein may have arising
from or relating to Goldstein's employment or termination from
employment with the Company, including a release of any rights or claims
Goldstein may have under Title VII of the Civil Rights Act of 1964, as
amended, and the Civil Rights Act of 1991 (which prohibit discrimination
in employment based upon race, color, sex, religion, and national
origin); the Americans with Disabilities Act of 1990, as amended, and
the Rehabilitation Act of 1973 (which prohibit discrimination based upon
disability); the Family and Medical Leave Act of 1993 (which prohibits
discrimination based on requesting or taking a family or medical leave);
Section 1981 of the Civil Rights Act of 1866 (which prohibits
discrimination based upon race); Section 1985(3) of the Civil Rights Act
of 1871 (which prohibits conspiracies to discriminate); the Employee
Retirement Income Security Act of 1974, as amended (which prohibits
discrimination with regard to benefits); any other federal, state or
local laws against discrimination; or any other federal, state, or local
statute, or common law relating to employment, wages, hours, or any
<PAGE>
other terms and conditions of employment. This includes a release by
Goldstein of any claims for wrongful discharge, breach of contract,
torts or any other claims in any way related to Goldstein's employment
with or resignation or termination from the Company. This release also
includes a release of any claims for age discrimination under the Age
Discrimination in Employment Act, as amended ("ADEA"). The ADEA requires
that Goldstein be advised to consult with an attorney before Goldstein
waives any claim under ADEA. In addition, the ADEA provides Goldstein
with at least 21 days to decide whether to waive claims under ADEA and
seven days after Goldstein signs the Agreement to revoke that waiver.
Additionally, the Company agrees to discharge and release
Goldstein and Goldstein's heirs from any claims, demands, and/or causes
of action whatsoever, presently known or unknown, that are based upon
facts occurring prior to the date of this Agreement, including, but not
limited to, any claim, matter or action related to Goldstein's
employment and/or affiliation with, or termination and separation from
the Company; provided that such release shall not release Goldstein from
any loan or advance by the Company or any of its subsidiaries, any act
that would constitute "Cause" under Goldstein's Retention Agreement or a
breach under Section ________ or _______ of Goldstein's Retention
Agreement.
4. This Agreement is not an admission by either Goldstein
or the Company of any wrongdoing or liability.
5. Goldstein waives any right to reinstatement or future
employment with the Company following Goldstein's separation from the
Company on the Termination Date.
6. Goldstein agrees not to engage in any act after
execution of the Separation and Release Agreement that is intended, or
may reasonably be expected to harm the reputation, business, prospects
or operations of the Company, its officers, directors, stockholders or
employees. The Company further agrees that it will engage in no act
which is intended, or may reasonably be expected to harm the reputation,
business or prospects of Goldstein.
7. Goldstein shall continue to be bound by Sections _____
and _____ of Goldstein's Retention Agreement.
8. Goldstein shall promptly return all the Company
property in Goldstein's possession, including, but not limited to, the
Company keys, credit cards, cellular phones, computer equipment,
software and peripherals and originals or copies of books, records, or
other information pertaining to the Company business. Goldstein shall
return any leased or Company automobile at the expiration of the
restrictions under Section 10(d) of Goldstein's Retention Agreement.
9. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without reference
<PAGE>
to the principles of conflict of laws. Exclusive jurisdiction with
respect to any legal proceeding brought concerning any subject matter
contained in this Agreement shall be settled by arbitration as provided
in Goldstein's Retention Agreement.
10. This Agreement represents the complete agreement
between Goldstein and the Company concerning the subject matter in this
Agreement and supersedes all prior agreements or understandings, written
or oral. This Agreement may not be amended or modified otherwise than by
a written agreement executed by the parties hereto or their respective
successors and legal representatives.
11. Each of the sections contained in this Agreement shall
be enforceable independently of every other section in this Agreement,
and the invalidity or nonenforceability of any section shall not
invalidate or render unenforceable any other section contained in this
Agreement.
12. It is further understood that for a period of 7 days
following the execution of this Agreement in duplicate originals,
Goldstein may revoke this Agreement, and this Agreement shall not become
effective or enforceable until the revocation period has expired. No
revocation of this Agreement by Goldstein shall be effective unless the
Company has received within the 7-day revocation period, written notice
of any revocation, all monies received by Goldstein under this Agreement
and all originals and copies of this Agreement.
13. This Agreement has been entered into voluntarily and
not as a result of coercion, duress, or undue influence. Goldstein
acknowledges that Goldstein has read and fully understands the terms of
this Agreement and has been advised to consult with an attorney before
executing this Agreement. Additionally, Goldstein acknowledges that
Goldstein has been afforded the opportunity of at least 21 days to
consider this Agreement.
The parties to this Agreement have executed this Agreement
as of the day and year first written above.
TOYS "R" US, INC.
By: _____________________________
Name:
Title:
MICHAEL GOLDSTEIN
___________________________________
<PAGE>
EXHIBIT B
Capitalized terms used in the Agreement that are not
elsewhere defined in the Agreement have the definitions set forth below:
"Annual Base Salary" means an annual rate of $900,000 until
June 30, 1998, and, the annual rate of $300,000 thereafter, subject to
annual review and as may be increased in the discretion of the Committee.
"Board" means the Board of Directors of the Company.
"Cause" means: (i) the conviction of, or pleading guilty or
nolo contendere to, a felony involving moral turpitude; (ii) the
commission of any fraud, misappropriation or misconduct which causes
demonstrable injury to the Company or a subsidiary; (iii) an act of
dishonesty resulting or intended to result, directly or indirectly, in
material gain or personal enrichment to Goldstein at the expense of the
Company or a subsidiary; (iv) any willful and material breach of
Goldstein's fiduciary duties to the Company as an employee or director;
(v) a serious and willful violation of the Toys "R" Us Ethics Agreement
or any other serious and willful violation of a Company policy; (vi) the
willful and continued failure of Goldstein to perform substantially
Goldstein's duties with the Company or one of its subsidiaries (other
than any such failure resulting from incapacity due to physical or mental
illness resulting in a Disability), within a reasonable time after a
written demand for substantial performance is delivered to Goldstein by
the Board, which specifically identifies the manner in which the Board
believes that Goldstein has not substantially performed Goldstein's
duties; (vii) the failure by Goldstein to comply, in any material
respect, with the provisions of Section 10 of the Agreement; or (viii)
the failure by Goldstein to comply with any other undertaking set forth
in the Agreement or any breach by Goldstein hereof that is reasonably
likely to result in a material injury to the Company.
For purposes of this provision, no act or failure to act, on
the part of Goldstein, shall be considered "willful" unless it is done,
or omitted to be done, by Goldstein in bad faith or without reasonable
belief that Goldstein's action or omission was in the best interests of
the Company. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the
advice of regular outside counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by Goldstein in good faith
and in the best interests of the Company. The cessation of employment of
Goldstein shall not be deemed to be for Cause unless and until there
shall have been delivered to Goldstein a copy of a resolution duly
adopted by the affirmative vote of a majority of the entire membership of
the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to Goldstein and Goldstein is given
an opportunity, together with counsel, to be heard before the Board),
<PAGE>
finding that, in the good faith opinion of the Board, Goldstein is guilty
of the conduct described, and specifying the particulars thereof in
detail.
"Change of Control" means, after the date hereof:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of either
(i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions
shall not constitute a Change of Control: (i) any acquisition by
the Company or any of its subsidiaries, (ii) any acquisition by
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary of the Company, (iii)
any acquisition by any Person pursuant to a transaction that
complies with clauses (i), (ii) and (iii) of subsection (c) below,
or (iv) any acquisition by any entity in which Goldstein has a
material direct or indirect equity interest; or
(b) The cessation of the "Incumbent Board" for any
reason to constitute at least a majority of the Board. "Incumbent
Board" means the members of the Board on the date hereof and any
member of the Board subsequent to the date hereof whose election,
or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board, except that the Incumbent Board
shall not include any member of the Board whose initial assumption
of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board.
(c) The consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially
all of the assets of the Company (a "Business Combination"), in
each case, unless, immediately following such Business Combination
each of the following would be correct:
(i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the
<PAGE>
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the Person resulting from such Business
Combination (including, without limitation, a Person which as a
result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, and
(ii) no Person (excluding (A) any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any subsidiary of the Company, or such corporation
resulting from such Business Combination or any Affiliate of such
corporation, or (B) any entity in which Goldstein has a material
equity interest, or any "Affiliate" (as defined in Rule 405 under
the Securities Act of 1933, as amended) of such entity)
beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination, or the
combined voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership existed
prior to the Business Combination, and
(iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
"Change of Control Period" means the period commencing 120
days prior to a Change of Control and expiring on the second anniversary
date of a Change of Control.
"Committee" means the Company's Management Compensation and
Stock Option Committee of the Board of Directors or any successor
committee of the Board performing equivalent functions.
"Date of Termination" means (i) if Goldstein's employment is
terminated by the Company for Cause, or by Goldstein for Good Reason, the
date of receipt of the Notice of Termination or any later date specified
therein, as the case may be (although such Date of Termination shall
retroactively cease to apply if the circumstances providing the basis of
termination for Cause or Good Reason are cured in accordance with the
Agreement), (ii) if Goldstein's employment is terminated by the Company
other than for Cause, the Date of Termination shall be the date so
designated by the Company in its notification to Goldstein of such
termination, (iii) if Goldstein's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death
of Goldstein or the effective date of the Disability, as the case may be,
(iv) if Goldstein's position as Chairman of the Board is terminated by
Goldstein without Good Reason, the Date of Termination shall be the last
day of the Transition Period during which Goldstein is employed by the
Company as a regular employee, or (v) the last day of the Employment
Period during which the Company shall have given notice to Goldstein that
the Employment Period shall not be extended.
"Disability" means the determination that Goldstein is
disabled pursuant to the terms of the TRU Partnership Employees' Savings
and Profit Sharing Plan, as amended and restated as of October 1, 1993,
as the same may be amended from time to time.
"Good Reason" means, without Goldstein's prior written
consent, the occurrence of any of the following, provided that Goldstein
delivers a Notice of Termination specifying such occurrence within 30
days thereof:
(i) the assignment of Goldstein to a position
other than Chairman of the Board;"
(ii) any failure by the Company to comply in
any material respect with any of the provisions of Section 2(b) of
the Agreement, other than failure not occurring in bad faith and
that is remedied by the Company within a reasonable time after
receipt of notice thereof given by Goldstein;
(iii) any failure by the Company to comply with
and satisfy Section 11(c) of the Agreement; or
(iv) notice by the Company that it is not
extending the termination date of the Employment Period.
"Notice of Termination" means a written notice that (i)
indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Goldstein's employment under the provision so indicated and (iii) if the
Date of Termination (as defined above) is other than the date of receipt
of such notice, specifies the termination date.
"Partnership Plan" means the Partnership Group Deferred
Compensation Plan of the Company.
"Plans" means all employee compensation, benefit and welfare
plans, policies and programs of the Company, which may include, without
limitation, incentive, savings, retirement, stock option, restricted
stock, supplemental executive retirement, the Partnership Plan, pension,
medical, prescription, dental, disability, salary continuance, employee
life, group life, accidental death and travel accident insurance plans,
vacation practices, fringe benefit practices and policies relating to the
reimbursement of business expenses.
<PAGE>
"Retirement" shall have the meaning ascribed to that term in
the Plan under which benefits are being sought by Goldstein or, if such
meaning is inapplicable, the term shall mean a termination of employment
with the Company or a subsidiary on a voluntary basis prior to the age of
sixty (60). The term "Retirement" shall also include "early" retirement
prior to the age of sixty (60) provided that the Committee, in its sole
discretion, consents in writing to accept such early retirement.
"Transition Period" means the two-year period commencing on
the date that Goldstein has terminated his position as chairman of the
Board without Good Reason.
<PAGE>
EXHIBIT C
TAX GROSS-UP
(a) If required by Section 9 of the Agreement, in addition
to the payments described in Section 4 of the Agreement and the grants
described in the Stock Unit Agreement, the Company shall pay to Goldstein
an amount (the "Gross-up") such that the net amount retained by
Goldstein, after deduction of any Excise Tax and any Federal, state and
local income taxes, equals the amount of such payments that Goldstein
would have retained had such Excise Tax not been imposed. In addition,
the Company shall indemnify and hold Goldstein harmless on an after-tax
basis from any Excise Tax imposed on or with respect to any such payment
(including, without limitation, any interest, penalties and additions to
tax) payable in connection with any such Excise Tax. For purposes of
determining the amount of any Gross-up or the amount required to make an
indemnity payment on an after-tax basis, it shall be assumed that
Goldstein is subject to Federal, state and local income tax at the
highest marginal statutory rates in effect for the relevant period after
taking into account any deduction available in respect of any such tax
(e.g., if state and local taxes are deductible for Federal income tax
purposes in the relevant period, it shall be assumed that such taxes
offset income that would otherwise be subject to Federal income tax at
the highest marginal statutory rate in effect for such period).
(b) Subject to the provisions of paragraph (c) of this
Exhibit C, the determination of (i) whether a Gross-up is required and
the amount of such Gross-up and (ii) the amount necessary to make any
payment on an after-tax basis, shall be made in accordance with the
assumptions set forth in paragraph (a) of this Exhibit C by Ernst &
Young LLP or such other "Big Six" accounting firm designated by Goldstein
and reasonably acceptable to the Company.
(c) Goldstein shall notify the Company as soon as
practicable in writing of any claim by the Internal Revenue Service that,
if successful, would require any Gross-up or indemnity payment.
Goldstein shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company.
If the Company notifies Goldstein in writing prior to the expiration of
such period that it desires to contest such claim, Goldstein shall take
all actions necessary to permit the Company to control all proceedings
taken in connection with such contest. In that connection, the Company
may, at its sole option, pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences in respect of such claim
and may, at its sole option, either direct Goldstein to pay the tax
claimed and sue for a refund or contest the claim in any permissible
manner; provided, however, that the Company shall pay and indemnify
Goldstein from and against all costs and expenses incurred in connection
with such contest; provided further, however, that if the Company directs
Goldstein to pay such claim and sue for a refund, the Company shall
<PAGE>
advance the amount of such payment to Goldstein on an interest-free basis
and at no net after-tax cost to Goldstein. If Goldstein becomes entitled
to receive any refund or credit with respect to such claim (or would be
entitled to a refund or credit but for a counterclaim for taxes not
indemnified hereunder), Goldstein shall promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon) plus the amount of any tax benefit available to Goldstein as a
result of making such payment (any such benefit calculated based on the
assumption that any deduction available to Goldstein offsets income that
would otherwise be taxed at the highest marginal statutory rates of
Federal, state and local income tax for the relevant periods).
<PAGE>
EXECUTION COPY
ANNEX A
STOCK UNIT AGREEMENT
STOCK UNIT AGREEMENT, dated as of February 25, 1998 (the
"Unit Agreement"), between TOYS "R" US, INC., a Delaware corporation
(the "Company"), and MICHAEL GOLDSTEIN ("Goldstein").
W I T N E S S E T H:
WHEREAS, the Company proposed for the approval of the
stockholders of the Company at the 1997 Annual Meeting of Stockholders
an Amendment (the "Amendment") to the Company's 1994 Stock Option and
Performance Incentive Plan (the "Plan") providing for performance
criteria that may be utilized by the Management Compensation and Stock
Option Committee (the "Committee") in connection with the grant of
Performance Shares (as defined in the Plan and referred to herein as
"Stock Units"), and the Stockholders approved such Amendment;
WHEREAS, concurrently herewith, Goldstein and the Company
are entering into a Retention Agreement, dated as of even date herewith
(the "Retention Agreement");
WHEREAS, as further inducement for Goldstein to execute the
Retention Agreement and continue in the employ of the Company, the
Committee has determined to grant Goldstein the Stock Units as described
in this Unit Agreement, and
WHEREAS, the Board and the Committee desire that the
compensation arising from the Stock Units 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 meanings ascribed to them in the Plan and in
the Retention Agreement.
2. Stock Unit Grant. Subject to the terms and conditions
set forth in this Unit Agreement and in Section 10 of the Plan,
Goldstein is hereby granted 52,700 Stock Units. Each Stock Unit
represents the right to receive one share of Common Stock (collectively,
with other shares of Common Stock relating to the Stock Units and held
in Goldstein's account in the Trust (as defined below) in respect of the
Stock Units, the "Shares"). The 52,700 Shares shall be promptly
<PAGE>
deposited after the date hereof in the grantor trust created pursuant to
the Grantor Trust Agreement, dated as of October 1, 1995 between the
Company and American Express Trust Company, a Minnesota trust company
(together with any grantor trust subsequently established by the
Company, the "Trust") and shall be allocated by the Trust to Goldstein's
account therein subject to the vesting conditions of Sections 3 and 4
below. Any property attributable to the Shares, including, without
limitation, dividends and distributions thereon shall be deposited into
the Trust, shall as promptly as practicable be reinvested in shares of
Common Stock, and shall be allocated by the Trust to Goldstein's account
therein subject to the vesting conditions of Sections 3 and 4 below.
3. Vesting. (a) Except as provided in the Retention
Agreement and subject to Section 4(b), the Stock Units shall vest at the
rate of twenty percent (20%) per annum on May 1 of each year, beginning
on May 1, 1998, throughout the Employment Period; provided that the
Committee has determined that the Performance Objective set forth in
Exhibit A has been achieved.
(b) As soon as practicable, but no later than the earlier
of (x) May 1, 2002 or (y) the Date of Termination, the Committee shall
determine whether the Performance Objective set forth on Exhibit A has
been achieved.
4. Payment of Stock Units. (a) The Shares, together
with any property attributable thereto (including, without limitation,
dividends and distributions thereon), shall be delivered to Goldstein as
provided in the Retention Agreement.
(b) The provisions of Sections 8(b) and 9 of the Retention
Agreement shall apply to the Stock Unit and related Shares, whether or
not the Retention Agreement is then in effect.
5. Investment Representation. The Shares acquired by
Goldstein under this Unit Agreement will be acquired for Goldstein's
account and not with a view to the distribution thereof, and Goldstein
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
Goldstein 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.
6. 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 Unit Agreement, and each member
of the Committee shall be fully indemnified and protected by the Company
with respect to any liability such member 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.
<PAGE>
7. Severability. Each of the Sections contained in this
Unit Agreement shall be enforceable independently of every other section
in this Unit Agreement, and the invalidity or nonenforceability of any
section shall not invalidate or render unenforceable any other section
contained in this Unit Agreement.
8. Governing Law. This Unit Agreement shall be governed
by and construed in accordance with the laws of the State of New Jersey,
without reference to principles of conflict of laws. Exclusive
jurisdiction with respect to any legal proceeding brought concerning any
subject matter contained in this Unit Agreement shall be settled by
arbitration as provided in the Retention Agreement.
9. Captions. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect.
10. Amendment. This Unit Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
11. Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
(i) If to Goldstein, to the address on file with the
Company; and
(ii) If to the Company, to it at Toys "R" Us, Inc.,
461 From Road, Paramus, New Jersey 07652, Attention: Senior Vice
President - Human Resources;
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications shall
be effective when actually received by the addressee.
12. Interpretation. The interpretation and decision with
regard to any question arising under this Unit Agreement or with respect
to the Stock Units made by the Committee shall be final and conclusive
on Goldstein.
13. Successors. This Unit Agreement shall be binding upon
the Company and its successors and assigns.
<PAGE>
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: /s/ Robert C. Nakasone
Title: Chief Executive Officer
I hereby acknowledge receipt of the Stock Units and agree to
the provisions set forth in this Agreement.
/s/ Michael Goldstein
Signature of Executive
<PAGE>
EXECUTION COPY
RETENTION AGREEMENT
BETWEEN
TOYS "R" US, INC.
AND
ROBERT C. NAKASONE
DATED AS OF
February 25, 1998
NAKASONE AGREEMENT
<Page 1 of 33>
<PAGE>
EXECUTION COPY
TOYS "R" US, INC.
RETENTION AGREEMENT
AGREEMENT (this "Agreement"), by and between Toys "R" Us,
Inc., a Delaware corporation (the "Company"), and Robert C. Nakasone
(the "Executive"), dated as of February 25, 1998. Capitalized terms
used in this Agreement and in Exhibit A hereto that are not defined in
the operative provisions shall have the meanings ascribed to them on
Exhibit B hereto.
1. Employment Period. The Company hereby agrees to
continue to employ the Executive and the Executive hereby agrees to
remain in the employ of the Company subject to the terms and conditions
of this Agreement, for the Employment Period. The term "Employment
Period" means the period commencing on the date hereof and ending on the
second anniversary of such date as automatically extended for successive
additional one-year periods unless, at least six months prior to the
scheduled expiration of the Employment Period, the Company, based upon a
determination by the Board, shall give notice to the Executive that the
Employment Period shall not be so extended.
2. Terms of Employment. (a) Position. (i) Commencing
on the date hereof and for the remainder of the Employment Period, the
Executive shall serve as the Chief Executive Officer of the Company.
The Executive shall be based in Northeastern New Jersey.
(ii) During the Employment Period, and
excluding any periods of vacation and sick leave to which the Executive
is entitled, the Executive agrees to devote his full time during normal
business hours to the business and affairs of the Company and to use his
best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, the Executive may, so
long as such activities do not interfere with the performance of his
responsibilities to the Company in accordance with this Agreement,
continue the corporate directorships on which the Executive serves, if
any, as of the date hereof and such other corporate directorships as are
consented to by the Committee. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive with the knowledge of the Company prior to a Change of
Control, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to a Change
of Control shall not thereafter be deemed to violate this Agreement.
<Page 2 of 33>
<PAGE>
(b) Compensation. (i) Base Salary. During the
Employment Period, the Executive shall receive his Annual Base Salary,
which will be paid in accordance with the Company's regular payroll
policies as in effect from time to time.
(ii) Incentive Bonus. The Executive shall also
be eligible, for each fiscal year ending during the Employment Period,
to receive (A) an annual incentive bonus, in accordance with targets
established by the Committee, of one-hundred percent (100%) of Annual
Base Salary at the target and up to two-hundred percent (200%) of Annual
Base Salary and (B) long-term incentive awards pursuant to the Company's
incentive Plans and subject to the terms thereof at a level commensurate
with his current grants and his current position. Each such incentive
bonus shall be paid in accordance with the Company's incentive Plans.
(iii) Participation in Other Plans. During the
Employment Period, the Executive shall be eligible to participate in all
other Plans at a level commensurate with his participation in such Plans
as of the date hereof, including continued vesting of outstanding option
grants and profits shares.
(iv) Stock Units. As further inducement for
the Executive to enter into this Agreement and to continue in the employ
of the Company, the Company has granted to the Executive stock units
contingent on performance and future service, pursuant to the Stock Unit
Agreement executed and delivered by the Company on the date hereof in
the form attached as Annex A hereto.
(v) Partnership Plan Units. During the
Employment Period the Executive shall be granted units under the
Partnership Plan in accordance with targets established by the Committee
in an amount equal to forty percent (40%) of the actual Annual Base
Salary at such target.
3. Termination of Employment.
(a) Notice of Termination. Any termination by the Company
for Cause, or by the Executive for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in accordance with
this Agreement. The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance that
contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such
fact or circumstance in enforcing the Executive's or the Company's
rights hereunder.
<Page 3 of 33>
<PAGE>
(b) Termination for Death, Disability or Retirement. the
Executive's employment shall terminate upon his death, Disability or
Retirement during the Employment Period. In the event of such
termination:
(i) the Company shall make a lump sum cash
payment to the Executive (or, in the event that termination results from
the death of the Executive, to his estate) within 30 days after the Date
of Termination in an amount equal to the sum of:
(A) the Executive's pro rata Annual Base
Salary payable through the Date of Termination to the extent not already
paid;
(B) the targeted amount of the
Executive's annual bonus, long-term incentive awards and Partnership
Plan Units that would have been awarded with respect to the fiscal year
in which the Date of Termination occurs, in each case absent the
termination of the Executive's employment, prorated for the portion of
such fiscal year through the Date of Termination taking into account the
number of complete months during such fiscal year through the Date of
Termination;
(C) the Executive's actual earned annual
bonus and long-term incentive awards and Partnership Plan Units for any
completed fiscal year or period not theretofore paid; and
(D) the account balance provided for
under the Plans, including the Company's supplemental executive
retirement plan, which shall be fully vested; and
(ii) (1) all unvested options held by the
Executive shall vest on the Date of Termination, (2) all unvested
profit shares held by the Executive or for the benefit of the Executive
by a grantor trust established by the Company shall vest on the Date of
Termination and shall be promptly delivered to the Executive or his
estate, (3) any other unvested equity based award (including, without
limitation, restricted stock and stock units) held by the Executive
shall vest on the Date of Termination and shall be delivered to the
Executive, or in the event of termination due to his death, the
Executive's estate, entirely in the form of Common Stock, $.10 par value
per share ("Common Stock") of the Company immediately upon termination
in the event of the Executive's death, or, in the event of termination
due to Retirement or Disability upon the later of May 1, 2002; or the
expiration of the period that the Executive's activities are restricted
under Section 10(c), subject to his compliance with the terms of this
Agreement through such date, (4) any options held by the Executive may
<Page 4 of 33>
<PAGE>
be exercised until the expiration date of such options and (5) the
Executive shall not be entitled to any additional grants of any stock
options, restricted stock, or other equity based or long-term awards;
and
(iii) the Executive (and his spouse and
dependent children) will be entitled to continuation of health benefits
under the Plans at a level commensurate with the Executive's current
position and if the Executive (or his spouse and dependent children upon
his death) elects to receive such health benefits, the Executive shall
pay the premium charged to former employees of the Company pursuant to
Section 4980B of the Code; provided, that the Company can amend or
otherwise alter the Plans to provide benefits to the Executive that are
no less than those commensurate with the Executive's current position;
provided, that to the extent such benefits cannot be provided to the
Executive under the terms of the Plans or the Plans cannot be so amended
in any manner not adverse to the Company, the Company shall pay the
Executive, on an after-tax basis, an amount necessary for the Executive
to acquire such benefits from an independent insurance carrier; and
provided further, that the obligations of the Company under this clause
(iii) shall be terminated if, at any time after the Date of Termination,
the Executive is employed by or is otherwise affiliated with a party
that offers comparable health benefits to the Executive.
(c) Resignation by the Executive Without Good Reason.
If the Executive shall resign his employment with the Company without
Good Reason, the Executive shall provide the Company with a Notice of
Termination at least six (6) months prior to the Date of Termination.
In the event of such resignation:
(i) the Company shall make a lump sum cash
payment to the Executive within 30 days after the Date of Termination in
an amount equal to the sum of:
(A) the Executive's pro rata Annual Base
Salary payable through the Date of Termination to the extent not already
paid;
(B) the Executive's actual earned annual
incentive awards for any completed fiscal year or period not theretofore
paid or deferred unless the Committee determines not to permit the
cancellation of such deferral; and
(C) the account balance provided for
under the Plans, including the Company's supplemental executive
retirement plan, which shall be fully vested; and
<Page 5 of 33>
<PAGE>
(ii) (1) all unvested options held by the
Executive that otherwise do not vest on the Date of Termination shall
continue to vest in accordance with their terms for two years after the
Date of Termination, and all remaining unvested options held by the
Executive shall be forfeited at the end of such two-year period, (2) all
unvested profit shares held by the Executive or for the benefit of the
Executive by a grantor trust established by the Company that otherwise
do not vest on the Date of Termination shall continue to vest in
accordance with their terms for two years after the Date of Termination
at the rate of 20% per annum and all remaining unvested profit shares
shall be forfeited at the end of such two-year period provided that, if
permitted by the terms of any such trust, any unvested profit shares
shall continue to be held by such grantor trust until such profit shares
vest pursuant to this clause (ii) and any such unvested profit share
that would otherwise vest in accordance with this clause (ii) but that
is not permitted to be so held shall vest immediately, (3) any other
unvested equity based award (including, without limitation, restricted
stock and stock units) held by the Executive shall be forfeited, (4) any
other vested equity award (including, without limitation, restricted
stock and stock units) shall be delivered to the Executive upon the
later of May 1, 2002; or the expiration of the period that the
Executive's activities are restricted under Sections 10(c) and (d),
subject to his compliance with the terms of this Agreement through such
date, (5) any options held by the Executive that are vested on the Date
of Termination or vest thereafter pursuant to this clause (ii) may be
exercised until the earlier of (x) 30 days after the twenty-four month
anniversary date of the Date of Termination and (y) the expiration date
of such options, and (6) the Executive shall not be entitled to any
additional grants of any stock options, restricted stock or, other
equity based or long-term awards; and
(iii) the Executive, his spouse and dependent
children will be entitled to the benefits set forth under Section
3(b)(iii).
(d) Termination by the Company for Cause. If the
Executive's employment shall be terminated for Cause during the
Employment Period, the Employment Period shall terminate without further
obligations to the Executive other than the obligation to pay him all
payments and benefits due, in accordance with the Company's Plans
through the Date of Termination. All stock units held by the Executive,
whether or not vested, shall be forfeited on the Date of Termination.
<Page 6 of 33>
<PAGE>
(e) Termination by the Company Without Cause or By
the Executive for Good Reason. If the Executive's employment shall be
terminated by the Company without Cause during the Employment Period, or
by the Executive for Good Reason, then:
(i) the Company shall make a lump sum cash
payment to the Executive within 30 days after the Date of Termination of
(x) the Executive's pro rata Annual Base Salary payable through the Date
of Termination to the extent not theretofore paid, (y) the targeted
amount of the Executive's annual incentive bonus and long-term incentive
awards and Partnership Plan Units that would have been payable with
respect to the fiscal year in which the Date of Termination occurs in
each case absent the termination of the Executive's employment, prorated
for the portion of such fiscal year through the Date of Termination
taking into account the number of complete months during such fiscal
year through the Date of Termination and (z) the Executive's actual
earned annual incentive bonus or long-term incentive awards and
Partnership Plan Units for any completed fiscal year or period not
theretofore paid or deferred;
(ii) the Company shall pay to the Executive in
equal installments, made at least monthly, over the twenty-four months
following the Date of Termination, an aggregate amount equal to (1) two
times the Executive's Annual Base Salary in effect on the Date of
Termination, (2) two times the targeted amount of the annual incentive
bonus that would have been paid or accrued to the Executive with respect
to the Company's fiscal year in which such Date of Termination occurs
and (3) two times the targeted amount of the long-term incentive award
and Partnership Plan Units that would have been paid or accrued to the
Executive with respect to such fiscal year;
(iii) the Company shall continue to provide, in
the manner and timing provided for in the Plans (other than as provided
in clauses (i), (ii), (iv) and (v) of this Section 3(e)), the benefits
provided under the Plans that the Executive would receive if the
Executive's employment continued for two years after the Date of
Termination, assuming for this purpose that the Executive's compensation
is the amount paid pursuant to clause (ii) above, and the Executive
shall be fully vested in any account balance and all other benefits
under the Plans; provided, however, that the benefits provided under
this clause (iii) shall be limited to the amounts permitted by law or as
would otherwise not potentially adversely impact on the tax
qualification of any Plans; provided, further, that if such benefits may
not be continued under the Plans, the Company shall pay to the Executive
an amount equal to the Company's cost had such benefits been continued.
<Page 7 of 33>
<PAGE>
(iv) (1) all unvested options held by the
Executive shall vest on the Date of Termination, (2) all unvested profit
shares held by the Executive or for the benefit of the Executive by a
grantor trust established by the Company shall vest on the Date of
Termination, (3) any other unvested equity based award (including,
without limitation, restricted stock and stock units) held by the
Executive shall vest on the two year anniversary date of the Date of
Termination on a pro rata basis determined by a fraction, the numerator
of which is the number of months elapsed from the grant of such equity
award through the Date of Termination plus the twenty-four months after
the Date of Termination and the denominator of which is the total number
of months in the vesting period for such award, and shall be delivered
to the Executive entirely in the form of Common Stock upon the later of
May 1, 2002 and the expiration of the period of that the Executive's
activities are restricted under Section 10(c), subject to compliance
with this Agreement through such date, (4) any options held by the
Executive that are vested on the Date of Termination or vest thereafter
pursuant to this clause (iv) may be exercised until the expiration date
of such options and (5) the Executive shall not be entitled to any
additional grants of any stock options, restricted stock, or other
equity based or long-term awards; and
(v) the Executive, his spouse and dependent
children shall be entitled to the benefits set forth under Section
3(b)(iii).
4. Obligations of the Company Relating to a Change of
Control.
(a) Notwithstanding any provision of this Agreement
or any Plan, in no event shall any compensation or benefits,
individually or in the aggregate, to which the Executive would be
entitled be less favorable for the two years following a Change of
Control than to which the Executive would have been entitled based upon
the most favorable of the Company's Plans in effect for the Executive at
any time during the 120-day period immediately preceding such Change of
Control.
(b) If the Executive's employment shall have been
terminated by the Company (other than for Cause) or by the Executive for
Good Reason during a Change of Control Period:
<Page 8 of 33>
<PAGE>
(i) the Company shall make a lump sum cash
payment to the Executive within 30 days after the Date of Termination in
an amount equal to the sum of the amounts provided by Sections 3(e)(i),
(ii) and (iii) except that all references therein to "two times" shall
be "three times"; and
(ii) (1) all unvested options held by the
Executive shall vest on the Date of Termination, (2) all unvested profit
shares held by the Executive or for his benefit by a grantor trust shall
vest on the Date of Termination, (3) any other unvested equity awards
(including, without limitation, restricted stock and stock units) held
by the Executive shall vest immediately and be promptly delivered to the
Executive entirely in the form of Common Stock, (4) any options held by
the Executive may be exercised until the expiration date of the options,
and (5) the Executive shall not be entitled to any additional grants of
any stock options, restricted stock, and other equity based or long term
awards; and
(iii) the Executive, his spouse and dependent
children shall be entitled to the benefits set forth in Section
3(b)(iii).
5. Release Agreement. The benefits pursuant to Section 3
are contingent upon the Executive (i) executing a Separation and Release
Agreement (the "Release Agreement") upon or after any Date of
Termination, a copy of which is attached as Exhibit A to this Agreement
and (ii) not revoking or challenging the enforceability of the Release
Agreement or this Agreement.
6. Offset. The Company shall have the right to offset the
amounts required to be paid to the Executive under this Agreement
against any amounts owed by the Executive to the Company, and nothing in
this Agreement shall prevent the Company from pursuing any other
available remedies against the Executive.
7. Nonexclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any Plan for which the Executive may qualify nor shall
anything herein limit or otherwise affect such rights as the Executive
may have under any contract or agreement with the Company. Amounts that
are vested benefits or that the Executive is otherwise entitled to
receive under any Plan, contract or agreement with the Company at or
subsequent to the Date of Termination shall be payable in accordance
with such Plan, or contract or agreement except as explicitly modified
by this Agreement.
<Page 9 of 33>
<PAGE>
8. Full Settlement; Legal Fees.
(a) No Obligation to Mitigate. In no event shall the
Executive be obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to the Executive under any
of the provisions of this Agreement, and, except as specifically
provided in this Agreement, such amounts shall not be reduced whether or
not the Executive obtains other employment.
(b) Expenses of Contests. (i) The following shall
apply for any dispute arising hereunder, under the Release Agreement or
under the Stock Unit Agreement prior to a Change of Control: Other than
with respect to claims brought by the Executive against, or defenses by
the Executive of any claim of, the Company with respect to this
Agreement, the Release Agreement or the Stock Unit Agreement that were
determined to have been made or asserted by the Executive in bad faith
or frivolously, the Company agrees to pay all reasonable legal and
professional fees and expenses that the Executive may reasonably incur
as a result of any contest by the Executive, by the Company or others of
the validity or enforceability of, or liability under, any provision of
this Agreement, the Release Agreement or the Stock Unit Agreement
(including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest
on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code or any successor Section of the Code.
(ii) The following shall apply for any dispute
arising hereunder, under the Release Agreement or under the Stock Unit
Agreement upon or following a Change of Control: The Company agrees to
advance to the Executive all reasonable legal and professional fees and
expenses that the Executive may reasonably incur as a result of any
contest by the Executive, by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement,
the Release Agreement or the Stock Unit Agreement (including as a result
of any contest by the Executive about the amount of any payment pursuant
to this Agreement), plus, in each case, interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Code or any successor Section of the Code.
(iii) the Executive shall reimburse the
Company for its reasonable legal and professional fees and expenses, and
in the case of advances made pursuant to paragraph (ii) above, shall
refund the Company the amount of such advances, to the extent there is a
final determination that such fees, expenses or advances relate to
claims brought by the Executive against, or defenses by the Executive of
any claim of, the Company with respect to this Agreement, the Release
Agreement or the Stock Unit Agreement that were determined to have been
made or asserted by the Executive in bad faith or frivolously.
<Page 10 of 33>
<PAGE>
9. Certain Additional Payments by the Company. Anything
in this Agreement to the contrary notwithstanding, in the event that any
actual or constructive payment or distribution by the Company to or for
the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, the Stock Unit
Agreement or otherwise) is subject to the excise tax imposed by Section
4999 of the Code or any successor provision of the Code (the "Excise
Tax"), then the Company shall make the payments described on Exhibit C
hereto.
10. Restrictions and Obligations of the Executive. (a)
Consideration for Restrictions and Covenants. The parties hereto
acknowledge and agree that the principal consideration for the agreement
to make the payments provided in Sections 3 and 4 hereof from the
Company to the Executive and the grant to the Executive of the stock
units of the Company as set forth in Section 2 hereof is the Executive's
compliance with the undertakings set forth in this Section 10.
Specifically, the Executive agrees to comply with the provisions of this
Section 10 irrespective of whether the Executive is entitled to receive
any payments under Section 3 or 4 of this Agreement.
(b) Confidentiality. The confidential and
proprietary information and in any material respect trade secrets of the
Company are among its most valuable assets, including but not limited
to, its customer and vendor lists, database, computer programs,
frameworks, models, its marketing programs, its sales, financial,
marketing, training and technical information, and any other
information, whether communicated orally, electronically, in writing or
in other tangible forms concerning how the Company creates, develops,
acquires or maintains its products and marketing plans, targets its
potential customers and operates its retail and other businesses. The
Company has invested, and continues to invest, considerable amounts of
time and money in obtaining and developing the goodwill of its
customers, its other external relationships, its data systems and data
bases, and all the information described above (hereinafter collectively
referred to as "Confidential Information"), and any misappropriation or
unauthorized disclosure of Confidential Information in any form, would
irreparably harm the Company. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all Confidential Information
relating to the Company and its business, which shall have been obtained
by the Executive during the Executive's employment by the Company and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process,
communicate, divulge or use any such information, knowledge or data to
anyone other than the Company and those designated by it.
<Page 11 of 33>
<PAGE>
(c) Non-Solicitation or Hire. During the Employment
Period and for a three-year period following the Date of Termination,
the Executive shall not, directly or indirectly (i) employ or seek to
employ any person who is at the Date of Termination, or was at any time
within the six-month period preceding the Date of Termination, an
officer, general manager or director or equivalent or more senior level
employee of the Company or any of its subsidiaries or otherwise solicit,
encourage, cause or induce any such employee of the Company or any of
its subsidiaries to terminate such employee's employment with the
Company or such subsidiary for the employment of another company
(including for this purpose the contracting with any person who was an
independent contractor (excluding consultant) of the Company during such
period) or (ii) take any action that would interfere with the
relationship of the Company or its subsidiaries with their suppliers and
franchisees without, in either case, the prior written consent of the
Company's Board of Directors, or engage in any other action or business
that would have a material adverse effect on the Company; provided,
however, that if the Executive terminates the Agreement for "Good
Reason" or the Company terminates the Executive's employment hereunder
without Cause, the obligations under this Section 10(c) shall survive
for only a two-year period following the Date of Termination.
(d) Non-Competition and Consulting. (i) During the
Employment Period and for a two-year period following the Date of
Termination, the Executive shall not, directly or indirectly:
(x) engage in any managerial, administrative,
advisory, consulting, operational or sales activities in a Restricted
Business anywhere in the Restricted Area, including, without limitation,
as a director or partner of such Restricted Business, or
(y) organize, establish, operate, own, manage,
control or have a direct or indirect investment or ownership interest in
a Restricted Business or in any corporation, partnership (limited or
general), limited liability company enterprise or other business entity
that engages in a Restricted Business anywhere in the Restricted Area;
and
(z) interfere with, disrupt or attempt to
disrupt the relationship, contractual or otherwise, between the Company
and any customer, supplier, lessor, lessee, employee, consultant,
research partner or investor of the Company.
<Page 12 of 33>
<PAGE>
(e) Litigation Assistance. The Executive agrees to
cooperate with the Company and its counsel in regard to any litigation
presently pending or subsequently initiated involving matters of which
the Executive has particular knowledge as a result of your employment
with the Company. Such cooperation shall consist of the Executive
making himself available at reasonable times for consultation with
officers of the Company and its counsel and for depositions or other
similar activity should the occasion arise. The Executive shall not
receive any additional compensation for rendering such assistance.
Reasonable travel costs and out-of-pocket expenses in connection with
such cooperation shall be reimbursed by the Company. The obligations
under the Section 10(e) shall survive for a five-year period following
the Date of Termination.
(f) Exceptions. Sections 10(c) and (d) shall not
bind the Executive during any period following the termination of the
Executive's employment if there has been a Change of Control,
irrespective of whether the Change of Control occurs before or after the
Date of Termination.
(g) Permitted Investments. Nothing contained in
Section 10(d) shall prohibit or otherwise restrict the Executive from
acquiring or owning, directly or indirectly, for passive investment
purposes not intended to circumvent this Agreement, securities of any
entity engaged, directly or indirectly, in a Restricted Business if
either (i) such entity is a public entity and such Executive (A) is not
a controlling Person of, or a member of a group that controls, such
entity and (B) owns, directly or indirectly, no more than 3% of any
class of equity securities of such entity or (ii) such entity is not a
public entity and the Executive (A) is not a controlling Person of, or a
member of a group that controls, such entity and (B) does not own,
directly or indirectly, more than 1% of any class of equity securities
of such entity.
(h) Definitions. For purposes of this Section 10:
(i) "Restricted Business" means, (A) if the
Executive's employment is terminated for Cause or if the Executive
terminates his employment other than for Good Reason, any retail store
or mail order business or any business, in each case if it is involved
in the manufacture or marketing of toys, juvenile or baby products,
juvenile furniture or children's clothing or any other business in which
the Company may be engaged on the Date of Termination, and (B) if the
Executive's employment is terminated for any other reason, Restricted
Business shall be limited to any such entity if it derives at least 10%
or more of its revenues in the aggregate from such products and/or
business in its most recent fiscal year.
<Page 13 of 33>
<PAGE>
(ii) "Restricted Area" means any country in
which the Company or its subsidiaries owns or franchises any retail
store operations or otherwise has operations on the Date of Termination.
(i) Relief. The parties hereto hereby acknowledge
that the provisions of this Section 10 are reasonable and necessary for
the protection of the Company and its subsidiaries. In addition, the
Executive further acknowledges that the Company and its subsidiaries
will be irrevocably damaged if such covenants are not specifically
enforced. Accordingly, the Executive agrees that, in addition to any
other relief to which the Company may be entitled, the Company will be
entitled to seek and obtain injunctive relief (without the requirement
of any bond) from a court of competent jurisdiction for the purposes of
restraining the Executive from any actual or threatened breach of such
covenants. In addition, without limiting the Company's remedies for any
breach of any restriction on the Executive set forth in Section 10,
except as required by law, the Executive shall not be entitled to any
payments set forth in Section 3 or 4 hereof if the Executive willfully
breaches in any material respect any of the covenants applicable to the
Executive contained in this Section 10, the Executive will immediately
return to the Company such payments previously received upon such a
breach, and, in the event of such breach, the Company will have no
obligation to pay any of the amounts that remain payable by the Company
under Section 3 or 4.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not
be assignable by the Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns.
(c) The Company will, within thirty days after a
Change of Control, and the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company
within thirty days after any such event of succession to, assume
expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid that assumes and agrees to perform
this Agreement by operation of law, or otherwise.
<Page 14 of 33>
<PAGE>
12. Miscellaneous. (a) Governing Law. This Agreement
shall be governed by and construed in accordance with the laws of the
State of New Jersey, without reference to principles of conflict of
laws.
(b) Captions. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect.
(c) Amendment. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(d) Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
(i) If to the Executive, to the address
on file with the Company; and
(ii) If to the Company, to it at Toys
"R" Us, Inc., 461 From Road, Paramus, New Jersey 07652, Attention:
Senior Vice President - Human Resources;
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(e) Assistance to Company. At all times during and
after the Employment Period and at the Company's expense for significant
out-of-pocket expenses actually and reasonably incurred by the Executive
in connection therewith, the Executive shall provide reasonable
assistance to the Company in the collection of information and documents
and shall make the Executive available when reasonably requested by the
Company in connection with claims or actions brought by or against third
parties or investigations by governmental agencies based upon events or
circumstances concerning the Executive's duties, responsibilities and
authority during the Employment Period.
<Page 15 of 33>
<PAGE>
(f) Severability of Provisions. Each of the
sections contained in this Agreement shall be enforceable independently
of every other section in this Agreement, and the invalidity or
nonenforceability of any section shall not invalidate or render
unenforceable any other section contained in this Agreement. The
Executive acknowledges that the restrictive covenants contained in
Section 10 are a condition of this Agreement and are reasonable and
valid in geographical and temporal scope and in all other respects. If
any court or arbitrator determines that any of the covenants in Section
10, or any part of any of them, is invalid or unenforceable, the
remainder of such covenants and parts thereof shall not thereby be
affected and shall be given full effect, without regard to the invalid
portion. If any court or arbitrator determines that any of such
covenants, or any part thereof, is invalid or unenforceable because of
the geographic or temporal scope of such provision, such court or
arbitrator shall reduce such scope to the minimum extent necessary to
make such covenants valid and enforceable.
(g) Withholding. The Company may withhold from any
amounts payable under this Agreement such Federal, state, local or
foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(h) Waiver. The Executive's or the Company's
failure to insist upon strict compliance with any provision hereof or
any other provision of this Agreement or the failure to assert any right
the Executive or the Company may have hereunder shall not be deemed to
be a waiver of such provision or right or any other provision or right
of this Agreement.
(i) Arbitration. Except as otherwise provided for
herein, any controversy arising under, out of, in connection with, or
relating to, this Agreement, and any amendment hereof, or the breach
hereof or thereof, shall be determined and settled by arbitration in New
York, New York, by a three person panel mutually agreed upon, or in the
event of a disagreement as to the selection of the arbitrators, in
accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association. Any award rendered therein shall specify the
findings of fact of the arbitrator or arbitrators and the reasons of
such award, with the reference to and reliance on relevant law. Any
such award shall be final and binding on each and all of the parties
thereto and their personal representatives, and judgment may be entered
thereon in any court having jurisdiction thereof.
<Page 16 of 33>
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and the Company has caused these presents to be
executed in its name on its behalf, all as of the day and year first
above written.
ROBERT C. NAKASONE
/s/ Robert C. Nakasone
TOYS "R" US
By: /s/ Roger C. Gaston
Name: Roger C. Gaston
Title: Sr. V.P. - Human Resources
<Page 17 of 33>
<PAGE>
EXHIBIT A
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is
entered into as of this __ day of ___________________________, 19__,
between TOYS "R" US, INC., a Delaware corporation, and any successor
thereto (collectively, the "Company") and Robert C. Nakasone (the
"Executive").
the Executive and the Company agree as follows:
1. The employment relationship between the Executive and
the Company terminated on __________________________________ (the
"Termination Date").
2. In accordance with the Executive's Retention Agreement
(the "Retention Agreement"), the Company has agreed to pay the Executive
certain payments and to make certain benefits available after the Date
of Termination.
3. In consideration of the above, the sufficiency of which
the Executive hereby acknowledges, the Executive, on behalf of the
Executive and the Executive's heirs, executors and assigns, hereby
releases and forever discharges the Company and its members, parents,
affiliates, subsidiaries, divisions, any and all current and former
directors, officers, employees, agents, and contractors and their heirs
and assigns, and any and all employee pension benefit or welfare benefit
plans of the Company, including current and former trustees and
administrators of such employee pension benefit and welfare benefit
plans, from all claims, charges, or demands, in law or in equity,
whether known or unknown, which may have existed or which may now exist
from the beginning of time to the date of this letter agreement,
including, without limitation, any claims the Executive may have arising
from or relating to the Executive's employment or termination from
employment with the Company, including a release of any rights or claims
the Executive may have under Title VII of the Civil Rights Act of 1964,
as amended, and the Civil Rights Act of 1991 (which prohibit
discrimination in employment based upon race, color, sex, religion, and
national origin); the Americans with Disabilities Act of 1990, as
amended, and the Rehabilitation Act of 1973 (which prohibit
discrimination based upon disability); the Family and Medical Leave Act
of 1993 (which prohibits discrimination based on requesting or taking a
family or medical leave); Section 1981 of the Civil Rights Act of 1866
(which prohibits discrimination based upon race); Section 1985(3) of the
<Page 18 of 33>
<PAGE>
Civil Rights Act of 1871 (which prohibits conspiracies to discriminate);
the Employee Retirement Income Security Act of 1974, as amended (which
prohibits discrimination with regard to benefits); any other federal,
state or local laws against discrimination; or any other federal, state,
or local statute, or common law relating to employment, wages, hours, or
any other terms and conditions of employment. This includes a release
by the Executive of any claims for wrongful discharge, breach of
contract, torts or any other claims in any way related to the
Executive's employment with or resignation or termination from the
Company. This release also includes a release of any claims for age
discrimination under the Age Discrimination in Employment Act, as
amended ("ADEA"). The ADEA requires that the Executive be advised to
consult with an attorney before the Executive waives any claim under
ADEA. In addition, the ADEA provides the Executive with at least 21
days to decide whether to waive claims under ADEA and seven days after
the Executive signs the Agreement to revoke that waiver.
Additionally, the Company agrees to discharge and release
the Executive and the Executive's heirs from any claims, demands, and/or
causes of action whatsoever, presently known or unknown, that are based
upon facts occurring prior to the date of this Agreement, including, but
not limited to, any claim, matter or action related to the Executive's
employment and/or affiliation with, or termination and separation from
the Company; provided that such release shall not release the Executive
from any loan or advance by the Company or any of its subsidiaries, any
act that would constitute "Cause" under the Executive's Retention
Agreement or a breach under Section ________ or _______ of the
Executive's Retention Agreement.
4. This Agreement is not an admission by either the
Executive or the Company of any wrongdoing or liability.
5. the Executive waives any right to reinstatement or
future employment with the Company following the Executive's separation
from the Company on the Termination Date.
6. the Executive agrees not to engage in any act after
execution of the Separation and Release Agreement that is intended, or
may reasonably be expected to harm the reputation, business, prospects
or operations of the Company, its officers, directors, stockholders or
employees. The Company further agrees that it will engage in no act
which is intended, or may reasonably be expected to harm the reputation,
business or prospects of the Executive.
<Page 19 of 33>
<PAGE>
7. the Executive shall continue to be bound by Sections
_____ and _____ of the Executive's Retention Agreement.
8. the Executive shall promptly return all the Company
property in the Executive's possession, including, but not limited to,
the Company keys, credit cards, cellular phones, computer equipment,
software and peripherals and originals or copies of books, records, or
other information pertaining to the Company business. The Executive
shall return any leased or Company automobile at the expiration of the
restrictions under Section 10(d) of the Executive's Retention Agreement.
9. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without reference
to the principles of conflict of laws. Exclusive jurisdiction with
respect to any legal proceeding brought concerning any subject matter
contained in this Agreement shall be settled by arbitration as provided
in the Executive's Retention Agreement.
10. This Agreement represents the complete agreement
between the Executive and the Company concerning the subject matter in
this Agreement and supersedes all prior agreements or understandings,
written or oral. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
11. Each of the sections contained in this Agreement shall
be enforceable independently of every other section in this Agreement,
and the invalidity or nonenforceability of any section shall not
invalidate or render unenforceable any other section contained in this
Agreement.
12. It is further understood that for a period of 7 days
following the execution of this Agreement in duplicate originals, the
Executive may revoke this Agreement, and this Agreement shall not become
effective or enforceable until the revocation period has expired. No
revocation of this Agreement by the Executive shall be effective unless
the Company has received within the 7-day revocation period, written
notice of any revocation, all monies received by the Executive under
this Agreement and all originals and copies of this Agreement.
<Page 20 of 33>
<PAGE>
13. This Agreement has been entered into voluntarily and
not as a result of coercion, duress, or undue influence. The Executive
acknowledges that the Executive has read and fully understands the terms
of this Agreement and has been advised to consult with an attorney
before executing this Agreement. Additionally, the Executive
acknowledges that the Executive has been afforded the opportunity of at
least 21 days to consider this Agreement.
The parties to this Agreement have executed this Agreement
as of the day and year first written above.
TOYS "R" US, INC.
By: ___________________________
Name:
Title:
ROBERT C. NAKASONE
_______________________________
<Page 21 of 33>
<PAGE>
EXHIBIT B
Capitalized terms used in the Agreement that are not elsewhere defined
in the Agreement have the definitions set forth below:
"Annual Base Salary" means the annual base salary of the
Executive in effect as of the date of the Agreement as may be increased
in the discretion of the Committee.
"Board" means the Board of Directors of the Company.
"Cause" means: (i) the conviction of, or pleading guilty or
nolo contendere to, a felony involving moral turpitude; (ii) the
commission of any fraud, misappropriation or misconduct which causes
demonstrable injury to the Company or a subsidiary; (iii) an act of
dishonesty resulting or intended to result, directly or indirectly, in
material gain or personal enrichment to the Executive at the expense of
the Company or a subsidiary; (iv) any willful and material breach of the
Executive's fiduciary duties to the Company as an employee or director;
(v) a serious and willful violation of the Toys "R" Us Ethics Agreement
or any other serious and willful violation of a Company policy; (vi) the
willful and continued failure of the Executive to perform substantially
the Executive's duties with the Company or one of its subsidiaries
(other than any such failure resulting from incapacity due to physical
or mental illness resulting in a Disability), within a reasonable time
after a written demand for substantial performance is delivered to the
Executive by the Board, which specifically identifies the manner in
which the Board believes that the Executive has not substantially
performed the Executive's duties; (vii) the failure by the Executive to
comply, in any material respect, with the provisions of Section 10 of
the Agreement; or (viii) the failure by the Executive to comply with any
other undertaking set forth in the Agreement or any breach by the
Executive hereof that is reasonably likely to result in a material
injury to the Company.
For purposes of this provision, no act or failure to act, on
the part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of regular outside counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive
<Page 22 of 33>
<PAGE>
a copy of a resolution duly adopted by the affirmative vote of a
majority of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to
the Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described,
and specifying the particulars thereof in detail.
"Change of Control" means, after the date hereof:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection
(a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition by the Company or any of its
subsidiaries, (ii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any subsidiary
of the Company, (iii) any acquisition by any Person pursuant to a
transaction that complies with clauses (i), (ii) and (iii) of subsection
(c) below, or (iv) any acquisition by any entity in which the Executive
has a material direct or indirect equity interest; or
(b) The cessation of the "Incumbent Board" for any
reason to constitute at least a majority of the Board. "Incumbent
Board" means the members of the Board on the date hereof and any member
of the Board subsequent to the date hereof whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board,
except that the Incumbent Board shall not include any member of the
Board whose initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election or removal
of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.
(c) The consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case,
unless, immediately following such Business Combination each of the
following would be correct:
<Page 23 of 33>
<PAGE>
(i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the Person resulting from
such Business Combination (including, without limitation, a Person which
as a result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the
case may be, and
(ii) no Person (excluding (A) any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any subsidiary of the Company, or such corporation resulting from
such Business Combination or any Affiliate of such corporation, or (B)
any entity in which the Executive has a material equity interest, or any
"Affiliate" (as defined in Rule 405 under the Securities Act of 1933, as
amended) of such entity) beneficially owns, directly or indirectly, 25%
or more of, respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination, or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination, and
(iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the stockholders of the
Company of a complete liquidation or dissolution of the
Company.
"Change of Control Period" means the period commencing 120
days prior to a Change of Control and expiring on the second anniversary
date of a Change of Control.
"Committee" means the Company's Management Compensation and
Stock Option Committee of the Board of Directors or any successor
committee of the Board performing equivalent functions.
<Page 24 of 33>
<PAGE>
"Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive
for Good Reason, the date of receipt of the Notice of Termination or any
later date specified therein, as the case may be (although such Date of
Termination shall retroactively cease to apply if the circumstances
providing the basis of termination for Cause or Good Reason are cured in
accordance with the Agreement), (ii) if the Executive's employment is
terminated by the Company other than for Cause, the Date of Termination
shall be the date so designated by the Company in its notification to
the Executive of such termination, (iii) if the Executive's employment
is terminated by reason of death or Disability, the Date of Termination
shall be the date of death of the Executive or the effective date of the
Disability, as the case may be, (iv) if the Executive's Employment is
terminated by the Executive without Good Reason, the Date of Termination
shall be the last day on which the Executive is employed by the Company
as a regular employee, or (v) the last day of the Employment Period
during which the Company shall have given notice to the Executive that
the Employment Period shall not be extended.
"Disability" means the determination that the Executive is
disabled pursuant to the terms of the TRU Partnership Employees' Savings
and Profit Sharing Plan, as amended and restated as of October 1, 1993,
as the same may be amended from time to time.
"Good Reason" means, without the Executive's prior written
consent, the occurrence of any of the following, provided that the
Executive delivers a Notice of Termination specifying such occurrence
within 30 days thereof:
(i) the assignment of the Executive to a position
other than Chief Executive Officer;
(ii) any failure by the Company to comply in any
material respect with any of the provisions of Section 2(b) of the
Agreement, other than failure not occurring in bad faith and that is
remedied by the Company within a reasonable time after receipt of notice
thereof given by the Executive;
(iii) any failure by the Company to comply with and
satisfy Section 11(c) of the Agreement; or
(iv) notice by the Company that it is not extending
the termination date of the Employment Period.
<Page 25 of 33>
<PAGE>
"Notice of Termination" means a written notice that (i)
indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined above) is other than the date of
receipt of such notice, specifies the termination date.
"Partnership Plan" means the Partnership Group Deferred
Compensation Plan of the Company.
"Plans" means all employee compensation, benefit and welfare
plans, policies and programs of the Company, which may include, without
limitation, incentive, savings, retirement, stock option, restricted
stock, supplemental executive retirement, the Partnership Plan, pension,
medical, prescription, dental, disability, salary continuance, employee
life, group life, accidental death and travel accident insurance plans,
vacation practices, fringe benefit practices and policies relating to
the reimbursement of business expenses.
"Retirement" shall have the meaning ascribed to that term in
the Plan under which benefits are being sought by the Executive or, if
such meaning is inapplicable, the term shall mean a termination of
employment with the Company or a subsidiary on a voluntary basis prior
to the age of sixty (60). The term "Retirement" shall also include
"early" retirement prior to the age of sixty (60) provided that the
Committee, in its sole discretion, consents in writing to accept such
early retirement.
<Page 26 of 33>
<PAGE>
EXHIBIT C
TAX GROSS-UP
(a) If required by Section 9 of the Agreement, in addition
to the payments described in Section 4 of the Agreement and the grants
described in the Stock Unit Agreement, the Company shall pay to the
Executive an amount (the "Gross-up") such that the net amount retained
by the Executive, after deduction of any Excise Tax and any Federal,
state and local income taxes, equals the amount of such payments that
the Executive would have retained had such Excise Tax not been imposed.
In addition, the Company shall indemnify and hold the Executive harmless
on an after-tax basis from any Excise Tax imposed on or with respect to
any such payment (including, without limitation, any interest, penalties
and additions to tax) payable in connection with any such Excise Tax.
For purposes of determining the amount of any Gross-up or the amount
required to make an indemnity payment on an after-tax basis, it shall be
assumed that the Executive is subject to Federal, state and local income
tax at the highest marginal statutory rates in effect for the relevant
period after taking into account any deduction available in respect of
any such tax (e.g., if state and local taxes are deductible for Federal
income tax purposes in the relevant period, it shall be assumed that
such taxes offset income that would otherwise be subject to Federal
income tax at the highest marginal statutory rate in effect for such
period).
(b) Subject to the provisions of paragraph (c) of this
Exhibit C, the determination of (i) whether a Gross-up is required and
the amount of such Gross-up and (ii) the amount necessary to make any
payment on an after-tax basis, shall be made in accordance with the
assumptions set forth in paragraph (a) of this Exhibit C by Ernst &
Young LLP or such other "Big Six" accounting firm designated by the
Executive and reasonably acceptable to the Company.
(c) the Executive shall notify the Company as soon as
practicable in writing of any claim by the Internal Revenue Service
that, if successful, would require any Gross-up or indemnity payment.
The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the
Company. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive shall take all actions necessary to permit the Company to
control all proceedings taken in connection with such contest. In that
<Page 27 of 33>
<PAGE>
connection, the Company may, at its sole option, pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner; provided, however, that the Company
shall pay and indemnify the Executive from and against all costs and
expenses incurred in connection with such contest; provided further,
however, that if the Company directs the Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such payment
to the Executive on an interest-free basis and at no net after-tax cost
to the Executive. If the Executive becomes entitled to receive any
refund or credit with respect to such claim (or would be entitled to a
refund or credit but for a counterclaim for taxes not indemnified
hereunder), the Executive shall promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon)
plus the amount of any tax benefit available to the Executive as a
result of making such payment (any such benefit calculated based on the
assumption that any deduction available to the Executive offsets income
that would otherwise be taxed at the highest marginal statutory rates of
Federal, state and local income tax for the relevant periods).
<Page 28 of 33>
<PAGE>
EXECUTION COPY
ANNEX A
STOCK UNIT AGREEMENT
STOCK UNIT AGREEMENT, dated as of February 25, 1998 (the
"Unit Agreement"), between TOYS "R" US, INC., a Delaware corporation
(the "Company"), and ROBERT C. NAKASONE (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company proposed for the approval of the
stockholders of the Company at the 1997 Annual Meeting of Stockholders
an Amendment (the "Amendment") to the Company's 1994 Stock Option and
Performance Incentive Plan (the "Plan") providing for performance
criteria that may be utilized by the Management Compensation and Stock
Option Committee (the "Committee") in connection with the grant of
Performance Shares (as defined in the Plan and referred to herein as
"Stock Units"), and the Stockholders approved such Amendment;
WHEREAS, concurrently herewith, the Executive and the
Company are entering into a Retention Agreement, dated as of even date
herewith (the "Retention Agreement");
WHEREAS, as further inducement for the Executive to execute
the Retention Agreement and continue in the employ of the Company, the
Committee has determined to grant the Executive the Stock Units as
described in this Unit Agreement, and
WHEREAS, the Board and the Committee desire that the
compensation arising from the Stock Units 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 meanings ascribed to them in the Plan and in
the Retention Agreement.
<Page 29 of 33>
<PAGE>
2. Stock Unit Grant. Subject to the terms and conditions
set forth in this Unit Agreement and in Section 10 of the Plan, the
Executive is hereby granted 158,000 Stock Units. Each Stock Unit
represents the right to receive one share of Common Stock (collectively,
with other shares of Common Stock relating to the Stock Units and held
in the Executive's account in the Trust (as defined below) in respect of
the Stock Units, the "Shares"). The 158,000 Shares shall be promptly
deposited after the date hereof in the grantor trust created pursuant to
the Grantor Trust Agreement, dated as of October 1, 1995 between the
Company and American Express Trust Company, a Minnesota trust company
(together with any grantor trust subsequently established by the
Company, the "Trust") and shall be allocated by the Trust to the
Executive's account therein subject to the vesting conditions of
Sections 3 and 4 below. Any property attributable to the Shares,
including, without limitation, dividends and distributions thereon shall
be deposited into the Trust, shall as promptly as practicable be
reinvested in shares of Common Stock, and shall be allocated by the
Trust to the Executive's account therein subject to the vesting
conditions of Sections 3 and 4 below.
3. Vesting. (a) Except as provided in the Retention
Agreement and subject to Section 4(b), the Stock Units shall vest at the
rate of twenty percent (20%) per annum on May 1 of each year, beginning
on May 1, 1998, throughout the Employment Period; provided that, the
Committee has determined that the Performance Objective set forth in
Exhibit A has been achieved.
(b) The Committee shall determine whether the Performance
Objective set forth on Exhibit A has been achieved as soon as
practicable, but no later than the earlier of (x) May 1, 2002 or (y) the
Date of Termination.
4. Payment of Stock Units. (a) The Shares, together
with any property attributable thereto (including, without limitation,
dividends and distributions thereon), shall be delivered to the
Executive as provided in the Retention Agreement.
(b) The provisions of Sections 8(b) and 9 of the Retention
Agreement shall apply to the Stock Unit and related Shares, whether or
not the Retention Agreement is then in effect.
<Page 30 of 33>
<PAGE>
5. Investment Representation. The Shares acquired by the
Executive under this Unit Agreement will be acquired for the Executive's
account and not with a view to the distribution thereof, and the
Executive 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 the Executive 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.
6. 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 Unit Agreement, and each member
of the Committee shall be fully indemnified and protected by the Company
with respect to any liability such member 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.
7. Severability. Each of the Sections contained in this
Unit Agreement shall be enforceable independently of every other section
in this Unit Agreement, and the invalidity or nonenforceability of any
section shall not invalidate or render unenforceable any other section
contained in this Unit Agreement.
8. Governing Law. This Unit Agreement shall be governed
by and construed in accordance with the laws of the State of New Jersey,
without reference to principles of conflict of laws. Exclusive
jurisdiction with respect to any legal proceeding brought concerning any
subject matter contained in this Unit Agreement shall be settled by
arbitration as provided in the Retention Agreement.
9. Captions. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect.
10. Amendment. This Unit Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
11. Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
<Page 31 of 33>
<PAGE>
(i) If to the Executive, to the address on file with the
Company; and
(ii) If to the Company, to it at Toys "R" Us, Inc.,
461 From Road, Paramus, New Jersey 07652, Attention: Senior Vice
President - Human Resources;
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
12. Interpretation. The interpretation and decision with
regard to any question arising under this Unit Agreement or with respect
to the Stock Units made by the Committee shall be final and conclusive
on the Executive.
13. Successors. This Unit Agreement shall be binding upon
the Company and its successors and assigns.
<Page 32 of 33>
<PAGE>
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: Roger C. Gaston
Title: Sr. V.P. - Human Resources
I hereby acknowledge receipt of the Stock Units and agree to
the provisions set forth in this Agreement.
/s/ Robert C. Nakasone
Signature of Executive
<Page 33 of 33>
<PAGE>
EXECUTION COPY
RETENTION AGREEMENT
BETWEEN
TOYS "R" US, INC.
AND
KEITH VAN BEEK
DATED AS OF
February 25, 1998
VAN BEEK
<PAGE 1 of 29>
<PAGE>
TOYS "R" US, INC.
RETENTION AGREEMENT
AGREEMENT (this "Agreement"), by and between Toys "R" Us, Inc., a
Delaware corporation (the "Company"), and Keith Van Beek (the
"Officer"), dated as of February 25, 1998. Capitalized terms used in
this Agreement and in Exhibit A hereto that are not defined in the
operative provisions shall have the meanings ascribed to them on Exhibit
B hereto.
1. Employment Period. The Company hereby agrees to continue to
employ the Officer and the Officer hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement,
for the Employment Period. The term "Employment Period" means the
period commencing on the date hereof and ending on the second
anniversary of such date as automatically extended for successive
additional one-year periods unless, at least six months prior to the
scheduled expiration of the Employment Period, the Company shall give
notice to the Officer that the Employment Period shall not be so
extended.
2. Terms of Employment. (a) Position. (i) Commencing on the
date hereof and for the remainder of the Employment Period, the Officer
shall serve in the position of President - Toys "R" Us U.S.
Merchandising and Marketing of the Company or such other senior Officer
position to which the Officer may be appointed by the Company. The
Officer shall be based in Northeastern New Jersey.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Officer is entitled, the Officer
agrees to devote full time during normal business hours to the business
and affairs of the Company and to use the Officer's best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period, the Officer may, so long as such activities do not
interfere with the performance of the Officer's responsibilities as an
employee of the Company in accordance with this Agreement, continue the
corporate directorships on which the Officer serves, if any, as of the
date hereof and such other corporate directorships as are consented to
by the Chief Executive Officer. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Officer with the knowledge of the Company prior to a Change of Control,
the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to a Change of Control
shall not thereafter be deemed to violate this Agreement.
<Page 2 of 29>
<PAGE>
(b) Compensation.
(i) Base Salary. During the Employment Period, the Officer shall
receive the Officer's Annual Base Salary which will be paid in
accordance with the Company's regular payroll policies as in effect from
time to time.
(ii) Incentive Bonus. The Officer shall also be eligible, for
each fiscal year ending during the Employment Period, to receive an
annual incentive bonus and long-term incentive awards pursuant to the
Company's incentive Plans and subject to the terms thereof at a level
commensurate with the Company's grants to the officer currently serving
as President - Toys "R" Us U.S. Merchandising and Marketing or any more
senior position(s) to which the Officer may be appointed. Each such
incentive bonus shall be paid in accordance with the Company's incentive
Plans.
(iii) Participation in Other Plans. During the Employment Period,
the Officer shall be eligible to participate in all other Plans at a
level commensurate with the Officer's position.
(iv) Stock Units. As further inducement for the Officer to enter
into this Agreement and to continue in the employ of the Company, the
Company has granted to the Officer stock units contingent on performance
and future service, pursuant to the Stock Unit Agreement executed and
delivered by the Company on the date hereof in the form attached as
Annex A hereto.
3. Termination of Employment Upon Death, Disability or Retirement.
The Officer's employment shall terminate upon the Officer's death,
Disability or Retirement during the Employment Period and the
obligations of the Company upon such termination shall be limited to
those benefits provided by the Plans at the Date of Termination, except
as specifically set forth herein or in the Stock Unit Agreement.
4. Other Termination of Employment. (a) Company Termination. The
Company may terminate the Officer's employment during the Employment
Period with or without Cause.
(b) Good Reason. The Officer's employment may be terminated during
the Employment Period by the Officer for Good Reason.
<Page 3 of 29>
<PAGE>
(c) Notice of Termination. Any termination by the Company for
Cause, or by the Officer for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in accordance with
this Agreement. The failure by the Officer or the Company to set forth
in the Notice of Termination any fact or circumstance that contributes
to a showing of Good Reason or Cause shall not waive any right of the
Officer or the Company, respectively, hereunder or preclude the Officer
or the Company, respectively, from asserting such fact or circumstance
in enforcing the Officer's or the Company's rights hereunder.
(d) Obligations of the Company Upon Termination Under Section 4.
If the Officer's employment shall have been terminated under Section
4(a) (other than for Cause) or 4(b):
(i) the Company shall make a lump sum cash payment to the Officer
within 30 days after the Date of Termination in an amount equal to the
sum of (1) the Officer's pro rata Annual Base Salary payable through the
Date of Termination to the extent not theretofore paid, (2) the targeted
amount of the Officer's annual bonus and long-term incentive awards that
would have been payable with respect to the fiscal year in which the
Date of Termination occurs in each case absent the termination of the
Officer's employment prorated for the portion of such fiscal year
through the Date of Termination taking into account the number of
complete months during such fiscal year through the Date of Termination
and (3) the Officer's actual earned annual or long-term incentive awards
for any completed fiscal year or period not theretofore paid or
deferred;
(ii) the Company shall pay to the Officer in equal installments,
made at least monthly, over the twenty-four months following the Date of
Termination an aggregate amount equal to (1) two times the Officer's
Annual Base Salary in effect on the Date of Termination, (2) two times
the targeted amount of the annual incentive bonus that would have been
paid to the Officer with respect to the Company's fiscal year in which
such Date of Termination occurs and (3) two times the targeted amount of
the long-term incentive award that would have been paid to the Officer
with respect to such fiscal year;
<Page 4 of 29>
<PAGE>
(iii) the Company shall continue to provide, in the manner and
timing provided for in the Plans (other than stock options and except as
set forth in this Section 4(d) and in Section 7(b)), the benefits
provided under the Plans that the Officer would receive on an after-tax
basis if the Officer's employment had continued for two years after the
Date of Termination assuming for this purpose that the Officer's
compensation for each such year would have been one-half of the amount
paid pursuant to clause (ii) above, and the Officer shall be fully
vested in any account balance and all other benefits continuation under
such Plans; provided, however that the benefits provided under this
clause (iii) shall be limited to the coverage permitted by law or as
would otherwise not potentially adversely impact on the tax
qualification of any Plans; provided, further, that if such benefits may
not be continued under the Plans, the Company shall pay to the Officer
an amount equal to the Company's cost had such benefits been continued.
(iv) (1) all unvested options held by the Officer shall continue
to vest in accordance with their terms for two years after the Date of
Termination, and all remaining unvested options held by the Officer
shall vest on the two year anniversary date of the Date of Termination,
(2) all unvested profit shares held by the Officer or for the benefit of
the Officer by a grantor trust established by the Company shall continue
to vest in accordance with their terms for two years after the Date of
Termination and all remaining profit shares shall vest on the two year
anniversary date of the Date of Termination, provided that, if permitted
by the terms of any such trust, any unvested profit shares shall
continue to be held by such grantor trust until such profit shares vest
pursuant to this clause (iv) and any such unvested profit share not
permitted to be so held shall vest immediately and be delivered to the
Officer, (3) any other unvested equity based award (including, without
limitation, restricted stock and stock units) held by the Officer shall
vest on the two year anniversary date of the Date of Termination on a
pro rata basis determined by a fraction, the numerator of which is the
number of months elapsed from the grant of such equity award through the
Date of Termination plus the twenty-four months after the Date of
Termination and the denominator of which is the total number of months
in the vesting period for such award and shall be promptly delivered to
the Officer entirely in the form of Common Stock, (4) any options held
by the Officer that are vested on the Date of Termination or vest
thereafter pursuant to this clause (iv) may be exercised until the
earlier of (x) the thirty-month anniversary date of the Date of
Termination and (y) the expiration date of such options and (5) the
Officer shall not be entitled to any additional grants of any stock
options, restricted stock, other equity based or long-term awards; and
<Page 5 of 29>
<PAGE>
(v) the Officer will be entitled to continuation of health
benefits under the Plans at a level commensurate with the Officer's
current position or more senior position(s) to which the Officer may be
appointed, and if the Officer elects to receive such health benefits,
the Company shall pay the medical premiums therefore for the first
twenty-four months after the Date of Termination, and thereafter the
Officer shall pay the premium charged to former employees of the Company
pursuant to Section 4980B of the Code until the Officer is sixty-five
years of age; provided, that the Company can amend or otherwise alter
the Plans to provide benefits to the Officer that are no less than those
commensurate with the Officer's current position or more senior
position(s) to which the Officer may be appointed; provided, that to the
extent such benefits cannot be provided to the Officer under the terms
of the Plans or the Plans cannot be so amended in any manner not adverse
to the Company, the Company shall pay the Officer, on an after-tax
basis, an amount necessary for the Officer to acquire such benefits from
an independent insurance carrier; and provided, further, that the
obligations of the Company under this clause (v) shall be terminated if,
at any time after the Date of Termination, the Officer is employed by or
is otherwise affiliated with a party that offers comparable health
benefits to the Officer.
(e) Cause. If the Officer's employment shall be terminated for
Cause during the Employment Period or if the Officer voluntarily
terminates employment during the Employment Period, excluding a
termination for Good Reason, death, Disability or Retirement, the
Employment Period shall terminate without further obligations to the
Officer other than the obligation to pay to the Officer all payments and
benefits due, in accordance with the Company's Plans through the Date of
Termination.
5. Release Agreement. The benefits pursuant to Section 4 are
contingent upon the Officer (i) executing a Separation and Release
Agreement (the "Release Agreement") upon or after any Date of
Termination, a copy of which is attached as Exhibit A to this Agreement
and (ii) not revoking or challenging the enforceability of the Release
Agreement or this Agreement.
6. Offset. The Company shall have the right to offset the amounts
required to be paid to the Officer under this Agreement against any
amounts owed by the Officer to the Company, and nothing in this
Agreement shall prevent the Company from pursuing any other available
remedies against the Officer.
<Page 6 of 29>
<PAGE>
7. Compensation and Benefits Following Change of Control.
(a) Notwithstanding any provision of this Agreement or any Plan,
in no event shall any compensation or benefits, individually or in the
aggregate, to which the Officer would be entitled be less favorable for
the two years following a Change of Control than the Officer would have
been entitled based upon the most favorable of the Company's Plans in
effect for the Officer at any time during the 120-day period immediately
preceding such Change of Control.
(b) In the event of termination of the Officer's employment under
Section 4(a) (other than for Cause) or 4(b), whether before or after a
Change of Control, following a Change of Control: (i) any remaining
amounts payable under Sections 4(d)(i), (ii) and (iii) shall be payable
in a lump sum within 30 days after the later of the Date of Termination
or the Change of Control and (ii) in lieu of the Company's obligations
under Section 4(d)(iv), all unvested options and equity based awards
shall vest immediately on the later of the Date of Termination or the
Change of Control and all such options may be exercised until the
earlier of (x) the thirty-month anniversary date of the Date of
Termination and (y) the expiration date of such options.
8. Nonexclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Officer's continuing or future participation in any
Plan for which the Officer may qualify nor shall anything herein limit
or otherwise affect such rights as the Officer may have under any
contract or agreement with the Company. Amounts that are vested
benefits or that the Officer is otherwise entitled to receive under any
Plan, contract or agreement with the Company at or subsequent to the
Date of Termination shall be payable in accordance with such Plan, or
contract or agreement except as explicitly modified by this Agreement.
9. Full Settlement; Legal Fees.
(a) No Obligation to Mitigate. In no event shall the Officer be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Officer under any of the
provisions of this Agreement, and, except as specifically provided in
this Agreement, such amounts shall not be reduced whether or not the
Officer obtains other employment.
(b) Expenses of Contests.
<Page 7 of 29>
<PAGE>
(i) The following shall apply for any dispute arising hereunder,
under the Release Agreement or under the Stock Unit Agreement prior to a
Change of Control: In each case solely to the extent that the Officer
is successful with respect thereto, the Company agrees to pay all
reasonable legal and professional fees and expenses that the Officer may
reasonably incur as a result of any contest by the Officer, by the
Company or others of the validity or enforceability of, or liability
under, any provision of this Agreement, the Release Agreement or the
Stock Unit Agreement (including as a result of any contest by the
Officer about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code or any
successor Section of the Code.
(ii) The following shall apply for any dispute arising hereunder,
under the Release Agreement or under the Stock Unit Agreement upon or
following a Change of Control: The Company agrees to advance to the
Officer all reasonable legal and professional fees and expenses that the
Officer may reasonably incur as a result of any contest by the Officer,
by the Company or others of the validity or enforceability of, or
liability under, any provision of this Agreement, the Release Agreement
or the Stock Unit Agreement (including as a result of any contest by the
Officer about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code or any
successor Section of the Code.
(iii) The Officer shall reimburse the Company for its reasonable
legal and professional fees and expenses, and in the case of advances
made pursuant to paragraph (ii) above, shall refund the Company the
amount of such advances, to the extent there is a final determination
that such fees, expenses or advances relate to claims brought by the
Officer against, or defenses by the Officer of any claim of, the Company
with respect to this Agreement, the Release Agreement or the Stock Unit
Agreement that were determined to have been made or asserted by the
Officer in bad faith or frivolously.
10. Certain Additional Payments by the Company. Anything in this
Agreement to the contrary notwithstanding, in the event that any actual
or constructive payment or distribution by the Company to or for the
benefit of the Officer (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, the Stock Unit
Agreement or otherwise) is subject to the excise tax imposed by Section
4999 of the Code or any successor provision of the Code (the "Excise
Tax"), then the Company shall make the payments described on Exhibit C
hereto.
<Page 8 of 29>
<PAGE>
11. Restrictions and Obligations of the Officer.
(a) Consideration for Restrictions and Covenants. The parties
hereto acknowledge and agree that the principal consideration for the
agreement to make the payments provided in Sections 3 and 4 hereof from
the Company to the Officer and the grant to the Officer of the stock
units of the Company as set forth in Section 2 hereof is the Officer's
compliance with the undertakings set forth in this Section 11.
Specifically, Officer agrees to comply with the provisions of this
Section 11 irrespective of whether the Officer is entitled to receive
any payments under Section 3 or 4 of this Agreement.
(b) Confidentiality. The confidential and proprietary information
and in any material respect trade secrets of the Company are among its
most valuable assets, including but not limited to, its customer and
vendor lists, database, computer programs, frameworks, models, its
marketing programs, its sales, financial, marketing, training and
technical information, and any other information, whether communicated
orally, electronically, in writing or in other tangible forms concerning
how the Company creates, develops, acquires or maintains its products
and marketing plans, targets its potential customers and operates its
retail and other businesses. The Company has invested, and continues to
invest, considerable amounts of time and money in obtaining and
developing the goodwill of its customers, its other external
relationships, its data systems and data bases, and all the information
described above (hereinafter collectively referred to as "Confidential
Information"), and any misappropriation or unauthorized disclosure of
Confidential Information in any form would irreparably harm the Company.
The Officer shall hold in a fiduciary capacity for the benefit of the
Company all Confidential Information relating to the Company and its
business, which shall have been obtained by the Officer during the
Officer's employment by the Company and which shall not be or become
public knowledge (other than by acts by the Officer or representatives
of the Officer in violation of this Agreement). After termination of
the Officer's employment with the Company, the Officer shall not,
without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate, divulge or use any such
information, knowledge or data to anyone other than the Company and
those designated by it.
<Page 9 of 29>
<PAGE>
(c) Non-Solicitation or Hire. During the Employment Period and
for a two-year period following the termination of the Officer's
employment for any reason, the Officer shall not, directly or indirectly
(i) employ or seek to employ any person who is at the Date of
Termination, or was at any time within the six-month period preceding
the Date of Termination, an officer, general manager or director or
equivalent or more senior level employee of the Company or any of its
subsidiaries or otherwise solicit, encourage, cause or induce any such
employee of the Company or any of its subsidiaries to terminate such
employee's employment with the Company or such subsidiary for the
employment of another company (including for this purpose the
contracting with any person who was an independent contractor
(excluding consultant) of the Company during such period) or (ii) take
any action that would interfere with the relationship of the Company or
its subsidiaries with their suppliers and franchisees without, in either
case, the prior written consent of the Company's Board of Directors, or
engage in any other action or business that would have a material
adverse effect on the Company.
(d) Non-Competition and Consulting. (i) During the Employment
Period and for a two-year period (the "Consulting Period") following the
termination of the Officer's employment for any reason, the Officer
shall not, directly or indirectly:
(x) engage in any managerial, administrative, advisory,
consulting, operational or sales activities in a Restricted Business
anywhere in the Restricted Area, including, without limitation, as a
director or partner of such Restricted Business, or
(y) organize, establish, operate, own, manage, control or have a
direct or indirect investment or ownership interest in a Restricted
Business or in any corporation, partnership (limited or general),
limited liability company enterprise or other business entity that
engages in a Restricted Business anywhere in the Restricted Area; and
(ii) During the Consulting Period, the Officer shall
(x) be available to render services to the Company as an
independent contractor/consultant but not as an employee of the Company;
and
(y) perform such duties as may be reasonably requested in writing
from time to time during the Consulting Period by the Chief Executive
Officer; provided that such duties shall not conflict with the duties of
the Officer for a new employer if such employment does not violate the
terms of Section 11(d)(i) hereof.
<Page 10 of 29>
<PAGE>
(iii) Section 11(d) shall not bind the Officer during any period
following the termination of the Officer's employment if there has been
a Change of Control irrespective of whether the Change of Control occurs
before or after the Date of Termination.
(iv) Nothing contained in this Section 11(d) shall prohibit or
otherwise restrict the Officer from acquiring or owning, directly or
indirectly, for passive investment purposes not intended to circumvent
this Agreement, securities of any entity engaged, directly or
indirectly, in a Restricted Business if either (i) such entity is a
public entity and such Officer (A) is not a controlling Person of, or a
member of a group that controls, such entity and (B) owns, directly or
indirectly, no more than 3% of any class of equity securities of such
entity or (ii) such entity is not a public entity and the Officer (A) is
not a controlling Person of, or a member of a group that controls, such
entity and (B) does not own, directly or indirectly, more than 1% of any
class of equity securities of such entity.
(e) Definitions. For purposes of this Section 11 TC "(e)
Definitions. For purposes of this Section 11" \f C \l "2" :
(i) "Restricted Business" means the retail store or mail order
business or any business, in each case if it is involved in the
manufacture or marketing of toys, juvenile or baby products, juvenile
furniture or children's clothing or any other business in which the
Company may be engaged on the Date of Termination.
(ii) "Restricted Area" means any country in which the Company or
its subsidiaries owns or franchises any retail store operations or
otherwise has operations on the Date of Termination.
(f) Relief. The parties hereto hereby acknowledge that the
provisions of this Section 11 are reasonable and necessary for the
protection of the Company and its subsidiaries. In addition, the
Officer further acknowledges that the Company and its subsidiaries will
be irrevocably damaged if such covenants are not specifically enforced.
Accordingly, the Officer agrees that, in addition to any other relief to
which the Company may be entitled, the Company will be entitled to seek
and obtain injunctive relief (without the requirement of any bond) from
a court of competent jurisdiction for the purposes of restraining the
Officer from any actual or threatened breach of such covenants. In
addition, without limiting the Company's remedies for any breach of any
restriction on the Officer set forth in Section 11, except as required
by law, the Officer shall not be entitled to any payments set forth in
Section 3 or 4 hereof if the Officer breaches any of the covenants
applicable to the Officer contained in this Section 11, the Officer will
immediately return to the Company any such payments previously received
<Page 11 of 29>
<PAGE>
upon such a breach, and, in the event of such breach, the Company will
have no obligation to pay any of the amounts that remain payable by the
Company under Section 3 or 4.
12. Successors. (a) This Agreement is personal to the Officer
and without the prior written consent of the Company shall not be
assignable by the Officer otherwise than by will or the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Officer's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will, within thirty days after a Change of
Control, and the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company within
thirty days after any such event of succession to, assume expressly and
agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid that assumes and agrees to perform
this Agreement by operation of law, or otherwise.
13. Miscellaneous. (a) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of
New Jersey, without reference to principles of conflict of laws.
(b) Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(c) Amendment. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(d) Notices. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
(i) If to the Officer, to the address on file with the Company;
and
(ii) If to the Company, to it at Toys "R" Us, Inc., 461 From Road,
Paramus, New Jersey 07652, Attention: Senior Vice President - Human
Resources;
<Page 12 of 29>
<PAGE>
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(e) Assistance to Company. At all times during and after the
Employment Period and at the Company's expense for significant out-of-
pocket expenses actually and reasonably incurred by the Officer in
connection therewith, the Officer shall provide reasonable assistance to
the Company in the collection of information and documents and shall
make the Officer available when reasonably requested by the Company in
connection with claims or actions brought by or against third parties or
investigations by governmental agencies based upon events or
circumstances concerning the Officer's duties, responsibilities and
authority during the Employment Period.
(f) Severability of Provisions. Each of the sections contained in
this Agreement shall be enforceable independently of every other section
in this Agreement, and the invalidity or nonenforceability of any
section shall not invalidate or render unenforceable any other section
contained in this Agreement. The Officer acknowledges that the
restrictive covenants contained in Section 11 are a condition of this
Agreement and are reasonable and valid in geographical and temporal
scope and in all other respects. If any court or arbitrator determines
that any of the covenants in Section 11, or any part of any of them, is
invalid or unenforceable, the remainder of such covenants and parts
thereof shall not thereby be affected and shall be given full effect,
without regard to the invalid portion. If any court or arbitrator
determines that any of such covenants, or any part thereof, is invalid
or unenforceable because of the geographic or temporal scope of such
provision, such court or arbitrator shall reduce such scope to the
minimum extent necessary to make such covenants valid and enforceable.
(g) Withholding. The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or foreign taxes
as shall be required to be withheld pursuant to any applicable law or
regulation.
(h) Waiver. The Officer's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of
this Agreement or the failure to assert any right the Officer or the
Company may have hereunder shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
<Page 13 of 29>
<PAGE>
(i) Arbitration. Except as otherwise provided for herein, any
controversy arising under, out of, in connection with, or relating to,
this Agreement, and any amendment hereof, or the breach hereof or
thereof, shall be determined and settled by arbitration in New York, New
York, by a three person panel mutually agreed upon, or in the event of a
disagreement as to the selection of the arbitrators, in accordance with
the Employment Dispute Resolution Rules of the American Arbitration
Association. Any award rendered therein shall specify the findings of
fact of the arbitrator or arbitrators and the reasons of such award,
with the reference to and reliance on relevant law. Any such award
shall be final and binding on each and all of the parties thereto and
their personal representatives, and judgment may be entered thereon in
any court having jurisdiction thereof.
(j) Resignation. Without limiting the obligations of the Officer,
or the rights of the Company, in connection with, or relating to, this
Agreement, the Officer agrees that in order for the Officer to resign
his employment with the Company or any of its Subsidiaries, the Officer
shall provide the Company with six (6) months notice of resignation
prior to the effective date of such resignation.
IN WITNESS WHEREOF, the Officer has hereunto set the Officer's hand
and the Company has caused these presents to be executed in its name on
its behalf, all as of the day and year first above written.
KEITH VAN BEEK
/s/ Keith Van Beek
TOYS "R" US, INC.
By: /s/ Roger C. Gaston
Name: Roger C. Gaston
Title: Sr. V.P. - Human Resources
<Page 14 of 29>
<PAGE>
EXHIBIT A
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is entered into
as of this day of , 19 , between TOYS "R" US,
INC. and any successor thereto (collectively, the "Company") and Keith
Van Beek (the "Officer").
The Officer and the Company agree as follows:
1. The employment relationship between the Officer and the Company
terminated on (the "Termination Date").
2. In accordance with the Officer's Retention Agreement, the
Company has agreed to pay the Officer certain payments and to make
certain benefits available after the Termination Date.
3. In consideration of the above, the sufficiency of which the
Officer hereby acknowledges, the Officer, on behalf of the Officer and
the Officer's heirs, executors and assigns, hereby releases and forever
discharges the Company and its members, parents, affiliates,
subsidiaries, divisions, any and all current and former directors,
officers, employees, agents, and contractors and their heirs and
assigns, and any and all employee pension benefit or welfare benefit
plans of the Company, including current and former trustees and
administrators of such employee pension benefit and welfare benefit
plans, from all claims, charges, or demands, in law or in equity,
whether known or unknown, which may have existed or which may now exist
from the beginning of time to the date of this letter agreement,
including, without limitation, any claims the Officer may have arising
from or relating to the Officer's employment or termination from
employment with the Company, including a release of any rights or claims
the Officer may have under Title VII of the Civil Rights Act of 1964, as
amended, and the Civil Rights Act of 1991 (which prohibit discrimination
in employment based upon race, color, sex, religion, and national
origin); the Americans with Disabilities Act of 1990, as amended, and
the Rehabilitation Act of 1973 (which prohibit discrimination based upon
disability); the Family and Medical Leave Act of 1993 (which prohibits
discrimination based on requesting or taking a family or medical leave);
Section 1981 of the Civil Rights Act of 1866 (which prohibits
discrimination based upon race); Section 1985(3) of the Civil Rights Act
of 1871 (which prohibits conspiracies to discriminate); the Employee
Retirement Income Security Act of 1974, as amended (which prohibits
discrimination with regard to benefits); any other federal, state or
local laws against discrimination; or any other federal, state, or local
statute, or common law relating to employment, wages, hours, or any
<Page 15 of 29>
<PAGE>
other terms and conditions of employment. This includes a release by
the Officer of any claims for wrongful discharge, breach of contract,
torts or any other claims in any way related to the Officer's employment
with or resignation or termination from the Company. This release also
includes a release of any claims for age discrimination under the Age
Discrimination in Employment Act, as amended ("ADEA"). The ADEA
requires that the Officer be advised to consult with an attorney before
the Officer waives any claim under ADEA. In addition, the ADEA provides
the Officer with at least 21 days to decide whether to waive claims
under ADEA and seven days after the Officer signs the Agreement to
revoke that waiver. This release does not release the Company from any
obligations due to the Officer under Section 4, 7, 9(b), 10, 11 or 13(e)
of the Officer's Retention Agreement, the Officer's Indemnification
Agreement with the Company or under this Agreement.
Additionally, the Company agrees to discharge and release the
Officer and the Officer's heirs from any claims, demands, and/or causes
of action whatsoever, presently known or unknown, that are based upon
facts occurring prior to the date of this Agreement, including, but not
limited to, any claim, matter or action related to the Officer's
employment and/or affiliation with, or termination and separation from
the Company; provided that such release shall not release the Officer
from any loan or advance by the Company or any of its subsidiaries, any
act that would constitute "Cause" under the Officer's Retention
Agreement or a breach under Section 9(b), 11 or 13(e) of the Officer's
Retention Agreement.
4. This Agreement is not an admission by either the Officer or the
Company of any wrongdoing or liability.
5. The Officer waives any right to reinstatement or future
employment with the Company following the Officer's separation from the
Company on the Termination Date.
6. The Officer agrees not to engage in any act after execution of
the Separation and Release Agreement that is intended, or may reasonably
be expected to harm the reputation, business, prospects or operations of
the Company, its officers, directors, stockholders or employees. The
Company further agrees that it will engage in no act which is intended,
or may reasonably be expected to harm the reputation, business or
prospects of the Officer.
7. The Officer shall continue to be bound by Sections 11 and 13(e)
of the Officer's Retention Agreement.
<Page 16 of 29>
<PAGE>
8. The Officer shall promptly return all the Company property in
the Officer's possession, including, but not limited to, the Company
keys, credit cards, cellular phones, computer equipment, software and
peripherals and originals or copies of books, records, or other
information pertaining to the Company business. The Officer shall
return any leased or Company car at the expiration of the Consulting
Period (as defined in the Officer's Retention Agreement).
9. This Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey, without reference to the
principles of conflict of laws. Exclusive jurisdiction with respect to
any legal proceeding brought concerning any subject matter contained in
this Agreement shall be settled by arbitration as provided in the
Officer's Retention Agreement.
10. This Agreement represents the complete agreement between the
Officer and the Company concerning the subject matter in this Agreement
and supersedes all prior agreements or understandings, written or oral.
This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and legal representatives.
11. Each of the sections contained in this Agreement shall be
enforceable independently of every other section in this Agreement, and
the invalidity or nonenforceability of any section shall not invalidate
or render unenforceable any other section contained in this Agreement.
12. It is further understood that for a period of 7 days following
the execution of this Agreement in duplicate originals, the Officer may
revoke this Agreement, and this Agreement shall not become effective or
enforceable until the revocation period has expired. No revocation of
this Agreement by the Officer shall be effective unless the Company has
received within the 7-day revocation period, written notice of any
revocation, all monies received by the Officer under this Agreement and
all originals and copies of this Agreement.
13. This Agreement has been entered into voluntarily and not as a
result of coercion, duress, or undue influence. The Officer
acknowledges that the Officer has read and fully understands the terms
of this Agreement and has been advised to consult with an attorney
before executing this Agreement. Additionally, the Officer acknowledges
that the Officer has been afforded the opportunity of at least 21 days
to consider this Agreement.
<Page 17 of 29>
<PAGE>
The parties to this Agreement have executed this Agreement as of
the day and year first written above.
TOYS "R" US, INC.
By: ________________________
Name:
Title:
KEITH VAN BEEK
_____________________________
<Page 18 of 29>
<PAGE>
EXHIBIT B
Capitalized terms used in the Agreement that are not elsewhere
defined in the Agreement have the definitions set forth below:
"Annual Base Salary" means $375,000 per annum as may be increased
from time to time in the discretion of either the Committee, the Board
or any appropriate committee of the Board.
"Board" means the Board of Directors of the Company.
"Cause" means: (i) the conviction of, or pleading guilty or nolo
contendere to, a felony involving moral turpitude; (ii) the commission
of any fraud, misappropriation or misconduct which causes demonstrable
injury to the Company or a subsidiary; (iii) an act of dishonesty
resulting or intended to result, directly or indirectly, in material
gain or personal enrichment to the Officer at the expense of the Company
or a subsidiary; (iv) any material breach of the Officer's fiduciary
duties to the Company as an employee or officer; (v) a serious violation
of the Toys "R" Us Ethics Agreement or any other serious violation of a
Company policy; (vi) the willful and continued failure of the Officer to
perform substantially the Officer's duties with the Company or one of
its subsidiaries (other than any such failure resulting from incapacity
due to physical or mental illness resulting in a Disability), within a
reasonable time after a written demand for substantial performance is
delivered to the Officer by the Board, which specifically identifies the
manner in which the Board believes that the Officer has not
substantially performed the Officer's duties; (vii) the failure by the
Officer to comply, in any material respect, with the provisions of
Section 11 of the Agreement; or (viii) the failure by the Officer to
comply with any other undertaking set forth in the Agreement or any
breach by the Officer hereof that is reasonably likely to result in a
material injury to the Company.
For purposes of this provision, no act or failure to act, on the
part of the Officer, shall be considered "willful" unless it is done, or
omitted to be done, by the Officer in bad faith or without reasonable
belief that the Officer's action or omission was in the best interests
of the Company. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the
advice of regular outside counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Officer in good faith
and in the best interests of the Company. The cessation of employment
of the Officer shall not be deemed to be for Cause unless and until
there shall have been delivered to the Officer a copy of a resolution
duly adopted by the affirmative vote of a majority of the entire
<Page 19 of 29>
<PAGE>
membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Officer and the
Officer is given an opportunity, together with counsel, to be heard
before the Board), finding that, in the good faith opinion of the Board,
the Officer is guilty of the conduct described, and specifying the
particulars thereof in detail.
"Change of Control" - See Exhibit C.
"Committee" means the Company's Management Compensation and Stock
Option Committee of the Board of Directors or any successor committee of
the Board performing equivalent functions.
"Date of Termination" means (i) if the Officer's employment is
terminated by the Company for Cause, or by the Officer for Good Reason,
the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be (although such Date of Termination
shall retroactively cease to apply if the circumstances providing the
basis of termination for Cause or Good Reason are cured in accordance
with the Agreement), (ii) if the Officer's employment is terminated by
the Company other than for Cause, the Date of Termination shall be the
date so designated by the Company in its notification to the Officer of
such termination, (iii) if the Officer's employment is terminated by
reason of death or Disability, the Date of Termination shall be the date
of death of the Officer or the effective date of the Disability, as the
case may be, and (iv) the last day of the Employment Period during which
the Company shall have given notice to the Officer that the Employment
Period shall not be extended.
"Disability" means the determination that the Officer is disabled
pursuant to the terms of the TRU Partnership Employees' Savings and
Profit Sharing Plan, as amended and restated as of October 1, 1993, as
the same may be amended from time to time.
"Good Reason" means, without the Officer's prior written consent,
the occurrence of any of the following, provided that the Officer
delivers a Notice of Termination specifying such occurrence within 30
days thereof:
<Page 20 of 29>
<PAGE>
(i) the assignment of the Officer to a position materially
inconsistent with the requirements of Section 2(a) of the Agreement,
excluding for this purpose an action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by the Officer; provided, however, that the foregoing shall not
constitute "Good Reason" if it is not attendant to a reduction in the
Officer's Annual Base Salary or total target compensation except that a
request by the Company for the Officer to relocate outside Northeastern
New Jersey shall constitute "Good Reason";
(ii) any failure by the Company to comply in any material respect
with any of the provisions of Section 2(b) of the Agreement, other than
failure not occurring in bad faith and that is remedied by the Company
within a reasonable time after receipt of notice thereof given by the
Officer;
(iii) any failure by the Company to comply with and satisfy
Section 12(c) of the Agreement; or
(iv) notice by the Company that it is not extending the
termination date of the Employment Period.
"Notice of Termination" means a written notice that (i) indicates
the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Officer's employment under the provision so indicated and (iii) if the
Date of Termination (as defined above) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not
more than thirty days after the giving of such notice).
"Plans" means all employee compensation, benefit and welfare plans,
policies and programs of the Company, which may include, without
limitation, incentive, savings, retirement, stock option, restricted
stock, supplemental Officer retirement, pension, medical, prescription,
dental, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans, vacation
practices, fringe benefit practices and policies relating to the
reimbursement of business expenses.
"Retirement" shall have the meaning ascribed to that term in the
Plan under which benefits are being sought by the Officer.
<Page 21 of 29>
<PAGE>
EXHIBIT C
CHANGE OF CONTROL AND TAX GROSS-UP
I. Certain Definitions
"Change of Control" means, after the date hereof:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 25% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock")
or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any
acquisition by the Company or any of its subsidiaries, (ii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary of the Company, (iii) any
acquisition by any Person pursuant to a transaction that complies with
clauses (i), (ii) and (iii) of subsection (c) below, or (iv) any
acquisition by any entity in which the Officer has a material direct or
indirect equity interest; or
(b) The cessation of the "Incumbent Board" for any reason to
constitute at least a majority of the Board. "Incumbent Board" means
the members of the Board on the date hereof and any member of the Board
subsequent to the date hereof whose election, or nomination for election
by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board, except
that the Incumbent Board shall not include any member of the Board whose
initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.
(c) The consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
immediately following such Business Combination each of the following
would be correct:
<Page 22 of 29>
<PAGE>
(i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as
the case may be, of the Person resulting from such Business Combination
(including, without limitation, a Person which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, and
(ii) no Person (excluding (A) any employee benefit plan (or
related trust) sponsored or maintained by the Company or any subsidiary
of the Company, or such corporation resulting from such Business
Combination or any Affiliate of such corporation, or (B) any entity in
which the Officer has a material equity interest, or any "Affiliate" (as
defined in Rule 405 under the Securities Act of 1933, as amended) of
such entity) beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination, or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination, and
(iii) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
II. Tax Gross-Up
(a) If required by Section 10 of the Agreement, in addition to the
payments described in Sections 4 and 7 of the Agreement and the grants
described in the Stock Unit Agreement, the Company shall pay to the
Officer an amount (the "Gross-up") such that the net amount retained by
the Officer, after deduction of any Excise Tax and any United States
Federal, state and local income taxes, equals the amount of such
payments that the Officer would have retained had such Excise Tax not
been imposed. In addition, the Company shall indemnify and hold the
Officer harmless on an after-tax basis from any Excise Tax imposed on or
<Page 23 of 29>
<PAGE>
with respect to any such payment (including, without limitation, any
interest, penalties and additions to tax) payable in connection with any
such Excise Tax. For purposes of determining the amount of any Gross-up
or the amount required to make an indemnity payment on an after-tax
basis, it shall be assumed that the Officer is subject to Federal, state
and local income tax at the highest marginal statutory rates in effect
for the relevant period after taking into account any deduction
available in respect of any such tax (e.g., if state and local taxes are
deductible for Federal income tax purposes in the relevant period, it
shall be assumed that such taxes offset income that would otherwise be
subject to Federal income tax at the highest marginal statutory rate in
effect for such period).
(b) Subject to the provisions of paragraph (c) of this Exhibit C ,
the determination of (i) whether a Gross-up is required and the amount
of such Gross-up and (ii) the amount necessary to make any payment on an
after-tax basis, shall be made in accordance with the assumptions set
forth in paragraph (a) of this Exhibit C by Ernst & Young LLP or such
other "Big Six" accounting firm designated by the Officer and reasonably
acceptable to the Company.
(c) The Officer shall notify the Company as soon as practicable in
writing of any claim by the Internal Revenue Service that, if
successful, would require any Gross-up or indemnity payment. The
Officer shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company.
If the Company notifies the Officer in writing prior to the expiration
of such period that it desires to contest such claim, the Officer shall
take all actions necessary to permit the Company to control all
proceedings taken in connection with such contest. In that connection,
the Company may, at its sole option, pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences in respect
of such claim and may, at its sole option, either direct the Officer to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner; provided, however, that the Company shall pay and
indemnify the Officer from and against all costs and expenses incurred
in connection with such contest; provided further, however, that if the
Company directs the Officer to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Officer on an
interest-free basis and at no net after-tax cost to the Officer. If the
Officer becomes entitled to receive any refund or credit with respect to
such claim (or would be entitled to a refund or credit but for a
counterclaim for taxes not indemnified hereunder), the Officer shall
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon) plus the amount of any tax benefit
available to the Officer as a result of making such payment (any such
benefit calculated based on the assumption that any deduction available
to the Officer offsets income that would otherwise be taxed at the
highest marginal statutory rates of Federal, state and local income tax
for the relevant periods).
<Page 24 of 29>
<PAGE>
ANNEX A
STOCK UNIT AGREEMENT
STOCK UNIT AGREEMENT, dated as of February 25, 1998 (the "Unit
Agreement"), between TOYS "R" US, INC., a Delaware corporation (the
"Company"), and Keith Van Beek (the "Officer").
W I T N E S S E T H:
WHEREAS, the Company proposed for the approval of the stockholders
of the Company at the 1997 Annual Meeting of Stockholders an Amendment
(the "Amendment") to the Company's 1994 Stock Option and Performance
Incentive Plan (the "Plan") providing for performance criteria that may
be utilized by the Management Compensation and Stock Option Committee
(the "Committee") in connection with the grant of Performance Shares (as
defined in the Plan and referred to herein as "Stock Units"), and the
Stockholders approved such Amendment;
WHEREAS, the Officer and the Company are entering into a Retention
Agreement, dated as of even date herewith (the "Retention Agreement");
WHEREAS, as further inducement for the Officer to execute the
Retention Agreement and continue in the employ of the Company, the
Committee has determined to grant the Officer the Stock Units as
described in this Unit Agreement, and
WHEREAS, the Board and the Committee desire that the compensation
arising from the Stock Units 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 meanings ascribed to them in the Plan.
<Page 25 of 29>
<PAGE>
2. Stock Unit Grant. Subject to the terms and conditions set
forth in this Unit Agreement and in Section 10 of the Plan, the Officer
is hereby granted 20,000 Stock Units. Each Stock Unit represents the
right to receive one share of Common Stock (collectively, with other
shares of Common Stock relating to the Stock Units and held in the
Officer's account in the Trust (as defined below) in respect of the
Stock Units, the "Shares"). The 20,000 Shares shall be promptly
deposited after the date hereof in the grantor trust created pursuant to
the Grantor Trust Agreement, dated as of October 1, 1995 between the
Company and American Express Trust Company, a Minnesota trust company
(together with any grantor trust subsequently established by the
Company, the "Trust") and shall be allocated by the Trust to the
Officer's account therein subject to the forfeiture conditions of
Section 3 below. Any property attributable to the Shares, including,
without limitation, dividends and distributions thereon, shall be
deposited into the Trust, shall as promptly as practicable be reinvested
in shares of Common Stock, and shall be allocated by the Trust to the
Officer's account therein subject to the forfeiture conditions of
Section 3 below.
3. Forfeiture Conditions. The Stock Units granted to the Officer
hereunder shall be forfeited in their entirety, subject to the terms of
the Retention Agreement, if:
(i) the Officer's employment with the Company terminates prior to
the fifth anniversary of the date hereof ; or
(ii) the Performance Objective set forth on Exhibit A hereto is
not achieved.
4. Payment of Stock Units. As soon as practicable but no later
than February 25, 2003, the Committee shall determine whether the
Performance Objective set forth on Exhibit A has been achieved. The
Shares, together with any property attributable thereto (including,
without limitation, dividends and distributions thereon), shall be
delivered to the Officer promptly following February 25, 2003 unless the
Officer has elected to defer receipt of such Shares in accordance with
the terms and conditions of any deferred compensation program maintained
by the Company or has failed to satisfy the condition set forth in
Section 3(i) hereof.
<Page 26 of 29>
<PAGE>
5. Investment Representation. The Shares acquired by the Officer
under this Unit Agreement will be acquired for the Officer's account and
not with a view to the distribution thereof, and the Officer 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 the Officer
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.
6. 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 Unit Agreement, and each member of the Committee
shall be fully indemnified and protected by the Company with respect to
any liability such member 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.
7. Severability. Each of the Sections contained in this Unit
Agreement shall be enforceable independently of every other section in
this Unit Agreement, and the invalidity or nonenforceability of any
section shall not invalidate or render unenforceable any other section
contained in this Unit Agreement
8. Governing Law. This Unit Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey,
without reference to principles of conflict of laws. Exclusive
jurisdiction with respect to any legal proceeding brought concerning any
subject matter contained in this Unit Agreement shall be settled by
arbitration as provided in the Retention Agreement.
9. Captions. The captions of this Unit Agreement are not part of
the provisions hereof and shall have no force or effect.
10. Amendment. This Unit Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
11. Notices. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
<Page 27 of 29>
<PAGE>
(i) If to the Officer, to the address on file with the Company;
and
(ii) If to the Company, to it at Toys "R" Us, Inc., 461 From Road,
Paramus, New Jersey 07652, Attention: Senior Vice President - Human
Resources;
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
12. Interpretation. The interpretation and decision with regard
to any question arising under this Unit Agreement or with respect to the
Stock Units made by the Committee shall be final and conclusive on the
Officer.
13. Successors. This Unit Agreement shall be binding upon the
Company and its successors and assigns.
<Page 28 of 29>
<PAGE>
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: /s/ Roger C. Gaston
Title: Sr. V.P. - Human Resources
I hereby acknowledge receipt of
the Stock Units and agree to the
provisions set forth in this Agreement.
/s/ Keith Van Beek
KEITH VAN BEEK
<Page 29 of 29>
<PAGE>
EXECUTION COPY
RETENTION AGREEMENT
BETWEEN
TOYS "R" US, INC.
AND
BRUCE W. KRYSIAK
DATED AS OF
FEBRUARY 12, 1998
<PAGE>
TOYS "R" US, INC.
RETENTION AGREEMENT
AGREEMENT (this "Agreement"), by and between Toys "R" Us,
Inc., a Delaware corporation (the "Company"), and BRUCE W. KRYSIAK (the
"Executive"), dated as of February 12, 1998. Capitalized terms used in
this Agreement and in Exhibit A hereto that are not defined in the
operative provisions shall have the meanings ascribed to them on Exhibit
B hereto.
1. Employment Period. The Company hereby agrees to continue
to employ the Executive and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this
Agreement, for the Employment Period. The term "Employment Period"
means the period commencing on the date hereof and ending on the second
anniversary of such date as automatically extended for successive
additional one-year periods unless, at least six months prior to the
scheduled expiration of the Employment Period, the Company shall give
notice to the Executive that the Employment Period shall not be so
extended.
2 Terms of Employment. (a) Position. (i) Commencing on
the date hereof , the Executive shall be President and Chief Operating
Officer of Toys "R" Us, Inc. and President - U.S. Toy Stores Division.
The Executive shall be elected to the Board of Directors immediately
following the first Board Meeting following the Executive's start date.
The Executive shall be based in Northeastern New Jersey.
(ii) During the Employment Period, and
excluding any periods of vacation and sick leave to which the Executive
is entitled, the Executive agrees to devote full time during normal
business hours to the business and affairs of the Company and to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, the Executive may, so
long as such activities do not interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance
with this Agreement, continue the corporate directorships on which the
Executive serves, if any, as of the date hereof and such other corporate
directorships as are consented to by the Chief Executive Officer. It is
expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive with the knowledge of
the Company prior to a Change of Control, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to a Change of Control shall not thereafter be
deemed to violate this Agreement.
(b) Compensation.
(i) Base Salary. During the Employment
Period, the Executive shall receive the Executive's Annual Base Salary
<PAGE>
which will be paid in accordance with the Company's regular payroll
policies as in effect from time to time.
(ii) Incentive Bonus. The Executive shall
also be eligible, for each fiscal year ending during the Employment
Period, to receive an annual incentive bonus with a target of 100% of
Annual Base Salary and long-term incentive awards of 468,700 units for
the cycle ending January 1999 and 664,000 units for the cycle ending
January 2000 pursuant to the Company's incentive Plans and subject to
the terms thereof and thereafter at a level commensurate with such
grants and the Executive's position. Each such incentive bonus shall be
paid in accordance with the Company's incentive Plans.
(iii) Participation in Other Plans. During
the Employment Period, the Executive shall be eligible to participate in
all other Plans at a level commensurate with the Executive's position.
(iv) Stock Units. As further inducement for
the Executive to enter into this Agreement and to continue in the employ
of the Company, the Company has granted to the Executive stock units
pursuant to the Stock Unit Agreement executed and delivered by the
Company on the date hereof.
3. Termination of Employment Upon Death, Disability or
Retirement. The Executive's employment shall terminate upon the
Executive's death, Disability or Retirement during the Employment Period
and the obligations of the Company upon such termination shall be
limited to those benefits provided by the Company's Plans at the Date of
Termination, except as specifically set forth herein or in the Stock
Unit Agreement.
4. Other Termination of Employment. (a) Company
Termination. The Company may terminate the Executive's employment
during the Employment Period with or without Cause.
(b) Good Reason. The Executive's employment may be
terminated during the Employment Period by the Executive for Good
Reason.
(c) Notice of Termination. Any termination by the
Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto given in
accordance with this Agreement. The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or
circumstance that contributes to a showing of Good Reason or Cause shall
not waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
<PAGE>
(d) Obligations of the Company Upon Termination Under
Section 4. If the Executive's employment shall have been terminated
under Section 4(a) (other than for Cause) or 4(b):
(i) the Company shall make a lump sum cash
payment to the Executive within 30 days after the Date of Termination of
(x) the Executive's pro rata Annual Base Salary payable through the Date
of Termination to the extent not theretofore paid, (y) the targeted
amount of the Executive's annual bonus and long-term incentive awards
that would have been payable with respect to the fiscal year in which
the Date of Termination occurs in each case absent the termination of
the Executive's employment prorated for the portion of such fiscal year
through the Date of Termination taking into account the number of
complete months during such fiscal year through the Date of Termination
and (z) the Executive's actual earned annual or long-term incentive
awards for any completed fiscal year or period not theretofore paid or
deferred;
(ii) the Company shall pay to the Executive in
equal installments, made at least monthly, over the twenty-four months
following the Date of Termination an aggregate amount equal to (1) two
times the Executive's Annual Base Salary in effect on the Date of
Termination, (2) two times the targeted amount of the annual incentive
bonus that would have been paid to the Executive with respect to the
Company's fiscal year in which such Date of Termination occurs and (3)
two times the targeted amount of the long-term incentive award that
would have been paid to the Executive with respect to such fiscal year;
(iii) the Company shall continue to provide, in
the manner and timing provided for in the Plans (other than provided in
clauses (I), (ii), (iv) and (v)), the benefits provided under the Plans
that the Executive would receive on an after-tax basis if the
Executive's employment had continued for two years after the Date of
Termination assuming for this purpose that the Executive's compensation
is the amount paid pursuant to clause (ii) above, and the Executive
shall be fully vested in any account balance and all other benefits
under such Plans; provided, however that the benefits provided under
this clause (iii) shall be limited to the amounts permitted by law or as
would otherwise not potentially adversely impact on the tax
qualification of any Plans; provided, further, that if such benefits may
not be continued under the Plans, the Company shall pay to the Executive
an amount equal to the Company's cost had such benefits been continued.
(iv) (1) all unvested options held by the
Executive shall continue to vest in accordance with their terms for two
years after the Date of Termination, and all remaining unvested options
held by the Executive shall vest on the two year anniversary date of the
Date of Termination, (2) all unvested profit shares held by the
Executive or for the benefit of the Executive by a grantor trust
established by the Company shall continue to vest in accordance with
their terms for two years after the Date of Termination and all
<PAGE>
remaining profit shares shall vest on the two year anniversary date of
the Date of Termination, provided that, if permitted by the terms of any
such trust, any unvested profit shares shall continue to be held by such
grantor trust until such profit shares vest pursuant to this clause (iv)
and any such unvested profit share not permitted to be so held shall
vest immediately and be delivered to the Executive, (3) any other
unvested equity based award (including, without limitation, stock and
stock units) held by the Executive shall vest on the two year
anniversary date of the Date of Termination on a pro rata basis
determined by a fraction, the numerator of which is the number of months
elapsed from the grant of such equity award through the Date of
Termination plus the twenty-four months after the Date of Termination
and the denominator of which is the total number of months in the
vesting period for such award and shall be promptly delivered to the
Executive entirely in the form of Common Stock, $.10 par value per
share, of the Company, (4) any options held by the Executive that are
vested on the Date of Termination or vest thereafter pursuant to this
clause (iv) may be exercised until the earlier of (x) the thirty-month
anniversary date of the Date of Termination and (y) the expiration date
of such options and (5) the Executive shall not be entitled to any
additional grants of any stock options, stock, other equity based or
long-term awards; and
(v) the Executive will be entitled to
continuation of health benefits under the Plans at a level commensurate
with the Executive's current position or more senior position(s) to
which the Executive may be appointed, and if the Executive elects to
receive such health benefits, the Company shall pay the medical premiums
therefore for the first twenty-four months after the Date of
Termination, and thereafter the Executive shall pay the premium charged
to former employees of the Company pursuant to Section 4980B of the Code
until the Executive is sixty-five years of age; provided, that the
Company can amend or otherwise alter the Plans to provide benefits to
the Executive that are no less than those commensurate with the
Executive's current position or more senior position(s) to which the
Executive may be appointed; provided, that to the extent such benefits
cannot be provided to the Executive under the terms of the Plan or the
Plan cannot be so amended in any manner not adverse to the Company, the
Company shall pay the Executive, on an after-tax basis, an amount
necessary for the Executive to acquire such benefits from an independent
insurance carrier; and provided, further, that the obligations of the
Company under this clause (v) shall be terminated if, at any time after
the Date of Termination, the Executive is employed by or is otherwise
affiliated with a party that offers comparable health benefits to the
Executive.
(e) Cause. If the Executive's employment shall be
terminated for Cause during the Employment Period or if the Executive
voluntarily terminates employment during the Employment Period,
excluding a termination for Good Reason, death, Disability or
Retirement, the Employment Period shall terminate without further
<PAGE>
obligations to the Executive other than the obligation to pay to the
Executive all payments and benefits due, in accordance with the
Company's Plans through the Date of Termination.
5. Release Agreement. The benefits pursuant to Section 4
are contingent upon the Executive (i) executing a Separation and Release
Agreement (the "Release Agreement") upon or after any Date of
Termination, a copy of which is attached as Exhibit A to this Agreement
and (ii) not revoking or challenging the enforceability of the Release
Agreement or this Agreement.
6. Offset. The Company shall have the right to offset the
amounts required to be paid to the Executive under this Agreement
against any amounts owed by the Executive to the Company, and nothing in
this Agreement shall prevent the Company from pursuing any other
available remedies against the Executive.
7. Compensation and Benefits Following Change of Control.
(a) Notwithstanding any provision of this Agreement
or any Plan, in no event shall any benefits, individually or in the
aggregate, to which the Executive would be entitled be less favorable
for the two years following a Change of Control than the Executive would
have been entitled based upon the most favorable of the Company's Plans
in effect for the Executive at any time during the 120-day period
immediately preceding such Change of Control.
(b) In the event of termination of the Executive's
employment under Section 4(a) (other than for Cause) or 4(b), whether
before or after a Change of Control, following a Change of Control: (i)
any remaining amounts payable under Sections 4(d)(i), (ii) and (iii)
shall be payable in a lump sum within 30 days after the later of the
Date of Termination or the Change of Control and (ii) in lieu of the
Company's obligations under Section 4(d)(iv), all unvested options and
equity based awards shall vest immediately on the later of the Date of
Termination or the Change of Control and all such options may be
exercised until the earlier of (x) the thirty-month anniversary date of
the Date of Termination and (y) the expiration date of such options.
8. Nonexclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any Plan for which the Executive may qualify nor shall
anything herein limit or otherwise affect such rights as the Executive
may have under any contract or agreement with the Company. Amounts that
are vested benefits or that the Executive is otherwise entitled to
receive under any Plan, contract or agreement with the Company at or
subsequent to the Date of Termination shall be payable in accordance
with such Plan, or contract or agreement except as explicitly modified
by this Agreement.
<PAGE>
9. Full Settlement; Legal Fees.
(a) No Obligation to Mitigate. In no event shall the
Executive be obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to the Executive under any
of the provisions of this Agreement, and, except as specifically
provided in this Agreement, such amounts shall not be reduced whether or
not the Executive obtains other employment.
(b) Expenses of Contests.
(i) The following shall apply for any dispute
arising hereunder, under the Release Agreement or under the Stock Unit
Agreement prior to a Change of Control.: In each case solely to the
extent that the Executive is successful with respect thereto, the
Company agrees to pay all reasonable legal and professional fees and
expenses that the Executive may reasonably incur as a result of any
contest by the Executive, by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement,
the Release Agreement or the Stock Unit Agreement (including as a result
of any contest by the Executive about the amount of any payment pursuant
to this Agreement), plus in each case interest on any delayed payment at
the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code or any successor Section of the Code.
(ii) The following shall apply for any dispute
arising hereunder, under the Release Agreement or under the Stock Unit
Agreement upon or following a Change of Control: The Company agrees to
advance to the Executive all reasonable legal and professional fees and
expenses that the Executive may reasonably incur as a result of any
contest by the Executive, by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement,
the Release Agreement or the Stock Unit Agreement (including as a result
of any contest by the Executive about the amount of any payment pursuant
to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Code or any successor Section of the Code.
(iii) The Executive shall reimburse the
Company for its reasonable legal and professional fees and expenses, and
in the case of advances made pursuant to paragraph (ii) above, shall
refund the Company the amount of such advances, to the extent there is a
final determination that such fees, expenses or advances relate to
claims brought by the Executive against, or defenses by the Executive of
any claim of, the Company with respect to this Agreement, the Release
Agreement or the Stock Unit Agreement that were made or asserted by the
Executive in bad faith or frivolously.
10. Certain Additional Payments by the Company. Anything
in this Agreement to the contrary notwithstanding, in the event that any
actual or constructive payment or distribution by the Company to or for
<PAGE>
the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) is
subject to the excise tax imposed by Section 4999 of the Code or any
successive Section of the Code (the "Excise Tax"), then the Company
shall make the payments described on Exhibit C hereto.
11. Restrictions and Obligations of the Executive.
(a) Consideration for Restrictions and Covenants.
The parties hereto acknowledge and agree that the principal
consideration for the agreement to make the payments provided in
Sections 3 and 4 hereof from the Company to the Executive and the grant
to the Executive of the stock units of the Company as set forth in
Section 2 hereof is the Executive's compliance with the undertakings set
forth in this Section 11. Specifically, Executive agrees to comply with
the provisions of this Section 11 irrespective of whether the Executive
is entitled to receive any payments under Section 3 or 4 of this
Agreement.
(b) Confidentiality. The confidential and
proprietary information and in any material respect trade secrets of the
Company are among its most valuable assets, including but not limited
to, its customer and vendor lists, database, computer programs,
frameworks, models, its marketing programs, its sales, financial,
marketing, training and technical information, and any other
information, whether communicated orally, electronically, in writing or
in other tangible forms concerning how the Company creates, develops,
acquires or maintains its products and marketing plans, targets its
potential customers and operates its retail and other businesses. The
Company has invested, and continues to invest, considerable amounts of
time and money in obtaining and developing the goodwill of its
customers, its other external relationships, its data systems and data
bases, and all the information described above (hereinafter collectively
referred to as "Confidential Information"), and any misappropriation or
unauthorized disclosure of Confidential Information in any form would
irreparably harm the Company. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all Confidential Information
relating to the Company and its business, which shall which shall have
been obtained by the Executive during the Executive's employment by the
Company and which shall not be or become public knowledge (other than by
acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment
with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal
process, communicate, divulge or use any such information, knowledge or
data to anyone other than the Company and those designated by it.
(c) Non-Solicitation or Hire. During the Employment
Period and for a two-year period following the termination of the
Executive's employment for any reason, the Executive shall not, directly
or indirectly (i) employ or seek to employ any person who is at the Date
<PAGE>
of Termination, or was at any time within the six-month period preceding
the Date of Termination, an officer, general manager or director or
equivalent or more senior level employee of the Company or any of its
subsidiaries or otherwise solicit, encourage, cause or induce any such
employee of the Company or any of its subsidiaries to terminate such
employee's employment with the Company or such subsidiary for the
employment of another company (including for this purpose the
contracting with any person who was an independent contractor (excluding
consultant) of the Company during such period) or (ii) take any action
that would interfere with the relationship of the Company or its
subsidiaries with their suppliers and franchisees without, in either
case, the prior written consent of the Company's Board of Directors, or
engage in any other action or business that would have a material
adverse effect on the Company.
(d) Non-Competition and Consulting. (i) During the
Employment Period and for a two-year period (the "Consulting Period")
following the termination of the Executive's employment for any reason,
the Executive shall not, directly or indirectly:
(x) engage in any managerial, administrative,
advisory, consulting, operational or sales activities in a
Restricted Business anywhere in the Area, including, without
limitation, as a director or partner of such Restricted Business,
or
(y) organize, establish, operate, own, manage,
control or have a direct or indirect investment or ownership
interest in a Restricted Business or in any corporation,
partnership (limited or general), limited liability company
enterprise or other business entity that engages in a Restricted
Business anywhere in the Area; and
(ii) During the Consulting Period, the
Executive shall
(x) be available to render services to the
Company as an independent contractor/ consultant but not as an
employee of the Company; and
(y) perform such duties as may be reasonably
requested in writing from time to time during the Consulting
Period by the Chief Executive Officer; provided that such duties
shall not conflict with the duties of the Executive for a new
employer if such employment does not violate the terms of Section
11(d)(i) hereof.
(iii) Section 11(d) shall not bind the
Executive during any period following the termination of the Executive's
<PAGE>
employment if there has been a Change of Control irrespective of whether
the Change of Control occurs before or after the Date of Termination.
(iv) Nothing contained in this Section 11(d)
shall prohibit or otherwise restrict the Executive from acquiring or
owning, directly or indirectly, for passive investment purposes not
intended to circumvent this Agreement, securities of any entity engaged,
directly or indirectly, in a Business if either (i) such entity is a
public entity and such Executive (A) is not a controlling Person of, or
a member of a group that controls, such entity and (B) owns, directly or
indirectly, no more than 3% of any class of equity securities of such
entity or (ii) such entity is not a public entity and the Executive
(A) is not a controlling Person of, or a member of a group that
controls, such entity and (B) does not own, directly or indirectly, more
than 1% of any class of equity securities of such entity.
(e) Definitions. For purposes of this Section 11:
(i) "Restricted Business" means the retail
store or mail order business or any business, in each case if it is
involved in the manufacture or marketing of toys, juvenile or baby
products, juvenile furniture or children's clothing or any other
business in which the Company may be engaged on the Date of Termination.
(ii) "Restricted Area" means any country in
which the Company or its subsidiaries owns or franchises any retail
store operations or otherwise has operations on the Date of Termination.
(f) Relief. The parties hereto hereby acknowledge
that the provisions of this Section 11 are reasonable and necessary for
the protection of the Company and its subsidiaries and affiliates. In
addition, the Executive further acknowledges that the Company and its
subsidiaries and affiliates will be irrevocably damaged if such
covenants are not specifically enforced. Accordingly, the Executive
agrees that, in addition to any other relief to which the Company may be
entitled, the Company will be entitled to seek and obtain injunctive
relief (without the requirement of any bond) from a court of competent
jurisdiction for the purposes of restraining the Executive from any
actual or threatened breach of such covenants. In addition, without
limiting the Company's remedies for any breach of any restriction on the
Executive set forth in Section 11, except as required by law, the
Executive shall not be entitled to any payments set forth in Section 3
or 4 hereof if the Executive breaches any of the covenants applicable to
the Executive contained in this Section 11, the Executive will
immediately return to the Company any such payments previously received
upon such a breach, and, in the event of such breach, the Company will
have no obligation to pay any of the amounts that remain payable by the
Company under Section 3 or 4.
12. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not
<PAGE>
be assignable by the Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns.
(c) The Company will, within thirty days after a
Change of Control, and the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company
within thirty days after any such event of succession to, assume
expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid that assumes and agrees to perform
this Agreement by operation of law, or otherwise.
13. Miscellaneous. (a) Governing Law. This Agreement
shall be governed by and construed in accordance with the laws of the
State of New Jersey, without reference to principles of conflict of
laws.
(b) Captions. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect.
(c) Amendment. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(d) Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
(i) If to the Executive, to the address on
file with the Company; and
(ii) If to the Company, to it at Toys "R" Us,
Inc., 461 From Road, Paramus, New Jersey 07652, Attention: Senior Vice
President - Human Resources;
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(e) Assistance to Company. At all times during and
after the Employment Period and at the Company's expense for significant
out-of-pocket expenses actually and reasonably incurred by the Executive
in connection therewith, the Executive shall provide reasonable
<PAGE>
assistance to the Company in the collection of information and documents
and shall make the Executive available when reasonably requested by the
Company in connection with claims or actions brought by or against third
parties or investigations by governmental agencies based upon events or
circumstances concerning the Executive's duties, responsibilities and
authority during the Employment Period.
(f) Severability of Provisions. Each of the sections
contained in this Agreement shall be enforceable independently of every
other section in this Agreement, and the invalidity or nonenforceability
of any section shall not invalidate or render unenforceable any other
section contained in this Agreement. The Executive acknowledges that
the restrictive covenants contained in Section 11 are a condition of
this Agreement and are reasonable and valid in geographical and temporal
scope and in all other respects. If any court or arbitrator determines
that any of the covenants in Section 11, or any part of any of them, is
invalid or unenforceable, the remainder of such covenants and parts
thereof shall not thereby be affected and shall be given full effect,
without regard to the invalid portion. If any court or arbitrator
determines that any of such covenants, or any part thereof, is invalid
or unenforceable because of the geographic or temporal scope of such
provision, such court or arbitrator shall reduce such scope to the
minimum extent necessary to make such covenants valid and enforceable.
(g) Withholding. The Company may withhold from any
amounts payable under this Agreement such Federal, state, local or
foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(h) Waiver. The Executive's or the Company's
failure to insist upon strict compliance with any provision hereof or
any other provision of this Agreement or the failure to assert any right
the Executive or the Company may have hereunder shall not be deemed to
be a waiver of such provision or right or any other provision or right
of this Agreement.
(i) Arbitration. Except as otherwise provided for
herein, any controversy arising under, out of, in connection with, or
relating to, this Agreement, and any amendment hereof, or the breach
hereof or thereof, shall be determined and settled by arbitration in New
York, New York, by a three person panel mutually agreed upon, or in the
event of a disagreement as to the selection of the arbitrators, in
accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association. Any award rendered therein shall specify the
findings of fact of the arbitrator or arbitrators and the reasons of
such award, with the reference to and reliance on relevant law. Any
such award shall be final and binding on each and all of the parties
thereto and their personal representatives, and judgment may be entered
thereon in any court having jurisdiction thereof.
<PAGE>
(j) Resignation. Without limiting the obligations
of the Executive, or the rights of the Company, in connection with, or
relating to, this Agreement, the Executive agrees that in order for the
Executive to resign his employment with the Company or any of its
Subsidiaries, the Executive shall provide the Company with six (6)
months notice of resignation prior to the effective date of such
resignation.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and the Company has caused these presents to be
executed in its name on its behalf, all as of the day and year first
above written.
BRUCE W. KRYSIAK
/s/ Bruce W. Krysiak
TOYS "R" US, INC.
By: /s/ Robert C. Nakasone
Name: Robert C. Nakasone
Title: Chief Executive Officer
<PAGE>
EXHIBIT A
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is
entered into as of this __ day of _____________________________, 19__,
between TOYS "R" US, INC. and any successor thereto (collectively, the
"Company") and BRUCE W. KRYSIAK (the "Executive").
The Executive and the Company agree as follows:
1. The employment relationship between the Executive and the
Company terminated on __________________________________ (the
"Termination Date").
2. In accordance with the Executive's Retention Agreement,
the Company has agreed to pay the Executive certain payments and to make
certain benefits available after the Termination Date.
3. In consideration of the above, the sufficiency of which
the Executive hereby acknowledges, the Executive, on behalf of the
Executive and the Executive's heirs, executors and assigns, hereby
releases and forever discharges the Company and its members, parents,
affiliates, subsidiaries, divisions, any and all current and former
directors, officers, employees, agents, and contractors and their heirs
and assigns, and any and all employee pension benefit or welfare benefit
plans of the Company, including current and former trustees and
administrators of such employee pension benefit and welfare benefit
plans, from all claims, charges, or demands, in law or in equity,
whether known or unknown, which may have existed or which may now exist
from the beginning of time to the date of this letter agreement,
including, without limitation, any claims the Executive may have arising
from or relating to the Executive's employment or termination from
employment with the Company, including a release of any rights or claims
the Executive may have under Title VII of the Civil Rights Act of 1964,
as amended, and the Civil Rights Act of 1991 (which prohibit
discrimination in employment based upon race, color, sex, religion, and
national origin); the Americans with Disabilities Act of 1990, as
amended, and the Rehabilitation Act of 1973 (which prohibit
discrimination based upon disability); the Family and Medical Leave Act
of 1993 (which prohibits discrimination based on requesting or taking a
family or medical leave); Section 1981 of the Civil Rights Act of 1866
(which prohibits discrimination based upon race); Section 1985(3) of the
Civil Rights Act of 1871 (which prohibits conspiracies to discriminate);
the Employee Retirement Income Security Act of 1974, as amended (which
prohibits discrimination with regard to benefits); any other federal,
state or local laws against discrimination; or any other federal, state,
or local statute, or common law relating to employment, wages, hours, or
any other terms and conditions of employment. This includes a release
<PAGE>
by the Executive of any claims for wrongful discharge, breach of
contract, torts or any other claims in any way related to the
Executive's employment with or resignation or termination from the
Company. This release also includes a release of any claims for age
discrimination under the Age Discrimination in Employment Act, as
amended ("ADEA"). The ADEA requires that the Executive be advised to
consult with an attorney before the Executive waives any claim under
ADEA. In addition, the ADEA provides the Executive with at least 21
days to decide whether to waive claims under ADEA and seven days after
the Executive signs the Agreement to revoke that waiver. This release
does not release the Company from any obligations due to the Executive
under Section 4, 7(b), 9(b) or 10 of the Executive's Employment
Agreement, the Executive's Indemnification Agreement with the Company or
under this Agreement.
Additionally, the Company agrees to discharge and release the
Executive and the Executive's heirs from any claims, demands, and/or
causes of action whatsoever, presently known or unknown, that are based
upon facts occurring prior to the date of this Agreement, including, but
not limited to, any claim, matter or action related to the Executive's
employment and/or affiliation with, or termination and separation from
the Company; provided that such release shall not release the Executive
from any loan or advance by the Company or any of its subsidiaries, any
act that would constitute "Cause" under the Executive's Employment
Agreement or a breach under Section 9(b) or 11 of the Executive's
Employment Agreement.
4. This Agreement is not an admission by either the
Executive or the Company of any wrongdoing or liability.
5. The Executive waives any right to reinstatement or future
employment with the Company following the Executive's separation from
the Company on the Termination Date.
6. The Executive agrees not to engage in any act after
execution of the Separation and Release Agreement that is intended, or
may reasonably be expected to harm the reputation, business, prospects
or operations of the Company, its officers, directors, stockholders or
employees. The Company further agrees that it will engage in no act
which is intended, or may reasonably be expected to harm the reputation,
business or prospects of the Executive.
7. The Executive shall continue to be bound by Sections 11
of the Executive's Retention Agreement.
8. The Executive shall promptly return all the Company
property in the Executive's possession, including, but not limited to,
the Company keys, credit cards, cellular phones, computer equipment,
software and peripherals and originals or copies of books, records, or
<PAGE>
other information pertaining to the Company business. The Executive
shall return any leased or Company car at the expiration of the
Consulting Period (as defined in the Executive's Employment Agreement).
9. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without reference
to the principles of conflict of laws. Exclusive jurisdiction with
respect to any legal proceeding brought concerning any subject matter
contained in this Agreement shall be settled by arbitration as provided
in the Executive's Employment Agreement.
10. This Agreement represents the complete agreement between
the Executive and the Company concerning the subject matter in this
Agreement and supersedes all prior agreements or understandings, written
or oral. No attempted modification or waiver of any of the provisions
of this Agreement shall be binding on either party unless in writing and
signed by both the Executive and the Company.
11. Each of the sections contained in this Agreement shall
be enforceable independently of every other section in this Agreement,
and the invalidity or nonenforceability of any section shall not
invalidate or render unenforceable any other section contained in this
Agreement.
12. It is further understood that for a period of 7 days
following the execution of this Agreement in duplicate originals, the
Executive may revoke this Agreement, and this Agreement shall not become
effective or enforceable until the revocation period has expired. No
revocation of this Agreement by the Executive shall be effective unless
the Company has received within the 7-day revocation period, written
notice of any revocation, all monies received by the Executive under
this Agreement and all originals and copies of this Agreement.
13. This Agreement has been entered into voluntarily and not
as a result of coercion, duress, or undue influence. The Executive
acknowledges that the Executive has read and fully understands the terms
of this Agreement and has been advised to consult with an attorney
before executing this Agreement. Additionally, the Executive
acknowledges that the Executive has been afforded the opportunity of at
least 21 days to consider this Agreement.
The parties to this Agreement have executed this Agreement as
of the day and year first written above.
TOYS "R" US, INC.
By: ___________________________
Name:
Title:
BRUCE W. KRYSIAK
_______________________________
<PAGE>
EXHIBIT B
Capitalized terms used in the Agreement that are not elsewhere
defined in the Agreement have the definitions set forth below:
"Annual Base Salary" means the annual base salary of the
Executive as of the date of the Agreement as may be increased from time
to time in the discretion of the Committee.
"Board" means the Board of Directors of the Company.
"Cause" means: (i) the conviction of, or pleading guilty or
nolo contendere to, a felony involving moral turpitude; (ii) the
commission of any fraud, misappropriation or willful misconduct which
causes demonstrable injury to the Company or a subsidiary; (iii) an act
of dishonesty resulting or intended to result, directly or indirectly,
in material gain or personal enrichment to the Executive at the expense
of the Company or a subsidiary; (iv) any willful material breach of the
Executive's fiduciary duties to the Company as an employee or officer;
(v) a serious willful violation of the Toys "R" Us Ethics Agreement or
any other serious willful violation of a Company policy; (vi) the
willful and continued failure of the Executive to perform substantially
the Executive's duties with the Company or one of its subsidiaries
(other than any such failure resulting from incapacity due to physical
or mental illness resulting in a Disability), within a reasonable time
after a written demand for substantial performance is delivered to the
Executive by the Board, which specifically identifies the manner in
which the Board believes that the Executive has not substantially
performed the Executive's duties; (vii) the willful failure by the
Executive to comply, in any material respect, with the provisions of
Section 11 of the Agreement; or (viii) the willful failure by the
Executive to comply with any other undertaking set forth in the
Agreement or any breach by the Executive hereof that is reasonably
likely to result in a material injury to the Company.
For purposes of this provision, no act or failure to act, on
the part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
based upon the advice of regular outside counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive
a copy of a resolution duly adopted by the affirmative vote of a
majority of the entire membership of the Board at a meeting of the Board
<PAGE>
called and held for such purpose (after reasonable notice is provided to
the Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described,
and specifying the particulars thereof in detail.
"Change of Control" - See Exhibit C.
"Committee" means the Company's Management Compensation and
Stock Option Committee of the Board of Directors or any successor
committee of the Board performing equivalent functions.
"Date of Termination" means (i) if the Executive's employment
is terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be (although such Date of
Termination shall retroactively cease to apply if the circumstances
providing the basis of termination for Cause or Good Reason are cured in
accordance with the Agreement), (ii) if the Executive's employment is
terminated by the Company other than for Cause, the Date of Termination
shall be the date so designated by the Company in its notification to
the Executive of such termination, (iii) if the Executive's employment
is terminated by reason of death or Disability, the Date of Termination
shall be the date of death of the Executive or the effective date of the
Disability, as the case may be, and (iv) the last day of the Employment
Period during which the Company shall have given notice to the Executive
that the Employment Period shall not be extended.
"Disability" means the determination that the Executive is
disabled pursuant to the terms of the TRU Partnership Employees' Savings
and Profit Sharing Plan, as amended and restated as of October 1, 1993,
as the same may be amended from time to time.
"Good Reason" means, without the Executive's prior written
consent, the occurrence of any of the following, provided that the
Executive delivers a Notice of Termination specifying such occurrence
within 30 days thereof:
(i) the assignment of the Executive to a position
materially inconsistent with the requirements of Section 2(a) of the
Agreement, exclusing for this purpose an action not taken in bad faith
and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive; provided, however, that the foregoing
shall not constitute "Good Reason" if it is not attendant to a reduction
in the Executive's Annual Base Salary or total target compensation,
except that a request by the Company for the Executive to relocate
outside Northeastern New Jersey shall constitute "Good Reason";
(ii) any failure by the Company to comply in any
material respect with any of the provisions of the Agreement, other than
<PAGE>
failure not occurring in bad faith and that is remedied by the Company
within a reasonable time after receipt of notice thereof given by the
Executive;
(iii) any failure by the Company to comply with and
satisfy Section 12(c) of the Agreement; or
(iv) notice by the Company that it is not extending
the termination date of the Employment Period.
"Notice of Termination" means a written notice that (i)
indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined above) is other than the date of
receipt of such notice, specifies the termination date (which date shall
be not more than thirty days after the giving of such notice).
"Plans" means all employee compensation, benefit and welfare
plans, policies and programs of the Company, which may include, without
limitation, incentive, savings, retirement, stock option, stock,
supplemental Executive retirement, pension, medical, prescription,
dental, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans, vacation
practices, fringe benefit practices and policies relating to the
reimbursement of business expenses.
"Retirement" shall have the meaning ascribed to that term in
the Plan under which benefits are being sought by the Executive.
<PAGE>
EXHIBIT C
CHANGE OF CONTROL AND TAX GROSS-UP
I. Certain Definitions
"Change of Control" means, after the date hereof:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection
(a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition by the Company or any of its
subsidiaries, (ii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any subsidiary
of the Company, (iii) any acquisition by any Person pursuant to a
transaction that complies with clauses (i), (ii) and (iii) of subsection
(c) below, or (iv) any acquisition by any entity in which the Executive
has a material direct or indirect equity interest; or
(b) The cessation of the "Incumbent Board" for any
reason to constitute at least a majority of the Board. "Incumbent
Board" means the members of the Board on the date hereof and any member
of the Board subsequent to the date hereof whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board,
except that the Incumbent Board shall not include any member of the
Board whose initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election or removal
of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.
(c) The consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case,
unless, immediately following such Business Combination each of the
following would be correct:
(i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of, respectively, the then
<PAGE>
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the Person resulting from
such Business Combination (including, without limitation, a Person which
as a result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the
case may be, and
(ii) no Person (excluding (A) any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any subsidiary of the Company, or such corporation resulting from
such Business Combination or any Affiliate of such corporation, or (B)
any entity in which the Executive has a material equity interest, or any
"Affiliate" (as defined in Rule 405 under the Securities Act of 1933, as
amended) of such entity) beneficially owns, directly or indirectly, 25%
or more of, respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination, or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination, and
(iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
II. Tax Gross-Up
(a) If required by Section 10 of the Agreement, in
addition to the payments described in Sections 4 and 7 of the Agreement
and the grants described in the Stock Unit Agreement, the Company shall
pay to the Executive an amount (the "Gross-up") such that the net amount
retained by the Executive, after deduction of any Excise Tax and any
Federal, state and local income taxes, equals the amount of such
payments that the Executive would have retained had such Excise Tax not
been imposed. In addition, the Company shall indemnify and hold the
Executive harmless on an after-tax basis from any Excise Tax imposed on
or with respect to any such payment (including, without limitation, any
interest, penalties and additions to tax) payable in connection with any
such Excise Tax. For purposes of determining the amount of any Gross-up
or the amount required to make an indemnity payment on an after-tax
basis, it shall be assumed that the Executive is subject to Federal,
state and local income tax at the highest marginal statutory rates in
effect for the relevant period after taking into account any deduction
<PAGE>
available in respect of any such tax (e.g., if state and local taxes are
deductible for Federal income tax purposes in the relevant period, it
shall be assumed that such taxes offset income that would otherwise be
subject to Federal income tax at the highest marginal statutory rate in
effect for such period).
(b) Subject to the provisions of paragraph (c) of
this Exhibit C , the determination of (i) whether a Gross-up is required
and the amount of such Gross-up and (ii) the amount necessary to make
any payment on an after-tax basis, shall be made in accordance with the
assumptions set forth in paragraph (a) of this Exhibit C by Ernst &
Young LLP or such other "Big Six" accounting firm designated by the
Executive and reasonably acceptable to the Company.
(c) The Executive shall notify the Company as soon
as practicable in writing of any claim by the Internal Revenue Service
that, if successful, would require any Gross-up or indemnity payment.
The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the
Company. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive shall take all actions necessary to permit the Company to
control all proceedings taken in connection with such contest. In that
connection, the Company may, at its sole option, pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner; provided, however, that the Company
shall pay and indemnify the Executive from and against all costs and
expenses incurred in connection with such contest; provided further,
however, that if the Company directs the Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such payment
to the Executive on an interest-free basis and at no net after-tax cost
to the Executive. If the Executive becomes entitled to receive any
refund or credit with respect to such claim (or would be entitled to a
refund or credit but for a counterclaim for taxes not indemnified
hereunder), the Executive shall promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon)
plus the amount of any tax benefit available to the Executive as a
result of making such payment (any such benefit calculated based on the
assumption that any deduction available to the Executive offsets income
that would otherwise be taxed at the highest marginal statutory rates of
Federal, state and local income tax for the relevant periods).
<PAGE>
ANNEX A
STOCK UNIT AGREEMENT
STOCK UNIT AGREEMENT, dated as of February 12th, 1998 (the
"Unit Agreement"), between TOYS "R" US, INC., a Delaware corporation
(the "Company"), and BRUCE W. KRYSIAK (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company's 1994 Stock Option and Performance
Incentive Plan (the "Plan") provides for performance criteria that may
be utilized by the Management Compensation and Stock Option Committee
(the "Committee") in connection with the grant of Performance Shares (as
defined in the Plan and referred to herein as " Stock Units");
WHEREAS, concurrently herewith, the Executive and the Company
are entering into an Employment/Retention Agreement, dated as of even
date herewith (the "Retention Agreement");
WHEREAS, as further inducement for the Executive to execute
the Retention Agreement and continue in the employ of the Company, the
Committee has determined to grant the Executive the Stock Units as
described in this Unit Agreement; and
WHEREAS, the Board and the Committee desire that the
compensation arising from the Stock Units 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 meanings ascribed to them in the Plan.
2. Stock Unit Grant. Subject to the terms and conditions
set forth in this Unit Agreement and in Section 10 of the Plan, the
Executive is hereby granted 200,000 Stock Units. Each Stock Unit
represents the right to receive one share of Common Stock (collectively,
the shares of Common Stock underlying the Stock Units, the "Shares").
3. Forfeiture Conditions. The Stock Units granted to the
Executive hereunder shall be forfeited in their entirety, subject to the
terms of the Retention Agreement, if:
(i) the Executive's employment with the Company
terminates prior to the fifth anniversary of the date hereof ; or
<PAGE>
(ii) the Performance Objective set forth on Exhibit A
hereto is not achieved.
4. Payment of Stock Units. As soon as practicable
following the fifth anniversary of the date hereof, the Committee shall
determine whether the Performance Objective set forth on Exhibit A has
been achieved. If the Committee determines that such Objective has been
achieved, as oon as reasonably practicable thereafter, Executive's
Restricteed Stock Units, to the extent that such Stock Units have not
been forfeited pursuant to Section 3 hereof, shall be converted into an
equivalent number of shares of Common Stock, which shall be delivered to
the Executive entirely in the form of Common Stock unless the Executive
has elected to defer receipt of such Shares in accordance with the terms
and conditions of any deferred compensation program maintained by the
Company.
5. Investment Representation. Upon conversion of the Stock
Units, the Executive will acquire the Shares for the Executive's
account and not with a view to the distribution thereof, and the
Executive 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 the Executive 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.
6. 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 Unit Agreement, and each member of the Committee
shall be fully indemnified and protected by the Company with respect to
any liability such member 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.
7. Severability. If any provision of this Unit Agreement
shall be held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining parts of this Unit Agreement,
and this Unit Agreement shall be construed and enforced as if the
illegal or invalid provision had not been included.
8. Governing Law. This Unit Agreement shall be governed by
and construed in accordance with the laws of the State of New Jersey,
without reference to principles of conflict of laws. Exclusive
jurisdiction with respect to any legal proceeding brought concerning any
subject matter contained in this Unit Agreement shall be settled by
arbitration as provided in the Retention Agreement.
<PAGE>
9. Interpretation. The interpretation and decision with
regard to any question arising under this Unit Agreement or with respect
to the Stock Units made by the Committee shall be final and conclusive
on the Executive.
10. Notices. All notices hereunder shall be sufficiently
made if pesonally delivered to the Executive or sent by regular mail or
telecopier addressed (a) to the Executive at the Executive'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."
11. Successors. This Agreement shall be binding upon the
Company and its successors and assigns.
<PAGE>
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: /s/ Robert C. Nakasone
Title: Chief Executive Officer
I hereby acknowledge receipt of the
Stock Units and agree to the provision
set forth in this Agreement.
/s/ Bruce W. Krysiak
BRUCE W. KRYSIAK
<PAGE>
TOYS "R" US
ANNUAL REPORT
1997
<PAGE>
Fifty years ago it was a single baby store in post - World War II Washington,
DC. Today, it is an $11 billion Company, and the world's unsurpassed leader in
toys and juvenile products. How did it all begin? With the vision of one man,
Charles Lazarus.
But Charles' vision did more than that. He changed the shopping habits of more
than three generations of parents. He created more than a chain of toy stores -
he created an industry and forever altered the way America, and now the world,
shops for toys. Along the way, Charles nurtured and developed hundreds of
executives who owe much of their knowledge of the retail business to the example
he set, the high standards he developed and the lessons he taught. Charles has
been a constant presence among us-leading, supporting and encouraging. Toys"R"Us
will always be imbued with the uncompromising dedication, the uniquely
refreshing personality, and the vision for a strong future that is truly Charles
Lazarus.
Those of us who follow him do so with a vivid awareness of the legacy he
created, and with a commitment to carrying on the strong tradition of excellence
he established back in 1948.
We salute you, Charles, on this momentous anniversary, and look forward to your
counsel as Chairman Emeritus.
Michael Goldstein Robert C. Nakasone
Chairman of the Board Chief Executive Officer
/s/ Michael Goldstein /s/ Robert C. Nakasone
Toys"R"Us
The Worldwide Authority on Kids, Families and Fun
Table of Contents
Financial Highlights.................................................... page 3
Letter to Our Stockholders.............................................. page 4
Management's Discussion and Analysis of Results of Operations and
Financial Condition................................................ page 12
Financial Statements.................................................... page 14
Report of Management and Report of Independent Auditors............. page 23
Directors, Officers and General Managers............................. page 24
Quarterly Financial Data and Market Information....................... page 26
Store Locations and Corporate Data...................................... page 27
2
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars in millions except per share data) Fiscal Year Ended
- ---------------------------------------------------------------------------------------------------------------------------
Jan. 31, Feb.1, Feb. 3, Jan. 28, Jan. 29, Jan. 30, Feb. 1, Feb. 2, Jan. 28, Jan. 29,
1998 1997* 1996* 1995 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net Sales $ 11,038 $ 9,932 $ 9,427 $ 8,746 $7,946 $ 7,169 $ 6,124 $ 5,510 $ 4,788 $ 4,000
Net Earnings 490 427 148 532 483 438 340 326 321 268
Basic Earnings Per Share 1.72 1.56 0.54 1.88 1.66 1.51 1.18 1.12 1.11 0.92
Diluted Earnings Per Share 1.70 1.54 0.53 1.85 1.63 1.47 1.15 1.11 1.09 0.91
FINANCIAL POSITION AT YEAR END:
Working Capital $ 579 $ 619 $ 326 $ 484 $ 633 $ 797 $ 328 $ 177 $ 238 $ 255
Real Estate-Net 2,435 2,411 2,336 2,271 2,036 1,877 1,751 1,433 1,142 952
Total Assets 7,963 8,023 6,738 6,571 6,150 5,323 4,583 3,582 3,075 2,555
Long-Term Debt 851 909 827 785 724 671 391 195 173 174
Stockholders' Equity 4,428 4,191 3,432 3,429 3,148 2,889 2,426 2,046 1,705 1,424
NUMBER OF STORES AT YEAR END:
Toys"R"Us - United States 698 680 653 618 581 540 497 451 404 358
Toys"R"Us - International 441 396 337 293 234 167 126 97 74 52
Kids"R"Us - United States 215 212 213 204 217 211 189 164 137 112
Babies"R"Us - United States 98 82 - - - - - - - -
KidsWorld - United States 2 2 - - - - - - - -
Total Stores 1,454 1,372 1,203 1,115 1,032 918 812 712 615 522
</TABLE>
*After other charges as described in the Notes to Consolidated Financial
Statements.
CONSOLIDATED NET SALES (billions)
10 year annual compounded sales growth of 13.4%
(GRAPHIC MATERIAL OMITTED)
Fiscal Year 1988 4.0
1989 4.8
1990 5.5
1991 6.1
1992 7.2
1993 7.9
1994 8.7
1995 9.4
1996 9.9
1997 11.0
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TO OUR STOCKHOLDERS
I am pleased to be writing to you for the first time as Chief Executive Officer
of Toys"R"Us. As only the third CEO in our Company's fifty year history, I feel
truly privileged to play a role in moving our Company to greater heights. I am
committed to upholding the rich traditions and culture that have made us so
successful. I am also keenly aware of the need for changes to our priorities if
we are to develop winning strategies that will move our Company forward. I
enthusiastically welcome the challenge and appreciate the opportunity to lead
this great Company.
1997 Financial Highlights
Before I outline our strategic direction for 1998, let us take a quick look
at 1997. In short, despite delivering our 19th consecutive year of record sales
since Toys"R"Us became a public company, 1997 was not the year we hoped it would
be. Our sales reached the $11 billion mark which was an 11% increase over the
$9.9 billion reported last year. While our net earnings also increased to $490
million, we did not deliver the record earnings goal we set out to achieve.
Nonetheless, 1997 was a year of substantial improvements on many significant
developmental fronts that will make us a stronger competitor in the future. I
will touch on some of these as I outline our plans for 1998 and the future.
1998 Strategies and Direction
In my new role as Chief Executive Officer, I have made it clear that strategic
planning and management development will be my top priorities. We have already
begun analyzing and developing a number of short and long-term initiatives to
better position Toys"R"Us for the future. These plans are designed to meet a
variety of issues. Most of all, they are intended to address our primary
objective: to increase stockholder value.
[Photograph of Robert C. Nakasone, Chief Executive Officer]
Economic Value Added: EVA_
Beginning in 1998 we plan on moving Toys"R"Us from a Company focused on building
stores and expanding to new countries to a Company more focused on maximizing
asset productivity and free cash flow, together with profitable growth. To
achieve this goal it is imperative that our entire organization makes a very
significant, but subtle shift in mindset and attitude. In order for this change
to permeate every level in our organization, we have adopted an "Economic Value
Added" management system - or EVA_ - to determine whether our business
initiatives and investments provide an adequate return to our stockholders. The
focus on EVA_ is to instill value-creating thinking into our management's every
day thought processes so that they scrutinize each investment to insure that it
meets or exceeds our cost of capital. We have retained the services of Stern,
Stewart & Co., the leaders in EVA_ implementation, and we are in the process of
developing an EVA_- based management system to be used throughout our entire
organization. We are very serious about increasing our asset productivity and,
therefore, the annual incentive compensation plan for our senior executives,
beginning in 1998, will be tied to EVA_ improvement. Our goal is to have all
incentive plans tied to EVA_ commencing in 1999.
To show further support for this initiative, our Board of Directors approved
another $1 billion share repurchase program, which we announced in January.
We intend to continue to repurchase the Company's stock in a very aggressive
manner.
Asset Productivity
Another crucial priority for 1998 will be to increase our free cash flow by
operating our business with significantly lower asset levels. We are targeting a
reduction of $500 million in same store inventories by the year 2000 and expect
at least half of this reduction to occur this year. Key to achieving this
ambitious objective will be a major overhaul of our purchasing and distribution
systems. We have retained Andersen Consulting to work with a team of our key
merchandising, distribution and operating executives and anticipate that this
project will take three years to complete.
"Toys"R"Us... The Worldwide Authority on Kids, Families and Fun"
Over the past several months we have been focusing on the changing profile of
our customers to determine how we can better meet their needs. While we have
been doing a lot of things right, it is clear that there are areas which require
radically new approaches in how we do business. Our current vision of
4
<PAGE>
being the "preeminent worldwide retailer of toys and juvenile products" is quite
narrow and no longer consistent with how our business is evolving. Without
weakening that position, we think it is important for us to break the boundaries
of how we perceive ourselves, thereby allowing us to sell not only products, but
services... to serve not only children, but families... and to provide not only
toys, but also fun. Our strategy, therefore, is to broaden and capitalize on
our brand equity as a Company focused on fun - not just for kids, but for the
entire family. By expanding the definition of merchandise and services we
offer, we believe we can capitalize on our established name and image. We plan
to expand our vision statement to the following: "Toys"R"Us... The Worldwide
Authority on Kids, Families and Fun."
Store Design
In order to make our stores more flexible, we are rethinking how all of our
stores can be redesigned so that flexibility becomes central to the business.
This is particularly relevant during our "out of season" time period where our
average sales per square foot runs at less than 1/4 of our average sales level
during the November/December Holiday selling season. Our Concept 2000 pilot
stores have taught us a great deal about what our customers are looking for and
they are a vital step in the evolution of our stores. Our customer research
indicates that the appeal of the Concept 2000 store emanates from the ease of
shopping, enhanced store ambiance, freedom of movement and improved displays and
fixtures.
One priority in 1998 will be to apply the newly expanded definition of our core
business to additional products and services, thereby broadening our offering.
It's clear that the look and feel of Concept 2000 is "on target" with customers;
however, we also recognize that the biggest and fastest rewards to our
stockholders can come from creating new excitement through the expansion of the
merchandise offering in our traditional store format, which comprises over 85%
of our stores. As a result, we will be applying new strategies to both store
formats and taking the best of what we learned to create an even more exciting
store...based on the Concept 2000 design but with more to offer. Therefore, 1998
will be a year of enormous experimentation as we look to expand the core
definition of our business.
Exclusive Product Development
Product differentiation will be critical to our long-term success. We feel this
is an unusually fertile area for margin enhancement and customer loyalty. This
will include private label development, branded exclusives produced by key
toy manufacturers and exclusive licenses. We realize this is a long-term
commitment requiring patience and brand management expertise. To that end, we
recently hired one of the most respected principals in the toy manufacturing
industry to spearhead this effort. Andy Gatto, our new Vice President of
Product Development, comes to us with over 25 years of toy manufacturing,
marketing and distribution experience as a principal with Fisher-Price, LJN,
Matchbox, V-Tech and Toy Biz. Andy is now in the process of formulating an
aggressive five-year business plan which we will begin to execute in 1998.
New Venues for Selling
Electronic commerce represents an outstanding opportunity to extend our presence
beyond our stores. Our plans include expanding our existing Home Page to allow
for easy customer shopping as we begin selling merchandise through the Internet.
We will begin selling about 1,500 items during the second quarter of this year
from www.toysrus.com. In light of the growing importance of "e-tail" selling,
we have promoted Joel Anderson to the newly created post of Vice President,
Toys"R"Us Direct.
Catalogue shopping is another venue we will be exploring in the fourth quarter
of 1998, making shopping by mail even easier for customers and giving them
another reason to choose Toys"R"Us.
Finally, "Buy Here/Pick Up There" is a new service that we will be testing in
1998 with the goal of making it simple for customers to order selected large,
bulk items (such as swing sets, battery operated ride-on vehicles, play houses,
etc.) for family members or friends who live a long distance away. Rather than
incurring high shipping charges, the "Buy Here/Pick Up There" concept allows
for the purchase in one store and the pick-up in another.
Database Marketing
Currently, we have 38 million customers in our "R"Us database. Our Kids"R"Us
division has been very successful in leveraging off this data by distributing
the majority of its direct mail circulars to targeted customers. This has also
enabled us to mail specific advertising vehicles to our customers based on prior
purchases and targeted demographics. Given that 30 percent of our customers
generate 80 percent of our business, our database marketing will become an
increasingly powerful tool - not only for Kids"R"Us, but for Babies"R"Us and
Toys"R"Us as well.
[Map of Toys "R" Us Around the World - 27 Countries Worldwide]
5
<PAGE>
Babies"R"Us
With the consolidation of the Baby Superstore acquisition into the Babies"R"Us
family, we became the clear leader of the $25 billion juvenile market. We ended
1997 with a total of 98 Babies"R"Us stores and plan to open an additional 15 to
20 stores in 1998. Our unrivaled assortment coupled with our database marketing
and automated Baby Registry are key strengths in targeting new mothers and gift
givers for the roughly 4 million children born each year. In addition, the
introduction of in-store "Baby Fest" weekends have been a proven winner with
customers. These weekends, which offer demonstrations, seminars and educational
programs, reinforce our brand identity and build customer loyalty. There is no
question that the investment we made in developing this business has put the
newest member of the "R"Us family on a firm footing and should serve us well in
the years ahead.
International Business
Another priority in 1998 will be to continue to accelerate the positive earnings
momentum in our international toy stores. In 1997, our international sales
increased to $2.9 billion. More importantly, our operating profit increased 28%
to $168 million. These accomplishments resulted from stronger sales trends in
toys, video games and juvenile products around the world, coupled with improved
operating efficiency.
In Japan, we have achieved market share leadership in just over 5 years. Japan
is now our largest business outside of the United States.
The poor economic climate in most of Europe continues to challenge our business.
Despite the tough business environment, we improved our operating profit in
every market with the exception of France. In an effort to improve
productivity, we are expanding our juvenile category in most of these markets as
well as piloting several Concept 2000 prototype stores. In addition, we have
recently appointed Johannes Dercks as President of Toys"R"Us Central Europe.
Johannes brings over 20 years of mass merchandising experience with the Metro
Group, Promodes Group and Aral Shop, Ltd.
Management
Management excellence is the most fundamental ingredient to enhancing
stockholder value. I am very proud of the strong management exemplified by our
Toys"R"Us associates throughout the world, and even happier to introduce you to
the newest members of our senior executive team. It is a group I am particularly
excited about since it clearly comprises some of the best talent in the retail
industry.
NUMBER OF STORES WORLDWIDE
(GRAPHIC MATERIAL OMITTED)
FISCAL YEAR 1988 522
1989 615
1990 712
1991 812
1992 918
1993 1,032
1994 1.115
1995 1,203
1996 1,372
1997 1,454
Bruce Krysiak, our new President and Chief Operating Officer, joins us
officially on April 15 from Dollar General, where he served in a similar
capacity. In Bruce, we have an executive with extraordinary retail experience
and knowledge of merchandising, marketing and operations. Prior to Dollar
General, Bruce was COO of Circle K, and he spent the early years of his career
in senior marketing and merchandising roles at Southland's 7-11 stores. Bruce
also had the unique experience of working in the former Soviet Union as chairman
of the joint venture that built that country's first fully-integrated food
distribution system.
We also promoted Keith Van Beek to President of Toys USA Merchandising and
Marketing. Most recently, Keith served as President of Toys"R"Us Canada.
Under his helm, our Canadian business has experienced back-to-back years
of double digit comparable store sales increases powered by innovative marketing
and in-store promotional programs - all in the midst of a highly competitive
retail climate. We think Keith's track record and skill set make him uniquely
qualified to rethink and expand our marketing and merchandising offerings
with a heavy emphasis on in-store presentation.
To better capitalize on pan-European initiatives by having top level senior
management "on the ground" in Europe, David Rurka was named Chairman of our
newly-formed European Management Board. David joined the Company in 1984 and
started our UK Operations. As a result of his efforts over the last 13 years,
our UK Operations have consistently achieved the highest levels of performance.
With David coordinating key initiatives with our Managing Directors throughout
Europe, we expect to see some dramatic benefits in the near future.
And finally, we named Bruno Roqueplo Senior Vice President, Finance and
Administration for Toys"R"Us International. Bruno brings with him an
established career in international business affairs. Most recently, he
served as Chairman and Managing Director of Campbell Distillers, a subsidiary of
Group Pernod Ricard, a leading wine and beverage
6
<PAGE>
company in Europe. Bruno had a distinguished career at Campbell, where he served
in numerous positions including Managing Director of divisions in the UK,
France and Australia.
Looking To The Future
I think it is fair to say that no CEO has ever started out with a better team.
From the strength of our associates around the world to the caliber of our
senior management, we have a superb infrastructure to both establish the vision
and develop and implement the plan for growing our business and building value
for you.
In reflecting on this past year and in looking ahead, I feel inextricably
linked with Toys"R"Us in several ways. Both of us celebrate 50 years this year
(although Geoffrey is aging far more gracefully!), and as we stand on the brink
of a new millennium, we are presented with the unparalleled opportunity to seize
new challenges and broaden our vision for the future. All of us affiliated with
Toys"R"Us are recipients of a great legacy started by Charles Lazarus half a
century ago.
Those of us who follow Charles do so with a keen awareness of the dedication,
creativity and drive that it took to earn his reputation. We also recognize
that this is an exciting time for our company; a time to move ahead in further
defining who we are and what we mean to our customers. It is true that no one
knows what the future holds. But with a clear vision and strategic initiatives
well in place, I do know that we hold the keys to the future. 1998 will be the
beginning of re-energizing and revitalizing Toys"R"Us - creating a company truly
dedicated to reasserting itself and its position as the Worldwide Authority on
Kids, Families and Fun!
Sincerely,
/s/ Robert C. Nakasone
Robert C. Nakasone
Chief Executive Officer
March 24, 1998
STOCKHOLDERS' EQUITY (billions)
10 year growth of $3 billion
(GRAPHIC MATERIAL OMITTED)
1988 1.4
1989 1.7
1990 2.0
1991 2.4
1992 2.9
1993 3.1
1994 3.4
1995 3.4
1996 4.2
1997 4.4
(Photo of Michael Goldstein, Chairman of the Board)
MESSAGE FROM THE CHAIRMAN
The past 15 years I've spent as part of the Toys"R"Us family have undoubtedly
been the most rewarding of my business career. I've been fortunate to have been
a part of so many significant milestones for the Company - from the rollout of
our toy stores across the USA tot he start-up of our Kids"R"Us and international
businesses, to the birth of Babies"R"Us and the acquisition of Baby Superstore.
I'm proud to say that in every instance our Company has consistently set high
standards of performance and has successfully risen to the challenge. I am also
confident that our management team will continue in the strong tradition while
looking toward an exciting future. As you know, last year I made the decision
to relinquish my day to day involvement as your CEO in 1998 to devote more time
and energy to my family and charity work. I will, however, remain actively
in the Company as Chairman of the Board, and - for the record - I'll always be a
Toys"R"Us Kid.
MICHAEL GOLDSTEIN
Chairman of the Board
/s/ Michael Goldstein
7
<PAGE>
(Photograph of Charles Lazarus in 1948)
A TIME TO CELEBRATE!
In 1948, Charles Lazarus began a business totally dedicated to kids and their
needs - just in time for the post-war baby boom. He had no idea that his first
baby furniture store would evolve and mushroom into an eleven billion dollar
worldwide chain of toy stores. He did believe that if he was innovative and
imaginative, he could make his concept work. He was right.
The continuing strength of his vision, coupled with the dedication and hard work
of every individual in the Toys"R"Us organization, has carried the company to
its present day success. In 1998, we celebrate and take pride in our shared
history - five decades full of challenge, change and creativity.
8
<PAGE>
LOOKING BACK
"I came out of service after the war and everyone I talked to said they were
going to go home, get married, have children and live in the suburbs...live the
American Dream...I had saved a few dollars in the service, so I decided that
I would open a store where my father had a bicycle repair shop. I opened a baby
store and sold cribs, carriages, strollers, high chairs...everything for the
baby. It was a one-man business and that was nice."
Charles Lazarus begins his story with a smile, sitting in his office at the
Corporate Headquarters of the world's biggest toy store, Toys"R"Us.
His narrative, peppered with memorable experiences, recollections of business
challenges and creative decision-making, contains all the elements of a real
success story.
Against the backdrop of a country restoring its spirit after the Second World
War, 25-year-old Charles set up his business. As he learned the ins and outs of
running his first store, he realized that one of the most valuable skills he
could acquire was to listen. He listened to his customers, and provided what
they needed.
"I need a toy for my baby..." was something he heard over and over again. So he
began to stock and sell baby toys...and then toys for older kids, responding
each time to what the customers asked for.
"Listening to the customer is probably the best thing in the world. Almost
all that we have here and how we expanded the business came from the customer
saying 'I need...' or 'I want...' or 'Don't you have...'?" Charles affirms.
As if timed by some fortunate coincidence, toy manufacturers in the United
States were also growing and becoming more innovative and aggressive, taking
a stronger stand in a market previously dominated by European toy companies.
Charles could not have picked a better time to set some new ideas in motion.
"The idea of selling toys in a bigger environment? What I did was I copied the
supermarket. I said, 'If they can go into a supermarket and pick products right
off the shelf, they can go into my store and pick toys right off the shelf'."
"So, in the original store people used to come and bring their own boxes or
bring their own bags and it was cash and carry. And we sold things very cheaply.
That's how the business got going."
Introducing a "supermarket environment" for his shoppers and offering a bigger
selection of merchandise at lower prices also enabled Charles to extend the toy
shopping season - from Christmas to all year-round!
9
<PAGE>
MOVING FORWARD
"We were probably the first ones selling toys and juvenile product at a
discount. Here we were, located in the middle of Washington, DC - and
customers had to go find parking, which was really hard to do! But one customer
told another, and all the word-of-mouth really worked for us."
By the late 1950's, Charles had two stores in the Washington, DC area that had
become popular with parents. Shopping at his Baby Furniture and Toy
Supermarket stores meant finding almost every style of stroller or crib... in
stock and at a good price. Toys were still the top ticket, though. In 1957,
making another bold business move, Charles opened a toy store with a peculiar
but catchy little name: Toys"R"Us, the store with the backwards "R".
Once again, his timing could not have been better as the growing popularity of
television gave rise to the phenomenon of "hot toys". Every child wanted them,
and parents knew just where to go: Toys"R"Us!
By 1966, Charles had four stores that sold about $12 million worth of toys each
year. To raise the capital he needed to expand, he sold these four stores to
Interstate Stores, a large retail conglomerate. After the sale, Interstate gave
Charles Lazarus the responsibility of running the stores and the toy division
of their business.
Toys"R"Us continued to grow under his leadership. Interstate Stores, however,
faced major difficulties with the rest of its business - despite the
profitability of the toy stores - eventually filing for bankruptcy in the
mid-1970's. Charles persuaded the court to allow him to run Interstate during
this critical period. With a combination of persistence, determination, careful
business decisions, excellent business relationships, and investments in talent
and technology he began to restructure the company. Charles sold or liquidated
the unprofitable operations and retained his toy stores. After only four
years, Interstate emerged from bankruptcy and was renamed Toys"R"Us.
LEADING THE WAY
Moving into the 80's fueled by energy, enthusiasm and optimism, Toys"R"Us opened
even more stores in the U.S. and began expanding internationally. Hot toys, now
powered by television and blockbuster movies, brought kids and parents through
the doors. The company was constantly challenged by competitors, but continued
to utilize winning strategies.
"I think we have the edge over competition in our knowledge of product. There's
a long history in the company of understanding and analyzing merchandise... much
more intensely than anyone else," Charles says with confidence.
Venturing out and thinking big, the company opened the first Kids"R"Us store in
July, 1983 to offer the same selection and value to our customers, this time in
kids' fashion. Toys"R"Us International opened its first stores in 1984, in
Singapore and Canada, marking the Company's expansion to a bigger world of
children and opportunity.
Toys"R"Us was a name every parent and grown-up knew, a store every child loved,
a place where kids could be kids in the best possible way.
10
<PAGE>
The backwards "R" logo was recognized everywhere, and Toys"R"Us moved into the
position of an industry leader.
At that time, Charles realized that this leadership position came with a certain
responsibility as well.
Toys"R"Us wanted to give back to its employees, customers and to the communities
where its stores operated. The Company became a leader in offering equal
opportunity employment and diversity in the work force. In addition, the
Toys"R"Us Children's Benefit Fund was established to provide support for
programs and health initiatives that benefit children. The Children's Benefit
Fund has contributed more than $15 million to hospitals and children's
charities.
Toys"R"Us is also a leader in recognizing the needs of differently-abled
children. The Company, in partnership with the National Lekotek Center,
produces the Toy Guide for Differently-Abled Kids, featuring toys that have been
tested and evaluated based on 10 developmental categories. The Guide is
designed to assist parents, families and friends in making informed decisions
about toy selection for children with special needs.
FACING THE FUTURE
Toys"R"Us continues to focus on what today's experienced, value-conscious
consumer wants - with bright, redesigned stores, improved customer service, and
baby and gift registries. The Company is also exploring ways to reach consumers
through a number of new avenues, including the Internet. The traditional
offerings of a huge merchandise selection and value pricing are as strong today
as they were 50 years ago.
With over 1,450 stores in 27 countries, Toys"R"Us continues to mark milestone
after milestone. In 1996, with the merger of Babies"R"Us and Baby Superstore,
we expanded our business to encompass all babies' needs. In a unique move, the
Company has come full circle to Charles Lazarus' original store concept!
What has remained constant throughout the past five decades is the company's
business focus: kids. Kids of all ages. What's good for them is good for us.
We have many reasons to celebrate this anniversary of Toys"R"Us - 50 years of
incredible growth, 50 years of bringing great value to customers and, of course,
50 years of making kids' eyes grow wide with wonder... 50 years of FUN!
Speaking with the same excitement and pride today, Charles says:
"I think our business is fascinating. So much is new in toys every year!
That's exciting because you're challenged all the time."
"I still do get a buzz when I visit the stores. I walk around and I see
customers who are happy walking in the store. I think we are in the best
business in the whole world."
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MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS*
In 1997, the Company posted its 19th consecutive year of record sales, reporting
sales of $11 billion. Sales increased by 11.1% in 1997, 5.4% in 1996 and 7.8% in
1995. The sales growth is primarily attributable to the increase in comparable
U.S.A. toy store sales of 6% in 1997, the acquisition of Baby Superstore and the
Company's continued store expansion. The Company opened 84 new U.S.A. toy
stores, 149 international toy stores, including franchise and joint venture
stores, 19 children's clothing stores, 25 baby specialty stores, 2 superstores,
and acquired 76 baby specialty stores during the three year period. Comparable
U.S.A. toy store sales increased 2% in 1996 and decreased 2% in 1995.
Cost of sales as a percentage of sales increased to 69.8% in 1997 from 69.4% in
1996 as a result of higher costs related to the Company's promotional holiday
selling program, higher than historical inventory shrinkage and the continued
strengthening of the Company's lower margin video business. Cost of sales as a
percentage of sales decreased in 1996 from 69.9% in 1995 primarily due to
improved markup on basic toy products, partially offset by the strengthening of
the lower margin video hardware business.
Selling, advertising, general and administrative expenses as a percentage of
sales were 20.2% in 1997, 20.3% in 1996 and 20.1% in 1995. The slight decrease
in 1997 from 1996 was primarily due to expense control and sales leveraging,
partially offset by additional distribution and handling costs related to higher
than planned inventory levels. The increase in 1996 was primarily due to
heavier advertising and promotional efforts, as well as the Company's increased
emphasis on customer service.
Depreciation, amortization and asset write-offs as a percentage of sales were
2.3% in 1997, 2.1% in 1996 and 2.0% in 1995. The increase in 1997 was due
primarily to $19 million in asset write-offs for the 56 stores converted to the
"Concept 2000" store design as well as $9 million of goodwill amortization
related to the acquisition of Baby Superstore.
The Company's 1996 results were impacted by a charge of $60 million ($38
million, net of tax benefits or $.14 cents per share) relating to an arbitration
award rendered against the Company involving a dispute over a 1982 franchise
agreement to operate stores in the Middle East.
The Company's 1995 results were impacted by charges of $397 million ($269
million, net of tax benefits or $.98 cents per share) to restructure its
worldwide operations and to adopt SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed Of. Elements of
the restructuring plan are described below and in the notes to the consolidated
financial statements and consisted of certain asset write-offs and established
reserves for certain contractual obligations, primarily in the United States and
Europe.
The Company has substantially completed its restructuring program action plan,
including the strategic inventory repositioning initiative, the closing of 3
Toys"R"Us and 7 Kids "R"Us stores in the United States, the consolidation of 3
distribution centers and various administrative facilities in the United States
and Europe and the franchising of 9 toy stores in the Netherlands.
At January 31, 1998, the Company had approximately $62 million of liabilities
remaining for its restructuring program primarily relating to long-term lease
obligations and other commitments. The Company believes these reserves are
adequate to complete the restructuring program.
Interest expense decreased by 13.3% in 1997 as compared to 1996, primarily due
to lower average short-term borrowings and to a $325 million medium-term
financing late in the third quarter of 1996, which replaced borrowings carrying
higher interest rates. Interest expense decreased in 1996 as compared to 1995
due to the Company's improved cash flow as a result of increased earnings, the
benefits from its worldwide restructuring program and the $325 million
medium-term financing referred to above.
The Company's effective tax rate was 36.5% in 1997 and 1996, and 44.2% in 1995.
The higher effective tax rate in 1995 was primarily due to the restructuring of
its worldwide operations.
International sales were unfavorably impacted by the translation of local
currency results into U.S. dollars by approximately $250 million and $150
million in 1997 and 1996, respectively. In 1995 International sales were
favorably impacted by approximately $140 million. Neither the translation
of local currency results into U.S. dollars nor inflation had a material effect
on the Company's operating results for the last three years.
LIQUIDITY AND CAPITAL RESOURCES
The Company's impressive financial position is evidenced by its working capital
and cash flows provided by operating activities. Working capital at January
31, 1998, and February 1, 1997, were $579 million and $619 million,
respectively.
*References to 1997, 1996, and 1995 are for the 52 weeks ended January 31, 1998
and February 1, 1997 and for the 53 weeks ended February 3, 1996.
12
<PAGE>
The Company's newest division, Babies"R"Us opened its first 6 stores in 1996.
The Company accelerated the growth of this division with the acquisition of
Baby Superstore, Inc. on February 3, 1997 for 13 million treasury shares of the
Company's common stock valued at approximately $376 million. This acquisition
was accounted for as a purchase as of February 1, 1997, and the excess of
purchase price over net assets acquired in the amount of $365 million has been
recorded as goodwill and is being amortized over 40 years. Baby Superstore,
with 76 stores primarily in the southeast and midwest United States, was a
leading retailer of baby and young children's products. The Company has
converted substantially all of the existing Baby Superstore stores to the
Babies"R"Us operating format.
The Company's cash and cash equivalents have decreased to $214 million at
January 31, 1998 from $761 million at February 1, 1997. This decrease is
primarily attributable to the following factors: lower levels of short-term and
long-term debt, repurchase of shares under the share repurchase program,
capital expenditures, and higher than planned inventory levels.
In 1998, the Company plans to open approximately 5 toy stores in the United
States and approximately 35 international toy stores, including 15 franchise
stores. Our newest division, Babies"R"Us, will open approximately 15 to 20
stores in the United States. The Company opened 64 toy stores in 1997, 89 in
1996 and 80 in 1995. In addition to the stores closed in 1996 that were part
of the Company's worldwide restructuring program, the Company closed 2 toy
stores from 1995 through 1997 which did not meet expectations. These closures
did not have a significant impact on the Company's financial position.
For 1998, capital requirements for real estate, store and warehouse fixtures and
equipment, leasehold improvements and other additions to property and equipment
are estimated at $450 million.
In January 1998, the Company announced an additional authorization of $1 billion
to repurchase shares of the Company's outstanding common stock over the next
several years. As of January 31, 1998, the Company had repurchased 29.5 million
shares of its common stock for $947 million under its prior $1 billion share
repurchase program announced in January of 1994.
The seasonal nature of the business (approximately 45% of sales take place in
the fourth quarter) typically causes cash to decline from the beginning of the
year through October as inventory increases for the holiday selling season and
funds are used for land purchases and construction of new stores, which usually
open in the first ten months of the year. The Company has a $1 billion
multi-currency unsecured committed revolving credit facility expiring in
December 2002, from a syndicate of financial institutions. Cash requirements
for operations, capital expenditures, lease commitments and the share repurchase
program will be met primarily through operating activities, borrowings under the
revolving credit facility, issuance of short-term commercial paper and/or other
bank borrowings for foreign subsidiaries.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to market risk from change in interest rates and foreign
exchange rates. The Company regularly evaluates these risks and has taken the
following measures to mitigate these risks: the countries in which the Company
owns assets and operates stores are politically stable; the Company's foreign
exchange risk management objectives are to stabilize cash flow from the effects
of foreign currency fluctuations; the Company will, whenever practical, offset
local investments in foreign currencies with borrowings denominated in the same
currencies; the Company also enters into foreign exchange contracts or purchases
options to eliminate specific transaction risk. The market risk related to
these derivative contracts is offset by the changes in value of the underlying
items being hedged. Substantially all of the Company's long-term debt is at
fixed interest rates and therefore, the fair value is affected by changes in
market interest rates. The Company believes the amount of risk and the use of
derivative financial instruments described above are not material to the
Company's financial condition or results of operations.
IMPACT OF YEAR 2000
The Company is modifying significant portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. In addition, the Company has initiated formal communications
with all of its significant suppliers to determine the extent to which the
Company's operations are vulnerable to the failure of those third parties to
remediate their own Year 2000 issues. The Company is utilizing both internal
and external resources to renovate and test its software and anticipates
substantially completing the project by the end of 1998. The total cost for the
Year 2000 project is not material to any one year and is being expensed as
incurred.
The costs of the project and the time frame in which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates; however, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include continued
availability of resources, the ability of third parties to complete their
modification plans, and similar uncertainties.
13
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
January 31, February 1, February 3,
(In millions except per share data) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $11,038 $ 9,932 $ 9,427
Cost of sales 7,710 6,892 6,592
- -----------------------------------------------------------------------------------------------------
Gross Profit 3,328 3,040 2,835
- -----------------------------------------------------------------------------------------------------
Selling, advertising, general and administrative expenses 2,231 2,020 1,894
Depreciation, amortization and asset write-offs 253 206 192
Other charges - 60 397
- -----------------------------------------------------------------------------------------------------
Total Operating Expenses 2,484 2,286 2,483
- -----------------------------------------------------------------------------------------------------
Operating Income 844 754 352
Interest expense 85 98 103
Interest and other income (13) (17) (17)
- -----------------------------------------------------------------------------------------------------
Interest Expense, Net 72 81 86
- -----------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 772 673 266
Income Taxes 282 246 118
- -----------------------------------------------------------------------------------------------------
Net Earnings $ 490 $ 427 $ 148
- -----------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ 1.72 $ 1.56 $ 0.54
- -----------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $ 1.70 $ 1.54 $ 0.53
- -----------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
January 31, February 1,
(In millions) 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 214 $ 761
Accounts and other receivables 175 142
Merchandise inventories 2,464 2,215
Prepaid expenses and other current assets 51 42
- --------------------------------------------------------------------------------------
Total Current Assets 2,904 3,160
Property and Equipment:
Real estate, net 2,435 2,411
Other, net 1,777 1,636
- --------------------------------------------------------------------------------------
Total Property and Equipment 4,212 4,047
Goodwill, net 356 365
Other Assets 491 451
- --------------------------------------------------------------------------------------
$ 7,963 $ 8,023
- --------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 134 $ 304
Accounts payable 1,280 1,346
Accrued expenses and other current liabilities 680 720
Income taxes payable 231 171
- --------------------------------------------------------------------------------------
Total Current Liabilities 2,325 2,541
Long-Term Debt 851 909
Deferred Income Taxes 219 222
Other Liabilities 140 160
Stockholders' Equity:
Common stock 30 30
Additional paid-in capital 467 489
Retained earnings 4,610 4,120
Foreign currency translation adjustments (122) (60)
Treasury shares, at cost (557) (388)
- --------------------------------------------------------------------------------------
Total Stockholders' Equity 4,428 4,191
- --------------------------------------------------------------------------------------
$ 7,963 $ 8,023
- --------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
January 31, February 1, February 3,
(In millions) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 490 $ 427 $ 148
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and asset write-offs 253 206 192
Deferred income taxes 18 23 (67)
Other charges - - 397
Changes in operating assets and liabilities:
Accounts and other receivables (40) (14) (11)
Merchandise inventories (265) (195) (193)
Prepaid expenses and other operating assets (9) (10) (16)
Accounts payable, accrued expenses and other liabilities 22 262 (151)
Income taxes payable 40 44 (49)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 509 743 250
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (494) (415) (468)
Other assets (22) (36) (67)
Cash received with the acquisition of Baby Superstore - 67 -
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (516) (384) (535)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net (142) (10) 210
Long-term borrowings 11 326 82
Long-term debt repayments (176) (133) (9)
Exercise of stock options 62 28 16
Share repurchase program (253) - (200)
- -----------------------------------------------------------------------------------------------------
Net cash (used in) / provided by financing activities (498) 211 99
- -----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (42) (12) 19
CASH AND CASH EQUIVALENTS
(Decrease)/increase during year (547) 558 (167)
Beginning of year 761 203 370
- -----------------------------------------------------------------------------------------------------
End of year $ 214 $ 761 $ 203
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income Tax Payments $ 192 $ 177 $ 235
Interest Payments $ 83 $ 109 $ 118
- -----------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock
---------------------------------- Foreign
Issued In Treasury Additional currency
---------------------------------- paid-in Retained translation
(In millions) Shares Amount Shares Amount capital earnings adjustments
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 28, 1995 298.0 $ 30 (18.2) $ (642) $ 521 $ 3,545 $ (25)
Net earnings for the year - - - - - 148 -
Share repurchase program - - (7.6) (200) - - -
Exercise of stock options, net - - 0.9 34 (16) - -
Corporate inversion 2.4 - (2.4) (38) 38 - -
Foreign currency translation adjustments - - - - - - 38
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, February 3, 1996 300.4 30 (27.3) (846) 543 3,693 13
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings for the year - - - - - 427 -
Acquisition of Baby Superstore, Inc. - - 13.0 400 (24) - -
Exercise of stock options, net - - 1.7 58 (30) - -
Foreign currency translation adjustments - - - - - - (73)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, February 1, 1997 300.4 30 (12.6) (388) 489 4,120 (60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings for the year - - - - - 490 -
Share repurchase program - - (8.2) (253) - - -
Exercise of stock options, net - - 2.8 84 (22) - -
Foreign currency translation adjustments - - - - - - (62)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998 300.4 $ 30 (18.0) $ (557) $ 467 $ 4,610 $ (122)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Amounts in millions except per share data)
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31. Reference
to 1997, 1996 and 1995 are for the 52 weeks ended January 31, 1998 and February
1, 1997, and for the 53 weeks ended February 3, 1996, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The 1996 consolidated balance sheet and statement of cash
flows also reflect the acquisition of Baby Superstore, Inc. All material
intercompany balances and transactions have been eliminated. Assets and
liabilities of foreign operations are translated at current rates of exchange
at the balance sheet date while results of operations are translated at average
rates in effect for the period. Translation gains or losses are shown as a
separate component of stockholders' equity.
Cash and Cash Equivalents
The Company considers its highly liquid investments purchased as part of daily
cash management activities to be cash equivalents.
Merchandise Inventories
Merchandise inventories for the U.S.A. toy store operations, which represent
over 60% of total inventories, are stated at the lower of LIFO (last-in,
first-out) cost or market, as determined by the retail inventory method. If
inventories had been valued at the lower of FIFO (first-in, first-out) cost or
market, inventories would show no change at January 31, 1998 or February 1,
1997. All other merchandise inventories are stated at the lower of FIFO cost or
market as determined by the retail inventory method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets or, where applicable, the terms of the respective leases, whichever is
shorter.
The Company recognizes impairment losses relating to long-lived assets based on
several factors including, but not limited to, management's plans for future
operations, recent operating results and projected cash flows.
Preopening Costs
Preopening costs, which consist primarily of advertising, occupancy and payroll
expenses, are amortized over expected sales to the end of the fiscal year in
which the store opens.
Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents and short-term borrowings approximate their fair market values.
Forward Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts to eliminate the risk
associated with currency movement relating to its short-term intercompany loan
program with foreign subsidiaries and inventory purchases denominated in foreign
currency. Gains and losses, which offset the movement in the underlying
transactions, are recognized as part of such transactions. Gross deferred
unrealized gains and losses on the forward contracts were not material at either
January 31, 1998 or February 1, 1997. The related receivable, payable and
deferred gain or loss are included on a net basis in the balance sheet. The
Company had $439 and $205 of short term outstanding forward contracts at January
31, 1998 and February 1, 1997, maturing in 1998 and 1997, respectively. These
contracts are entered into with counterparties that have high credit ratings and
with which the Company has the contractual right to net forward currency
settlements. In addition, the Company had a $325 currency swap obligation
outstanding at January 31, 1998 related to its (pound)200 note payable due 2001.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130 -
Reporting Comprehensive Income, which requires the separate reporting of all
changes to stockholders' equity, and SFAS No. 131 - Disclosures About Segments
of an Enterprise and Related Information, which revises existing guidelines
about the level of financial disclosure of a Company's operations. Both
statements are effective for financial statements issued for fiscal years
beginning after December 15, 1997. The Company has determined that the new
standards will not have any impact on the Company's financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
18
<PAGE>
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Useful Life January 31, February 1,
(in years) 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 817 $ 821
Buildings 45-50 1,849 1,834
Furniture and equipment 5-20 1,711 1,522
Leaseholds and
leasehold improvements 12 1\2-35 1,158 1,060
Construction in progress 46 37
Leased property
under capital leases 29 31
- ------------------------------------------------------------------------------------------
5,610 5,305
Less accumulated depreciation
and amortization 1,398 1,258
- ------------------------------------------------------------------------------------------
$ 4,212 $ 4,047
- ------------------------------------------------------------------------------------------
</TABLE>
SEASONAL FINANCING
AND LONG-TERM DEBT
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
5.78% (pound)200 note payable,
due 2001(a) $ 325 $ 325
8 3\4% debentures, due 2021,
net of expenses 198 198
Japanese yen loans with interest payable
at annual rates from 2.80% to 6.47%,
due in varying amounts through 2012 123 150
8 1\4% sinking fund debentures,
due 2017, net of discounts 89 89
Industrial revenue bonds,
net of expenses (b) 60 70
7% British pound sterling loan payable,
due quarterly through 2001(c) 49 67
Mortgage notes payable at annual
interest rates from 10.13% to 11.00% (d) 14 13
Obligations under capital leases 14 17
4 7\8 % notes payable (e) - 115
- ------------------------------------------------------------------------------------------
872 1,044
Less current portion (f) 21 135
- ------------------------------------------------------------------------------------------
$ 851 $ 909
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Supported by a (pound)200 bank letter of credit. This note has been
converted by an interest rate and currency swap to a floating rate, US dollar
obligation at 3 month LIBOR less approximately 93 basis points.
(b) Bank letters of credit of $41, expiring in 1999, support certain of these
industrial revenue bonds. The Company expects that the bank letters of credit
will be renewed. The bonds have fixed or variable interest rates with an
average rate of 3.5% at January 31, 1998.
(c) Collateralized by property with a carrying value of $161 at January 31,
1998.
(d) Collateralized by property and equipment with an aggregate carrying value
of $18 at January 31, 1998.
(e) Obligation of Baby Superstore. Convertible into shares of the Company's
common stock at the conversion price of $66.34. These notes were redeemed on
April 16, 1997.
(f) Included in accrued expenses and other current liabilities on the
consolidated balance sheets.
The fair market value of the Company's long-term debt at January 31, 1998 was
approximately $1,004. The fair market value was estimated using quoted market
rates for publicly traded debt and estimated interest rates for non-public debt.
The Company has a $1 billion unsecured committed revolving credit facility
expiring in December 2002. This multi-currency facility permits the Company to
borrow at the lower of LIBOR plus a fixed spread or a rate set by competitive
auction. The facility is available to support domestic commercial paper
borrowings and to meet worldwide cash requirements.
Additionally, the Company also has lines of credit with various banks to meet
the short-term financing needs of its foreign subsidiaries. The weighted
average interest rate on short-term borrowings outstanding at January 31, 1998
and February 1, 1997 was 5.0% and 3.1%, respectively.
The annual maturities of long-term debt at January 31, 1998 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------
<S> <C>
1998 $ 21
1999 24
2000 21
2001 332
2002 6
2003 and subsequent 468
- ---------------------------------
$ 872
- ---------------------------------
</TABLE>
LEASES
The Company leases a portion of the real estate used in its operations. Most
leases require the Company to pay real estate taxes and other expenses; some
require additional amounts based on percentages of sales.
Minimum rental commitments under noncancelable operating leases having a term of
more than one year as of January 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Net
minimum Sublease minimum
rentals income rentals
- -------------------------------------------------------
<S> <C> <C> <C>
1998 $ 338 $ 17 $ 321
1999 334 16 318
2000 330 14 316
2001 327 13 314
2002 321 10 311
2003 and subsequent 3,098 57 3,041
- -------------------------------------------------------
$ 4,748 $ 127 $ 4,621
- -------------------------------------------------------
</TABLE>
Total rent expense, net of sublease income was $309, $282 and $273 in 1997, 1996
and 1995, respectively.
19
<PAGE>
STOCKHOLDERS' EQUITY
The common shares of the Company, par value $.10 per share, were as follows:
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Authorized shares 650.0 650.0
- -------------------------------------------------------------
Issued shares 300.4 300.4
- -------------------------------------------------------------
Treasury shares 18.0 12.6
- -------------------------------------------------------------
Issued and outstanding shares 282.4 287.8
- -------------------------------------------------------------
</TABLE>
Effective January 1, 1996, the Company formed a new parent company (the
"Surviving Company") thus making the former parent company (the "Predecessor
Company"), a wholly-owned subsidiary of the Surviving Company. As a result of
this corporate inversion, each share of common stock of the Predecessor Company
was converted into one share of common stock of the Surviving Company.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings
per Share. This statement replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented and no
restatement was needed to conform to SFAS No. 128 requirements.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income available to
common stockholders $ 490 $ 427 $ 148
Denominator for basic earnings
per share - weighted average
shares 285.3 274.0 275.0
Effect of diluted securities:
Stock options, etc. 3.1 3.5 1.9
Denominator for diluted
earnings per share - adjusted
weighted average shares 288.4 277.5 276.9
- ----------------------------------------------------------------------------
Basic Earnings per share $ 1.72 $ 1.56 $ 0.54
- ----------------------------------------------------------------------------
Diluted Earnings per share $ 1.70 $ 1.54 $ 0.53
- ----------------------------------------------------------------------------
</TABLE>
Options to purchase approximately 6.0 shares of common stock were outstanding
during 1997, but were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the average market
price of the common shares, and, therefore, the effect would be antidilutive.
TAXES ON INCOME
<TABLE>
The provisions for income taxes consist of the following:
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 199 $ 136 $ 137
Foreign 35 57 27
State 30 30 21
- ---------------------------------------------------------------------------
264 223 185
- ---------------------------------------------------------------------------
Deferred:
Federal 32 58 (22)
Foreign (17) (39) (42)
State 3 4 (3)
- ---------------------------------------------------------------------------
18 23 (67)
- ---------------------------------------------------------------------------
Total tax provision $ 282 $ 246 $ 118
- ---------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 214 $ 155 $ 109
Restructuring 20 53 122
Other 42 32 21
- ---------------------------------------------------------------------------
Gross deferred tax assets 276 240 252
Valuation allowance (43) (37) (29)
- ---------------------------------------------------------------------------
$ 233 $ 203 $ 223
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 277 249 245
LIFO inventory 88 64 64
Other tax - 4 5
- ---------------------------------------------------------------------------
Gross deferred tax liabilities $ 365 $ 317 $ 314
- ---------------------------------------------------------------------------
Net deferred tax liability $ 132 $ 114 $ 91
- ---------------------------------------------------------------------------
</TABLE>
A reconciliation of the federal statutory tax rate with the effective tax rate
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 3.2 3.7 3.4
Foreign (2.3) (2.3) (1.3)
Amortization of goodwill 0.4 - -
Restructuring and other charges - - 7.2
Other, net 0.2 0.1 (0.1)
- ---------------------------------------------------------------------------
Effective tax rate 36.5% 36.5% 44.2%
- ---------------------------------------------------------------------------
</TABLE>
Deferred income taxes are not provided on unremitted earnings of foreign
subsidiaries that are intended to be indefinitely invested. Exclusive of
amounts, that if remitted would result in little or no tax under current U.S.
tax laws, unremitted earnings were approximately $455 at January 31, 1998. Net
income taxes of approximately $139 would be due if these earnings were to be
remitted.
20
<PAGE>
STOCK OPTIONS
The Company has Stock Option Plans (the "Plans") which provide for the granting
of options to purchase the Company's common stock to substantially all employees
and non-employee directors of the Company. Included in the Plans is the adoption
of an additional 15.0 and 0.3 shares, in 1997, for the issuance to Company
employees (other than officers) and non-employee directors, respectively. The
Plans provide for the issuance of non-qualified options, incentive stock
options, performance share options, performance units, stock appreciation
rights, restricted shares, restricted units and unrestricted shares. Of the
total number of shares reserved for the Plans, 3.0 shares of Company stock have
been reserved for the issuance of restricted shares, restricted units,
performance units, and unrestricted shares. The Plans provide for a variety of
vesting dates with the majority of the options vesting approximately five years
from the date of grant. The options granted to non-employee directors are
exercisable 20% each year on a cumulative basis commencing one year from the
date of grant.
In addition to the aforementioned plans, 2.2 stock options were granted to
certain senior executives during the period from 1989 to 1996 pursuant to
stockholder approved individual plans. Of this total, 1.6 options vest 20% each
year on a cumulative basis commencing one year from the date of grant with the
balance of the options vesting five years from the date of grant.
The exercise price per share of all options granted has been the average of the
high and low market price of the Company's common stock on the date of grant.
Most options must be exercised within ten years from the date of grant.
At January 31, 1998, an aggregate of 47.7 shares of authorized common stock were
reserved for all of the Plans noted above, of which 23.7 were available for
future grants. All outstanding options expire at dates ranging from May 2, 1998
to February 2, 2008.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
- ------------------------------------------------------------------
<S> <C> <C>
Outstanding February 1, 1997 23.2 $ 25.82
Granted 6.8 34.74
Exercised (3.3) 22.11
Canceled (2.6) 28.82
- ------------------------------------------------------------------
Outstanding January 31, 1998 24.1 $ 29.12
- ------------------------------------------------------------------
Options exercisable
at January 31, 1998 8.4 $ 26.38
- ------------------------------------------------------------------
</TABLE>
The Company utilizes a restoration feature to encourage the early exercise of
options and retention of shares, thereby promoting increased employee ownership.
This feature provides for the grant of new options when previously owned shares
of Company stock are used to exercise existing options. Restoration option
grants are non-dilutive as they do not increase the combined number of shares
of Company stock and options held by an employee prior to exercise. The new
options are granted at a price equal to the fair market value on the date of the
new grant, and generally expire on the same date as the original options that
were exercised.
The Company has adopted the disclosure only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, issued in October 1995. In accordance
with the provisions of SFAS No. 123, the Company applies APB Opinion 25 and
related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net income-as reported $ 490 $ 427 $148
Net income-pro forma 470 411 140
Basic earnings per share-as reported 1.72 1.56 0.54
Basic earnings per share-pro forma 1.65 1.50 0.51
Diluted earnings per share-as reported 1.70 1.54 0.53
Diluted earnings per share-pro forma 1.63 1.48 0.50
- --------------------------------------------------------------------------
</TABLE>
The weighted-average fair value at date of grant for options granted in 1997,
1996 and 1995 were $33.92, $31.49, and $24.58, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model. As there were a number of options granted during the years
of 1995 through 1997, a range of assumptions are provided below:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected stock price volatility .294 - .334 .284 - .328 .241 - .308
Risk-free interest rate 5.0% - 6.9% 5.0% - 6.8% 5.6% - 7.1%
Weighted average
expected life of options 6 years 6 years 6 years
- ------------------------------------------------------------------------------
</TABLE>
The effects of applying SFAS No. 123 and the results obtained through the use
of the Black-Scholes option pricing model are not necessarily indicative of
future values.
PROFIT SHARING PLAN
The Company has a profit sharing plan with a 401(k) salary deferral feature for
eligible domestic employees. The terms of the plan call for annual contributions
by the Company as determined by the Board of Directors, subject to certain
limitations. The profit sharing plan may be terminated at the Company's
discretion. Provisions of $39, $31 and $32 have been charged to earnings in
1997, 1996, and 1995, respectively.
21
<PAGE>
FOREIGN OPERATIONS
Certain information relating to the Company's foreign operations is set forth
below. Corporate assets include all cash and cash equivalents and other related
assets.
<TABLE>
<CAPTION>
Year ended
- ---------------------------------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Sales
Domestic $ 8,171 $ 7,151 $ 6,792
Foreign 2,867 2,781 2,635
- ---------------------------------------------------------------------------
Total $ 11,038 $ 9,932 $ 9,427
- ---------------------------------------------------------------------------
Operating Profit
Domestic $ 688 $ 692 $ 433(b)
Foreign 168 131 (74)(c)
General corporate
expenses (12) (69)(a) (7)
Interest expense, net (72) (81) (86)
- ---------------------------------------------------------------------------
Earnings before taxes
on income $ 772 $ 673 $ 266
- ---------------------------------------------------------------------------
Identifiable Assets
Domestic $ 5,432 $ 4,878 $ 4,013
Foreign 2,282 2,345 2,483
Corporate 249 800 242
- ---------------------------------------------------------------------------
Total $ 7,963 $ 8,023 $ 6,738
- ---------------------------------------------------------------------------
</TABLE>
(a) After an arbitration award charge of $60.
(b) After restructuring and other charges of $209.
(c) After restructuring and other charges of $188.
ACQUISITION
On February 3, 1997, the Company acquired all of the outstanding common shares
of Baby Superstore, Inc. ("Baby Superstore") for 13 million shares of its
treasury stock valued at approximately $376. This acquisition was accounted for
as a purchase as at February 1, 1997. The excess of purchase price over net
assets acquired of $365 has been recorded as goodwill and is being amortized on
a straight-line basis over 40 years.
OTHER CHARGES
On July 12, 1996, an arbitrator rendered an award against the Company in
connection with a dispute involving rights under a 1982 license agreement for
toy store operations in the Middle East. Accordingly, the Company recorded a
provision of $60 during 1996, ($38 after tax or $.14 cents per share),
representing all costs in connection with this matter.
On February 1, 1996, the Company recorded charges of $397 ($269after tax or $.98
cents per share) to restructure its worldwide operations (the "restructuring")
and to adopt SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of. The restructuring charge included $184
related to strategic inventory repositioning, $84 related to the closing or
franchising of 25 stores, $72 for the consolidation of three distribution
centers and seven administrative facilities and $33 of other costs. Total
restructuring and other charges were comprised of $209 relating to operations
in the United States and $188 for international operations. The charge to adopt
SFAS No.121 was $24, primarily related to a write down of certain store assets
to fair value, based on discounted cash flows. At January 31, 1998, the Company
had approximately $62 of liabilities remaining for its restructuring program
primarily relating to long-term lease obligations and other commitments. The
Company believes these reserves are adequate to complete the restructuring
program.
OTHER MATTERS
On May 22, 1996, the Staff of the Federal Trade Commission (the "FTC") filed an
administrative complaint against the Company alleging that the Company is in
violation of Section 5 of the Federal Trade Commission Act for its practices
relating to warehouse clubs. The complaint alleges that the Company reached
understandings with various suppliers that such suppliers not sell to the clubs
the same items that they sell to the Company. The complaint also alleges
that the Company "facilitated understandings" among the manufacturers that such
manufacturers not sell to clubs. The complaint seeks an order that the Company
cease and desist from this practice. The matter was tried before an
administrative law judge in the period from March through May of 1997. On
September 30, 1997, the administrative law judge filed an Initial Decision
upholding the FTC's complaint against the Company.
The Company has appealed the Initial Decision to the Commissioners of the FTC.
That appeal was argued on February 19, 1998. The Company will be entitled to
have the United States Court of Appeals review any adverse decision by the FTC.
After the filing of the FTC complaint, several class action suits were filed
against the Company in State courts in Alabama and California, alleging that the
Company has violated certain state competition laws as a consequence of the
behavior alleged in the FTC complaint. After the Initial Decision was handed
down, more than thirty purported class actions were filed in federal and state
courts in various jurisdictions alleging that the Company has violated the
federal antitrust laws as a consequence of the behavior alleged in the FTC
complaint. In addition, the attorneys general of thirty-eight states, the
District of Columbia and Puerto Rico have filed a suit against the Company in
their capacity as representatives of the consumers of their states, alleging
that the Company has violated federal and state antitrust laws as a consequence
of the behavior alleged in the FTC complaint. These suits seek damages in
unspecified amounts and other relief under state and/or federal law.
The Company believes that both its policy and its conduct in connection with the
foregoing are within the law. The Company also believes that these actions will
not have a material adverse effect on its financial condition, results of
operations or cash flows.
22
<PAGE>
REPORT OF MANAGEMENT
Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report rests with the management of Toys"R"Us. The
accompanying financial statements have been prepared from accounting records
which management believes fairly and accurately reflect the operations and
financial position of the Company. Management has established a system of
internal controls to provide reasonable
assurance that assets are maintained and accounted for, in accordance with its
policies and that transactions are recorded accurately on the Company's books
and records.
The Company's comprehensive internal audit program provides for constant
evaluation of the adequacy of the adherence to management's established policies
and procedures. The Company has distributed to key employees its policies for
conducting business affairs in a lawful and ethical manner.
The Audit Committee of the Board of Directors, which is comprised solely of
outside directors, provides oversight to the financial reporting process
through periodic meetings with our independent auditors, internal auditors and
management.
The financial statements of the Company have been audited by Ernst & Young LLP,
independent auditors, in accordance with generally accepted auditing standards,
including a review of financial reporting matters and internal controls to the
extent necessary to express an opinion on the consolidated financial statements.
/s/ Robert C. Nakasone /s/Louis Lipschitz
Robert C. Nakasone Louis Lipschitz
Chief Executive Officer Executive Vice President
and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Toys"R"Us, Inc.
We have audited the accompanying consolidated balance sheets of Toys"R"Us, Inc.
and subsidiaries as of January 31, 1998 and February 1, 1997, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended January 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Toys"R"Us, Inc.
and subsidiaries at January 31, 1998 and February 1, 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended January 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 11, 1998
23
<PAGE>
DIRECTORS, OFFICERS AND GENERAL MANAGERS
- --------------------------------------------------------------------------------
DIRECTORS
Charles Lazarus
Chairman Emeritus of the Company
Michael Goldstein
Chairman of the Board of the Company
Robert A. Bernhard
Real Estate Developer
RoAnn Costin
President, Reservoir Capital Management, Inc.
Calvin Hill
Consultant
Shirley Strum Kenny
President, State University of
New York at Stony Brook
Bruce W. Krysiak
President and Chief Operating Officer
of the Company*
Norman S. Matthews
Consultant
Howard W. Moore
Consultant
Robert C. Nakasone
Chief Executive Officer of the Company
Arthur B. Newman
Senior Managing Director,
Blackstone Group
OFFICERS - CORPORATE AND ADMINISTRATIVE
Robert C. Nakasone
Chief Executive Officer
Bruce W. Krysiak*
President and Chief Operating Officer
Louis Lipschitz
Executive Vice President
and Chief Financial Officer
Roger C. Gaston
Senior Vice President -
Human Resources
Michael P. Miller
Senior Vice President - Real Estate
Thomas J. Reinebach
Senior Vice President and
Chief Information Officer
Gayle C. Aertker
Vice President - Real Estate
Dan Booher
Vice President -
Architecture and Construction
Rebecca A. Caruso
Vice President -
Corporate Communications
Michael J. Corrigan
Vice President -
Compensation and Benefits
Eileen C. Gabriel
Vice President - Information Systems
Elizabeth S. Jordan
Vice President - Organizational Development
Jon W. Kimmins
Vice President - Treasurer
Joseph J. Lombardi
Vice President - Controller
Matthew J. Lombardi
Vice President - Information Technology
Dion C. Rooney
Vice President - Systems Development
Michael L. Tumolo
Vice President - Counsel
Peter W. Weiss
Vice President - Taxes
Robert S. Zarra
Vice President - Internal Audit
Andre Weiss
Secretary -
Partner-Schulte Roth & Zabel, LLP
TOYS"R"US UNITED STATES - OFFICERS
Bruce W. Krysiak*
President
Michael J. Madden
President - Store Operations
Keith C. Van Beek
President -
Merchandising and Marketing
Robert J. Weinberg
Senior Vice President -
General Merchandise Manager
Ernest V. Speranza
Senior Vice President - Advertising/Marketing
Van H. Butler
Senior Vice President -
Divisional Merchandise Manager
Joel D. Anderson
Vice President - Toys "R" Us Direct
David M. Brewi
Vice President -
Divisional Merchandise Manager
Kristopher M. Brown
Vice President - Distribution and Traffic
Richard N. Cudrin
Vice President - Human Resources
and Associate Relations
Thomas F. DeLuca
Vice President - Imports, Product Development and Safety
Assurance
Harvey J. Finkel
Vice President - Regional Operations
Philip S. Foussekis
Vice President - Loss Prevention
Andrew R. Gatto
Vice President -
Product Development
Jerel G. Hollens
Vice President -
PIPS Integration
Marianita Howard
Vice President -
Creative Services
Mitchell B. Loukota
Vice President -
Divisional Merchandise Manager
Charlene Mady
Vice President -
Area Merchandise Planning
Gerald S. Parker
Vice President -
Regional Operations
Debra M. Rood
Vice President -
Toys"R"Us Direct Fulfillment
Timothy J. Slade
Vice President - Operations Development
William A. Stephenson
Vice President -
Merchandise Planning and Allocation
John P. Sullivan
Vice President -
Divisional Merchandise Manager
Gregg Treadway
Vice President -
Store Planning
Dennis J. Williams
Vice President - Regional Operations
*Effective April 15, 1998
24
<PAGE>
TOYS"R"US INTERNATIONAL - OFFICERS AND COUNTRY MANAGEMENT
Gregory R. Staley
President
Bruno A. Roqueplo
Senior Vice President -
Finance and Administration
Joan W. Donovan
Vice President -
General Merchandise Manager
Joseph Giamelli
Vice President - Information Systems
Jeff Handler
Vice President - Advertising
Larry S. Johnson
Vice President - Franchise Markets
Lawrence H. Meyer
Vice President - Business Development
Michael C. Taylor
Vice President - Logistics
David Rurka
Managing Director -
Toys"R"Us United Kingdom and Chairman of the European Management
Board
Johannes Dercks
President -
Toys"R"Us Central Europe
Jacques LeFoll
President -
Toys"R"Us France/Belgium
John Schryver
Managing Director -
Toys"R"Us Australia
Manabu Tazaki
President -
Toys"R"Us Japan
Antonio Urcelay
Managing Director -
Toys"R"Us Iberia
Keith C. Van Beek
Acting President -
Toys "R" Us Canada
Larry D. Gardner
Vice President -
Toys"R"Us Asia
Scott W.K. Chen
General Manager -
Toys"R"Us Taiwan
Joe Tang
General Manager -
Toys"R"Us Hong Kong
Michael S.M. Yeo
General Manager - Toys"R"Us Singapore
KIDS"R"US/BABIES"R"US - OFFICERS*
Richard L. Markee
President -
Kids"R"Us and Babies"R"Us
Gwen Manto
Senior Vice President -
General Merchandise Manager
James G. Parros
Senior Vice President -
Stores and Distribution Center Operations
Martin E. Fogelman
Vice President - Divisional Merchandise Manager - Babies"R"Us
Jonathan M. Friedman
Vice President - Chief Financial Officer -
Kids"R"Us and Babies"R"Us
James L. Easton
Vice President -
Divisional Merchandise Manager
William K. Farrell
Vice President - Physical Distribution
Christopher M. Scherm
Vice President -
Divisional Merchandise Manager
David E. Schoenbeck
Vice President -
Operations - Babies "R" Us
David S. Walker
Vice President - Advertising
*Kids"R"Us Officer, unless otherwise indicated.
TOYS"R"US UNITED STATES - GENERAL MANAGERS
Barbara A. Fitzgerald
Vice President -
New York/Northern New Jersey
Robert F. Price
Vice President -
Southern California/
Arizona/Nevada/Hawaii
Thomas A. Drugan
Illinois/Wisconsin/Minnesota
Cathy Filion
Michigan/N.W. Ohio
Mark H. Haag
Pacific Northwest/Alaska
Truvillus Hall
Northern California/Utah
Michael K. Heffner
Alabama/Georgia/South Carolina/Tennessee
Daniel D. Hlavaty
Central Ohio/Indiana/Kentucky
Samuel M. Martin
North Texas/Oklahoma/New Mexico
Richard A. Moyer
S.Texas/Louisiana/Mississippi
John J. Prawlocki
Florida/Puerto Rico
Edward F. Siegler
Maryland/Virginia/North Carolina
Carl P. Spaulding
New England
Kevin VanDerGriend
N.E. Ohio/W. Pennsylvania/
W. New York
25
<PAGE>
QUARTERLY FINANCIAL DATA AND MARKET INFORMATION
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA
- --------------------------------------------------------------------------------
(In millions except per share data)
The following table sets forth certain unaudited quarterly financial
information.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------
1997
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 1,924 $ 1,989 $ 2,142 $ 4,983
Cost of Sales 1,326 1,355 1,455 3,574
Net Earnings 29 37 46 378
Basic Earnings per Share $ 0.10 $ 0.13 $ 0.16 $ 1.33
Diluted Earnings per Share $ 0.10 $ 0.13 $ 0.16 $ 1.32
1996
- --------------------------------------------------------------------
Net Sales $ 1,645 $ 1,736 $ 1,883 $ 4,668
Cost of Sales 1,124 1,177 1,281 3,310
Other Charges - 55 - 5
Net Earnings (Loss) 19 (8) 33 383
Basic Earnings (Loss)
per Share $ 0.07 $ (0.03) $ 0.12 $ 1.39
Diluted Earnings (Loss)
per Share $ 0.07 $ (0.03) $ 0.12 $ 1.37
</TABLE>
MARKET INFORMATION
- --------------------------------------------------------------------------------
The Company's common stock is listed on the New York Stock Exchange. The
following table reflects the high and low prices (rounded to the nearest
one-sixteenth) based on New York Stock Exchange trading since February 3, 1996.
The Company has not paid any cash dividends, however, the Board of Directors of
the Company reviews this policy annually.
The Company had approximately 31,700 Stockholders of Record on March 10, 1998.
<TABLE>
<CAPTION>
High Low
- ---------------------------------------------------------------
<S> <C> <C> <C>
1996 1st Quarter 29 7/8 21 7/8
2nd Quarter 30 7/8 23 3/4
3rd Quarter 34 1/16 25 7/8
4th Quarter 37 5/8 24 3/8
- ---------------------------------------------------------------
1997 1st Quarter 29 7/8 24 1/2
2nd Quarter 34 13/16 28 1/4
3rd Quarter 37 1/8 29 1/8
4th Quarter 35 7/16 24 7/8
</TABLE>
26
<PAGE>
STORE LOCATIONS AND CORPORATE DATA
- --------------------------------------------------------------------------------
STORES ACROSS THE UNITED STATES
- -------------------------------
<TABLE>
<CAPTION>
Toys Kids Babies
- ----------------------------------------------------
<S> <C> <C> <C>
Alabama 8 1 2
Alaska 1 - -
Arizona 11 - 1
Arkansas 4 - -
California 86 24 5
Colorado 11 - 2
Connecticut 11 7 -
Delaware 2 1 1
Florida 46 10 10
Georgia 18 4 6
Hawaii 1 - -
Idaho 2 - -
Illinois 35 20 5
Indiana 12 7 2
Iowa 8 1 -
Kansas 5 1 1
Kentucky 8 - 1
Louisiana 11 - 1
Maine 2 1 1
Maryland 19 9 3
Massachusetts 19 6 -
Michigan 25 13 2
Minnesota 12 2 1
Mississippi 5 - -
Missouri 13 5 3
Montana 1 - -
Nebraska 3 1 -
Nevada 4 - 2
New Hampshire 5 2 -
New Jersey 26* 18 6
New Mexico 4 - -
New York 46 23 3
North Carolina 16 1 5
North Dakota 1 - -
Ohio 33 18 5
Oklahoma 5 - 1
Oregon 8 - -
Pennsylvania 33 15 2
Rhode Island 1 1 -
South Carolina 8 - 3
South Dakota 2 - -
Tennessee 14 2 4
Texas 53 9 13
Utah 6 3 -
Vermont 1 - -
Virginia 22* 7 7
Washington 14 - -
West Virginia 5 - -
Wisconsin 10 3 -
Puerto Rico 4 - -
- --------------------------------------------------
700 215 98
- --------------------------------------------------
</TABLE>
*Includes a KidsWorld location.
TOYS"R"US INTERNATIONAL - 441
- -----------------------------
Australia - 24
Austria - 8
Belgium - 3
Canada - 62
Denmark - 9 (a)
France - 44
Germany - 58
Hong Kong - 4 (a)
Indonesia - 3 (a)
Israel - 5 (a)
Italy - 12 (a)
Japan - 64 (b)
Luxembourg - 1
Malaysia - 6 (a)
Netherlands - 9 (a)
Portugal - 5
Saudi Arabia - 1 (a)
Singapore - 4
South Africa - 8 (a)
Spain - 29
Sweden - 4
Switzerland - 5
Taiwan - 6 (a)
Turkey - 3 (a)
United Arab Emirates - 4 (a)
United Kingdom - 60
(a) Franchise or joint venture
(b) 80% owned
ANNUAL MEETING
- --------------
The Annual Meeting of the Stockholders of Toys"R"Us will be held at the
Toys"R"Us Distribution Center, 703 Bartley - Chester Road, in Flanders, New
Jersey on Wednesday, June 3, 1998 at 10:00 A.M.
THE OFFICE OF THE
COMPANY IS LOCATED AT
- ---------------------
461 From Road
Paramus, New Jersey 07652
Telephone: 201-262-7800
GENERAL COUNSEL
- ---------------
Schulte Roth & Zabel, LLP
900 Third Avenue New York, New York 10022
INDEPENDENT AUDITORS
- --------------------
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
REGISTRAR AND
TRANSFER AGENT
- --------------
American Stock Transfer
and Trust Company
40 Wall Street,
New York, New York 10005
Telephone: 718-921-8200
COMMON STOCK LISTED
- -------------------
New York Stock Exchange, Symbol: TOY
STOCKHOLDER INFORMATION
- -----------------------
The Company will supply to any owner of Common Stock, upon written request to
Mr. Louis Lipschitz of the Company at the above address and without charge, a
copy of the Annual Report on Form 10-K for the year ended January 31, 1998,
which has been filed with the Securities and Exchange Commission.
Stockholder information, including quarterly earnings and other corporate news
releases, can be obtained by calling 800-785-TOYS, or at our web site on the
internet at www.toysrus.com
Significant news releases are anticipated to be available as follows:
CALL AFTER...FOR THE FOLLOWING...
- ---------------------------------
May 20, 1998 1st Quarter Results
Aug. 17, 1998 2nd Quarter Results
Nov. 16, 1998 3rd Quarter Results
Jan. 7, 1999 Holiday Sales Results
Mar. 10, 1999 1998 Results
CORPORATE CITIZENSHIP
- ---------------------
Toys"R"Us maintains a company-wide giving program focused on improving the
health care needs of children by supporting many national and regional
children's health care organizations. The Counsel on Economic Priority awarded
Toys"R"Us the Pioneer Award in Global Ethics. This award was the direct result
of the implementation of our Code of Conduct for suppliers which outlines the
Company's position against child labor and unsafe working conditions. In order
for a vendor's product to be sold in any of our stores, they must comply with
our Code of Conduct. If you would like to receive more information on Toys"R"Us'
corporate citizenship please write to Mr. Roger Gaston of the Company at the
Company's address.
Visit us on the internet at www.toysrus.com.
27
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AS OF JANUARY 31, 1998
Name Jurisdiction of Incorporation
- ---- -----------------------------
ABG Corp. Nevada
Baby Superstore, Inc. South Carolina
Geoffrey, Inc. Delaware
MLK, Inc. Missouri
MMT, Inc. Utah
Toys "R" Us - Belgium, Inc. Delaware
Toys "R" Us - Delaware, Inc. Delaware
Toys "R" Us - Del. Operations, Inc. Delaware
Toys "R" Us Group, Inc. Delaware
Toys "R" Us, Inc. Delaware
Toys "R" Us - Mass, Inc. Massachusetts
Toys "R" Us - NY/Texas Holdings, Inc. Delaware
Toys "R" Us - NY LLC New York
Toys "R" Us - NYTEX, Inc. New York
Toys "R" Us - Ohio, Inc. Delaware
Toys "R" Us - Penn, Inc. Pennsylvania
Toys "R" Us - Texas LLC Texas
TRU (ANTS) Inc. Delaware
TRU Belgium Holdings II, Inc. Delaware
TRU Distribution, Inc. Delaware
TRU Foreign Sales Corporation California
TRU Gulf Services, Inc. Delaware
TRU, Inc. Delaware
TRU - LSM Redevelopment Corporation Missouri
TRU Mass Properties Holdings, Inc. Delaware
TRU Mass Properties, Inc. Delaware
TRU Netherlands Holdings I, Inc. Delaware
TRU Netherlands Holdings II, Inc. Delaware
TRU Ohio Properties Holdings, Inc. Delaware
TRU Ohio Properties, Inc. Delaware
TRU Penn Properties Holdings, Inc. Delaware
TRU Penn Properties, Inc. Delaware
TRU Properties Holdings, Inc. Delaware
TRU Properties, Inc. Delaware
TRU Urban Renewal Corp. New Jersey
TRU (Vermont), Inc. Vermont
Toys "R" Us (Australia) Pty, Ltd. Australia
Toys "R" Us (Head Office) Pty. Ltd. Australia
<PAGE>
Toys "R" Us (Wholesale) Pty. Ltd. Australia
TRU (Aust) Superannuation Pty. Ltd. Australia
Toys "R" Us Handelsgesellschaft m.b.H. Austria
TRU (Barbados), Ltd. Barbados
Toys "R" Us - Belgium SCA Belgium
TRU (NRO III) Investments Ltd. Alberta, Canada
Toys "R" Us (Canada) Ltd. Ontario, Canada
TRU (Cayman Islands) Limited Cayman Islands
TRU (Cayman Islands) Investments LLC Cayman Islands
Toys "R" Us A/S Denmark
Societe Anonyme Galeries du Mobilier France
Toys "R" Us S.A.R.L. France
Toys "R" Us GmbH Germany
Toys "R" Us Logistik GmbH Germany
Toys "R" Us Operations GmbH Germany
Toys "R" Us Service GmbH Germany
Toys "R" Us - Lifung Limited Hong Kong
Toys "R" Us Asia Limited Hong Kong
TRU (HK) Limited Hong Kong
Toys "R" Us - Japan, Ltd. Japan
Toys "R" Us (Luxembourg) S.A. Luxembourg
Toys "R" Us (Malaysia) SDN. BHN. Malaysia
Toys "R" Us (Netherlands), B.V. Netherlands
TRU (Netherlands) B.V. Netherlands
TRU (Netherlands) Investments B.V. Netherlands
Toys R Us Portugal, Limitada Portugal
TRU of Puerto Rico, Inc. Puerto Rico
Toys "R" Us - Singapore (Pte) Limited Singapore
Toys R Us, Iberia, S.A. Spain
Toys "R" Us, Aktiebolag Sweden
Toys R Us AG Switzerland
TRU AG Switzerland
Toys "R" Us - Lifung Taiwan Limited Taiwan
Toys "R" Us Holdings PLC United Kingdom
Toys "R" Us Limited United Kingdom
Toys "R" Us Properties Limited United Kingdom
Tru Toys (UK) Limited United Kingdom
<PAGE>
EXHIBIT 23
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CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Toys "R" Us, Inc. and subsidiaries of our report dated March 11,
1998, included in the 1997 Annual Report to Stockholders of Toys "R" Us, Inc.
and subsidiaries.
We also consent to the incorporation by reference in Registration
Statements (Form S-4 Number 33-56303 and 33-18863 Form S-3 Numbers 2-87794,
33-23264, 33-34273, 33-42237, 33-51359 and 33-64315; Form S-8 Numbers 2-64887,
2-91834, 33-42627, 333-11861, 333-15841, 333-23441 and 333-20385) of Toys "R"
Us, Inc. and subsidiaries of our report dated March 11, 1998, with respect to
the consolidated financial statements incorporated herein by reference.
/s/ Ernst & Young LLP
New York, New York
April 24, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Earnings as reported
in Exhibit 13 of the Form 10-K and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-START> Feb-2-1997
<PERIOD-END> Jan-31-1998
<CASH> 282,600
<SECURITIES> 0
<RECEIVABLES> 173,600
<ALLOWANCES> 0
<INVENTORY> 3,923,500
<CURRENT-ASSETS> 4,453,800
<PP&E> 5,627,500
<DEPRECIATION> 1,422,000
<TOTAL-ASSETS> 9,488,900
<CURRENT-LIABILITIES> 4,092,800
<BONDS> 901,200
0
0
<COMMON> 30,000
<OTHER-SE> 4,100,600
<TOTAL-LIABILITY-AND-EQUITY> 9,488,900
<SALES> 6,055,000
<TOTAL-REVENUES> 6,055,000
<CGS> 4,136,500
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 171,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,800
<INCOME-PRETAX> 176,000
<INCOME-TAX> 64,200
<INCOME-CONTINUING> 111,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,800
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.70
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Earnings as reported
in Exhibit 13 of the Form 10-K and is qualified in its entirety by reference to
such financial statements.
RESTATED
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Feb-1-1997
<PERIOD-START> Feb-4-1996
<PERIOD-END> Feb-1-1997
<CASH> 761,000
<SECURITIES> 0
<RECEIVABLES> 142,000
<ALLOWANCES> 0
<INVENTORY> 2,215,000
<CURRENT-ASSETS> 3,160,000
<PP&E> 5,305,000
<DEPRECIATION> 1,258,000
<TOTAL-ASSETS> 8,023,000
<CURRENT-LIABILITIES> 2,541,000
<BONDS> 909,000
0
0
<COMMON> 30,000
<OTHER-SE> 4,161,000
<TOTAL-LIABILITY-AND-EQUITY> 8,023,000
<SALES> 9,932,000
<TOTAL-REVENUES> 9,932,000
<CGS> 6,892,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 266,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,000
<INCOME-PRETAX> 673,000
<INCOME-TAX> 246,000
<INCOME-CONTINUING> 427,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 427,000
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.54
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Earnings as reported
in Exhibit 13 of the Form 10-K and is qualified in its entirety by reference to
such financial statements.
RESTATED
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Feb-3-1996
<PERIOD-START> Jan-29-1995
<PERIOD-END> Feb-3-1996
<CASH> 203,000
<SECURITIES> 0
<RECEIVABLES> 129,000
<ALLOWANCES> 0
<INVENTORY> 2,000,000
<CURRENT-ASSETS> 2,419,000
<PP&E> 4,929,000
<DEPRECIATION> 1,071,000
<TOTAL-ASSETS> 6,738,000
<CURRENT-LIABILITIES> 2,093,000
<BONDS> 827,000
0
0
<COMMON> 30,000
<OTHER-SE> 3,402,000
<TOTAL-LIABILITY-AND-EQUITY> 6,738,000
<SALES> 9,427,000
<TOTAL-REVENUES> 9,427,000
<CGS> 6,592,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 589,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,000
<INCOME-PRETAX> 266,000
<INCOME-TAX> 118,000
<INCOME-CONTINUING> 148,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148,000
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.53
</TABLE>
