SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use
of the Commission Only
(as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
TOYS "R" US, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
.<PAGE>
[LOGO] TOYS "R" US (R)
461 FROM ROAD
PARAMUS, NJ 07652
JOHN H. EYLER, JR.
CHIEF EXECUTIVE OFFICER
April 28, 2000
Dear Stockholder:
I am pleased to invite you to our Company's 2000 Annual Meeting of
Stockholders on Wednesday, June 7, 2000, beginning at 10:00 a.m. The meeting
will be held at the 200 Fifth Club, 200 Fifth Avenue, New York, New York 10010.
(The 200 Fifth Club is located in the rear of the lobby of the International Toy
Center South, on Fifth Avenue between West 23rd and West 24th Streets.)
The formal Notice of Annual Meeting and the Proxy Statement follow. It is
important that your shares be represented and voted at the meeting, regardless
of the size of your holdings. Accordingly, please mark, sign and date the
enclosed Proxy and return it promptly in the enclosed envelope to ensure that
your shares will be represented.
If you plan to attend the Annual Meeting, please bring this letter with
you to the meeting, as it will serve as your admittance pass to the meeting.
Additionally, in order to better accommodate you, we ask that you contact us at
1-800-236-0397 to advise us that you plan on attending the 2000 meeting.
Sincerely,
/s/ John H. Eyler, Jr.
<PAGE>
[LOGO] TOYS "R" US (R)
461 FROM ROAD
PARAMUS, NJ 07652
---------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
June 7, 2000
---------------------------------------------------
TO THE STOCKHOLDERS OF
TOYS "R" US, INC.
The Annual Meeting of Stockholders of Toys "R" Us, Inc. (the "Company")
will be held at the 200 Fifth Club, 200 Fifth Avenue, New York, New York 10010
(the 200 Fifth Club is located in the rear of the lobby of the International Toy
Center South, on Fifth Avenue between West 23rd and West 24th Streets), on
Wednesday, June 7, 2000 at 10:00 A.M., for the following purposes:
1. to elect directors;
2. to consider and act upon stockholder proposals:
proposal No. 1 -- Maximize Value Resolution
proposal No. 2 -- Golden Parachute Resolution
proposal No. 3 -- to redeem the stockholder rights agreement;
and
3. to consider and transact such other business as may properly be
brought before the meeting or any adjournment or adjournments
thereof.
Only stockholders of record at the close of business on April 10, 2000
will be entitled to vote at the meeting.
DENNIS J. BLOCK
Secretary
April 28, 2000
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED, SELF-ADDRESSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
---------------
PROXY STATEMENT
---------------
TOYS "R" US, INC.
461 From Road
Paramus, New Jersey 07652
Annual Meeting of Stockholders
June 7, 2000
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Toys "R"
Us, Inc., a Delaware corporation (the "Company"), for use at the Annual Meeting
of Stockholders to be held at the 200 Fifth Club, 200 Fifth Avenue, New York,
New York 10010, on Wednesday, June 7, 2000 at 10:00 A.M., or at any adjournment
or adjournments thereof.
A stockholder who executes a proxy may revoke it at any time before it is
voted. Attendance at the meeting shall not have the effect of revoking a proxy
unless the stockholder so attending shall, in writing, so notify the secretary
of the meeting at any time prior to the voting of the proxy. A proxy that is
properly signed and not revoked will be voted for the nominees for election as
directors listed herein unless contrary instructions are given or the persons
named in the proxy elect to exercise their discretionary authority to accumulate
votes in favor of less than all nominees. As to the other matters to be
presented at the meeting, all proxies received pursuant to this solicitation
will be voted except as to matters where authority to vote is specifically
withheld. Where a choice is specified as to a proposal, they will be voted in
accordance with such specification, and if no instructions are given, the
persons named in the proxy intend to vote AGAINST approval of (i) Stockholder
Proposal No. 1 - Maximize Value Resolution; (ii) Stockholder Proposal No. 2 -
Golden Parachute Resolution; and (iii) Stockholder Proposal No. 3 - to redeem
the stockholder rights agreement. The Board of Directors knows of no other
business to come before the meeting, but if other matters properly come before
the meeting, the persons named in the proxy intend to vote thereon in accordance
with their best judgment.
The cost of soliciting proxies will be borne by the Company. In addition
to solicitation by mail, directors, officers and employees of the Company may
solicit proxies by telephone or otherwise. The Company will reimburse brokers or
other persons holding stock in their names or in the names of their nominees for
their charges and expenses in forwarding proxies and proxy material to the
beneficial owners of such stock. It is anticipated that the mailing of this
Proxy Statement will commence on or about April 28, 2000.
VOTING SECURITIES
The Company had outstanding 224,768,251 shares of common stock ("Common
Stock") at the close of business on April 10, 2000, which are the only
securities of the Company entitled to be voted at the meeting. Each share of
Common Stock is entitled to one vote (except as stated below under "Election of
Directors") on each matter as may properly be brought before the meeting. Only
stockholders of record at the close of business on April 10, 2000 will be
entitled to vote.
With regard to the election of directors, votes may be cast in favor of or
withheld from each nominee. Directors are elected by a plurality of the votes
cast in the election. Votes that are withheld will be excluded entirely from the
vote and will have no effect. Under the rules of the New York Stock Exchange
(the "NYSE"), brokers who hold shares in street name have the authority to vote
on certain "routine" matters when they have not received instructions from
beneficial owners. Brokers that do not receive instructions are entitled to vote
on the election of directors. Under applicable law, a broker non-vote will have
no effect on the outcome of the election of directors.
<PAGE>
The affirmative vote of a majority of the shares of Common Stock
represented at the meeting and entitled to vote is required for: (i) the
approval of Stockholder Proposal No. 1 - Maximize Value Resolution; (ii) the
approval of Stockholder Proposal No. 2 - Golden Parachute Resolution; and (iii)
the approval of Stockholder Proposal No. 3 - to redeem the stockholder rights
agreement. An abstention with respect to any of these proposals will be counted
as present for purposes of determining the existence of a quorum, but will have
the practical effect of a negative vote as to that proposal. The NYSE determines
whether brokers who do not receive instructions will be entitled to vote on
these proposals. In the event of a broker non-vote with respect to any such
proposal coming before the meeting caused by the beneficial owner's failure to
authorize a vote on such proposal, the proxy will be counted as present for the
purpose of determining the existence of a quorum, but will not be deemed present
and entitled to vote on that proposal for the purpose of determining the total
number of shares of which a majority is required for adoption, having the
practical effect of reducing the number of affirmative votes required to achieve
a majority vote for such matter by reducing the total number of shares from
which a majority is calculated.
Proxies identifying individual stockholders are confidential except: (i)
as necessary to determine compliance with law or assert or defend legal claims;
(ii) as necessary to allow the inspector of elections to certify the results of
a vote; (iii) in the event that a stockholder expressly authorizes disclosure
with respect to his or her vote; (iv) in certain circumstances in a contested
proxy solicitation; or (v) in the event that a stockholder makes a written
comment on a proxy card or an attachment to it. The Company retains an
independent organization to tabulate stockholder votes and to certify voting
results.
PRINCIPAL STOCKHOLDERS
As of April 10, 2000, the following are the only entities known to the
Company to be the beneficial owners of more than five percent of the Common
Stock:
Total Number
of Shares
Name and Address of Beneficially Percent
Beneficial Owner Owned of Class
------------------- ------------ --------
Barrow, Hanley, Mewhinney & Strauss, Inc.(1) ........ 16,071,690 7.15%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, TX 75204-2429
Legg Mason, Inc.(2) ................................. 25,164,085 11.20%
100 Light Street
Baltimore, MD 21203
Trimark Financial Corporation(3) .................... 16,023,600 7.13%
One First Canadian Place
Suite 5600, P.O. Box 487
Toronto, Ontario M5X 1E5
- ----------
(1) According to the Schedule 13G, dated February 8, 2000, filed with the
Securities and Exchange Commission (the "Commission") by Barrow, Hanley,
Mewhinney & Strauss, Inc., an Investment Adviser incorporated under the
laws of Nevada ("BHMS"), at December 31, 1999, BHMS was the beneficial
owner of 16,071,690 shares of Common Stock. The Schedule 13G indicates
that BHMS has the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, the Common Stock held by
certain clients of BHMS, none of which has such right or power with
respect to five percent or more of the Common Stock.
(2) According to the Schedule 13G, filed with the Commission on February 14,
2000, by Legg Mason, Inc., a parent holding company incorporated in
Maryland ("Legg Mason"), Legg Mason beneficially owned 25,164,085 shares
of Common Stock with sole voting power and sole dispositive power over
17,604,466 shares and shared voting power and shared dispositive power
over 7,559,619 shares. The Legg Mason subsidiaries that acquired Common
Stock were identified and classified as follows: Legg Mason Funds Adviser,
Inc., as investment adviser with discretion; Legg Mason Wood Walker, Inc.,
as investment adviser and broker/dealer with discretion; Legg Mason
Capital Management, Inc., as investment adviser with
2
<PAGE>
discretion; Legg Mason Trust, fsb, as investment adviser with discretion;
Bartlett & Co., as investment adviser with discretion; Brandywine Asset
Management, Inc., as investment adviser with discretion; Batterymarch
Financial Management, Inc., as investment adviser with discretion.
(3) According to the Schedule 13G, dated February 1, 2000, filed with the
Commission by Trimark Financial Corporation, a corporation incorporated
under the laws of Ontario, Canada ("Trimark"), certain Trimark mutual
funds (the "Trimark Funds"), which are trusts organized under the laws of
Ontario, Canada, are owners of record of 16,023,600 shares of Common
Stock. Trimark Investment Management Inc. ("TIMI"), a corporation
incorporated under the laws of Canada, is a manager and trustee of the
Trimark Funds. TIMI is qualified to act as an investment adviser and
manager of the Trimark Funds in the province of Ontario pursuant to a
registration under the Securities Act (Ontario). Trimark owns 100% of the
voting equity securities of TIMI.
The determination that there were no other persons, entities or groups
known to the Company to beneficially hold more than 5% of the Common Stock was
based on a review of all statements filed with respect to the Company since the
beginning of the past fiscal year with the Commission pursuant to Section 13(d)
or 13(g) of the Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act").
ELECTION OF DIRECTORS
In accordance with the recommendation of its Nominating Committee, the
Board of Directors has proposed for election at the Annual Meeting of
Stockholders the 8 individuals listed below to serve (subject to the Company's
By-Laws) as directors of the Company until the next annual meeting and until the
election and qualification of their successors. Robert A. Bernhard and Howard W.
Moore, current directors of the Company, have decided not to stand for
re-election, and the Board of Directors has determined not to fill their
positions. All of the nominees are current directors of the Company and were
elected by the stockholders at the annual meeting held in 1999, except for John
H. Eyler, Jr., who was appointed in January 2000. If any such person should be
unwilling or unable to serve as a director of the Company (which is not
anticipated) the persons named in the proxy will vote the proxy for substitute
nominees selected by them unless the number of directors has been reduced to the
number of nominees willing and able to serve.
In electing directors, holders of Common Stock have cumulative voting
rights; that is, each holder of record of Common Stock shall be entitled to as
many votes as shall equal the number of shares owned of record multiplied by the
number of directors to be elected, and may cast all of such votes for a single
director or may distribute them among all or some of the directors to be voted
for, as such holder sees fit. Unless contrary instructions are given, the
persons named in the proxy will have discretionary authority to accumulate votes
in the same manner.
Certain information for each nominee for director is set forth below:
<TABLE>
<CAPTION>
Common Stock
Beneficially
Owned as of Percent
Principal Occupation, Employment, etc. March 7, 2000 of Class
- -------------------------------------- ------------- --------
<S> <C> <C>
RoAnn Costin .............................................................. 17,271(a)(b) *
President of Reservoir Capital Management, Inc., an investment
management firm since prior to 1995; director of the Company
since June 1996; age 47 years.
John H. Eyler, Jr. ........................................................ 25,000 *
President, Chief Executive Officer and director of the Company since
January 2000. Chairman and Chief Executive Officer of
FAO Schwartz since prior to 1995 to January 2000;
director of Donna Karan International Inc.; age 52 years.
Michael Goldstein ......................................................... 1,405,994(c) *
Acting Chief Executive Officer of the Company from September 1999
to January 2000 and Chairman of the Board since February 1998;
Vice Chairman of the Board and Chief Executive Officer of the
Company since prior to 1995 to February 1998; director of the
Company since 1989; director of Houghton Mifflin Co., United Retail
Group Inc., and Finlay Enterprises, Inc.; age 58 years.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Common Stock
Beneficially
Owned as of Percent
Principal Occupation, Employment, etc. March 9, 2000 of Class
- -------------------------------------- ------------- --------
<S> <C> <C>
Calvin Hill ............................................................... 13,935(a)(b)(d) *
Independent Consultant since prior to 1995; director of the Company
since 1997; director of the March of Dimes and The Special Olympics;
age 53 years.
Shirley Strum Kenny ....................................................... 18,608(a)(b) *
President of the State University of New York at Stony Brook since
prior to 1995; director of the Company since 1990; director of
Computer Associates International, Inc.; age 65 years.
Charles Lazarus ........................................................... 68,493(b) *
Chairman Emeritus of the Board since February 1998; Chairman of
the Board since prior to 1995 to February 1998; director of the
Company since 1969; director of Loral Space and Communications;
age 76 years.
Norman S. Matthews ........................................................ 30,408(a)(b) *
Independent retail consultant since prior to 1995; President of
Federated Department Stores, Inc. from 1987 to 1988 and Vice
Chairman of the Board of Federated Department Stores, Inc. from
1983 to 1988; director of the Company since 1995; director of
Lechter's Inc., Finlay Enterprises, Inc., Progressive Corp., and
Sunoco, Inc.; age 67 years.
Arthur B. Newman .......................................................... 26,126(a)(b) *
Senior Managing Director of The Blackstone Group L.P., a private
investment firm, since prior to 1995; director of the Company
since 1997; age 56 years.
</TABLE>
- ----------
* Less than 1% of the outstanding Common Stock.
(a) Includes 10,500, 7,200, 15,500, 16,100 and 10,600 shares for Ms. Costin,
Mr. Hill, Ms. Kenny, and Messrs. Matthews and Newman, respectively, which
such persons have the right to acquire upon exercise of currently
exercisable options, and the percentage is calculated on the basis that
such shares are deemed outstanding.
(b) Includes 6,271, 6,600, 1,321, 2,734, 10,308 and 10,526 Stock Units
(rounded down to the nearest whole share) for Ms. Costin, Mr. Hill, Ms.
Kenny and Messrs. Lazarus, Matthews and Newman (collectively the
"Non-Employee Directors"), respectively. Each Stock Unit represents the
right to receive a share of Common Stock and was received in lieu of cash
for all or a portion of their director's fees. The stock underlying the
Stock Units was purchased by the Company in its name for the benefit of
each Non-Employee Director and will be delivered to each Non-Employee
Director in exchange for Stock Units upon vesting. Stock Units awarded
prior to June 1999 vest upon the Non-Employee Director's death,
retirement, or resignation. Stock Units awarded pursuant to the
Non-Employee Directors' Stock Unit Plan, which became effective on June
10, 1999, vest on the first anniversary of the award date.
(c) Includes 1,082,246 shares which Mr. Goldstein has the right to acquire
upon exercise of currently exercisable options, of which options to
purchase 832,246 shares, although exercisable, provide that the shares
acquired upon the exercise of such options having a value equal to the
aggregate fair market value over the exercise price of such options are
generally subject to forfeiture under certain conditions. Also includes
319,270 shares required to be held for a minimum of two years from the
date on which such shares were deposited in a trust established by the
Company (the "Grantor Trust"); Mr. Goldstein does not have voting power
with respect to the shares held in the Grantor Trust and will forfeit
104,420 of the shares under certain conditions. The percentage of Mr.
Goldstein's aggregate ownership is calculated on the basis that all such
shares are deemed outstanding.
(d) Includes 135 shares beneficially owned by his wife, as to which shares Mr.
Hill disclaims beneficial ownership.
- ----------
The address of each person named in the above table is c/o Toys "R" Us,
Inc., 461 From Road, Paramus, New Jersey 07652.
4
<PAGE>
On April 24, 1998, RoAnn Costin and Reservoir Capital Management, Inc.
("Reservoir"), an investment advisor as to which Ms. Costin is the sole officer,
director and shareholder, without admitting or denying the findings contained
therein (other than as to jurisdiction) consented to the issuance of an order by
the Commission in which the Commission (i) made findings that Reservoir and Ms.
Costin had violated portions of Sections 206, 204 and 207 of the Investment
Advisers Act of 1940 (the "Advisers Act") and certain rules promulgated
thereunder and (ii) ordered respondents to cease and desist from committing or
causing violation of certain provisions of the Advisers Act and the rules
promulgated thereunder; censured respondents and ordered payment of a civil
money penalty; and ordered Reservoir to comply with specified undertakings. The
Commission's order does not impact Ms. Costin's ability to serve as a director
of the Company.
As of March 7, 2000, all current executive officers and directors of the
Company as a group (19 persons) owned beneficially 4,962,769 shares of Common
Stock (including 4,531,565 shares with respect to which such persons had the
right to acquire as of such date or within sixty days thereof, shares deposited
in the Grantor Trust which are subject to forfeiture under certain circumstances
and shares beneficially owned by the family members of certain executive
officers and directors as to which family-owned shares such executive officers
and directors disclaim beneficial ownership), which constituted approximately
2.15% of the shares of Common Stock deemed outstanding on that date. Except for
those shares of which such persons have the right to acquire beneficial
ownership, shares beneficially owned by such family members and shares deposited
in the Grantor Trust, such executive officers and directors have sole voting
power and sole investment power with respect to such shares.
As of March 7, 2000, current directors not standing for re-election owned
beneficially the following shares of Common Stock (in each case, less than 1% of
the shares deemed outstanding on such date): Robert A. Bernhard owned
beneficially 31,854 shares (including: 10,000 shares beneficially owned by his
wife, as to which shares Mr. Bernhard disclaims beneficial ownership; 14,900
shares which Mr. Bernhard has the right to acquire upon exercise of currently
exercisable options, with the percentage calculated on the basis that such
shares are deemed outstanding; and 6,454 Stock Units (rounded down to the
nearest whole share), which are subject to the same terms as the Stock Units
granted to other Non-Employee Directors and Howard W. Moore owned beneficially
47,375 shares (including 14,300 shares which Mr. Moore has the right to acquire
upon exercise of currently exercisable options, with the percentage calculated
on the basis that such shares are deemed outstanding; and 6,075 Stock Units
(rounded down to the nearest whole share), which are subject to the same terms
as the Stock Units granted to other Non-Employee Directors. As of March 7, 2000,
the Named Officers (as defined below) not identified in the table above owned
beneficially the following shares of Common Stock (in each case, except as set
forth below, less than 1% of the shares deemed outstanding on such date): Robert
C. Nakasone, who resigned as Chief Executive Officer of the Company and as a
director, effective September 5, 1999, owned beneficially 2,799,858 shares of
Common Stock, constituting 1.21% of the outstanding Common Stock (including
2,126,561 shares which Mr. Nakasone had the right to acquire upon exercise of
currently exercisable options; Mr. Nakasone disclaims beneficial ownership with
respect to 2,925 shares of Common Stock beneficially owned by his minor
children); Richard L. Markee, President of Babies "R" Us Division and Chairman
of Kids "R" Us Division, owned beneficially 727,058 shares of Common Stock
(including 727,000 shares which Mr. Markee had the right to acquire upon
exercise of currently exercisable options); and Gregory R. Staley, President of
the Company's U.S. Toy Store Division (formerly President of the Company's
International Division), owned beneficially 606,013 shares of Common Stock
(including 604,800 shares which Mr. Staley had the right to acquire upon
exercise of currently exercisable options); Michael G. Shannon,
President-Administration and Logistics of the Company (formerly President of the
Company's U.S. Toy Store Division), owned beneficially 330,000 shares of Common
Stock (including 330,000 shares which Mr. Shannon had the right to acquire upon
exercise of currently exercisable options); and Bruce Krysiak, who resigned as
President and Chief Operating Officer of the Company effective March 26, 1999,
owned beneficially 180,000 shares of Common Stock (including 180,000 shares
which Mr. Krysiak had the right to acquire upon exercise of currently
exercisable options).
The Board of Directors held nine meetings during the Company's last fiscal
year. The Board of Directors has an Executive Committee, a Nominating Committee,
an Audit Committee, a Management Compensation and Stock Option Committee (the
"Compensation Committee"), an Operating Committee and a Corporate Governance
Committee.
5
<PAGE>
The Executive Committee currently has as its members John H. Eyler, Jr.,
Michael Goldstein, Charles Lazarus, Norman S. Matthews and Arthur B. Newman. The
Executive Committee of the Board of Directors has and may exercise all the
powers and authority of the full Board of Directors, subject to certain
exceptions. The Executive Committee held five meetings during the Company's last
fiscal year.
The Nominating Committee currently has as its members three directors who
are not officers or employees of the Company: Robert A. Bernhard, RoAnn Costin
and Shirley Strum Kenny (Chairperson). Immediately following the Annual Meeting
of Stockholders, Norman S. Matthews will assume Mr. Bernhard's position on the
Nominating Committee. The Nominating Committee recommends to the Board of
Directors the individuals to be nominated for election as directors at the
annual meeting of stockholders and has the authority to recommend the
individuals to be elected as directors to fill any vacancies or additional
directorships which may arise from time to time on the Board of Directors. The
Nominating Committee considers nominations made in accordance with the procedure
in the following paragraph. The Nominating Committee held one meeting during the
Company's last fiscal year.
The Company's By-Laws provide that nominations for the election of
directors may be made by any stockholder of at least $1,000 in current value of
shares of the Company entitled to vote for the election of directors in writing,
delivered or mailed to the executive offices of the Company, Toys "R" Us, Inc.,
461 From Road, Paramus, New Jersey 07652, not less than 90 days nor more than
120 days prior to the meeting, except that if less than 100 days notice of the
meeting is given, such written notice shall be delivered or mailed not later
than the close of business on the tenth day following the day on which notice of
the meeting was mailed. Each notice shall set forth: (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director:
(i) the name, age, business address and residence address of such person; (ii)
the principal occupation or employment of such person; (iii) the class and
number of shares of the Company that are beneficially owned by such person; and
(iv) any other information that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act (including without
limitation such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (b) as to the
Company's stockholder giving the notice: (i) the name and address, as they
appear on the Company's books, of such stockholder; (ii) the class and number of
shares of the Company that are beneficially owned by such stockholder as of the
record date; (iii) a representation that the stockholder intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice; and (iv) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder. If the Chairman of the meeting determines that a
nomination was not made in accordance with the foregoing procedure, such
nomination will be disregarded.
In accordance with the Company's retirement policy for Non-Employee
Directors (as defined below), Non-Employee Directors, other than those who were
members of the Board prior to 1997, may not serve on the Board of Directors
after reaching the age of seventy-two, except that any such Non-Employee
Director who reaches age seventy-two may continue to serve until the next
succeeding annual meeting of stockholders and the election and qualification of
such Director's successor.
The Audit Committee currently has as its members three directors who are
not current or former officers or employees of the Company: RoAnn Costin,
Shirley Strum Kenny and Arthur B. Newman (Chairperson). The Audit Committee held
three meetings during the Company's last fiscal year. The Audit Committee: (i)
reviews the procedures employed in connection with the internal auditing program
and accounting procedures; (ii) obtains from the independent auditors a written
statement identifying all relationships between the auditors and the Company and
recommends to the Board appropriate action to address and resolve any issues
affecting independence of the auditors; (iii) consults with the independent
auditors, including with respect to review of the Company's quarterly financial
statements, and reviews the reports submitted by such independent auditors; and
(iv) makes such reports and recommendations to the Board of Directors as it may
deem appropriate.
The Compensation Committee currently has as its members three directors
who are not current or former officers or employees of the Company: Robert A.
Bernhard, Norman S. Matthews (Chairperson) and Arthur B. Newman. Immediately
following the Annual Meeting of Stockholders, Calvin Hill will assume Mr.
Bernhard's position on the Compensation Committee. The Compensation Committee
held three meetings
6
<PAGE>
and took action five times by unanimous written consent during the Company's
last fiscal year. The Compensation Committee reviews management compensation
standards and practices and functions as the independent committee under certain
of the Company's compensation plans. (See "Report of the Management Compensation
and Stock Option Committee on Executive Compensation.")
The Operating Committee consists of two directors and currently has as its
members John H. Eyler, Jr. and Michael Goldstein. The Operating Committee is
authorized to incur indebtedness on behalf of the Company within limits
established by the full Board of Directors. The Operating Committee took no
action during the Company's last fiscal year.
The Corporate Governance Committee consists of three directors and
currently has as its members: Calvin Hill (Chairperson), Shirley Strum Kenny and
Howard W. Moore. Following the Annual Meeting of Stockholders, Mr. Moore's
position on the Corporate Governance Committee will not be filled at the present
time. The Corporate Governance Committee held one meeting during the Company's
last fiscal year. The Corporate Governance Committee: (i) reviews compliance
with the "insider trading" rules of the NYSE and the Commission; (ii) reviews
that proper guidelines are established for compliance with laws in the
jurisdictions in which the Company does business; (iii) periodically reviews the
Company's Code of Ethical Standards and Business Practices and Conduct, the Code
of Conduct and compliance thereunder; (iv) recommends changes in Board
compensation and retirement age policies and (v) reviews stockholder proposals.
Compensation of Directors
At the 1999 Annual Meeting of Stockholders, stockholders approved: (i) the
Non-Employee Directors' Stock Option Plan (the "Directors' Option Plan"); (ii)
the Non-Employee Directors' Stock Unit Plan (the "Directors' Unit Plan"); and
(iii) the Non-Employee Directors' Deferred Compensation Plan (the "Directors'
Deferred Plan"). Each of the Directors' Option Plan, Directors' Unit Plan and
Directors' Deferred Plan became effective on June 10, 1999.
Pursuant to the Directors' Option Plan, Directors who were not officers or
employees of the Company or any of its subsidiaries ("Non-Employee Directors")
were granted options to purchase 30,000 shares of stock on June 10, 1999, and
will receive a further grant of an option to purchase 30,000 shares on each
three-year anniversary of such original option grant date. In addition, new
Non-Employee Directors are entitled to receive stock option grants after one
year of service, to purchase a pro-rated number of shares of Common Stock based
on the number of months remaining in any respective three-year cycle of options
granted to existing Non-Employee Directors. Subject to certain exceptions,
one-third of such options become exercisable on a cumulative basis on each of
the third, fourth and fifth anniversaries of the date of grant. Non-Employee
Directors may elect to receive the grant of an option in lieu of the payment of
all or any portion of the annual cash retainer or award of units representing
shares of Common Stock to be purchased in the name of the Company for the
benefit of eligible Directors ("Stock Units") at the exchange ratios specified
in the Directors' Option Plan and in accordance with the terms and conditions of
the Directors' Option Plan.
The Directors' Unit Plan provides for the award to Non-Employee Directors
of Stock Units, which generally vest one year from the initial award date,
valued at $1,500 per meeting for each Board meeting attended and at $1,000 per
meeting for each Committee meeting attended. In addition to the Stock Units
awarded for Board and committee service, each Non-Employee Director who serves
as a Chairperson of a Committee for a year receives an additional award of Stock
Units, valued at $10,000, and each Non-Employee Director who serves on the
Executive Committee for a year receives an additional award of Stock Units,
valued at $35,000. New Non-Employee Directors receive an award of Stock Units
after six months of service, valued at $50,000. Non-Employee Directors are also
entitled to elect to receive Stock Units in lieu of all or any portion of the
$30,000 per annum cash retainer payable for service on the Board. Stock Units
are awarded and valued, pending vesting, during the first week of each fiscal
quarter. The Stock Units will generally be settled by delivery of Common Stock
upon vesting of the Stock Unit one year from the award thereof, or upon a
Non-Employee Director's earlier death, retirement after age 60 at least six
months after the date of the award, resignation to enter public service or
disability, unless the Non-Employee Director elects deferral pursuant to the
Directors' Deferred Plan.
7
<PAGE>
Pursuant to the Directors' Deferred Plan, Non-Employee Directors can elect
to defer compensation which may be in the form of cash, shares of stock, Stock
Units and shares of Common Stock receivable upon the exercise of a stock option.
Any such election is generally irrevocable. Payment in settlement of any amounts
of cash, Common Stock or other property deposited in the deferral accounts
established for Non-Employee Directors pursuant to the Directors' Deferred Plan
will generally be made as soon as practicable after the dates, and in such
number of installments, as elected by a Non-Employee Director.
The Directors' Option Plan replaces the Company's Amended and Restated
Non-Employee Directors' Stock Option Plan (the "Prior Option Plan"), which was
in effect prior to June 10, 1999. The Prior Option Plan provided for (i) the
grant to Non-Employee Directors of options to purchase 5,000 shares of Common
Stock; (ii) the grant to each Non-Employee Director who served on the Executive
Committee of additional options to purchase 5,000 shares of Common Stock; and
(iii) the grant to each Chairperson of a Committee of the Board of Directors of
additional options to purchase 1,000 shares of Common Stock. Subject to certain
conditions, one-fifth of such options became exercisable on a cumulative basis
on each anniversary of the date of grant.
The Directors' Unit Plan replaces the Company's Stock Unit Plan for
Non-Employee Directors (the "Prior Unit Plan"). The Prior Unit Plan permitted
Non-Employee Directors to elect to receive all or a portion of cash fees paid
for Board and committee service in the form of Stock Units. The Stock Units were
generally settled by delivery of Common Stock upon a Non-Employee Director's
death, retirement or resignation pursuant to the Prior Unit Plan. Options
granted and Stock Units awarded under the Prior Option Plan and the Prior Unit
Plan continue to be governed by the respective terms of the Prior Option Plan
and the Prior Unit Plan, but no additional options or Stock Units will be
granted or awarded thereunder. Directors who are also officers or employees of
the Company receive no additional compensation for services as a director,
committee participation or special assignments.
In addition, during the fiscal year ended January 29, 2000, all of the
current directors were granted options pursuant to the Toysrus.com Amended and
Restated 1999 Stock Incentive Plan (the "Toysrus.com Options") to purchase
shares of common stock, par value $.01 per share, of the Company's
majority-owned subsidiary, Toysrus.com, Inc. ("Toysrus.com"). Such grants
included 300,000 options to each of Messrs. Eyler and Goldstein; 20,000 options
to each of Messrs. Lazarus, Matthews and Newman; and 10,000 options to each of
Ms. Costin, Mr. Hill, Ms. Kenny and Messrs. Bernhard and Moore. The Toysrus.com
Options are exercisable as of the grant date and vest 25% one year from grant
date, with the balance vesting 2.08% per month during each of the three years
following the first anniversary of the grant date.
Effective January 31, 1994, Charles Lazarus terminated his employment as
Chief Executive Officer of the Company and, pursuant to his employment
agreement, exercised his right to become a consultant to the Company for a
five-year period. Under the terms of his agreement, Mr. Lazarus is required to
refrain from competing either directly or indirectly with any business carried
on by the Company during the term of his consulting period and for three years
thereafter. The employment agreement also provides that Mr. Lazarus is entitled
to receive a retirement benefit payment of $200,000 a year for five years
commencing February 1999, the termination of his consulting period.
Effective February 25, 1998, Michael Goldstein resigned as Chief Executive
Officer and Vice Chairman of the Board and was elected Chairman of the Board.
Mr. Goldstein receives compensation for his service as Chairman in accordance
with his retention agreement with the Company dated February 25, 1998. See
"Employment Agreements" for a description of the terms of Mr. Goldstein's
retention agreement.
Executive Compensation
The following table sets forth, for the Company's last three fiscal years,
the annual and long-term compensation of (i) those persons who were, at January
29, 2000: (a) the Chief Executive Officer and (b) the other four most highly
compensated executive officers of the Company, (ii) two individuals who served
as the Chief Executive Officer for portions of the fiscal year ended January 29,
2000, and (iii) one individual who would have been among the four most highly
compensated executive officers of the Company had he been serving as such at the
end of the fiscal year ended January 29, 2000 (collectively, the "Named
Officers"):
8
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
------------------------------ ------------------------------------
Restricted LTIP All Other
Stock Stock Payouts Compensa-
Name and Principal Position (1) Year Salary ($) Bonus ($) Options (#) Units ($)(2) ($)(3) tion ($)(4)
- ------------------------------- ------ --------- -------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
John H. Eyler, Jr. (5) ....................... 01/29/00 38,462 0 1,000,000 2,288,000 0 0
President, Chief Executive Officer 300,000(6)
Michael Goldstein (7) ........................ 01/29/00 565,374 758,762 324,938 0 86,312
Chairman of the Board and 300,000(6)
Former Chief Executive 01/30/99 553,835 120,000 366,666 1,422,900 151,340 107,908
Officer 01/31/98 884,615 96,328 524,886 250,040 133,982
Robert C. Nakasone (8) ....................... 01/29/00 1,403,455 0 705,238 0 287,353
Former Chief Executive 300,000(6)
Officer 01/30/99 899,990 360,000 1,100,000 4,266,000 151,340 140,908
01/31/98 884,615 96,328 398,649 250,040 133,982
Richard L. Markee ............................ 01/29/00 483,072 468,805 90,000 457,600 0 100,980
President of Babies "R" Us 90,000(6)
Division and Chairman of 01/30/99 443,450 389,687 320,000 55,890 61,590
Kids "R" Us Division 01/31/98 432,692 8,148 40,000 986,000 92,340 98,456
Gregory R. Staley ............................ 01/29/00 483,072 401,969 90,000 453,800 0 72,206
President of International 90,000(6)
Division 01/30/99 441,142 124,600 320,000 55,890 81,840
01/31/98 416,923 196,277 40,000 957,000 92,340 61,346
Michael G. Shannon ........................... 01/29/00 554,996 257,125 90,000 0 133,982
Executive Vice President and 110,000 (6)
President of U.S. Toy Store 01/30/99 170,768 155,400 240,000 812,500 55,890 50,000
Division
Bruce Krystak (9) ............................ 01/29/00 799,994 0
Former President and Chief 01/30/99 639,995 320,000 900,000(10) 5,812,500 107,801 102,689
Operating Officer
</TABLE>
- ----------
(1) All positions represent the capacities in which the individuals served
during the last fiscal year.
(2) Restricted Stock Units ("Restricted Units") were issued pursuant to the
executives' Retention Agreements. Restricted Units represent the right to
receive a like number of shares of Common Stock upon satisfactorily
meeting the vesting, employment, and non-compete requirements specified in
the Retention Agreements. Failures to meet such requirements subject the
Restricted Units to forfeiture. In the case of Mr. Eyler, Restricted Units
will vest 33 1/3% per annum, commencing February 1, 2001 (subject to
certain performance criteria). In the case of Mr. Nakasone, 25,280
Restricted Units were forfeited in connection with his resignation; the
balance of 132,720 Restricted Units will vest on September 5, 2001,
pursuant to the Nakasone Separation Agreement (as defined below). In the
case of Mr. Krysiak, all Restricted Units (other than 40,000 Restricted
Units which vest on March 26, 2001, the second anniversary of the Krysiak
Termination Date (as defined below)), were forfeited in connection with
his resignation. In the case of Mr. Goldstein, Restricted Units will vest
20% per annum, commencing May 1, 1998 (subject to certain performance
criteria). Restricted Units are issued under the Toys "R" Us, Inc. Amended
and Restated 1994 Stock Option and Performance Incentive Plan (the "1994
Plan").
Value of Restricted Units is based on the closing price on the date of
issuance. Value of Restricted Units issued for the fiscal year ended
January 29, 2000 is based on the closing price on the date of issuance of
$11.44 for Mr. Eyler, $22.88 for Mr. Markee and $22.69 for Mr. Staley.
Value of Restricted Units issued for the fiscal year ended January 30,
1999 is based on the closing price on the date of issuance of $27.00 for
Messrs. Goldstein and Nakasone, $16.25 for Mr. Shannon and $29.06 for Mr.
Krysiak. Value of Restricted Units issued for the fiscal year ended
January 31, 1998 is based on the closing price on the date of issuance of
$29.00 for Messrs. Markee and Staley. At January 29, 2000, the number and
value (based on the closing price of $10.06 per share of Common Stock at
January 29, 2000) of non-dividend paying Restricted Units awarded and
outstanding are: 200,000 ($2,012,500), 52,700 ($530,294), 132,720
($1,333,495), 54,000 ($543,375), 53,000 ($553,313), 50,000 ($503,125), and
40,000 ($402,500), for Messrs. Eyler, Goldstein, Nakasone, Markee, Staley,
Shannon and Krysiak, respectively.
(3) Long-Term Incentive Payouts related to long-term performance unit awards.
See "Report of the Management Compensation and Stock Option Committee on
Executive Compensation."
9
<PAGE>
(4) "All Other Compensation" represents the Company's contributions to the
"TRU" Partnership Employee's Savings and Profit Sharing Plan and to its
Supplemental Executive Retirement Plan for the accounts of the Named
Officers (with the exception of Mr. Krysiak). In addition, $36,886 is
included for Mr. Shannon, primarily due to reimbursement of relocation
related expenses. See "Report of the Management Compensation and Stock
Option Committee on Executive Compensation."
(5) Mr. Eyler was appointed President and Chief Executive Officer on January
17, 2000.
(6) Represents Toysrus.com Option grants. Mr. Nakasone's grant vested on
September 5, 1999. All other grants vest 25% one year from the grant date
and 2.08% per month during each of the three years following the first
anniversary of the grant date.
(7) Mr. Goldstein served as Interim Chief Executive Officer from September 5,
1999 until January 16, 2000.
(8) Mr. Nakasone was employed by the Company from January 31, 1985 until
September 5, 1999.
(9) Mr. Krysiak was employed by the Company from April 15, 1998 until March
26, 1999.
(10) All stock options granted to Mr. Krysiak, other than options with respect
to 180,000 shares granted in 1998, were cancelled in connection with his
resignation.
The following tables set forth certain information concerning stock
options granted by the Company and Toysrus.com during the fiscal year ended
January 29, 2000 to the Named Officers. The hypothetical present value on date
of grant shown below is presented pursuant to the rules of the Commission and is
calculated under the Modified Black-Scholes Model for pricing options. The
actual before-tax amount, if any, realized upon the exercise of a stock option
will depend upon the excess, if any, of the market price of the Common Stock
over the exercise price per share of the stock option at the time the stock
option is exercised. There is no assurance that the hypothetical present value
or any value of the stock options reflected in these tables will be realized.
OPTION GRANTS IN LAST FISCAL YEAR
Toys "R" Us, Inc.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------------
% of Total Grant Date
Options Exercise Expiration Present
Name Options (#) Granted(2) Price/Share ($) Date Value ($) (3)
- ---- ----------- ---------- --------------- ---- -------------
<S> <C> <C> <C> <C> <C>
John H. Eyler, Jr. ............... 1,000,000(1) 10.3% 11.6875 01/17/2010 4,830,000
Michael Goldstein ................ 100,000(1) 1.03% 19.72 04/07/2009 641,000
224,938(4) 2.32% 24.22 09/08/2008 1,657,793
Robert C. Nakasone ............... 300,000(1) 3.09% 19.72 04/07/2009 1,923,000
405,238(4) 4.17% 24.22 09/08/2008 2,986,604
Richard L. Markee ................ 90,000(1) 0.93% 19.72 04/07/2009 576,900
Gregory R. Staley ................ 90,000(1) 0.93% 19.72 04/07/2009 576,900
Michael G. Shannon ............... 90,000(1) 0.93% 19.72 04/07/2009 576,900
Bruce Krysiak (5) ................ -- -- -- -- --
</TABLE>
- ----------
(1) Stock options granted in January 2000 for Mr. Eyler (including options
with respect to 300,000 shares granted subject to availability, which
shares became available as of March 24, 2000) and in April 1999 for
Messrs. Goldstein, Nakasone, Markee, Staley and Shannon under the 1994
Plan. Such options become exercisable six months after the date of grant.
Upon exercise of options, the number of shares having a value equal to the
aggregate fair market value over the exercise price of the options is
generally subject to forfeiture if the grantee does not remain with the
Company until the third anniversary from the date the options are granted.
Mr. Nakasone's exercisable options vested on September 5, 1999. See
"Report of the Management Compensation and Stock Option Committee on
Executive Compensation."
(2) Based upon a total of 9,707,931 Toys "R" Us, Inc. options granted to
31,367 employees of the Company.
(3) The hypothetical present values on grant date are calculated under the
Modified Black-Scholes Model, which is a mathematical formula used to
value options traded on stock exchanges. This formula considers a number
of factors in estimating an option's present value. Factors used to value
original options issued in 1999 include the following:
10
<PAGE>
Toys "R" Us, Inc.
April 1999 June 1999 January 2000
---------- --------- ------------
Volatility 40.7% 42.6% 56.8%
Risk Free Rate 5.2% 6.0% 6.7%
Additional assumptions of 0% dividend yield, 6 year projected time to
exercise, and 8% to 10% per annum risk of forfeiture are applied to all
original options granted in 1999. Restoration option values are calculated
using the same model and factors as original options, except that the
projected date of exercise is generally the remaining term of the prior
option and the stock's expected volatility rate and risk of return (see
June 1999 above) are calculated at date of grant of the restoration
option.
(4) Such options were granted in June 1999 under the restoration option
feature of the 1994 Plan, which encourages continuing ownership of Common
Stock.
(5) No options were granted to Mr. Krysiak for the fiscal year ended January
29, 2000. All stock options previously granted to Mr. Krysiak, other than
options with respect to 180,000 shares granted in 1998, were cancelled in
connection with his resignation.
OPTION GRANTS IN LAST FISCAL YEAR
Toysrus.com, Inc.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------------
% of Total Grant Date
Options Exercise Expiration Present
Name Options (#)(1) Granted(2) Price/Share ($) Date Value ($)(3)
- ---- -------------- ---------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
John H. Eyler, Jr. .......... 300,000 2.48% 1.00 01/06/2010 21,000
Michael Goldstein ........... 300,000 2.48% 0.30 07/16/2009 18,000
Robert C. Nakasone .......... 300,000 2.48% 0.30 07/16/2009 18,000
Richard L. Markee ........... 90,000 0.74% 0.30 07/16/2009 5,400
Gregory R. Staley ........... 90,000 0.74% 0.30 07/16/2009 5,400
Michael G. Shannon .......... 110,000 0.9% 0.30 07/16/2009 6,600
Bruce Krysiak (5) ........... -- -- -- -- --
</TABLE>
- ----------
(1) Represents stock options granted under the Toysrus.com Amended and
Restated 1999 Stock Incentive Plan. The Toysrus.com Options are
exercisable as of the grant date and vest 25% one year from grant date,
with the balance vesting 2.08% per month during each of the three years
following the first anniversary of the grant date. All Toysrus.com Options
granted to Mr. Nakasone vested on September 5, 1999, pursuant to the
Nakasone Separation Agreement.
(2) Based upon a total of 12,115,500 Toysrus.com Options granted to 249
persons.
(3) There is currently no market for the common stock of Toysrus.com. The
hypothetical present values on grant date are calculated under the
Modified Black-Scholes Model, which is a mathematical formula used to
value options traded on stock exchanges. This formula considers a number
of factors in estimating an option's present value. Factors used to value
original options issued in 1999 include the following:
Toysrus.com
July 1999 January 2000
--------- ------------
Volatility 0.0% 0.0%
Risk Free Rate 5.8% 6.7%
Additional assumptions of 0% dividend yield, 6 year projected time to
exercise, and 7% per annum risk of forfeiture are applied to Toysrus.com
Options granted for the year ended January 29, 2000.
11
<PAGE>
The following table sets forth information concerning the exercise of
options by the Named Officers during the last fiscal year and the value of
unexercised options held by the Named Officers as of the fiscal year ended
January 29, 2000:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Shares of Unexercised
Common Stock In-the-Money
Shares of Value Realized ($) Underlying Options Options at
Common Stock (Market Price at at FY-End (#) FY-End ($)
Acquired on Exercise Less Exercisable/ Exercisable/
Name Exercise (#) Exercise Price) (1) Unexercisable Unexercisable
- ---- ------------ ------------------- ------------- -------------
<S> <C> <C> <C> <C>
John H. Eyler, Jr. ................... 0 0 0 0
1,000,000 0
Michael Goldstein .................... 300,000 1,818,000 1,082,246(2) 0
175,000 0
Robert C. Nakasone ................... 540,466 3,275,224 2,126,561(3) 0
0 0
Richard L. Markee .................... 0 0 727,800(2) 0
50,000 0
Gregory R. Staley .................... 22,500 32,344 604,800(2) 0
0 0
Michael G. Shannon ................... 0 0 330,000(2) 0
0 0
Bruce Krysiak ........................ 0 0 180,000 0
0 0
</TABLE>
- ----------
(1) The amounts set forth under "Value Realized" were not realized in the form
of cash but were in the form of 75,062 and 135,228 shares of Common Stock
("Profit Shares") for Messrs. Goldstein and Nakasone respectively and are
held in the Grantor Trust. Of the total Profit Shares realized, 75,062
shares held in trust for Mr. Goldstein will vest on September 8, 2003. A
total of 135,228 of Mr. Nakasone's Profit Shares vested on September 5,
1999, pursuant to the Nakasone Separation Agreement. Such shares were
acquired under the provisions of the restoration option feature of the
1994 Plan, which encourages continuing ownership of Common Stock.
(2) Included in the totals for "Shares of Common Stock Underlying Options --
Exercisable" are 832,246, 637,800, 589,805 and 330,000 for Messrs.
Goldstein, Markee, Staley and Shannon, respectively, which, although
exercisable, provide that the shares acquired upon the exercise of such
options having a value equal to the aggregate fair value over the exercise
price of such options are generally subject to forfeiture if the grantee
does not remain with the Company until the fifth anniversary of the grant
date (for options granted prior to April 1999) and the third anniversary
of the grant date (for options granted beginning April 1999).
(3) Mr. Nakasone's exercisable options vested September 5, 1999.
Long-Term Incentive Plans -- Awards In Last Fiscal Year
No long-term compensation awards were granted under the Toys "R" Us, Inc.
Management Incentive Compensation Plan (the "Incentive Plan") to the Named
Officers for the Company's fiscal year ended January 29, 2000.
Employment Agreements
On January 6, 2000, the Company entered into a retention agreement with
John H. Eyler, Jr. upon his selection as President and Chief Executive Officer.
The current term of employment under the agreement will expire on January 17,
2001, subject to renewal as described below. The Company also entered into
retention
12
<PAGE>
agreements, effective February 25, 1998, with each of Michael Goldstein in his
capacity as Chairman of the Board and Robert C. Nakasone, in his capacity as
Chief Executive Officer. The Company subsequently entered into a Separation
Agreement with Mr. Nakasone, as discussed below. The current term of employment
of Mr. Goldstein's agreement expires on the last day of the Company's fiscal
year 2000; Mr. Nakasone's agreement would have expired on February 25, 2000.
Each such agreement provides for automatic one-year renewals, unless terminated
by either party in accordance with the terms thereof. Mr. Eyler's agreement
provides for a base salary of $1,000,000. Mr. Goldstein's agreement provides for
a base salary of $900,000 per year until June 30, 1998, and $300,000 per year
thereafter, and Mr. Nakasone's agreement provided for a base salary of $900,000
per year. Mr. Goldstein's salary was increased to an annual rate of $900,000
(with an annual bonus for the fiscal year ending January 29, 2000 to be
calculated as a percentage of such increased salary), effective August 15, 1999,
in consideration of his service as Interim Chief Executive Officer. The
agreements also provide for participation in any and all insurance and other
plans for the benefit of the Company's officers which are in effect during the
employment period and entitle the executives to participate in the Company's
various incentive bonus plans on a basis commensurate with their prior
participation.
The retention agreements obligate the Company to provide for the
continuation of benefits (or benefits to the executive's spouse and dependent
children in the event of his death) under the Company's benefit plans and
immediate vesting of all awarded options if employment is terminated under the
agreements due to the death, disability or retirement of the executive. If Mr.
Goldstein resigns without "Good Reason" (as defined in the agreements), he will
be entitled to the foregoing benefits, except that he will also be entitled to
two-years continued vesting of his options in accordance with their terms
following termination. Mr. Goldstein will also be entitled, for a two-year
period following such termination, to be nominated to serve as a director of the
Company and, if elected, to receive the same compensation as non-employee
directors of the Company. Upon termination of the executive's employment by the
Company without "Cause" (as defined in the agreements) or by the executive for
"Good Reason," he would be entitled to receive: (i) his pro-rated annual base
salary on the date of termination plus his pro-rated targeted annual and
long-term incentive awards through the date of termination; and (ii) his annual
base salary on the date of termination, plus the targeted annual and long-term
incentive awards that would have been paid to him during the fiscal period in
which he was terminated, in equal installments to be paid at least monthly
during each of the two years following his termination. Receipt of such payments
and the continuation of benefits under the Company's benefit plans and immediate
vesting of all awarded options is conditioned upon the executive's compliance
with a two-year non-competition covenant and a two or three-year (depending upon
the circumstances of termination) non-solicitation/non-hiring of employees
restrictive covenant. If the executive's employment is terminated within two
years, or three years in the case of Mr. Eyler, after a Change of Control (as
defined in the agreements), other than for "Cause," the executive will be
entitled to receive the amounts described in the second preceding sentence, plus
an additional year's worth of annual base salary and targeted incentive awards,
and such payments will not be subject to the restrictive covenants. Following
termination of employment, the executive would also be entitled to exercise any
stock options granted under any stock option plan of the Company for their full
term. If termination of their employment were to occur in connection with a
Change of Control, the executive would each also be paid an amount pursuant to
his agreement intended to reimburse them for any excise tax imposed under
Section 4999 of the Code, including any tax payable by reason of such
reimbursement.
The Company is also party to retention agreements (each a "Retention
Agreement") with each of Messrs. Markee, Staley and Shannon (collectively, the
"Named Executives") and certain other officers. The current term of employment
under the Retention Agreements with Messrs. Markee and Staley will expire on May
1, 2001, and the current term of employment under Mr. Shannon's Retention
Agreement will expire on October 8, 2000. Each Retention Agreement provides for
automatic one-year renewals, unless the Company provides the Named Executive
with notice of non-renewal at least six months prior to the next renewal date.
Each Retention Agreement provides for a base salary per year commensurate with
the Named Executive's current base salary plus participation in any and all
insurance and other plans for the benefit of the Company's officers which are in
effect during the employment period. The Named Executives are also entitled to
participate in the Company's incentive bonus plans. Each Retention Agreement
provides that, if, prior to the expiration or termination thereof, a Change of
Control (as defined in the Retention Agreement) occurs and thereafter the
Company terminates his employment without "Cause" (as defined in the Retention
Agreement), or, if the Named Executive terminates his employment for "Good
Reason" (as defined in each Retention Agreement) or
13
<PAGE>
is terminated by the Company without "Cause" prior to a Change of Control, the
Named Executive would be entitled to receive payment of a lump sum cash amount
consisting of: (i) his pro-rated annual base salary on the date of termination
plus his pro-rated targeted annual and long-term incentive awards through the
date of termination, payable within 30 days after termination; and (ii) his
annual base salary on the date of termination, plus the targeted annual and
long-term incentive awards that would have been paid to him during the fiscal
period in which he was terminated, in equal installments to be paid at least
monthly during each of the two years following his termination. Under these
circumstances the Named Executive would also be entitled to an additional
two-years vesting of his stock options, and full vesting in any account balance
or other benefits provided under any of the Company's benefit plans. Each Named
Executive would also be paid an amount pursuant to his Retention Agreement
intended to reimburse the Named Executive for any excise tax imposed under
Section 4999 of the Code, including any tax payable by reason of such
reimbursement. In exchange for these benefits, the Named Executives are subject
to a two-year non-competition covenant (other than in the event of termination
following a Change of Control) and a two-year non-solicitation/non-hiring
covenant.
On March 25, 1999, the Company entered into a Separation Agreement (the
"Krysiak Separation Agreement") with Mr. Krysiak, providing for Mr. Krysiak's
resignation, effective March 26, 1999 (the "Krysiak Termination Date"), as a
director and as President and Chief Operating Officer of the Company. The
Krysiak Separation Agreement provides for payment of annual salary in the amount
of $800,000 and relocation expenses for a two-year period following the Krysiak
Termination Date, and continued participation in insurance plans maintained for
the benefit of the Company's officers until the earlier of the second
anniversary of the Krysiak Termination Date or the date of commencement of other
employment. Mr. Krysiak forfeited all Restricted Units granted pursuant to the
1994 Plan, other than 40,000 of such Restricted Units which (subject to the
achievement of specified performance objectives) vest on the second anniversary
of the Krysiak Termination Date, and all stock options granted to Mr. Krysiak
were cancelled, other than 60,000 of the 300,000 options granted in May 1998 and
120,000 of the 600,000 options granted in September 1998 under the 1994 Plan.
Mr. Krysiak remains subject to a two-year non-solicitation/non-hiring covenant
and a two-year non-competition covenant, and shall be available to render
services as a consultant to the Company for the two-year period commencing on
the Krysiak Termination Date, without payment of additional consideration.
On August 26, 1999, the Company entered into a Separation Agreement (the
"Nakasone Separation Agreement") with Mr. Nakasone, providing for Mr. Nakasone's
resignation, effective September 5, 1999 (the "Nakasone Termination Date"), as a
director and as Chief Executive Officer of the Company. The Nakasone Separation
Agreement provides for payment of a lump sum cash amount of $803,793 within 30
days of the Nakasone Termination Date and an annual salary in the amount of
$2,146,680 for a two-year period following the Nakasone Termination Date. In the
event that the Company's Strategic Bonus Plan is extended or replaced by a new
plan after 2000, Mr. Nakasone will be entitled to a further $262,500. Under the
Nakasone Separation Agreement Mr. Nakasone is also entitled to continued
participation in benefit plans (other than health) maintained for the benefit of
the Company's officers until the second anniversary of the Nakasone Termination
Date as well as continued participation in health benefit plans until he reaches
the age of 65. All unvested options to acquire stock in the Company and its
subsidiary Toysrus.com, and all unvested profit shares held by Mr. Nakasone,
vested on the Nakasone Termination Date. Mr. Nakasone forfeited 25,280
Restricted Units; the balance of 132,720 Restricted Units will vest (subject to
compliance with the provisions of the Nakasone Separation Agreement) on the
second anniversary of the Nakasone Termination Date. All the vested options may
be exercised by Mr. Nakasone until their original expiration date. Mr. Nakasone
remains subject to a three-year non-solicitation/non-hiring covenant and a
two-year non-competition covenant.
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Report of the Management Compensation and Stock Option Committee on
Executive Compensation
Overview and Philosophy
The Compensation Committee is composed entirely of independent outside
directors, none of whom is or has been an officer or employee of the Company.
The Board of Directors has delegated to the Committee the responsibility for
establishment of policies governing, and for the implementation, administration,
and interpretation of, all aspects of executive officer compensation.
The Company's executive compensation program is based on its pay for
performance policy and has been designed to:
o Attract high-caliber talent to meet the organization's executive
resource needs;
o Retain top-performing executives at the corporate level and in each
of the divisions;
o Provide compensation opportunities that are fair and competitive
with those offered by comparable organizations with whom the Company
competes for business and talent;
o Motivate high performance by executive officers and all employees in
an entrepreneurial, incentive-driven culture;
o Reward executives based on corporate and division annual and
long-term strategic progress, business results, and the creation of
stockholder value; and
o Closely align executive officers and all employees with
stockholders' interests.
The Committee establishes and administers the executive officer program on
the basis of total compensation rather than on separate, freestanding
components. The Committee has structured an integrated total program that
appropriately balances the Company's annual and long-term strategic, business
and financial goals. A significant portion of total pay is comprised of at-risk
incentives to directly tie compensation values to performance and stockholder
interests.
In accordance with the responsibility delegated by and subject to
ratification by the Board of Directors, at the beginning of each year the
Compensation Committee reviews the Company's near and long-term strategies and
objectives with the Chief Executive Officer. These form the basis of corporate
and division annual strategic, economic value added (EVA), revenue, operating
income, net income and/or earnings per share goals for the year. Based on this
review, the Compensation Committee establishes the Company's total compensation
structure for the year, including the elements and level of compensation
opportunities and the variable portion of "at risk" pay for performance and
equity participation. The Compensation Committee considers, among other matters,
marketplace pay levels and practices, as well as the Company's need to attract,
retain and motivate its key employees.
At year end, the Compensation Committee, in consultation with the Chief
Executive Officer, assesses results achieved and strategic progress relative to
previously approved goals, taking into consideration prevailing economic and
business conditions and opportunities, performance by comparable organizations
and stockholder value. The Compensation Committee assigns no particular
weightings to any such factors. Based on this assessment, the Compensation
Committee considers the Chief Executive Officer's year-end compensation
proposals and makes final determinations subject to Board ratification.
In fiscal 1999, the Compensation Committee was assisted in its review and
evaluation by Sibson & Company, Inc. ("Sibson"), national executive compensation
consultants retained by the Compensation Committee to serve as outside experts
in the discharge of its responsibilities. Sibson provides advice to the
Compensation Committee as to the reasonableness, fairness and competitiveness of
compensation awarded to officers of the Company, including the Chief Executive
Officer. In so doing, Sibson collects and reviews with the Compensation
Committee survey data regarding compensation levels and practices at a peer
group of comparable companies, consisting of organizations regarded by Sibson
and the Compensation Committee as the marketplace for comparable management
talent at the Company.
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Compensation of Executive Officers
Total compensation for target performance under the Company's compensation
program for executive officers for 1999 was generally positioned at the 50th to
the 75th percentile of the peer group, depending upon the individual's level,
position, responsibilities and degree of difficulty and challenge associated
with 1999's performance objectives. Since a high proportion of executive officer
compensation is based on variable performance incentives, in any one year or
period of years actual total compensation amounts will vary, both below and
above those of the peer group, directly with results achieved by the Company,
its divisions and individual executives.
The Company's 1999 compensation program for executive officers, including
the Chief Executive Officer, was comprised of base salary, annual cash
incentives and long-term incentive compensation in the form of stock options and
performance unit awards payable in cash. Sixty-seven percent (67%) of the
targeted regular total compensation of the Chief Executive Officer and sixty-two
percent (62%) of the targeted total compensation of all other executive officers
of the Company for 1999 was based upon achieving performance targets relating to
strategic, annual and long-term business goals or the market price of the Common
Stock.
Base Salaries. Base salaries are established within the context of the
total compensation opportunity offered to executive officers. Base salary levels
are set so that the principal compensation opportunities are derived from annual
cash incentives and gains on the exercise of stock options. Salaries are
reviewed annually in consideration of the Company's overall financial
performance as well as the competitive marketplace (as discussed above) at the
appropriate level relative to the position, responsibilities and performance of
each executive officer. The Compensation Committee is aware that the
responsibilities and contributions of certain of the Company's officers are
broader than those generally associated with similar positions in the peer
group. During fiscal 1999 executive officer average base salaries increased
2.9%.
Annual Cash Incentives. Executive officers, including the Chief Executive
Officer, participate in the Incentive Plan under which annual cash incentives
are awarded based on achievement relative to targeted performance goals for the
year. Participants may designate a percentage of their awards to be received in
Common Stock of the Company. For 1999, the annual performance goal selected by
the Committee was economic value added based upon corporate consolidated
performance, with combined corporate and division performance for certain
executive officers who also have divisional responsibilities. Because the target
goal for the Babies "R" Us Division was exceeded, Mr. Markee earned an above
target bonus on that portion attributable to Babies "R" Us. Because the target
goal for the International Division was exceeded, Mr. Staley earned an above
target bonus on that portion attributable to International performance. Because
the performance of the Toys "R" Us Division and the Company as a whole exceeded
the threshold level but fell short of the target goal, Messrs. Goldstein and
Shannon earned below target bonuses.
During 1998, the Compensation Committee implemented a three-year
supplemental strategic incentive plan to motivate and reward executive officers
and certain other key employees for the development and successful execution of
long-term sustainable strategies to reposition the Company for future growth and
increased profitability. Annual awards under this plan are based on the
Committee's evaluation of progress along such strategic objectives. Awards were
paid at 20 percent (20%) of target level for the 1999 portion of the performance
period.
As part of a simplification and restructuring of the compensation program
for executive officers and other key employees, the supplemental strategic
incentive plan was terminated one year prematurely, effective as of March 24,
2000. In its place, the Compensation Committee has awarded to each participant a
grant of restricted stock in an aggregate amount equal to the target
supplemental strategic incentive payment for 2000. Such restricted stock will
become vested over a period of three years, with one-half of the grant becoming
vested at the end of two years from the grant date and the remainder becoming
vested at the end of three years from the grant date.
Performance Unit Awards. To enable the Company to provide its executive
officers and other key employees long-term incentive opportunities on a business
performance basis that are competitive with those provided by its peer
companies, the Compensation Committee established a long-term performance
program under the Incentive Plan granting units to those whose decisions and
performance are critical to the future
16
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success of the Company. Each unit awarded annually represented the right to
receive a payment in cash and/or stock (at the discretion of the Compensation
Committee) based upon the attainment of earnings per share levels exceeding an
earnings per share hurdle pre-determined by the Compensation Committee for the
designated performance period. No payments were made in connection with such
awards for the three-year performance period from 1997 to 1999, as set forth
under the column "Long Term Compensation Awards -- LTIP Payouts" in the Summary
Compensation Table, reflecting the Company's failure to achieve the
pre-determined hurdle for the performance period. No new performance unit awards
were granted in 1999.
As part of a simplification and restructuring of the compensation program
for executive officers and other key employees, the long-term component of the
Incentive Plan has been discontinued. Beginning in 2000, the target compensation
opportunity represented by the long-term component of the Incentive Plan will be
added to the annual component of the Incentive Plan. Payment under the annual
component of the Incentive Plan will be based on achievement of certain
strategic goals, subject to attainment of a pre-determined financial performance
objective.
Stock Options. Stock options have historically been a cornerstone of the
Company's program for executive officer and employee compensation. By
correlating this incentive with stockholder value, the Compensation Committee
seeks to create and strengthen the long-term mutuality of interest between the
Company's employees and its stockholders in the Company's growth in real value
over the long-term.
The Compensation Committee authorized a grant of non-qualified stock
options in 1999 to executive officers, including each individual who served as
Chief Executive Officer during 1999, and other key employees which the
Compensation Committee believed would serve to reinforce the Company's ability
to retain and motivate its highly qualified management team. Options awarded to
the Chief Executive Officer and the other Named Officers are shown in the table
entitled, "Option Grants in Last Fiscal Year." Such stock options have an
exercise price per share equal to the average of the high and low market prices
of Common Stock on the date of grant, and become exercisable six months after
the date of grant. The shares received upon exercise of such options having an
aggregate market value in excess of the aggregate exercise price of the options
so exercised (i.e., option profits) are generally subject to forfeiture if the
optionee does not remain with the Company until the third anniversary of the
date of the option grant.
Replacement of Certain Stock Option Grants with Restricted Stock. To
provide enhanced motivation to certain executive officers and other active
employees, and to reduce the number of stock options outstanding, effective as
of March 24, 2000, the Compensation Committee has authorized the exchange of
certain stock options, having an exercise price above $22.00 per share, for an
economically equivalent grant of restricted stock. The exchange, which is
voluntary, will replace a maximum of 15.3 million option shares with a maximum
of 1.8 million restricted shares. The exchange rate for each option has been
determined using a modified Black-Scholes calculation. The number of stock
options which may be surrendered (and the number of restricted shares issued in
exchange) for Messrs. Goldstein, Markee and Staley are 932,308 (74,738), 425,300
(47,561) and 267,300 (33,418), respectively. Messrs. Eyler and Shannon hold no
stock options that would qualify for the exchange. Shares of restricted stock
resulting from the exchange will become vested over a period of three years,
with one-half of the grant becoming vested on April 1, 2002 and the remainder
becoming vested on April 1, 2003.
Restricted Stock Units. Senior management of the Company and the
Compensation Committee continue to be concerned regarding the Company's ability
to continue to attract and retain qualified executive officers and other key
employees in a period of increasing competition, depressed stock market prices
for the Common Stock and difficult business conditions. Accordingly, in 1999,
the Company entered into modified Retention Agreements with Messrs. Markee and
Staley. As an inducement to enter into or amend the Retention Agreement, comply
with the restrictive covenants contained therein, and remain in the employ of
the Company, the Compensation Committee awarded Restricted Stock Units to each
such executive officer. Each Restricted Stock Unit generally represents the
right to receive one share of Common Stock generally upon the completion of a
future period of service of five years. Restricted Stock Unit awards are shown
in the Summary Compensation Table under "Long Term Compensation Awards ---
Restricted Stock Units."
17
<PAGE>
Compensation of the Chief Executive Officer
Robert C. Nakasone, the Company's Chief Executive Officer since February
25, 1998, resigned from the Company effective September 5, 1999. Michael
Goldstein, the Company's Chairman of the Board, succeeded Mr. Nakasone as Chief
Executive Officer on an interim basis while a search was conducted for a new
Chief Executive Officer. On January 17, 2000, John H. Eyler, Jr. was named the
Company's President and Chief Executive Officer. Mr. Eyler has entered into a
retention agreement with the Company, as described under "Employment
Agreements."
The Chief Executive Officer of the Company participates in the Company's
executive compensation plans on the same basis as all other executive officers
and key employees. In determining the Chief Executive Officer's compensation
opportunities and performance goals, the Compensation Committee conducts the
same type of competitive review and analysis as it does for other executive
officers. For 1999, the Compensation Committee established the Chief Executive
Officer's total compensation (base salary, annual incentives, performance units
plus regular stock options) for target performance between the 50th and the 75th
percentiles for chief executive officers of the peer group companies.
For his service as Interim Chief Executive Officer, Mr. Goldstein's salary
was increased to an annual rate of $900,000 from $300,000, his salary as the
Company's Chairman of the Board. As discussed above, he received an annual
incentive award for 1999, as well as an award under the supplemental strategic
incentive plan and a stock option grant at fair market value.
Tax Considerations
Section 162(m) of the Internal Revenue Code limits the Company's tax
deduction to $1 million for compensation paid to the named proxy officers unless
certain requirements are met. One of the requirements is that compensation over
$1 million must be based upon attainment of performance goals approved by
stockholders. The Incentive Plan and the 1994 Plan, which were approved by
stockholders, are designed to meet these requirements. The Committee's policy is
to preserve corporate tax deductions attributable to the compensation of certain
executives while maintaining flexibility to approve, when appropriate,
compensation arrangements which it deems to be in the best interests of the
Company and its stockholders, but which may not always qualify for full tax
deductibility.
Norman S. Matthews, Chair
Robert A. Bernhard
Arthur B. Newman
Members of the Management
Compensation and Stock
Option Committee
Certain Transactions
High Ridge LLC ("High Ridge"), a limited liability company in which Robert
A. Bernhard, a director of the company who is not standing for re-election to
the Board of Directors, owns a 25% interest, leases property to a Babies "R" Us
store in Tulsa, Oklahoma. The lease period runs from August 1, 1996 through to
August 1, 2011, and is renewable thereafter every five years at the Company's
option for three successive five year periods. The company made rental payments
to High Ridge of $344,000 in fiscal year 1999. The Company believes that the
lease for the store space was made on terms comparable to those which could have
been obtained from an unaffiliated lessor.
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee are Messrs.
Bernhard, Matthews and Newman, none of whom is a current or former officer or
employee of the Company. Except as set forth under "Certain Transactions", there
were no "Compensation Committee Interlocks" during fiscal year 1999.
18
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Five-Year Stockholder Return Comparison
Set forth below is a line-graph presentation comparing the cumulative
stockholder return on Common Stock, on an indexed basis, against the cumulative
total returns of the S&P Composite-500 Stock Index and the S&P Retail Composite
Index for the period of the Company's last five fiscal years (January 29, 1995 =
100):
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN ON
TOYS "R" US, INC. COMMON STOCK, S&P 500 AND
S&P RETAIL COMPOSITE INDICES
[The following table was depicted as a Line Chart in the printed material]
S&P 500 S&P Retail
Toys "R" Us Index Composite Index
----------- ------- ---------------
1995 $ 100 $ 100 $ 100
1996 75.2 138.6 107.7
1997 85.5 175.1 128.5
1998 91.7 222.2 190.6
1999 51.3 294.4 312.2
2000 34.4 324.9 312.6
Compliance with Section 16(a)
The Company believes that all persons (other than Robert C. Nakasone, who
resigned as Chief Executive Officer effective September 5, 1999) who were
subject to Section 16(a) of the Securities Exchange Act for the past fiscal year
complied with the filing requirements thereof. In making this disclosure, the
Company has relied on written representations of its directors and executive
officers and its ten percent holders (if any) and copies of the reports that
they have filed with the Commission. Mr. Nakasone's Form 5 reporting three
transactions with respect to the fiscal year ended January 29, 2000 was filed
late.
19
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STOCKHOLDER PROPOSAL NO. 1
William Steiner, 4 Radcliff Drive, Great Neck, New York 11024, the
beneficial owner of 2,700 shares of Common Stock, has notified the Company of
his intention to introduce the following proposal at the Annual Meeting. Mr.
Steiner's proposed resolution and supporting statement, for which the Board of
Directors and the Company accept no responsibility, are set forth below. THE
BOARD OF DIRECTORS OPPOSES THIS PROPOSAL FOR THE REASONS STATED BELOW.
"MAXIMIZE VALUE RESOLUTION
Resolved, that the shareholders of Toys R Us Corporation [sic] urge
the Toys R Us Board of Directors to arrange for the prompt sale of
Toys R Us to the highest bidder.
The purpose of the Maximize Value Resolution is to give all Toys R
Us shareholders the opportunity to send a message to the Toys R Us
Board that they support the prompt sale of Toys R Us to the highest
bidder. A strong and or majority vote by the shareholders would
indicate to the board the displeasure felt by the shareholders of
the shareholder returns over many years and the drastic action that
should be taken. Even if it is approved by the majority of the Toys
R Us shares represented and entitled to vote at the annual meeting,
the Maximize Value Resolution will not be binding on the Toys R Us
Board. The proponent however believes that if this resolution
receives substantial support from the shareholders, the board may
choose to carry out the request set forth in the resolution:
The prompt auction of Toys R Us should be accomplished by any
appropriate process the board chooses to adopt including a sale to
the highest bidder whether in cash, stock, or a combination of both.
It is expected that the board will uphold its fiduciary duties to
the utmost during the process.
The proponent further believes that if the resolution is adopted,
the management and the board will interpret such adoption as a
message from the company's stockholders that it is no longer
acceptable for the board to continue with its current management
plan and strategies.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION"
----------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
The Board of Directors strongly believes that the implementation of the
proposal described above would not be in the best interests of stockholders of
the Company and, contrary to the title of the proposal, would not maximize value
to the stockholders. The Board of Directors recognizes the preeminence of its
fiduciary duties to the stockholders and believes that this resolution would
compromise the ability of the Board to fulfill its duties.
The Board of Directors is elected by the stockholders to direct the
management of the business and affairs of the Company. Maximizing stockholder
value is considered by the Board to be an important component of that duty and
is a consideration in all deliberations of the Board of Directors and
management. All directors of the Company are also stockholders and share a
commonality of interest with other stockholders.
The Board of Directors remains committed to maximizing the value of the
Company for all stockholders, and will pursue the course of action that will
best achieve that objective. The Board does not believe that implementation of
the proposal described above would achieve that result. The Board has always
acted and will continue to act in what it considers to be the best interests of
all the stockholders of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED AGAINST THIS
PROPOSAL UNLESS OTHERWISE SPECIFIED BY THE STOCKHOLDER IN THE PROXY.
20
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STOCKHOLDER PROPOSAL NO. 2
Ruthellen Miller, 23 Park Circle, Great Neck, New York 11024, the
beneficial owner of 300 shares of Common Stock, has notified the Company of her
intention to introduce the following proposal at the Annual Meeting. Ms.
Miller's proposed resolution and supporting statement, for which the Board of
Directors and the Company accept no responsibility, are set forth below. THE
BOARD OF DIRECTORS OPPOSES THIS PROPOSAL FOR THE REASONS STATED BELOW.
"GOLDEN PARACHUTE RESOLUTION
"Resolved, that the shareholders recommend that the board of
directors adopt a policy against entering into future agreements
with officers and directors of this corporation which provide
compensation contingent on a change of control of the corporation,
unless such compensation agreements are submitted to a vote of the
shareholders and approved by a majority of shares present and voting
on the issue."
SUPPORTING STATEMENT
Lucrative severance contracts awarded to senior corporate executives
which provide compensation contingent on a change of control,
usually through a merger or acquisition of the corporation, are
known as "golden parachutes". These contracts are awarded without
shareholder approval.
I believe that the shareholders overwhelmingly disapprove of golden
parachutes. A shareholder vote would allow the corporation's owners
to decide for themselves whether golden parachutes are in their best
interests.
It is clear to me that requiring a shareholder vote is necessary to
address the conflicts of interest between management and
shareholders that arise in the awarding of golden parachutes.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION"
----------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
The Board of Directors believes that this proposal is detrimental to
stockholders' interests and would weaken the ability of the Company to be
effectively managed at critical times.
The proposal requests the Board of Directors to refrain from entering into
change of control severance agreements with officers and directors of the
Company unless those agreements are approved in advance by stockholders. Change
of control agreements, when used judiciously under the appropriate
circumstances, benefit stockholders because they provide security to key
employees in the event of a change of control. These employees would then be
able to focus, without personal concern, on negotiating the best possible deal
for stockholders and also secure a smooth transition if a new management team
were desired. Rather than creating a conflict of interest, these agreements
align the interests of management and stockholders.
In addition, attracting and retaining talented management in the wake of a
change of control is a priority interest of stockholders. In order to accomplish
this goal, the Company believes that it is appropriate to offer competitive
severance arrangements in order to continue to attract and retain qualified
executive officers and other key employees. Requiring stockholder approval of
these agreements would prevent the Board from being able to act quickly and
decisively in time-pressured situations and, in certain cases, would necessitate
the significant added cost of holding a special meeting of stockholders. The
Board of Directors believes that the Company should retain the flexibility to
include severance arrangements as a component of executive retention agreements
in order to best serve its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED AGAINST THIS
PROPOSAL UNLESS OTHERWISE SPECIFIED BY THE STOCKHOLDER IN THE PROXY.
21
<PAGE>
STOCKHOLDER PROPOSAL NO. 3
The Amalgamated Bank of New York LongView Collective Investment Fund (the
"Proposal No. 3 Proponent"), c/o Cornish F. Hitchcock, Esq. 1100 17th Street,
N.W., 10th Floor, Washington, D.C. 20036-9680, the beneficial owner of 76,393
shares of Common Stock, has notified the Company of its intention to introduce
the following proposal at the Annual Meeting. The Proposal No. 3 Proponent's
proposed resolution and supporting statement, for which the Board of Directors
and the Company accept no responsibility, are set forth below. THE BOARD OF
DIRECTORS OPPOSES THIS PROPOSAL FOR THE REASONS STATED BELOW.
"SHAREHOLDER PROPOSAL
RESOLVED: That the shareholders of Toys `R' Us, Inc. ("Toys `R' Us"
or the "Company") request the Board of Directors to redeem the
shareholder rights agreement previously issued and not to adopt or
extend any rights agreement unless the adoption or extension of such
a rights agreement has been approved by the affirmative vote of the
shareholders.
SUPPORTING STATEMENT
--------------------
In 1989 the Board of Directors issued certain shareholder rights
pursuant to a "rights agreement" of the type commonly known as a
"poison pill." In 1999 the Board adopted a replacement rights
agreement, which is set to expire on 2009.
In each instance the Board acted without obtaining the prior
approval of shareholders. We believe that shareholders should have a
more direct say on this topic.
In our view, the Company's rights agreement is a type of
anti-takeover device, which can injure shareholders by reducing
management accountability and adversely affecting shareholder value.
We believe that rights issued under this agreement are designed to
discourage or thwart an unwanted takeover of the Company and that
they can operate in this fashion.
Although management and the Board of Directors should have
appropriate tools to ensure that all shareholders benefit from any
proposal to acquire the Company, we do not believe that the future
possibility of a takeover justifies the unilateral imposition of
such a poison pill. At a minimum, we believe that the shareholders
should have the right to vote on the necessity of such a powerful
tool, which could be used to entrench existing management.
We believe that shareholder involvement is particularly important at
this time, given the stock's disappointing performance in recent
years. During the three- and five-year periods ending December 20,
1999, Toys `R' Us stock trailed the S&P 500 index and all but one of
its five peer companies in the S&P 500 subgroup for specialty
stores. The Company's stock price is also trading well below its
peak of 42 7/8 in late 1993.
In recent years, various companies have been willing to redeem
outstanding rights or put their continued existence to a vote of
their shareholders. We believe that Toys `R' Us should follow suit.
WE URGE YOU TO VOTE FOR THIS RESOLUTION!"
---
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE AGAINST THIS
PROPOSAL FOR THE FOLLOWING REASONS:
The Board is firmly committed to maximizing stockholder value. The
Company's Rights Agreement (the "Rights Agreement") adopted in 1998 was put in
place to protect stockholders against abusive takeover tactics and ensure that
each stockholder would be treated fairly. In 1999, the Board of Directors
amended the Rights Agreement to remove a provision restricting the redemption of
rights following a change in the majority of the Board of Directors as a result
of a proxy contest. The Board approved this revision in light of a recent
decision of the Delaware Court of Chancery. Rights issuable under the Rights
Agreement expire in 2008, unless earlier redeemed or exchanged by the Company in
accordance with the provisions of the Rights Agreement.
22
<PAGE>
The Rights Agreement is designed to provide the Board with the ability to
take what it believes are the most effective steps to protect and maximize the
value of stockholders' investment in the Company. It is designed to encourage
potential acquirors to negotiate directly with the Board, which the Company
believes is in the best position to negotiate on behalf of all stockholders,
evaluate the adequacy of any potential offer, and protect stockholders against
potential abuses during the takeover process. The rights do not affect any
takeover proposal which the Board believes is in the best interests of the
Company's stockholders.
The Board believes there is strong empirical evidence that the Rights
Agreement better positions the Board to negotiate the most attractive price for
all stockholders in the event there is a bid for the Company. Many companies
with rights agreements have received unsolicited offers and have redeemed rights
after directors were satisfied that the offer, as negotiated by the target
company's board, adequately reflected the underlying value of the company and
was fair and equitable to all stockholders. In fact, premiums paid to acquire
target companies with rights agreements were on average eight percentage points
higher than premiums paid for target companies that did not have such plans,
according to a 1997 study by Georgeson & Company Inc. Georgeson also estimated
that rights plans contributed an additional $13 billion in stockholder value
during the last five years, and that the stockholders of acquired companies
without rights agreements gave up $14.5 billion in potential premiums. The
Rights Agreement is an important tool that the Board should have in the event of
an unfair or coercive takeover attempt. Any action to redeem the Rights
Agreement should only be made in the context of a specific acquisition proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED AGAINST THIS
PROPOSAL UNLESS OTHERWISE SPECIFIED BY THE STOCKHOLDER IN THE PROXY.
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APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed and designated Ernst &
Young LLP, independent auditors, New York, New York, to audit the consolidated
financial statements of the Company for the fiscal year ending February 3, 2001.
Representatives of Ernst & Young LLP are expected to be present at the
meeting and will be afforded the opportunity to make a statement if they desire
to do so, and such representatives are expected to be available to respond to
appropriate questions.
SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders submitted for inclusion in the proxy material to
be distributed by the Company in connection with the annual meeting to be held
in 2001 must be received by December 29, 2000.
In addition, written notice of stockholder proposals (other than
nominations of persons for election to the Board of Directors and other than
proposals submitted to the Company for inclusion in the proxy material) for
consideration at the annual meeting to be held in 2001 must be received by the
Company no later than March 14, 2001 in order to be considered timely. The
persons designated as proxies by the Company in connection with the annual
meeting to be held in 2001 will have discretionary voting authority with respect
to any stockholder proposal of which the Company did not receive timely notice.
By order of the Board of Directors
DENNIS J. BLOCK
Secretary
April 28, 2000
24
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[LOGO] Toys "R" Us (R)
461 From Road
Paramus, NJ 07652
[Clip Art] PRINTED ON
RECYCLED PAPER
<PAGE>
Appendix
TOYS "R" US, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 2000
The undersigned hereby appoints MICHAEL GOLDSTEIN and JOHN H. EYLER, JR.,
jointly and severally, proxies with power of substitution, to vote at the Annual
Meeting of Stockholders of TOYS "R" US, INC. to be held June 7, 2000 (including
adjournments), with all the powers the undersigned would possess if personally
present, as specified on the reverse side with respect to the election of
directors (including discretionary authority to accumulate votes) and the other
matters to be considered, and in accordance with their discretion on any other
business that may come before the meeting, and revokes all proxies previously
given by the undersigned with respect to the shares covered hereby.
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. In either event, please sign and
return this card.
(Continued and to be signed on reverse side)
--------------------
SEE REVERSE
SIDE
--------------------
<PAGE>
Please Detach and Mail in the Envelope Provided
[X] Please mark your votes as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
FOR WITHHELD
Item 1. ELECTION [_] [_]
OF
DIRECTORS
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
--------------------------------------------------------------
Election of Directors, Nominees:
RoAnn Costin
John H. Eyler, Jr.
Michael Goldstein
Calvin Hill
Shirley Strum Kenny
Charles Lazarus
Norman S. Matthews
Arthur B. Newman
Item 2. STOCKHOLDER PROPOSALS:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" STOCKHOLDER PROPOSAL NO. 1.
Stockholder Proposal No. 1. FOR AGAINST ABSTAIN
Maximize Value Resolution [_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" STOCKHOLDER PROPOSAL NO. 2.
Stockholder Proposal No. 2. FOR AGAINST ABSTAIN
Golden Parachute Resolution [_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" STOCKHOLDER PROPOSAL NO. 3.
Stockholder Proposal No. 3. FOR AGAINST ABSTAIN
To redeem the stockholder
rights agreement [_] [_] [_]
Item 3. In their discretion upon such other business as may properly be
brought before the meeting.
IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES REPRESENTED HEREBY
WILL BE VOTED, IF NOT OTHERWISE SPECIFIED (OR UNLESS DISCRETIONARY AUTHORITY TO
ACCUMULATE VOTES IS EXERCISED), FOR ITEM 1 AND PURSUANT TO ITEM 3 AND AGAINST
EACH OF THE STOCKHOLDER PROPOSALS SET FORTH IN ITEM 2.
SIGNATURE_____________________________ DATE____________________________________
SIGNATURE_____________________________ DATE____________________________________
Note: Please date and sign above exactly as name appears on this proxy.
Executors, administrators, trustees, etc. should give full title. If shares are
held jointly, each holder should sign.
2
