UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2000
Commission file number 1-11609
TOYS "R" US, INC.
Incorporated pursuant to the Laws of Delaware
Internal Revenue Service - Employer Identification No. 22-3260693
225 Summit Avenue, Montvale, New Jersey 07645
(201) 802-5000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.10 par value New York Stock Exchange
Registrant has filed all reports to be filed by Section 13 or 15(d) of the
Securities Exhange Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At April 10, 2000, the aggregate market value of voting stock held by
non-affiliates was $3,216,995,592 based on the 224,768,251 shares of Common
Stock which were outstanding at that date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended January 29, 2000 are incorporated by reference into Parts I and II of this
Form 10-K.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held June 7, 2000 are incorporated by reference into Part III
of this Form 10-K.
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INDEX
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PAGE
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PART I.
Item 1. Business ...................................................... 2
Item 2. Properties .................................................... 9
Item 3. Legal Proceedings ............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders ........... 11
PART II.
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters ....................... 11
Item 6. Selected Financial Data ....................................... 11
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition ......... 11
Item 7a. Qualitative and Quantitative Disclosures About Market Risk .... 11
Item 8. Financial Statements and Supplementary Data ................... 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ................ 12
PART III.
Item 10. Directors and Executive Officers of the Registrant ............ 13
Item 11. Executive Compensation ........................................ 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management ................................. 15
Item 13. Certain Relationships and Related Transactions ................ 16
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ........................................... 16
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PART I
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ITEM 1. BUSINESS
Toys "R" Us, Inc. and its subsidiaries (the "company") is the world's
leading resource on kids, families and fun, bringing toys, apparel and baby
needs to children and their families. As of January 29, 2000, the company was
engaged in the operation of 1,548 retail stores consisting of 1,086 United
States locations comprised of 710 toy stores under the name "Toys "R" Us," 205
children's clothing stores under the name "Kids "R" Us," 131 infant-toddler
stores under the name "Babies "R" Us", and 40 educational specialty stores under
the name "Imaginarium." Internationally, the company operates 462 toy stores,
including franchise and joint venture stores, under the name "Toys "R" Us." The
company also sells merchandise through its Internet sites at www.toysrus.com and
www.imaginarium.com and through mail order catalogues. The company is
incorporated in the state of Delaware.
(a) General Development of the Business
Acquisition of Imaginarium Toy Centers, Inc.
On August 20, 1999, the company acquired all of the capital stock of Imaginarium
Toy Centers, Inc., ("Imaginarium") a leading educational specialty retailer, for
approximately $43 million in cash and the assumption of certain liabilities. The
company believes this acquisition will accelerate its strategy to establish a
leadership position in the learning and educational category by incorporating
"Imaginarium" sections into certain existing and future C-3 format stores. This
new division operated 40 leased store locations in 13 states under the
"Imaginarium" brand name as of January 29, 2000. The company accounted for the
acquisition under the purchase method of accounting and the results of
Imaginarium operations have been combined with those of the company from the
date of acquisition. The operating results of Imaginarium from the date of
acquisition are not material to the overall results of the company.
On-line Retailing Strategic Initiatives
The company announced several major strategic initiatives regarding on-line
retailing, as part of the company's strategy to become a global leader in the
on-line retail market for toys and children's products. Although on-line sales
currently represent only a very small percentage of the overall toy business, it
is a rapidly growing retail channel. Over the next five years, the number of
on-line users around the world are forecasted to increase more than three-fold
to over 400 million. The key initiatives included the establishment of
Toysrus.com as a separate subsidiary of the company, a partnership with SOFTBANK
Venture Capital and affiliates that included an investment of $57 million in
Toysrus.com, and the acquisition of a 500 thousand square foot distribution
center dedicated solely to the fulfillment of orders placed by on-line
customers. Toysrus.com also plans to add two additional distribution centers in
time for the 2000 Holiday season. During the last few months of 1999,
Toysrus.com became one of the fastest growing web sites on the Internet. The
company plans to continue strategic investments in Toysrus.com to capitalize on
the company's brand names, brick and mortar assets, and SOFTBANK's internet
expertise to achieve the goal of making Toysrus.com a global leader in the
on-line retail market for toys and children's products. For further discussion
of Toysrus.com
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refer to Management's Discussion and Analysis of Results of Operations and
Financial Condition on pages 21 to 24 in the company's 1999 Annual Report.
Restructuring and Other Charges
During 1998, the company announced strategic initiatives to reposition its
worldwide business. These strategic initiatives included the reformatting of its
toy stores in the United States into the company's new C-3 format, the closing
of nine underperforming toy stores in the United States and the restructuring of
the company's International operations, including the closing and/or disposition
of approximately 50 toy stores, primarily in Continental Europe. The strategic
initiatives also included the planned conversion of approximately 28 existing
toy stores in the United States into Toys "R" Us/Kids "R" Us combo stores in the
C-3 format in conjunction with the closing of approximately 31 nearby Kids "R"
Us stores. The strategic plans also included the closing of several distribution
centers and administrative offices worldwide with their functions absorbed
within the remaining support structure. Finally, the company recorded certain
changes in accounting estimates and provisions for legal settlements. All of the
foregoing resulted in charges of $353 million ($279 million net of tax benefits,
or $1.05 per share) in 1998.
As of January 29, 2000, the company had closed two underperforming toy
stores in the United States, had reached agreements to close four other such
stores, and was actively marketing the remaining stores to be closed. With
regard to the closing and/or disposition of International toy store locations,
33 such locations have been closed as of January 29, 2000. The company is
continuing to actively negotiate for the closure or other disposition of the
remaining identified International locations. As of January 29, 2000, 11 Kids
"R" Us stores have been closed as part of the restructuring announced in 1998.
The company is continuing to actively market the remaining Kids "R" Us locations
identified as part of the restructuring. In addition, the company closed four
distribution centers and seven area offices in the United States since these
strategic initiatives were announced.
In 1998, the company also announced markdowns and other charges of $345
million ($229 net of tax benefits, or $0.86 per share). A significant portion of
these charges related to markdowns required to clear excess inventory from
stores. These markdowns were intended to enable the company to achieve its
optimal inventory assortment and streamline systems so that it could proceed
with the C-3 conversions on a more efficient basis. In addition, the company
recorded markdowns relating to the store closings discussed above and charges to
cost of sales relating to inventory system refinements and changes in accounting
estimates. As of January 29, 2000, the unutilized portion of these announced
markdowns and other charges totaled $14 million. These unused reserves are
expected to be utilized in 2000 as a result of certain store closing activities.
The implementation of the strategic initiatives, markdowns and other
charges described above are expected to have a significant positive effect on
the company's Economic Value Added or "EVA(R)". EVA(R) is the management system
adopted by the company to determine whether its business initiatives and
investments provide an adequate return on investment. The strategic initiatives,
markdowns and other charges are also expected to result in continuing
improvement to the company's free cash flow and increase operating earnings.
Details on the components of the charges mentioned above as well as the related
update to the restructuring plan are described in the Notes to the Consolidated
Financial Statements on pages 33 and 34 of the company's 1999 Annual Report, as
well as in Management's Discussion and Analysis of
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Results of Operations and Financial Position on page 22 of the company's 1999
Annual Report, which sections are incorporated herein by reference.
The company has completed its restructuring program that was announced in
1995, with the exception of long-term lease commitment reserves that will be
utilized until such obligations expire.
The company believes that reserves are adequate to complete the
restructuring and other programs described above.
Acquisition of Baby Superstore, Inc.
On February 3, 1997, the company acquired Baby Superstore, Inc. ("Baby
Superstore") in a tax-free exchange of common stock valued at approximately $376
million. The Baby Superstore acquisition was accounted for as a purchase for
financial reporting purposes. For a further discussion of the company's
infant-toddler stores, see "Item 1. Business - Narrative Description of the
Business - Babies "R" Us."
(b) Financial Information About Industry Segments
Information about industry segments, as set forth in the Notes to the
Consolidated Financial Statements on page 33 of the company's 1999 Annual
Report, is incorporated herein by reference.
(c) Narrative Description of the Business
Toys "R" Us - United States
Toys "R" Us - United States ("Toys "R" Us") operates in 49 states and
Puerto Rico and sells toys, games, bicycles, sporting goods, VHS video tapes,
electronic and video games, small pools, books, infant and juvenile furniture
and similar items and electronics, as well as educational and entertainment
computer software for children. The overall merchandising philosophy of Toys "R"
Us is the development of strong consumer recognition and acceptance of its name
by the use of mass media advertising that promotes its broad selection and value
offered. The company will also continue brand power enhancements by seeking
vendor alliances for dual marketing and optimal product placements in the
stores, and by seeking promotional alliances such as the sponsorships of Major
League Baseball and the Women's World Cup Soccer Team Victory Tour in 1999. Toys
"R" Us will also continue to promote itself as an event destination by
continuing such events as Pokemon Leagues in our stores.
The merchandising strategy going forward for Toys "R" Us is to strengthen
its core business (top 1,500 selling items) to allow consistent comparable store
for store sales growth and to lessen the dependence on "hot" merchandise items
to drive sales growth. By focusing on the core business, the company hopes to
strengthen its relationships with vendors by allowing vendors to better plan
production and meet agreed upon delivery timetables. Ensuring a sufficient
supply of core business items will allow the company to satisfy consumer demand
for these items and maximize sales.
Currently, most Toys "R" Us stores conform to a traditional 45,000 square
feet prototype design, with 30,000 and 20,000 square feet stores existing in
smaller markets, and are generally freestanding units or located in strip malls.
Of the 710 stores currently operated by Toys "R" Us,
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287 are in the traditional format, 170 are in the company's new C-3 format, 90
are designed in the company's "Concept 2000" format and 163 additional stores
have retrofitted C-3 "front-ends". The company also plans to convert
approximately 70 existing Toys "R" Us traditional format stores into Toys "R"
Us/Kids "R" Us C-3 combo stores in 2000. A combo store is a Toys "R" Us store
with approximately 5,000 square feet dedicated to apparel. Kids "R" Us personnel
are responsible for the operation of the apparel section within the combo store.
As of January 29, 2000, Kids "R" Us personnel oversaw the operation of apparel
sections in 90 Toys "R" Us/Kids "R" Us combo stores. There were 62 combo stores
as of January 29, 2000, which are a subset of the 287 traditional format Toys
"R" Us stores noted above. As of January 29, 2000, there were 28 C-3 combo
stores that are a subset of the 170 new C-3 format stores noted above.
The company's strategic initiative to convert existing Toys "R" Us stores
into C-3 format stores is intended to make the Toys "R" Us stores easier to shop
and present merchandise in a more dynamic selling environment. The C-3 store
layout creates wider aisles, more feature opportunities and end-caps, more
shops, and logical category adjacencies to improve shopping patterns as compared
with the traditional Toys "R" Us format. The C-3 sales floor is extended by 20%
and has a one-third reduction in the size of the backroom. The company plans to
refine the C-3 format in 2000 and has implemented a 16 store test program. The
test program includes experimenting with new concepts such as "store within a
store" like Imaginarium shops and a "Teentronics" shop (electronic products
aimed at teenagers), exclusive product areas featuring items such as "Animal
Planet" merchandise and enhanced training for store associates in product
knowledge, sales and service. The test program will also include more selling
specialist employees available to enhance the shopping experiences for our
guests. All new toy stores in the United States will be formatted in the C-3
store concept.
The company also introduced the merchandise "world" concept in Toys "R" Us
stores in 1999. Each "world" has a unique customer franchise from juvenile to R
Zone electronics and video products. Each "world" established its own business
plan and has a complete support team to develop its business from product
sourcing to advertising and promotion. The "worlds" presently are:
o R Zone (video, electronics, computer software, related products)
o Action Central (vehicles, action figures, etc.)
o Dolls and Dress up (collectibles, accessories and lifestyle products)
o Seasonal (Christmas, Halloween, Summer, bikes, sports, playsets, etc.)
o Juvenile (baby products and newborn to age 4 apparel)
o Learning Center (educational and developmental products, accessories,
games and puzzles)
Toys "R" Us opened seven new toy stores while closing one store in 1999.
The company utilizes demographic data to determine which markets to enter. This
year the company will focus on continuing to refine the C-3 store concept rather
than on opening new stores. The number of C-3 stores that will be refined
depends on the outcome of the previously discussed 16 store C-3 refinement test
program.
Toys "R" Us believes the flexibility afforded by its
warehouse/distribution system and by ownership of a majority of its own fleet of
trucks to distribute merchandise provides maximum efficiency and capacity,
particularly in light of the seasonality of its business. Toys "R" Us utilizes a
computerized inventory system which allows management to constantly monitor the
current activity and inventory in each region and in each store. This system
permits management
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to allocate merchandise to each store and keep the stores adequately stocked at
all times. Furthermore, the company has accelerated the implementation of its
major initiative to improve its supply chain management, which is aimed at
optimizing its inventory assortment and presentation. In addition, the company
is expanding its automated replenishment system to maximize inventory turnover.
The distribution centers employ state of the art warehouse management
systems, radio frequency technology and material handling equipment that help to
minimize overall inventory levels and distribution costs while maintaining
optimal in-stock positions at the store level. The company will utilize these
state of the art warehouse systems to allow certain distribution centers to
service more stores than they presently service. This will allow the company to
distribute merchandise more efficiently in 2000. Certain product processing and
ticketing activities are performed at the distribution centers to improve labor
efficiency and to allow store employees to concentrate on guest service and
store presentation.
Toys "R" Us - International
Toys "R" Us - International ("International") operates or franchises toy
stores in 26 countries outside the United States. These stores generally conform
to traditional prototypical designs similar to those used by Toys "R" Us.
International also employs computerized inventory systems similar to those
utilized by Toys "R" Us. International added 41 new toy stores, including 21
franchise stores while closing 31 stores in 1999. Utilizing demographic data to
determine which markets to enter, the company plans to add approximately 30 new
toy stores in 2000, including approximately 10 franchise stores. The company
also plans to close approximately 15 underperforming International toy stores in
2000 as part of the company's strategic restructuring initiatives to reposition
its worldwide business.
On March 20, 2000, the company announced the initial public offering
("IPO") in Japan of shares of Toys "R" Us - Japan, Ltd. ("Toys - Japan"). Under
the IPO plan, Toys - Japan and the company will offer primary and secondary
shares, respectively, to the public in Japan during the first half of fiscal
2000. The IPO is subject to Japanese government approval and risks associated
with market conditions. After the IPO, the company will own less than 50% of the
then outstanding shares and will no longer be in a position to exert significant
influence over the management of Toys - Japan. Accordingly, the company will no
longer consolidate the financial statements of Toys - Japan. Toys - Japan will
operate as a licensee of the company.
Kids "R" Us
Kids "R" Us children's clothing stores feature brand name and private
label first quality children's clothing. These stores conform to prototypical
designs consisting of approximately 15,500 to 21,500 square feet of space and
are typically freestanding units or located in strip centers in the United
States. In 1999, Kids "R" Us opened one new store and closed eight
underperforming stores. The underperforming locations were closed as outlined in
the 1998 restructuring program. The company plans to close approximately 20
additional Kids "R" Us stores in 2000. Kids "R" Us is also responsible for the
operation of apparel sections in Toys "R" Us/Kids "R" Us combo stores. Refer to
the narrative description of the business for Toys "R" Us - United States for
combo store information.
The retail apparel business fluctuates according to changes in consumer
preferences dictated in part by fashion, perceived value and season. These
fluctuations affect the
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merchandise in stock, since purchase orders are made well in advance of the
season and at times before fashion trends and "hot" brands are evidenced by
consumer purchases. Competition in the retail apparel business consists of
national and local department, specialty and discount store chains as well as
Internet and catalog businesses. Kids "R" Us is vulnerable to demand and pricing
shifts and to less than optimal selection as the result of these factors. Kids
"R" Us reviews its merchandise assortments in order to identify slow-moving
items and uses markdowns to clear such inventory. The Kids "R" Us division has
its own dedicated distribution network for the distribution of apparel items to
stores.
The company is reevaluating all aspects of this segment of the business.
Kids "R" Us is attempting to reposition its business by focusing on store
layouts, visual presentations and merchandise assortments that are more
appealing to consumers. Apparel is also currently a key element of the C-3 combo
store format and Babies "R" Us shopping experiences.
Babies "R" Us
The company launched Babies "R" Us with its first six store openings in
1996. These stores target the newborn to preschool market in a 38,000 to 42,000
square feet prototype that offers up to 40 room settings of juvenile furniture
such as cribs and dressers as well as playards, bumper seats, high chairs,
strollers, car seats, infant toddler and preschool toys, infant plush, and
gifts. In select markets Babies "R" Us has opened smaller 30,000 square feet
prototype stores to serve less densely populated areas. As of January 29, 2000,
Babies "R" Us operated 10 locations that conformed to the 30,000 square feet
prototype store. All Babies "R" Us stores devote over 5,000 square feet to
specialty name brand and private label clothing and a wide range of feeding
supplies, health and beauty aids and infant care products. In addition, a
computerized baby registry service is offered. Babies "R" Us registers more
expectant parents than any other retailer in the domestic market. The Babies "R"
Us stores are designed with low profile merchandise displays in the center of
the stores providing a sweeping view of the entire merchandise selection.
The company accelerated the growth of the Babies "R" Us division with the
acquisition, in 1997, of Baby Superstore, Inc., a leading large format retailer
of newborn to preschool products in the United States. At the date of
acquisition, Baby Superstore operated 76 stores in 23 states, primarily in the
southeast and mid-west. The company has converted substantially all of the
existing Baby Superstore stores to the Babies "R" Us operating format. The
company, which utilizes demographic data to determine which markets to enter,
opened 18 Babies "R" Us stores in 1999 and operated 131 Babies "R" Us stores in
the United States as of January 29, 2000. As part of the company's long-range
growth plan for this successful concept, approximately 20 new Babies "R" Us
stores are planned to open in 2000. The company utilizes its existing
distribution network to service the needs of the Babies "R" Us division.
Toysrus.com
Toysrus.com is a recent addition to the "R" Us family, selling merchandise
directly to the public via the Internet at www.toysrus.com as a subsidiary of
the company. The company opened its virtual doors to the public in June 1998. A
redesigned web site was launched in May 1999, offering a broad selection of
toys, games, computer software, video systems, video software, and more.
Thousands of unique products are offered to the on-line public. The company
believes the Internet poses substantial opportunities as a medium for retail
commerce and therefore plans to continue the growth of the on-line business.
Toysrus.com experienced
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rapid demand growth in 1999. This rapid growth and seasonal nature of the toy
retail industry led to less than optimal order fulfillment during the 1999
Holiday Season. Toysrus.com addressed this challenge in the short-term by
notifying affected customers and compensating such customers with $100 worth of
Geoffrey Money, which could be redeemed for merchandise in Toys "R" Us, Kids "R"
Us or Babies "R" Us stores. The long-term solution to ensuring optimal customer
service in the rapid growth and highly seasonal on-line toy retail business will
be achieved through the initiatives discussed above under "On-line Retailing
Strategic Initiatives" and various web site enhancements, increased product
availability and other infrastructure investments. In addition, the recognition
of the Toys "R" Us name along with the ability to leverage existing company
store locations that can accept customer returns and exchanges will lend a
competitive advantage to the on-line business.
(d) Trademarks
"TOYS "R" US", "KIDS "R" US", "BABIES "R" US" and "Imaginarium", as well
as various of the company's family of "R" Us marks either have been registered,
or have trademark applications pending, with the United States Patent and
Trademark Office and with the trademark registries of many foreign countries.
The company believes that its rights to these properties are adequately
protected.
(e) Seasonality
Retail sales of toy and toy related products are highly seasonal, with a
majority of retail sales occurring during the period from September through
December. Consequently, a large portion of the company's sales and earnings
occur during its fourth quarter.
See the section, "Quarterly Financial Data", contained on page 38 of the
company's 1999 Annual Report, which section is incorporated herein by reference.
(f) Working Capital
For a discussion of the company's working capital requirements, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 21 through 24 of the company's 1999 Annual Report, which
section is incorporated herein by reference.
(g) Competition
All aspects of the retailing industry are highly competitive. Most of the
merchandise sold by the company, in markets in which the company operates, is
available from various retailers at competitive prices. The company's
competitors consist of other retailers of toy and children-related products,
on-line retailers, department stores and discount and mass merchandise type
retail stores. Discount and mass merchandise type retailers use aggressive
pricing policies and enlarged toy selling areas during the holiday season to
build traffic for other store departments. The company addresses these
competitive tactics by continually building brand image to attract customers,
offering consumers exclusive product, high value items, the best available
selection of toys and toy related products relative to the discount and mass
merchandise type retailers, and remaining competitive on price.
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(h) Employees
At January 29, 2000, the company employed approximately 76,000
individuals. Due to the seasonality of the company's business, employment rose
to approximately 119,000 during the 1999 Holiday Season.
ITEM 2. PROPERTIES
See the Note, "Leases," in the company's Notes to Consolidated Financial
Statements included on page 30 of the company's 1999 Annual Report, which note
is incorporated herein by reference. Also see the section "Store Locations" on
page 38 of the company's 1999 Annual Report, which section is incorporated
herein by reference. The following information related to properties is as of
January 29, 2000:
Toys "R" Us - United States
A significant portion of the properties operated by Toys "R" Us are owned.
Toys "R" Us either purchases or leases properties depending on the economic
terms available. Where properties are leased, Toys "R" Us generally has
long-term leases with multiple renewal options. Toys "R" Us operates 710 toy
stores, 439 of which are owned and 271 are leased and 11 distribution centers, 9
of which are owned and 2 are leased. The distribution centers average
approximately 427,000 square feet each in size and are strategically located
throughout the United States to efficiently service these stores.
The company leases a corporate office in Paramus, New Jersey and owns a
corporate office building in Montvale, New Jersey and a data center in
Parsippany, New Jersey.
Toys "R" Us - International
International operates 371 stores, excluding 20 joint ventures and 71
franchised stores, 105 of which are owned and 266 are leased. International also
operates 8 distribution centers, 4 of which are owned and 4 are leased.
Kids "R" Us
Kids "R" Us operates 205 stand alone children's clothing stores, 99 of
which are owned and 106 are leased. Kids "R" Us operates 4 distribution centers,
of which 2 are owned and 2 are leased. These distribution centers average
approximately 158,000 square feet each in size.
Babies "R" Us
Babies "R" Us operates 131 juvenile retail stores, 16 of which are owned
and 115 are leased. Babies "R" Us stores are serviced by existing Toys "R" Us
and Kids "R" Us distribution centers discussed above.
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ITEM 3. LEGAL PROCEEDINGS
The company is a party to the legal proceedings discussed below, which
have arisen in the normal course of business. In view of the inherent difficulty
of predicting the outcome of litigation and other legal proceedings, the company
cannot state what the eventual outcome of these pending proceedings will be. It
is the opinion of management, after consultation with outside counsel, that the
legal proceedings referred to below will not, individually or in the aggregate,
have a material adverse effect on the company's financial position or results of
operations.
In the Matter of Toys "R" Us, Inc.; In Re: Toys "R" Us Antitrust
Litigation. On May 22, 1996, the Staff of the Federal Trade Commission (the
"FTC") filed an administrative complaint against the company alleging that the
company is in violation of Section 5 of the Federal Trade Commission Act for its
practices relating to warehouse clubs. The complaint alleges that the company
reached understandings with various suppliers that such suppliers not sell to
the clubs the same items that they sell to the company. The complaint also
alleges that the company "facilitated understandings" among the manufacturers
that such manufacturers not sell to clubs. The complaint seeks an order that the
company cease and desist from this practice. The matter was tried before an
administrative law judge in the period from March through May of 1997. On
September 30, 1997, the administrative law judge filed an Initial Decision
upholding the FTC's complaint against the company. On October 13, 1998, the FTC
issued a final Order and Opinion upholding the FTC's complaint against the
company.
The company has appealed the FTC's decision to the United States Court of
Appeals for the Seventh Circuit. The appeal was argued on May 18, 1999 and is
awaiting decision from the Court.
After the filing of the FTC complaint, several class action suits were
filed against the company in state courts in Alabama and California, alleging
that the company had violated certain state competition laws as a consequence of
the behavior alleged in the FTC complaint. After the Initial Decision was handed
down, more than thirty purported class actions were filed in federal and state
courts in various jurisdictions alleging that the company had violated the
federal antitrust laws as a consequence of the behavior alleged in the FTC
complaint. In addition, the attorneys general of forty-four states, the District
of Columbia and Puerto Rico filed a suit against the company in their capacity
as representatives of the consumers of their states, alleging that the company
had violated federal and state antitrust laws as a consequence of the behavior
alleged in the FTC complaint. These suits sought damages in unspecified amounts
and other relief under state and/or federal law and were consolidated in the
United States District Court for the Eastern District of New York.
The company believes that it has always acted fairly and in the best
interests of its customers and that both its policy and its conduct in
connection with the foregoing have been and are within the law. However, to
avoid the cost and uncertainty of protracted litigation, the company has reached
an agreement to settle all of the class action and attorney general lawsuits in
a manner which will not have a material adverse effect on its financial
condition, results of operations or cash flow. The Court granted final approval
of the agreement on February 17, 2000. The company had accrued all anticipated
costs relating to this matter as of January 30, 1999.
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FAO Schwarz, et al. v. Toys "R" Us, Inc., et al. On February 10, 2000, an
action was commenced in the Supreme Court of the State of New York, New York
County by FAO Schwarz ("FAO") and Vendex KBB N.V. against the company and John
H. Eyler, Jr. The complaint alleges, among other things, that Mr. Eyler breached
his employment agreement with FAO and that the company committed tortious
interference with contractual relations in connection with Mr. Eyler joining the
company as President and Chief Executive Officer and a member of its board of
directors. The complaint seeks compensatory and punitive damages in unspecified
amounts and injunctive relief preventing Mr. Eyler from continuing his
employment with the company.
Also on February 10, 2000, plaintiffs filed a motion for a temporary
restraining order and a preliminary injunction in which they sought to remove
Mr. Eyler from his positions at the company and prevent him from working for the
company. On February 10, 2000, the court denied plaintiffs' motion for a
temporary restraining order. The court has not yet issued a ruling on
plaintiff's request for a preliminary injunction.
On March 1, 2000, defendants filed answers to the complaint in which they
denied liability and asserted affirmative defenses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of stockholders during the fourth
quarter of the fiscal year ending January 29, 2000.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Market prices and other information with respect to the company's common
stock are hereby incorporated by reference to page 38 of the company's 1999
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is hereby incorporated by reference to page 3 of
the company's 1999 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Management's discussion and analysis of results of operations and
financial condition is hereby incorporated by reference to pages 21 through 24
of the company's 1999 Annual Report.
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Qualitative and quantitative disclosures about market risk are hereby
incorporated by reference to page 24 of the company's 1999 Annual Report.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are hereby
incorporated by reference to pages 25 to 35 of the company's 1999 Annual Report.
(a) Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999
(b) Consolidated Statements of Earnings for each of the three years in the
period ended January 29, 2000
(c) Consolidated Statements of Cash Flows for each of the three years in the
period ended January 29, 2000
(d) Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended January 29, 2000
(e) Notes to Consolidated Financial Statements; and
(f) Report of Ernst & Young LLP.
Individual financial statements of the registrant's subsidiaries are not
furnished because consolidated financial statements are furnished. The
registrant is primarily a holding company, the expenses and obligations of which
are paid by its consolidated subsidiaries through a fee based on expenses
incurred for management services provided to such subsidiaries by the
registrant. All subsidiaries of the registrant currently are at least 80%-owned.
Financial statements of 50%-owned joint ventures are not submitted because
such companies, considered in the aggregate, are not considered a significant
subsidiary as defined in Regulation S-X.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors of the company is hereby
incorporated herein by reference to the section, "Election of Directors", in the
company's Proxy Statement for the Annual Meeting of Stockholders to be held June
7, 2000 ("2000 Proxy Statement").
Executive Officers of the company
(a) The following persons are the Executive Officers of the company as
of April 10, 2000, having been elected to their respective offices
by the Board of Directors of the company to serve until the election
and qualification of their respective successors:
Name Age Position with the company
- --------------------------------------------------------------------------------
Michael Goldstein 58 Chairman of the Board
- --------------------------------------------------------------------------------
John H. Eyler Jr. 52 President and Chief Executive Officer,
and Director
- --------------------------------------------------------------------------------
Michael G. Shannon 48 President of Administration and Logistics
- --------------------------------------------------------------------------------
James E. Feldt 45 Executive Vice President and President
Merchandising and Marketing of Toys "R" Us
United States Division
- --------------------------------------------------------------------------------
Warren F. Kornblum 47 Executive Vice President - Worldwide
Marketing and Brand Management
- --------------------------------------------------------------------------------
Louis Lipschitz 55 Executive Vice President and Chief
Financial Officer
- --------------------------------------------------------------------------------
Richard L. Markee 46 Executive Vice President and President of
Babies "R" Us Division and Chairman of
Kids "R" Us Division
- --------------------------------------------------------------------------------
Gregory R. Staley 52 Executive Vice President and President of
Toys "R" Us United States Division
- --------------------------------------------------------------------------------
Francesca L. Brockett 40 Senior Vice President - Strategic Planning
and Business Development
- --------------------------------------------------------------------------------
Roger C. Gaston 44 Senior Vice President - Human Resources
- --------------------------------------------------------------------------------
13
<PAGE>
(b) The following is a brief account of the business experience during the
past five years for each of the Executive Officers of the company:
Mr. Goldstein has been employed by the company for more than five years.
Effective February 1998, he retired from the position of Chief Executive Officer
and was elected Chairman of the Board. From August 1999 to January 2000 he
served as Interim Chief Executive Officer. Prior to 1995 to February 1998, he
was Vice Chairman of the Board and Chief Executive Officer.
Mr. Eyler has been employed by the company since January 2000 as President
and Chief Executive Officer. Prior to his employment with the company he served
as Chairman and Chief Executive Officer of FAO Schwarz. He had held this
position since prior to 1995.
Mr. Shannon has been employed by the company since October 1998. Effective
March 2000, he was appointed President - Administration and Logistics for the
company. From March 1999 to March 2000, he served as Executive Vice President of
the company and President of U.S. Toy Store Division. From October 1998 to March
1999, he was Executive Vice President and Chief Administrative Officer. From
January 1995 to October 1998, he was President and Chief Executive Officer of
Gayfer's/Maison Blanche.
Mr. Feldt has been employed by the company since March 1999. Effective
March 2000, he was appointed Executive Vice President of the company and
President Merchandising and Marketing of Toys "R" Us United States Division.
From March 1999 to March 2000, he was Executive Vice President - Merchandising
of Toys "R" Us United States Division. From May 1997 to February 1999, he was
Executive Vice President, Merchandise and Marketing of Value City Department
Stores. From May 1995 to April 1997, he was Executive Vice President
Merchandising, Allocation and Merchandise Distribution of Hills Department
Stores. Prior to 1995 to May 1995, he was Vice President, Hard Lines of Hills
Department Stores.
Mr. Kornblum has been employed by the company since January 1999.
Effective March 2000, he was appointed Executive Vice President - Worldwide
Marketing and Brand Management. From January 1999 to March 2000, he was Senior
Vice President and Chief Marketing Officer. From November 1996 to January 1999,
he was Managing Partner of Bozell Worldwide. Prior to 1995 to November 1996, he
was President, US Operations of Prism Communications.
Mr. Lipschitz has been employed by the company for more than five years.
Effective February 1996, he became Executive Vice President and Chief Financial
Officer. From prior to 1995 to January 1996, he was Senior Vice President -
Finance and Chief Financial Officer.
Mr. Markee has been employed by the company for more than five years.
Effective October 1999, he was appointed Chairman of Kids "R" Us Division.
Effective February 1996, he became Executive Vice President of the company and
he has served as President of Babies "R" Us Division since its inception in
September 1995. From prior to 1995 to October 2000, he also served as President
of Kids "R" Us Division.
14
<PAGE>
Mr. Staley has been employed by the company for more than five years.
Effective March 2000, he was appointed President of Toys "R" Us United States
Division. Effective February 1996, he became Executive Vice President of the
company and he also served as President of Toys "R" Us International Division
from August 1995 to February 2000. Prior to July 1995, he was Senior Vice
President - General Merchandise Manager for Toys "R" Us International Division.
Ms. Brockett has been employed by the company since September 1998 as
Senior Vice President - Strategic Planning and Business Development. From August
1997 to September 1998, she was Senior Vice President - Strategic Planning of
Tricon Global Restaurants. From October 1995 to August 1997, she was Vice
President - Business Development of Taco Bell Corporation. Prior to 1995 to
October 1995, she was Vice President - Corporate Development of PepsiCo.
Mr. Gaston has been employed by the company since December 1996 as Senior
Vice President - Human Resources. From prior to 1995 to November 1996, he was
Executive Vice President - Human Resources of Carson, Pirie, Scott and Company.
Information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended is hereby incorporated by reference
to the section "Compliance with Section 16(a)" in the company's 2000 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is hereby incorporated
herein by reference to the sections, "Election of Directors", "Compensation of
Directors", "Executive Compensation", "Summary Compensation Table", "Option
Grants in Last Fiscal Year - Toys "R" Us, Inc.", "Option Grants in Last Fiscal
Year Toysrus.com, Inc.", "Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values", "Long-Term Incentive Plans - Awards in Last
Fiscal Year" and "Employment Agreements" in the company's 2000 Proxy Statement.
The sections "Report of the Management Compensation and Stock Option Committee
on Executive Compensation" and "Five-Year Stockholder Return Comparison" in the
company's 2000 Proxy Statement are not incorporated by reference herein. Such
sections are furnished solely for information and shall not be deemed to be
soliciting material or to be "filed" as a part of this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management is hereby incorporated by reference to the sections,
"Principal Stockholders" and "Election of Directors", in the company's 2000
Proxy Statement.
15
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 that could have
been obtained from an unaffiliated lessor.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) The response to this portion of Item 14 is set forth in Item 8 of Part
II of this report on Form 10-K.
(2) Financial Statement Schedules have been omitted because they are
inapplicable, not required, or the information is included elsewhere in
the financial statements or notes thereto.
(3) See accompanying Index to Exhibits. The company will furnish to any
stockholder, upon written request, any exhibit listed in the accompanying
Index to Exhibits upon payment by such stockholder of the company's
reasonable expenses in furnishing any such exhibit.
(b) Cautionary Statement Regarding Forward Looking Information
This Form 10-K contains certain "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. The company
may also make forward-looking statements in other documents filed with the
Securities and Exchange Commission, its annual report to shareholders, its
proxy statement and in press releases. All statements that are not
historical facts, including statements about the company's beliefs or
expectations, are forward-looking statements. Such statements involve
risks and uncertainties that exist in the company's operations and
business environment that could render actual outcomes and results
materially different than predicted. The company's forward-looking
statements are based on assumptions about many factors, including, but not
limited to, ongoing competitive pressures in the retail industry, changes
in consumer spending, general economic conditions in the United States and
other jurisdictions in which the company conducts business (such as
interest rates and consumer confidence) and normal
16
<PAGE>
business uncertainty. While the company believes that its assumptions are
reasonable at the time forward-looking statements were made, it cautions
that it is impossible to predict the actual outcome of numerous factors
and, therefore, readers should not place undue reliance on such
statements. Forward-looking statements speak only as of the date they are
made, and the company undertakes no obligation to update such statements
in light of new information or future events.
(c) Reports on Form 8-K
None.
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TOYS "R" US, INC.
(Registrant)
By /s/ Louis Lipschitz
--------------------
Louis Lipschitz
Executive Vice President and
Chief Financial Officer
Date: April 26, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 26th day of April, 2000.
Signature Title
--------- -----
/s/ John H. Eyler Jr. Director, President and Chief Executive Officer
- ---------------------------- (Principal Executive Officer)
John H. Eyler Jr.
/s/ Louis Lipschitz Executive Vice President and Chief Financial
- ---------------------------- Officer (Principal Financial and Accounting
Louis Lipschitz Officer)
* Chairman of the Board
- ----------------------------
Michael Goldstein
* Director
- ----------------------------
Robert A. Bernhard
* Director
- ----------------------------
RoAnn Costin
* Director
- ----------------------------
Calvin Hill
* Director
- ----------------------------
Shirley Strum Kenny
* Director, Chairman Emeritus
- ----------------------------
Charles Lazarus
18
<PAGE>
Signature Title
--------- -----
* Director
- ----------------------------
Norman S. Matthews
* Director
- ----------------------------
Howard W. Moore
* Director
- ----------------------------
Arthur B. Newman
The foregoing constitute all of the Board of Directors and the Principal
Executive, Financial and Accounting Officers of the Registrant.
* By /s/ Louis Lipschitz
- ----------------------------
Louis Lipschitz, Attorney-In-Fact
19
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this Report:
Exhibit
-------
No. Document
--- --------
2A Agreement and Plan of Merger, dated as of December 8,
1995, by and among registrant, Toys "R" Us - Delaware,
Inc. (f/k/a Toys "R" Us, Inc.) and TRU Interim, Inc.
Incorporated herein by reference to Exhibit 2.1 to
registrant's Registration of Securities of Certain
Successor Issuers on Form 8-B dated January 3, 1996 (the
"Form 8-B").
2B Agreement and Plan of Merger, dated as of October 1,
1996, and as amended and restated as of December 26,
1996, among registrant, BSST Acquisition Corp., Baby
Superstore, Inc. and Jack P. Tate. Incorporated by
reference to Annex A to the Proxy Statement/Prospectus
Statement No. 333-18863.
3 i) Restated Certificate of Incorporation of registrant
(filed on January 2, 1996). Incorporated herein by
reference to Exhibit 3.1 to the Form 8-B.
ii) Amended and Restated By-Laws of registrant (as of
January 1, 1996). Incorporated herein by reference to
Exhibit 3.2 to the Form 8-B. An amendment dated March
11, 1997 to Amended and Restated By-Laws. Incorporated
herein by reference to Exhibit 3B to registrant's Annual
Report on Form 10-K for the year ended January 31, 1998.
4 i) Form of Indenture dated as of January 1, 1987 between
registrant and United Jersey Bank, as Trustee, pursuant
to which securities in one or more series in an
unlimited amount may be issued by registrant.
Incorporated herein by reference to Exhibit 4(a) to
Registration Statement No. 33-11461.
ii) Form of the registrant's 8 1/4% Sinking Fund Debentures
due 2017. Incorporated herein by reference to Exhibit
4(a) to Registration Statement No. 33-11461.
iii) Form of Indenture between registrant and United Jersey
Bank, as Trustee, pursuant to which one or more series
of debt securities up to $300,000,000 in principal
amount may be issued to registrant. Incorporated herein
by reference to Exhibit 4 to registrant's Registration
Statement No. 33-42237.
iv) Form of registrant's 8 3/4% Debentures due 2021.
Incorporated herein by reference to Exhibit 4 to
registrant's Report on Form 8-K dated August 29, 1991.
20
<PAGE>
Exhibit
-------
No. Document
--- --------
4 v) Substantially all other long-term debt of registrant
(which other debt does not exceed on an aggregate basis
10% of the total assets of the registrant and its
subsidiaries on a consolidated basis) is evidenced by,
among other things, (i) commercial paper, (ii)
industrial revenue bonds issued by industrial
development authorities and guaranteed by registrant,
(iii) mortgages held by third parties on real estate
owned by registrant, (iv) stepped coupon guaranteed
bonds held by a third party and guaranteed by registrant
and (v) an agreement under which registrant guaranteed
certain yen-denominated loans made by a third party
subsidiary of registrant. Registrant will file with the
Securities and Exchange Commission (the "Commission")
copies of constituent documents relating to such upon
request of the Commission.
10A* Employment Agreement dated March 14, 1978 between
registrant and Charles Lazarus and an amendment thereto
dated November 20, 1979 (incorporated herein by
reference to Exhibit 2 in Schedule 13D dated February 1,
1980 filed by Charles Lazarus, et al). An amendment
dated March 23, 1982 to such employment agreement
(incorporated herein by reference to Exhibit 10B to
registrant's Annual Report on Form 10-K for the year
ended January 31, 1982, Commission File Number 1-1117).
An amendment dated December 7, 1982 to such employment
agreement (incorporated herein by reference to Exhibit
10B to registrant's Annual Report on Form 10-K for the
year ended January 30, 1983, Commission File Number
1-1117). An amendment dated April 10, 1984 to such
employment agreement (incorporated herein by reference
to Exhibit 10B to registrant's Annual Report on Form
10-K for the year ended January 29, 1989, Commission
File Number 1-1117).
10B* Amendment dated as of June 10, 1998 to Employment
Agreement between registrant and Charles Lazarus.
Incorporated herein by reference to Exhibit 10B to
registrant's Annual Report on Form 10-K for the year
ended January 30, 1999.
10C Form of Indemnification Agreement between registrant and
each director. Incorporated herein by reference to
Exhibit 10F to registrant's Annual Report on Form 10-K
for the year ended February 1, 1987, Commission File
Number 1-1117.
10D* Amended and Restated Toys "R" Us, Inc. Non-Employee
Directors' Stock Option Plan effective as of September
19, 1990. Incorporated herein by reference to Exhibit C
to registrant's Proxy Statement for the year ended
February 1, 1997.
21
<PAGE>
Exhibit
-------
No. Document
--- --------
10E* Stock Option Plan and Agreement dated as of December 2,
1992 between the registrant and Robert C. Nakasone.
Incorporated herein by reference to Exhibit 10I to
registrant's Annual Report on Form 10-K for the year
ended January 30, 1993.
10F* Stock Option Plan and Agreement dated as of December 2,
1992 between the registrant and Michael Goldstein.
Incorporated herein by reference to Exhibit 10J to
registrant's Annual Report on Form 10-K for the year
ended January 30, 1993.
10G* Amended and Restated Toys "R" Us, Inc. 1994 Stock Option
and Performance Incentive Plan effective as of November
1, 1993. Incorporated herein by reference to Exhibit A
to registrant's Proxy Statement for the year ended
February 1, 1997.
10H* Stock Unit Plan for Non-Employee Directors of Toys "R"
Us, Inc., effective as of May 1, 1997. Incorporated
herein by reference to Exhibit 10H to registrant's
Annual Report on Form 10-K for the year ended January
30, 1999.
10I* Amended and Restated Toys "R" Us, Inc. Management
Incentive Compensation Plan, effective beginning with
the registrant's fiscal year ending January 28, 1995.
Incorporated herein by reference to Exhibit B to
registrant's Proxy Statement for the year ended February
1, 1997.
10J* Toys "R" Us, Inc. Partnership Group Deferred
Compensation Plan effective as of May 17, 1995.
Incorporated herein by reference to Exhibit 10.13 to the
Form 8-B.
10K* Toys "R" Us, Inc. Grantor Trust Agreement dated as of
October 1, 1995 between registrant and American Express
Trust company. Incorporated herein by reference to
Exhibit 10.14 to the Form 8-B.
10L* Toys "R" Us, Inc. Supplemental Executive Retirement
Plan, effective as of December 6, 1995. Incorporated by
reference to Exhibit 10N to registrant's Annual Report
on Form 10-K for the year ended February 3, 1996.
10M* Toys "R" Us, Inc. Grantor Trust Agreement dated as of
April 1, 1996 between registrant and Allmerica Trust
company, N.A. Amendment No. 1 to Grantor Trust
Agreement, effective as of April 1, 1996. Amendment No.
2 to Grantor Trust Agreement, effective as of April 1,
1996. Incorporated herein by reference to Exhibit 10P to
registrant's Annual Report on Form 10-K for the year
ended January 30, 1999.
22
<PAGE>
Exhibit
-------
No. Document
--- --------
10N Shareholders Agreement, dated October 1, 1996, by and
among registrant, Jack P. Tate and Linda M. Robertson.
Incorporated by reference to Exhibit A to Exhibit 2 to
registrant's Quarterly Report on Form 10-Q for the
quarter ended November 2, 1996, File No. 1-11609.
10O* Retention Agreements
--------------------
- Retention Agreement between Toys "R" Us, Inc. and
Roger Gaston dated as of May 1, 1997.
- Retention Agreement between Toys "R" Us, Inc. and
Louis Lipschitz dated as of May 1, 1997.
- Retention Agreement between Toys "R" Us, Inc. and
Richard L. Markee dated as of May 1, 1997.
- Retention Agreement between Toys "R" Us, Inc. and
Gregory R. Staley dated as of May 1, 1997.
Each incorporated herein by reference to Exhibit 10P to
registrant's Quarterly Report on Form 10-Q for the
quarterly period ended May 3, 1997.
10P* Amendment to Retention Agreement between Toys "R" Us,
Inc. and Richard L. Markee dated May 6, 1999.
10Q* Amendments to Retention Agreement between Toys "R" Us,
Inc. and Gregory R. Staley dated May 6, 1999 and March
2, 2000, respectively.
10R Amended and Restated Rights Agreement, dated as of April
16, 1999, between Toys "R" Us, Inc. and American Stock
Transfer & Trust Company, which includes as Exhibit A
the Form of Rights Certificate and, as Exhibit B, the
Summary of Rights to Purchase Common Stock (incorporated
herein by reference to Exhibit 1 to registrant's Report
on Form 8-K dated April 16, 1999).
10S* Retention Agreement between Toys "R" Us, Inc. and
Michael Goldstein dated as of February 25, 1998.
Incorporated herein by reference to Exhibit 10R to
registrant's Annual Report on Form 10-K for the year
ended January 31, 1998.
23
<PAGE>
Exhibit
-------
No. Document
--- --------
10T* Retention Agreement between Toys "R" Us, Inc. and Robert
C. Nakasone dated as of February 25, 1998. Incorporated
herein by reference to Exhibit 10S to registrant's
Annual Report on Form 10-K for the year ended January
31, 1998.
10U* Separation agreement between Toys "R" Us, Inc. and Bruce
Krysiak dated as of March 25, 1999. Incorporated herein
by reference to Exhibit 10X to registrant's Annual
Report on Form 10-K for the year ended January 30, 1999.
10V* Retention Agreement between Toys "R" Us, Inc. and
Michael G. Shannon dated October 12, 1998. Incorporated
herein by reference to Exhibit 10Y to registrant's
Annual Report on Form 10-K for the year ended January
30, 1999.
10W* Form of Retention Agreement for executive officers of
Toys "R" Us, Inc.
10X* Separation Agreement between Toys "R" Us, Inc. and Keith
Van Beek dated as of June 9, 1999.
10Y* Separation and Release Agreement between Toys "R" Us,
Inc. and Robert C. Nakasone dated as of August 26, 1999.
Incorporated herein by reference to Exhibit 10.1 to
registrant's Quarterly Report on Form 10-Q for the
quarterly period ended July 31, 1999.
10AA* Separation Agreement between Toys "R" Us, Inc. and
Michael J. Madden dated as of September 24, 1999.
10BB* Retention Agreement between Toys "R" Us, Inc. and John
H. Eyler, Jr. dated January 6, 2000.
10CC* Toys "R" Us, Inc. Non-Employee Directors' Stock Unit
Plan, effective as of June 10, 1999. Incorporated herein
by reference to Exhibit A to registrant's Proxy
Statement for the year ended January 30, 1999.
10DD* Toys "R" Us, Inc. Non-Employee Directors' Stock Option
Plan, effective as of June 10, 1999. Incorporated herein
by reference to Exhibit B to registrant's Proxy
Statement for the year ended January 30, 1999.
10EE* Toys "R" Us, Inc. Non-Employee Directors' Deferred
Compensation Plan, effective as of June 10, 1999.
Incorporated herein by reference to Exhibit C to
registrant's Proxy Statement for the year ended January
30, 1999.
24
<PAGE>
Exhibit
-------
No. Document
--- --------
13 Registrant's Annual Report to Stockholders for the year
ended January 29, 2000. Except for the portions thereof
that are expressly incorporated by reference into this
report, such Annual Report is furnished solely for the
information of the Commission and is not to be deemed
"filed" as part of this report.
21 Subsidiaries of registrant.
23 Consent of Independent Auditors, Ernst & Young LLP.
24 Power of Attorney, dated in April 2000.
27 Financial Data Schedule for the year ended
January 29, 2000.
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14 (c) hereof.
25
Exhibit 10P
May 6, 1999
Richard L. Markee
709 Barrister Court
Franklin Lakes, New Jersey 07417
Dear Mr. Markee:
The purpose of this letter is to confirm our agreement requiring you to
provide notice to Toys "R" Us, Inc. ("TRU") if you were to terminate your
employment with TRU at any time. This letter constitutes an amendment of your
employment contract dated May 1, 1997 (the "Contract") pursuant to Section 13(c)
of the Contract.
Specifically, we have agreed that, in exchange for TRU providing you with
additional consideration to the consideration provided to you under the
Contract, including the issuance of additional restricted stock units, you shall
provide TRU with not less than four months advance notice (the "Mandatory Notice
Period") prior to your terminating for any reason other than Good Reason (as
described in the Contract) your employment with TRU. You have agreed that during
the Mandatory Notice Period you shall continue to perform all of your duties in
accordance, and in compliance, with the terms of the Contract.
You have also agreed that, prior to and during the term of the Mandatory
Notice Period, you shall not disclose to any third parties, other than executive
search firms, prospective employers (collectively, the "Permitted Third
Parties") and your wife, your intention and/or decision to terminate employment
with TRU. Prior to any disclosure of any such information to any Permitted Third
Party, you shall secure from each Permitted Third Party the Permitted Third
Party's written agreement not to disclose such information until after the
Mandatory Notice Period to anyone other than officers and directors of such
Permitted Third Party who need to know such information.
You acknowledge that the provisions of this letter agreement are reasonable
and necessary for the protection of TRU and its subsidiaries and affiliates. In
addition, you acknowledge that TRU and its subsidiaries and affiliates will be
irrevocably damaged if you fail to provide TRU with at least four months advance
notice of termination or otherwise fail to comply with the terms of this letter,
as provided for herein. Accordingly, you agree that, in addition to any other
relief to which TRU may be entitled, TRU will be entitled to seek and obtain
injunctive relief (without the requirement of any bond) from a court of
competent jurisdiction for the purposes of restraining you from any actual or
threatened breach of your obligations hereunder.
If this letter accurately sets forth in full the terms of our agreement
concerning the matters set forth herein, please execute this letter where
indicated.
Sincerely,
TOYS "R" US, INC.
By:/s/ Robert C. Nakasone
---------------------------
Robert C. Nakasone
Chief Executive Officer
SO AGREED
/s/ Richard L. Markee
- --------------------------
Richard L. Markee
Exhibit 10Q
March 2, 2000
Mr. Gregory R. Staley
286 Autumn Terrace
Franklin Lakes, NJ 07417
Dear Greg:
The purpose of this letter is to confirm our agreement with regard to your
rights to terminate your employment in the event of a change in reporting
relationship. This letter constitutes an amendment of your Retention Agreement
dated May 1, 1997 (the "Agreement") pursuant to Section 13[c] of the Agreement.
Specifically, we have agreed that, in view of the recent changes in the senior
management of the Company, Section 4[b][ii] of the Agreement is hereby amended
to read as follows:
"[ii] Due to the unique nature of the Company's International Division
and the resulting burdens imposed on the Executive thereby, notwithstanding
anything to the contrary contained herein, the Executive's employment may be
terminated during the Employment Period by the Executive by providing written
notice to the Company within 30 days of the first day on which the Executive no
longer reports directly to the Chief Executive Officer of the Company, in which
event the "Date of Termination" for purposes hereof shall be the date set forth
in such notice (which shall not be less than 60 days from the date of such
notice unless the Company consents thereto in writing)."
This letter does not constitute a consent or waiver to or modification of any
other provision, term or condition of the Agreement, all of which remain in full
force and effect.
If this letter accurately sets forth in full the terms of our agreement
concerning the matter set forth herein, please execute this letter where
indicated.
Sincerely,
TOYS "R" US, INC. SO AGREED:
By: /s/ John H. Eyler Jr. /s/ Gregory R. Staley
-------------------------- -----------------------------------
John H. Eyler, Jr. Gregory R. Staley
<PAGE>
Exhibit 10Q
May 6, 1999
Gregory R. Staley
286 Autumn Terrace
Franklin Lakes, New Jersey 07417
Dear Mr. Staley:
The purpose of this letter is to confirm our agreement requiring you to
provide notice to Toys "R" Us, Inc. ("TRU") if you were to terminate your
employment with TRU at any time. This letter constitutes an amendment of your
employment contract dated May 1, 1997 (the "Contract") pursuant to Section 13(c)
of the Contract.
Specifically, we have agreed that, in exchange for TRU providing you with
additional consideration to the consideration provided to you under the
Contract, including the issuance of additional restricted stock units, you shall
provide TRU with not less than four months advance notice (the "Mandatory Notice
Period") prior to your terminating for any reason other than Good Reason (as
described in the Contract) your employment with TRU. You have agreed that during
the Mandatory Notice Period you shall continue to perform all of your duties in
accordance, and in compliance, with the terms of the Contract.
You have also agreed that, prior to and during the term of the Mandatory
Notice Period, you shall not disclose to any third parties, other than executive
search firms, prospective employers (collectively, the "Permitted Third
Parties") and your wife, your intention and/or decision to terminate employment
with TRU. Prior to any disclosure of any such information to any Permitted Third
Party, you shall secure from each Permitted Third Party the Permitted Third
Party's written agreement not to disclose such information until after the
Mandatory Notice Period to anyone other than officers and directors of such
Permitted Third Party who need to know such information.
You acknowledge that the provisions of this letter agreement are
reasonable and necessary for the protection of TRU and its subsidiaries and
affiliates. In addition, you acknowledge that TRU and its subsidiaries and
affiliates will be irrevocably damaged if you fail to provide TRU with at least
four months advance notice of termination or otherwise fail to comply with the
terms of this letter, as provided for herein. Accordingly, you agree that, in
addition to any other relief to which TRU may be entitled, TRU will be entitled
to seek and obtain injunctive relief (without the requirement of any bond) from
a court of competent
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jurisdiction for the purposes of restraining you from any actual or threatened
breach of your obligations hereunder.
If this letter accurately sets forth in full the terms of our agreement
concerning the matters set forth herein, please execute this letter where
indicated.
Sincerely,
TOYS "R" US, INC.
By: /s/ Robert C. Nakasone
----------------------
Robert Nakasone
Chief Executive Officer
SO AGREED
/s/ Gregory R. Staley
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Gregory R. Staley
Exhibit 10W
RETENTION AGREEMENT
BETWEEN
TOYS "R" US, INC.
AND
---------------
(executive officer name)
DATED AS OF
(AGREEMENT DATE)
<PAGE>
TABLE OF CONTENTS
1. Employment Period....................................................
2. Terms of Employment..................................................
(a) Position..............................................................
(b) Compensation.........................................................
(i) Base Salary...................................................
(ii) Incentive Bonus...............................................
(iii) Participation in Other Plans..................................
(iv) Stock Units...................................................
3. Termination of Employment Upon Death, Disability or Retirement.......
4. Other Termination of Employment......................................
(a) Company Termination..................................................
(b) Good Reason..........................................................
(c) Notice of Termination................................................
(d) Obligations of the Company Upon Termination Under Section 4..........
(e) Cause................................................................
5. Release Agreement....................................................
6. Offset...............................................................
7. Compensation and Benefits Following Change of Control................
8. Nonexclusivity of Rights.............................................
9. Full Settlement; Legal Fees..........................................
(b) Expenses of Contests.................................................
10. Certain Additional Payments by the Company...........................
11. Restrictions and Obligations of the Officer..........................
(a) Consideration for Restrictions and Covenants.........................
(b) Confidentiality......................................................
(d) Non-Competition and Consulting.......................................
(e) Definitions. For purposes of this Section 11........................
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(f) Relief...............................................................
12. Successors...........................................................
13. Miscellaneous........................................................
(a) Governing Law........................................................
(b) Captions.............................................................
(c) Amendment............................................................
(d) Notices..............................................................
(e) Assistance to Company................................................
(f) Severability of Provisions...........................................
(g) Withholding..........................................................
(h) Waiver...............................................................
(i) Arbitration..........................................................
EXHIBIT A Separation and Release Agreement
EXHIBIT B Definitions
EXHIBIT C Change of Control and Tax Gross-Up
ANNEX A Stock Unit Agreement
ii
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TOYS "R" US, INC.
RETENTION AGREEMENT
AGREEMENT (this "Agreement"), by and between Toys "R" Us, Inc., a Delaware
corporation (the "Company"), and _______________ (the "Officer"), dated as of
(Agreement Date). Capitalized terms used in this Agreement and in Exhibit A
hereto that are not defined in the operative provisions shall have the meanings
ascribed to them on Exhibit B hereto.
1. Employment Period. The Company hereby agrees to continue to employ the
Officer and the Officer hereby agrees to remain in the employ of the Company
subject to the terms and conditions of this Agreement, for the Employment
Period. The term "Employment Period" means the period commencing on the date
hereof and ending on the second anniversary of such date as automatically
extended for successive additional one-year periods unless, at least six months
prior to the scheduled expiration of the Employment Period, the Company shall
give notice to the Officer that the Employment Period shall not be so extended.
2. Terms of Employment. (a) Position. (i) Commencing on the date hereof and
for the remainder of the Employment Period, the Officer shall continue to serve
in the Officer's current position at the Company or such other senior Officer
position to which the Officer may be appointed by the Company. The Officer shall
be based in (location to be determined).
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Officer is entitled, the Officer agrees to devote
full time during normal business hours to the business and affairs of the
Company and to use the Officer's best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period, the Officer
may, so long as such activities do not interfere with the performance of the
Officer's responsibilities as an employee of the Company in accordance with this
Agreement, continue the corporate directorships on which the Officer serves, if
any, as of the date hereof and such other corporate directorships as are
consented to by the Chief Executive Officer. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Officer with the knowledge of the Company prior to a Change of Control, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to a Change of Control shall not thereafter
be deemed to violate this Agreement.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Officer shall receive
the Officer's Annual Base Salary which will be paid in accordance with the
Company's regular payroll policies as in effect from time to time.
(ii) Incentive Bonus. The Officer shall also be eligible, for each fiscal
year ending during the Employment Period, to receive an annual incentive bonus
and long-term incentive awards pursuant to the Company's incentive Plans and
subject to the terms thereof at a level commensurate with the Officer's current
grants and the Officer's current position or any more senior position(s) to
which the Officer may be appointed. Each such incentive bonus shall be paid in
accordance with the Company's incentive Plans.
(iii) Participation in Other Plans. During the Employment Period, the
Officer shall be eligible to participate in all other Plans at a level
commensurate with the Officer's position.
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(iv) Stock Units. As further inducement for the Officer to enter into this
Agreement and to continue in the employ of the Company, the Company has granted
to the Officer (number to be determined) stock units contingent on performance
and future service, pursuant to the Stock Unit Agreement executed and delivered
by the Company on the date hereof in the form attached as Annex A hereto.
3. Termination of Employment Upon Death, Disability or Retirement. The
Officer's employment shall terminate upon the Officer's death, Disability or
Retirement during the Employment Period and the obligations of the Company upon
such termination shall be limited to those benefits provided by the Company's
Plans at the Date of Termination, except as specifically set forth herein or in
the Stock Unit Agreement.
4. Other Termination of Employment. (a) Company Termination. The Company
may terminate the Officer's employment during the Employment Period with or
without Cause.
(b) Good Reason. The Officer's employment may be terminated during the
Employment Period by the Officer for Good Reason.
(c) Notice of Termination. (i) Any termination by the Company for Cause, or
by the Officer for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with this Agreement. The failure
by the Officer or the Company to set forth in the Notice of Termination any fact
or circumstance that contributes to a showing of Good Reason or Cause shall not
waive any right of the Officer or the Company, respectively, hereunder or
preclude the Officer or the Company, respectively, from asserting such fact or
circumstance in enforcing the Officer's or the Company's rights hereunder.
(ii) Resignation. Without limiting the obligations of the Officer, or the
rights of the Company, in connection with, or relating to, this Agreement, the
Officer agrees that in order for the Officer to resign his employment without
Good Reason with the Company or any of its Subsidiaries, the Officer shall
provide the Company with six (6) months notice of resignation (the "Mandatory
Notice Period") prior to the effective date of such resignation. During the
Mandatory Notice Period, the Officer shall continue to perform all of his duties
in accordance, and in compliance, with the terms of this Agreement. Prior to and
during the Mandatory Notice Period, the Officer shall not disclose to any third
parties, other than executive search firms, prospective employers (collectively,
the "Permitted Third Parties") and the Officer's spouse, his intention and/or
decision to terminate employment with the Company. The Officer shall, prior to
any disclosure of such information to any Permitted Third Party, secure such
Permitted Third Party's written agreement not to disclose such information until
after the Mandatory Notice Period to anyone other than officers and directors of
such Permitted Third Party who need to know such information.
(d) Obligations of the Company Upon Termination Under Section 4. If the
Officer's employment shall have been terminated under Section 4(a) (other than
for Cause) or 4(b):
(i) the Company shall make a lump sum cash payment to the Officer within 30
days after the Date of Termination in an amount equal to the sum of (1) the
Officer's pro rata Annual Base Salary payable through the Date of Termination to
the extent not theretofore paid, (2) the targeted amount of the Officer's annual
bonus and long-term incentive awards that would have been payable with respect
to the fiscal year in which the Date of Termination occurs in each case absent
the termination of the Officer's employment prorated for the portion of such
fiscal year through the Date of Termination taking into account the number of
complete months during such fiscal year through the Date of Termination and (3)
the Officer's actual earned annual or long-term incentive awards for any
completed fiscal year or period not theretofore paid or deferred;
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(ii) the Company shall pay to the Officer in equal installments, made at
least monthly, over the (number to be determined) months following the Date of
Termination an aggregate amount equal to (1) (number to be determined) times the
Officer's Annual Base Salary in effect on the Date of Termination, (2) (number
to be determined) times the targeted amount of the annual incentive bonus that
would have been paid to the Officer with respect to the Company's fiscal year in
which such Date of Termination occurs and (3) (number to be determined) times
the targeted amount of the long-term incentive award, if any, that would have
been paid to the Officer with respect to such fiscal year;
(iii) the Company shall continue to provide, in the manner and timing
provided for in the Plans (other than stock options and except as set forth in
this Section 4(d) and in Section 7(b)), the benefits provided under the Plans
that the Officer would receive on an after-tax basis if the Officer's employment
had continued for (number to be determined) years after the Date of Termination
assuming for this purpose that the Officer's compensation for each such year
would have been one-half of the amount paid pursuant to clause (ii) above, and
the Officer shall be fully vested in any account balance and all other benefits
continuation under such Plans; provided, however that the benefits provided
under this clause (iii) shall be limited to the coverage permitted by law or as
would otherwise not potentially adversely impact on the tax qualification of any
Plans; provided, further, that if such benefits may not be continued under the
Plans, the Company shall pay to the Officer an amount equal to the Company's
cost had such benefits been continued.
(iv) (1) all unvested options held by the Officer shall continue to vest in
accordance with their terms for (number to be determined) years after the Date
of Termination, and all remaining unvested options held by the Officer shall
vest on the (number to be determined) year anniversary date of the Date of
Termination, (2) all unvested profit shares held by the Officer or for the
benefit of the Officer by a grantor trust established by the Company shall
continue to vest in accordance with their terms for (number to be determined)
years after the Date of Termination and all remaining profit shares shall vest
on the (number to be determined) year anniversary date of the Date of
Termination, provided that, if permitted by the terms of any such trust, any
unvested profit shares shall continue to be held by such grantor trust until
such profit shares vest pursuant to this clause (iv) and any such unvested
profit share not permitted to be so held shall vest immediately and be delivered
to the Officer, (3) any other unvested equity based award (including, without
limitation, restricted stock and stock units) held by the Officer shall vest on
the (number to be determined) year anniversary date of the Date of Termination
on a pro rata basis determined by a fraction, the numerator of which is the
number of months elapsed from the grant of such equity award through the Date of
Termination plus the (number to be determined) months after the Date of
Termination and the denominator of which is the total number of months in the
vesting period for such award and shall be promptly delivered to the Officer
entirely in the form of Common Stock, $.10 par value per share, of the Company,
(4) any options held by the Officer that are vested on the Date of Termination
or vest thereafter pursuant to this clause (iv) may be exercised until the
earlier of (x) the thirty-month anniversary date of the Date of Termination and
(y) the expiration date of such options and (5) the Officer shall not be
entitled to any additional grants of any stock options, restricted stock, other
equity based or long-term awards; and
(v) the Officer will be entitled to continuation of health benefits under
the Plans at a level commensurate with the Officer's current position or more
senior position(s) to which the Officer may be appointed, and if the Officer
elects to receive such health benefits, the Company shall pay the medical
premiums therefore for the first (number to be determined) months after the Date
of Termination, and thereafter the Officer shall pay the premium charged to
former employees of the Company pursuant to Section 4980B of the Code until the
Officer is sixty-five years of age; provided, that the Company can amend or
otherwise alter the Plans to provide benefits to the Officer that are no less
than those commensurate with the Officer's current
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position or more senior position(s) to which the Officer may be appointed;
provided, that to the extent such benefits cannot be provided to the Officer
under the terms of the Plans or the Plans cannot be so amended in any manner not
adverse to the Company, the Company shall pay the Officer, on an after-tax
basis, an amount necessary for the Officer to acquire such benefits from an
independent insurance carrier; and provided, further, that the obligations of
the Company under this clause (v) shall be terminated if, at any time after the
Date of Termination, the Officer is employed by or is otherwise affiliated with
a party that offers comparable health benefits to the Officer.
(e) Cause. If the Officer's employment shall be terminated for Cause during
the Employment Period or if the Officer voluntarily terminates employment during
the Employment Period, excluding a termination for Good Reason, death,
Disability or Retirement, the Employment Period shall terminate without further
obligations to the Officer other than the obligation to pay to the Officer all
payments and benefits due, in accordance with the Company's Plans through the
Date of Termination.
5. Release Agreement. The benefits pursuant to Section 4 are contingent
upon the Officer (i) executing a Separation and Release Agreement (the "Release
Agreement") upon or after any Date of Termination, a copy of which is attached
as Exhibit A to this Agreement and (ii) not revoking or challenging the
enforceability of the Release Agreement or this Agreement.
6. Offset. The Company shall have the right to offset the amounts required
to be paid to the Officer under this Agreement against any amounts owed by the
Officer to the Company, and nothing in this Agreement shall prevent the Company
from pursuing any other available remedies against the Officer.
7. Compensation and Benefits Following Change of Control.
(a) Notwithstanding any provision of this Agreement or any Plan, in no
event shall any compensation or benefits, individually or in the aggregate, to
which the Officer would be entitled be less favorable for the (number to be
determined) years following a Change of Control than the Officer would have been
entitled based upon the most favorable of the Company's Plans in effect for the
Officer at any time during the 120-day period immediately preceding such Change
of Control.
(b) In the event of termination of the Officer's employment under Section
4(a) (other than for Cause) or 4(b), whether before or after a Change of
Control, following a Change of Control: (i) any remaining amounts payable under
Sections 4(d)(i), (ii) and (iii) shall be payable in a lump sum within 30 days
after the later of the Date of Termination or the Change of Control and (ii) in
lieu of the Company's obligations under Section 4(d)(iv), all unvested options
and equity based awards shall vest immediately on the later of the Date of
Termination or the Change of Control and all such options may be exercised until
the earlier of (x) the thirty-month anniversary date of the Date of Termination
and (y) the expiration date of such options.
8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Officer's continuing or future participation in any Plan for which the
Officer may qualify nor shall anything herein limit or otherwise affect such
rights as the Officer may have under any contract or agreement with the Company.
Amounts that are vested benefits or that the Officer is otherwise entitled to
receive under any Plan, contract or agreement with the Company at or subsequent
to the Date of Termination shall be payable in accordance with such Plan, or
contract or agreement except as explicitly modified by this Agreement.
9. Full Settlement; Legal Fees.
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(a) No Obligation to Mitigate. In no event shall the Officer be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Officer under any of the provisions of this Agreement,
and, except as specifically provided in this Agreement, such amounts shall not
be reduced whether or not the Officer obtains other employment.
(b) Expenses of Contests.
(i) The following shall apply for any dispute arising hereunder, under the
Release Agreement or under the Stock Unit Agreement prior to a Change of
Control: In each case solely to the extent that the Officer is successful with
respect thereto, the Company agrees to pay all reasonable legal and professional
fees and expenses that the Officer may reasonably incur as a result of any
contest by the Officer, by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement, the
Release Agreement or the Stock Unit Agreement (including as a result of any
contest by the Officer about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code or any successor
Section of the Code.
(ii) The following shall apply for any dispute arising hereunder, under the
Release Agreement or under the Stock Unit Agreement upon or following a Change
of Control: The Company agrees to advance to the Officer all reasonable legal
and professional fees and expenses that the Officer may reasonably incur as a
result of any contest by the Officer, by the Company or others of the validity
or enforceability of, or liability under, any provision of this Agreement, the
Release Agreement or the Stock Unit Agreement (including as a result of any
contest by the Officer about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code or any successor
Section of the Code.
(iii) The Officer shall reimburse the Company for its reasonable legal and
professional fees and expenses, and in the case of advances made pursuant to
paragraph (ii) above, shall refund the Company the amount of such advances, to
the extent there is a final determination that such fees, expenses or advances
relate to claims brought by the Officer against, or defenses by the Officer of
any claim of, the Company with respect to this Agreement, the Release Agreement
or the Stock Unit Agreement that were determined to have been made or asserted
by the Officer in bad faith or frivolously.
10. Certain Additional Payments by the Company. Anything in this Agreement
to the contrary notwithstanding, in the event that any actual or constructive
payment or distribution by the Company to or for the benefit of the Officer
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement, the Stock Unit Agreement or otherwise) is subject to the
excise tax imposed by Section 4999 of the Code or any successor provision of the
Code (the "Excise Tax"), then the Company shall make the payments described on
Exhibit C hereto.
11. Restrictions and Obligations of the Officer.
(a) Consideration for Restrictions and Covenants. The parties hereto
acknowledge and agree that the principal consideration for the agreement to make
the payments provided in Sections 3 and 4 hereof from the Company to the Officer
and the grant to the Officer of the stock units of the Company as set forth in
Section 2 hereof is the Officer's compliance with the undertakings set forth in
this Section 11. Specifically, Officer agrees to comply with the provisions of
this Section 11 irrespective of whether the Officer is entitled to receive any
payments under Section 3 or 4 of this Agreement.
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(b) Confidentiality. The confidential and proprietary information and in
any material respect trade secrets of the Company are among its most valuable
assets, including but not limited to, its customer and vendor lists, database,
computer programs, frameworks, models, its marketing programs, its sales,
financial, marketing, training and technical information, and any other
information, whether communicated orally, electronically, in writing or in other
tangible forms concerning how the Company creates, develops, acquires or
maintains its products and marketing plans, targets its potential customers and
operates its retail and other businesses. The Company has invested, and
continues to invest, considerable amounts of time and money in obtaining and
developing the goodwill of its customers, its other external relationships, its
data systems and data bases, and all the information described above
(hereinafter collectively referred to as "Confidential Information"), and any
misappropriation or unauthorized disclosure of Confidential Information in any
form would irreparably harm the Company. The Officer shall hold in a fiduciary
capacity for the benefit of the Company all Confidential Information relating to
the Company and its business, which shall have been obtained by the Officer
during the Officer's employment by the Company and which shall not be or become
public knowledge (other than by acts by the Officer or representatives of the
Officer in violation of this Agreement). After termination of the Officer's
employment with the Company, the Officer shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate, divulge or use any such information, knowledge or data to anyone
other than the Company and those designated by it.
(c) Non-Solicitation or Hire. During the Employment Period and for a
(number to be determined)-year period following the termination of the Officer's
employment for any reason, the Officer shall not, directly or indirectly (i)
employ or seek to employ any person who is at the Date of Termination, or was at
any time within the six-month period preceding the Date of Termination, an
officer, general manager or director or equivalent or more senior level employee
of the Company or any of its subsidiaries or otherwise solicit, encourage, cause
or induce any such employee of the Company or any of its subsidiaries to
terminate such employee's employment with the Company or such subsidiary for the
employment of another company (including for this purpose the contracting with
any person who was an independent contractor (excluding consultant) of the
Company during such period) or (ii) take any action that would interfere with
the relationship of the Company or its subsidiaries with their suppliers and
franchisees without, in either case, the prior written consent of the Company's
Board of Directors, or engage in any other action or business that would have a
material adverse effect on the Company.
(d) Non-Competition and Consulting. (i) During the Employment Period and
for a (number to be determined)-year period (the "Consulting Period") following
the termination of the Officer's employment for any reason, the Officer shall
not, directly or indirectly:
(x) engage in any managerial, administrative, advisory, consulting,
operational or sales activities in a Restricted Business anywhere in the
Restricted Area, including, without limitation, as a director or partner of such
Restricted Business, or
y) organize, establish, operate, own, manage, control or have a direct or
indirect investment or ownership interest in a Restricted Business or in any
corporation, partnership (limited or general), limited liability company
enterprise or other business entity that engages in a Restricted Business
anywhere in the Restricted Area; and
(ii) During the Consulting Period, the Officer shall
(x) be available to render services to the Company as an independent
contractor/consultant but not as an employee of the Company; and
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(y) perform such duties as may be reasonably requested in writing from time
to time during the Consulting Period by the Chief Executive Officer; provided
that such duties shall not conflict with the duties of the Officer for a new
employer if such employment does not violate the terms of Section 11(d)(i)
hereof.
(iii) Section 11(d) shall not bind the Officer during any period following
the termination of the Officer's employment if there has been a Change of
Control irrespective of whether the Change of Control occurs before or after the
Date of Termination.
(iv) Nothing contained in this Section 11(d) shall prohibit or otherwise
restrict the Officer from acquiring or owning, directly or indirectly, for
passive investment purposes not intended to circumvent this Agreement,
securities of any entity engaged, directly or indirectly, in a Restricted
Business if either (i) such entity is a public entity and such Officer (A) is
not a controlling Person of, or a member of a group that controls, such entity
and (B) owns, directly or indirectly, no more than 3% of any class of equity
securities of such entity or (ii) such entity is not a public entity and the
Officer (A) is not a controlling Person of, or a member of a group that
controls, such entity and (B) does not own, directly or indirectly, more than 1%
of any class of equity securities of such entity.
(e) Definitions. For purposes of this Section 11:
(i) "Restricted Business" means the retail store, mail order or
internet business or any business, in each case if it is involved in the
manufacture or marketing of toys, juvenile or baby products, juvenile furniture
or children's clothing or any other business in which the Company may be engaged
on the Date of Termination.
(ii) "Restricted Area" means any country in which the Company or its
subsidiaries owns or franchises any retail store operations or otherwise has
operations on the Date of Termination.
(f) Relief. The parties hereto hereby acknowledge that the provisions of
this Section 11 are reasonable and necessary for the protection of the Company
and its subsidiaries. In addition, the Officer further acknowledges that the
Company and its subsidiaries will be irrevocably damaged if such covenants are
not specifically enforced. Accordingly, the Officer agrees that, in addition to
any other relief to which the Company may be entitled, the Company will be
entitled to seek and obtain injunctive relief (without the requirement of any
bond) from a court of competent jurisdiction for the purposes of restraining the
Officer from any actual or threatened breach of such covenants. In addition,
without limiting the Company's remedies for any breach of any restriction on the
Officer set forth in Section 11, except as required by law, the Officer shall
not be entitled to any payments set forth in Section 3 or 4 hereof if the
Officer breaches any of the covenants applicable to the Officer contained in
this Section 11, the Officer will immediately return to the Company any such
payments previously received upon such a breach, and, in the event of such
breach, the Company will have no obligation to pay any of the amounts that
remain payable by the Company under Section 3 or 4.
12. Successors. (a) This Agreement is personal to the Officer and without
the prior written consent of the Company shall not be assignable by the Officer
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Officer's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
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(c) The Company will, within thirty days after a Change of Control, and the
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company within thirty days after any such event of
succession to, assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid that assumes and agrees to perform this Agreement by
operation of law, or otherwise.
13. Miscellaneous. (a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New Jersey, without
reference to principles of conflict of laws.
(b) Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
(c) Amendment. This Agreement may not be amended or modified otherwise than
by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to the Officer, to the address on file with the Company; and
(ii) If to the Company, to it at Toys "R" Us, Inc., 461 From Road, Paramus,
New Jersey 07652, Attention: Senior Vice President - Human Resources;
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(e) Assistance to Company. At all times during and after the Employment
Period and at the Company's expense for significant out-of-pocket expenses
actually and reasonably incurred by the Officer in connection therewith, the
Officer shall provide reasonable assistance to the Company in the collection of
information and documents and shall make the Officer available when reasonably
requested by the Company in connection with claims or actions brought by or
against third parties or investigations by governmental agencies based upon
events or circumstances concerning the Officer's duties, responsibilities and
authority during the Employment Period.
(f) Severability of Provisions. Each of the sections contained in this
Agreement shall be enforceable independently of every other section in this
Agreement, and the invalidity or nonenforceability of any section shall not
invalidate or render unenforceable any other section contained in this
Agreement. The Officer acknowledges that the restrictive covenants contained in
Section 11 are a condition of this Agreement and are reasonable and valid in
geographical and temporal scope and in all other respects. If any court or
arbitrator determines that any of the covenants in Section 11, or any part of
any of them, is invalid or unenforceable, the remainder of such covenants and
parts thereof shall not thereby be affected and shall be given full effect,
without regard to the invalid portion. If any court or arbitrator determines
that any of such covenants, or any part thereof, is invalid or unenforceable
because of the geographic or temporal
-9-
<PAGE>
scope of such provision, such court or arbitrator shall reduce such scope to the
minimum extent necessary to make such covenants valid and enforceable.
(g) Withholding. The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(h) Waiver. The Officer's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Officer or the Company may have hereunder
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(i) Arbitration. Except as otherwise provided for herein, any controversy
arising under, out of, in connection with, or relating to, this Agreement, and
any amendment hereof, or the breach hereof or thereof, shall be determined and
settled by arbitration in New York, New York, by a three person panel mutually
agreed upon, or in the event of a disagreement as to the selection of the
arbitrators, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Any award rendered therein shall specify the
findings of fact of the arbitrator or arbitrators and the reasons of such award,
with the reference to and reliance on relevant law. Any such award shall be
final and binding on each and all of the parties thereto and their personal
representatives, and judgment may be entered thereon in any court having
jurisdiction thereof.
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<PAGE>
IN WITNESS WHEREOF, the Officer has hereunto set the Officer's hand and
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
---------------
-------------------------------
TOYS "R" US, INC.
By: ___________________________
Name:
Title:
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EXHIBIT A
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is entered into as of
this __ day of __________, ____, between TOYS "R" US, INC. and any successor
thereto (collectively, the "Company") and _______________ (the "Officer").
The Officer and the Company agree as follows:
1. The employment relationship between the Officer and the Company
terminated on ______________________(the "Termination Date").
2. In accordance with the Officer's Retention Agreement, the Company has
agreed to pay the Officer certain payments and to make certain benefits
available after the Termination Date.
3. In consideration of the above, the sufficiency of which the Officer
hereby acknowledges, the Officer, on behalf of the Officer and the Officer's
heirs, executors and assigns, hereby releases and forever discharges the Company
and its members, parents, affiliates, subsidiaries, divisions, any and all
current and former directors, officers, employees, agents, and contractors and
their heirs and assigns, and any and all employee pension benefit or welfare
benefit plans of the Company, including current and former trustees and
administrators of such employee pension benefit and welfare benefit plans, from
all claims, charges, or demands, in law or in equity, whether known or unknown,
which may have existed or which may now exist from the beginning of time to the
date of this letter agreement, including, without limitation, any claims the
Officer may have arising from or relating to the Officer's employment or
termination from employment with the Company, including a release of any rights
or claims the Officer may have under Title VII of the Civil Rights Act of 1964,
as amended, and the Civil Rights Act of 1991 (which prohibit discrimination in
employment based upon race, color, sex, religion, and national origin); the
Americans with Disabilities Act of 1990, as amended, and the Rehabilitation Act
of 1973 (which prohibit discrimination based upon disability); the Family and
Medical Leave Act of 1993 (which prohibits discrimination based on requesting or
taking a family or medical leave); Section 1981 of the Civil Rights Act of 1866
(which prohibits discrimination based upon race); Section 1985(3) of the Civil
Rights Act of 1871 (which prohibits conspiracies to discriminate); the Employee
Retirement Income Security Act of 1974, as amended (which prohibits
discrimination with regard to benefits); any other federal, state or local laws
against discrimination; or any other federal, state, or local statute, or common
law relating to employment, wages, hours, or any other terms and conditions of
employment. This includes a release by the Officer of any claims for wrongful
discharge, breach of contract, torts or any other claims in any way related to
the Officer's employment with or resignation or termination from the Company.
This release also includes a release of any claims for age discrimination under
the Age Discrimination in Employment Act, as amended ("ADEA"). The ADEA requires
that the Officer be advised to consult with an attorney before the Officer
waives any claim under ADEA. In addition, the ADEA provides the Officer with at
least 21 days to decide whether to waive claims under ADEA and seven days after
the Officer signs the Agreement to revoke that waiver. This release does not
release the Company from any obligations due to the Officer under Section 4, 7,
9(b), 10, 11 or 13(e) of the Officer's Retention Agreement, the Officer's
Indemnification Agreement with the Company or under this Agreement.
Additionally, the Company agrees to discharge and release the Officer
and the Officer's heirs from any claims, demands, and/or causes of action
whatsoever, presently known or unknown, that are based upon facts occurring
prior to the date of this Agreement, including, but not limited to, any claim,
matter or action related to the Officer's employment and/or affiliation
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with, or termination and separation from the Company; provided that such release
shall not release the Officer from any loan or advance by the Company or any of
its subsidiaries, any act that would constitute "Cause" under the Officer's
Retention Agreement or a breach under Section 9(b), 11 or 13(e) of the Officer's
Retention Agreement.
4. This Agreement is not an admission by either the Officer or the Company
of any wrongdoing or liability.
5. The Officer waives any right to reinstatement or future employment with
the Company following the Officer's separation from the Company on the
Termination Date.
6. The Officer agrees not to engage in any act after execution of the
Separation and Release Agreement that is intended, or may reasonably be expected
to harm the reputation, business, prospects or operations of the Company, its
officers, directors, stockholders or employees. The Company further agrees that
it will engage in no act which is intended, or may reasonably be expected to
harm the reputation, business or prospects of the Officer.
7. The Officer shall continue to be bound by Sections 11 and 13(e) of the
Officer's Retention Agreement.
8. The Officer shall promptly return all the Company property in the
Officer's possession, including, but not limited to, the Company keys, credit
cards, cellular phones, computer equipment, software and peripherals and
originals or copies of books, records, or other information pertaining to the
Company business. The Officer shall return any leased or Company car at the
expiration of the Consulting Period (as defined in the Officer's Retention
Agreement).
9. This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey, without reference to the principles of conflict
of laws. Exclusive jurisdiction with respect to any legal proceeding brought
concerning any subject matter contained in this Agreement shall be settled by
arbitration as provided in the Officer's Retention Agreement.
10. This Agreement represents the complete agreement between the Officer
and the Company concerning the subject matter in this Agreement and supersedes
all prior agreements or understandings, written or oral. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
11. Each of the sections contained in this Agreement shall be enforceable
independently of every other section in this Agreement, and the invalidity or
nonenforceability of any section shall not invalidate or render unenforceable
any other section contained in this Agreement.
12. It is further understood that for a period of 7 days following the
execution of this Agreement in duplicate originals, the Officer may revoke this
Agreement, and this Agreement shall not become effective or enforceable until
the revocation period has expired. No revocation of this Agreement by the
Officer shall be effective unless the Company has received within the 7-day
revocation period, written notice of any revocation, all monies received by the
Officer under this Agreement and all originals and copies of this Agreement.
13. This Agreement has been entered into voluntarily and not as a result of
coercion, duress, or undue influence. The Officer acknowledges that the Officer
has read and fully understands the terms of this Agreement and has been advised
to consult with an attorney before
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executing this Agreement. Additionally, the Officer acknowledges that the
Officer has been afforded the opportunity of at least 21 days to consider this
Agreement.
A-3
<PAGE>
The parties to this Agreement have executed this Agreement as of the day
and year first written above.
TOYS "R" US, INC.
By:__________________________________
Name:
Title:
_________________
____________________________
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EXHIBIT B
Capitalized terms used in the Agreement that are not elsewhere defined in
the Agreement have the definitions set forth below:
"Annual Base Salary" means the annual base salary of the Officer as of the
date of the Agreement as may be increased from time to time in the discretion of
the Committee.
"Board" means the Board of Directors of the Company.
"Cause" means: (i) the conviction of, or pleading guilty or nolo contendere
to, a felony involving moral turpitude; (ii) the commission of any fraud,
misappropriation or misconduct which causes demonstrable injury to the Company
or a subsidiary; (iii) an act of dishonesty resulting or intended to result,
directly or indirectly, in material gain or personal enrichment to the Officer
at the expense of the Company or a subsidiary; (iv) any material breach of the
Officer's fiduciary duties to the Company as an employee or officer; (v) a
serious violation of the Toys "R" Us Ethics Agreement or any other serious
violation of a Company policy; (vi) the willful and continued failure of the
Officer to perform substantially the Officer's duties with the Company or one of
its subsidiaries (other than any such failure resulting from incapacity due to
physical or mental illness resulting in a Disability), within a reasonable time
after a written demand for substantial performance is delivered to the Officer
by the Board, which specifically identifies the manner in which the Board
believes that the Officer has not substantially performed the Officer's duties;
(vii) the failure by the Officer to comply, in any material respect, with the
provisions of Section 11 of the Agreement; or (viii) the failure by the Officer
to comply with any other undertaking set forth in the Agreement or any breach by
the Officer hereof that is reasonably likely to result in a material injury to
the Company.
For purposes of this provision, no act or failure to act, on the part of
the Officer, shall be considered "willful" unless it is done, or omitted to be
done, by the Officer in bad faith or without reasonable belief that the
Officer's action or omission was in the best interests of the Company. Any act,
or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of regular outside counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Officer in good faith and in the best interests of the Company. The cessation of
employment of the Officer shall not be deemed to be for Cause unless and until
there shall have been delivered to the Officer a copy of a resolution duly
adopted by the affirmative vote of a majority of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Officer and the Officer is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Officer is guilty of the conduct
described, and specifying the particulars thereof in detail.
"Change of Control" - See Exhibit C.
"Committee" means the Company's Management Compensation and Stock Option
Committee of the Board of Directors or any successor committee of the Board
performing equivalent functions.
"Date of Termination" means (i) if the Officer's employment is terminated
by the Company for Cause, or by the Officer for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein, as the case
may be (although such Date of Termination shall retroactively cease to apply if
the circumstances providing the basis of termination for Cause or Good Reason
are cured in accordance with the Agreement), (ii) if the Officer's employment is
terminated by the Company other than for Cause, the Date of
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<PAGE>
Termination shall be the date so designated by the Company in its notification
to the Officer of such termination, (iii) if the Officer's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Officer or the effective date of the Disability, as the
case may be, and (iv) the last day of the Employment Period during which the
Company shall have given notice to the Officer that the Employment Period shall
not be extended.
"Disability" means the determination that the Officer is disabled pursuant
to the terms of the TRU Partnership Employees' Savings and Profit Sharing Plan,
as amended and restated as of October 1, 1993, as the same may be amended from
time to time.
"Good Reason" means, without the Officer's prior written consent, the
occurrence of any of the following, provided that the Officer delivers a Notice
of Termination specifying such occurrence within 30 days thereof:
(i) the assignment of the Officer to a position materially inconsistent
with the requirements of Section 2(a) of the Agreement, excluding for this
purpose an action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Officer; provided,
however, that the foregoing shall not constitute "Good Reason" if it is not
attendant to a reduction in the Officer's Annual Base Salary or total target
compensation, except that a request by the Company for the Officer to relocate
outside (location to be determined) shall constitute "Good Reason";
(ii) any failure by the Company to comply in any material respect with any
of the provisions of Section 2(b) of the Agreement, other than failure not
occurring in bad faith and that is remedied by the Company within a reasonable
time after receipt of notice thereof given by the Officer;
(iii) any failure by the Company to comply with and satisfy Section 12(c)
of the Agreement; or
(iv) notice by the Company that it is not extending the termination date of
the Employment Period.
"Notice of Termination" means a written notice that (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Officer's employment under the
provision so indicated and (iii) if the Date of Termination (as defined above)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such notice).
"Plans" means all employee compensation, benefit and welfare plans,
policies and programs of the Company, which may include, without limitation,
incentive, savings, retirement, stock option, restricted stock, supplemental
Officer retirement, pension, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans, vacation practices, fringe benefit practices and policies
relating to the reimbursement of business expenses.
"Retirement" shall have the meaning ascribed to that term in the Plan under
which benefits are being sought by the Officer.
B-2
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EXHIBIT C
CHANGE OF CONTROL AND TAX GROSS-UP
I. Certain Definitions
"Change of Control" means, after the date hereof:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition by
the Company or any of its subsidiaries, (ii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
subsidiary of the Company, (iii) any acquisition by any Person pursuant to a
transaction that complies with clauses (i), (ii) and (iii) of subsection (c)
below, or (iv) any acquisition by any entity in which the Officer has a material
direct or indirect equity interest; or
(b) The cessation of the "Incumbent Board" for any reason to constitute at
least a majority of the Board. "Incumbent Board" means the members of the Board
on the date hereof and any member of the Board subsequent to the date hereof
whose election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board, except that the Incumbent Board shall not include any member of
the Board whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board.
(c) The consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, immediately following such
Business Combination each of the following would be correct:
(i) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the Person
resulting from such Business Combination (including, without limitation, a
Person which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, and
(ii) no Person (excluding (A) any employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary of the Company, or such
corporation resulting from such Business Combination or any Affiliate of such
corporation, or (B) any entity in which the Officer has a material equity
interest, or any "Affiliate" (as defined in Rule 405 under the
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Securities Act of 1933, as amended) of such entity) beneficially owns, directly
or indirectly, 25% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination, or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination, and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
II. Tax Gross-Up
(a) If required by Section 10 of the Agreement, in addition to the payments
described in Sections 4 and 7 of the Agreement and the grants described in the
Stock Unit Agreement, the Company shall pay to the Officer an amount (the
"Gross-up") such that the net amount retained by the Officer, after deduction of
any Excise Tax and any Federal, state and local income taxes, equals the amount
of such payments that the Officer would have retained had such Excise Tax not
been imposed. In addition, the Company shall indemnify and hold the Officer
harmless on an after-tax basis from any Excise Tax imposed on or with respect to
any such payment (including, without limitation, any interest, penalties and
additions to tax) payable in connection with any such Excise Tax. For purposes
of determining the amount of any Gross-up or the amount required to make an
indemnity payment on an after-tax basis, it shall be assumed that the Officer is
subject to Federal, state and local income tax at the highest marginal statutory
rates in effect for the relevant period after taking into account any deduction
available in respect of any such tax (e.g., if state and local taxes are
deductible for Federal income tax purposes in the relevant period, it shall be
assumed that such taxes offset income that would otherwise be subject to Federal
income tax at the highest marginal statutory rate in effect for such period).
(b) Subject to the provisions of paragraph (c) of this Exhibit C , the
determination of (i) whether a Gross-up is required and the amount of such
Gross-up and (ii) the amount necessary to make any payment on an after-tax
basis, shall be made in accordance with the assumptions set forth in paragraph
(a) of this Exhibit C by Ernst & Young LLP or such other "Big Six" accounting
firm designated by the Officer and reasonably acceptable to the Company.
(c) The Officer shall notify the Company as soon as practicable in writing
of any claim by the Internal Revenue Service that, if successful, would require
any Gross-up or indemnity payment. The Officer shall not pay such claim prior to
the expiration of the 30-day period following the date on which it gives such
notice to the Company. If the Company notifies the Officer in writing prior to
the expiration of such period that it desires to contest such claim, the Officer
shall take all actions necessary to permit the Company to control all
proceedings taken in connection with such contest. In that connection, the
Company may, at its sole option, pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences in respect of such claim and may,
at its sole option, either direct the Officer to pay the tax claimed and sue for
a refund or contest the claim in any permissible manner; provided, however, that
the Company shall pay and indemnify the Officer from and against all costs and
expenses incurred in connection with such contest; provided further, however,
that if the Company directs the Officer to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to the Officer on an
interest-free basis and at no net after-tax cost to the Officer. If the Officer
becomes entitled to receive any refund or credit with respect to such claim (or
would be entitled to a refund or credit but for a counterclaim for taxes not
indemnified hereunder), the
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Officer shall promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon) plus the amount of any tax benefit
available to the Officer as a result of making such payment (any such benefit
calculated based on the assumption that any deduction available to the Officer
offsets income that would otherwise be taxed at the highest marginal statutory
rates of Federal, state and local income tax for the relevant periods).
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ANNEX A
STOCK UNIT AGREEMENT
STOCK UNIT AGREEMENT, dated as of (Agreement Date) (the "Unit Agreement"),
between TOYS "R" US, INC., a Delaware corporation (the "Company"), and
_______________ (the "Officer").
W I T N E S S E T H:
WHEREAS, the Company has approved an Amendment (the "Amendment") to the
Company's 1994 Stock Option and Performance Incentive Plan (the "Plan")
providing for performance criteria that may be utilized by the Management
Compensation and Stock Option Committee (the "Committee") in connection with the
grant of Performance Shares (as defined in the Plan and referred to herein as
"Stock Units");
WHEREAS, concurrently herewith, the Officer and the Company are entering
into a Retention Agreement, dated as of even date herewith (the "Retention
Agreement");
WHEREAS, as further inducement for the Officer to execute the Retention
Agreement and continue in the employ of the Company, the Committee has
determined to grant the Officer the Stock Units as described in this Unit
Agreement; and
WHEREAS, the Board and the Committee desire that the compensation arising
from the Stock Units shall qualify as "performance-based compensation" for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the covenants set forth herein and for
other good and valuable consideration, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition shall have
the meanings ascribed to them in the Plan.
2. Stock Unit Grant. Subject to the terms and conditions set forth in this
Unit Agreement and in Section 10 of the Plan, the Officer is hereby granted
(number to be determined) Stock Units. Each Stock Unit represents the right to
receive one share of Common Stock (collectively, with other shares of Common
Stock relating to the Stock Units and held in the Officer's account in the Trust
(as defined below) in respect of the Stock Units, the "Shares"). The Shares
shall be promptly deposited after the date hereof in the grantor trust created
pursuant to the Grantor Trust Agreement, dated as of October 1, 1995 between the
Company and American Express Trust Company, a Minnesota trust company (together
with any grantor trust subsequently established by the Company, the "Trust") and
shall be allocated by the Trust to the Officer's account therein subject to the
forfeiture conditions of Section 3 below. Any property attributable to the
Shares, including, without limitation, dividends and distributions thereon,
shall be deposited into the Trust, shall as promptly as practicable be
reinvested in shares of Common Stock, and shall be allocated by the Trust to the
Officer's account therein subject to the forfeiture conditions of Section 3
below.
3. Forfeiture Conditions. The Stock Units granted to the Officer hereunder
shall be forfeited in their entirety, subject to the terms of the Retention
Agreement, if:
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(i) the Officer's employment with the Company terminates prior to the
(number to be determined) anniversary of the date hereof ; or
(ii) the Performance Objective set forth on Exhibit A hereto is not
achieved.
4. Payment of Stock Units. As soon as practicable but no later than (date
to be determined), the Committee shall determine whether the Performance
Objective set forth on Exhibit A has been achieved. The Shares, together with
any property attributable thereto (including, without limitation, dividends and
distributions thereon), shall be delivered to the Officer promptly following
(date to be determined) unless the Officer has elected to defer receipt of such
Shares in accordance with the terms and conditions of any deferred compensation
program maintained by the Company or has failed to satisfy the condition set
forth in Section 3(i) hereof.
5. Investment Representation. The Shares acquired by the Officer under this
Unit Agreement will be acquired for the Officer's account and not with a view to
the distribution thereof, and the Officer will not sell or otherwise dispose of
the Shares unless the Shares are registered under the Securities Act of 1933, as
amended (the "Act"), or the Officer shall furnish the Company with an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required, and a legend to such effect may be placed on the certificate for the
Shares.
6. Liability; Indemnification. No member of the Committee, nor any person
to whom ministerial duties have been delegated, shall be personally liable for
any action, interpretation or determination made with respect to this Unit
Agreement, and each member of the Committee shall be fully indemnified and
protected by the Company with respect to any liability such member may incur
with respect to any such action, interpretation or determination, to the extent
permitted by applicable law and to the extent provided in the Company's
Certificate of Incorporation and Bylaws, as amended from time to time, or under
any agreement between any such member and the Company.
7. Severability. Each of the Sections contained in this Unit Agreement
shall be enforceable independently of every other section in this Unit
Agreement, and the invalidity or nonenforceability of any section shall not
invalidate or render unenforceable any other section contained in this Unit
Agreement.
8. Governing Law. This Unit Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without reference to
principles of conflict of laws. Exclusive jurisdiction with respect to any legal
proceeding brought concerning any subject matter contained in this Unit
Agreement shall be settled by arbitration as provided in the Retention
Agreement.
9. Captions. The captions of this Unit Agreement are not part of the
provisions hereof and shall have no force or effect.
10. Amendment. This Unit Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
11. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to the Officer, to the address on file with the Company; and
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(ii) If to the Company, to it at Toys "R" Us, Inc., 461 From Road, Paramus,
New Jersey 07652, Attention: Senior Vice President - Human Resources;
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
12. Interpretation. The interpretation and decision with regard to any
question arising under this Unit Agreement or with respect to the Stock Units
made by the Committee shall be final and conclusive on the Officer.
13. Successors. This Unit Agreement shall be binding upon the Company and
its successors and assigns.
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IN WITNESS WHEREOF, this Agreement has been executed by the Company by one
of its duly authorized officers as of the date specified above.
TOYS "R" US, INC.
By: ____________________________
Name:
Title:
I hereby acknowledge receipt of the
Stock Units and agree to the
provisions set forth in this
Agreement.
_______________________________
____________________
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EXHIBIT A
Performance Objective Under Section 3(ii)
of the Stock Unit Agreement
The consolidated net earnings of the Company in any fiscal quarter
(beginning with the first fiscal quarter in ____) of the Company's ____, ____,
____ or ____ fiscal year is at least equal to the amount of any corresponding
quarter in ____. For these purposes, "consolidated net earnings" shall exclude
extraordinary or unusual items reported by the Company as such.
Exhibit 10X
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (this "Agreement"), dated as of June 9, 1999, is
by and between TOYS "R" US, INC., a Delaware corporation (the "Company"), and
KEITH VAN BEEK (the "Executive").
RECITALS
WHEREAS, pursuant to a Retention Agreement dated as of February 25, 1998
between the Company and the Executive (the "Retention Agreement"), Executive is
employed by the Company as President - Toys "R" Us -- U.S. Merchandising and
Marketing; and
WHEREAS, pursuant to a Stock Unit Agreement dated as of February 25, 1998
between the Company and the Executive (the "Stock Unit Agreement"), on February
25, 1998, the Company granted Executive 30,000 Stock Units (the "Stock Units");
and
WHEREAS, pursuant to the Company's 1994 Stock Option and Performance
Incentive Plan (the "Plan"), on May 17, 1995, the Company granted Executive
options to acquire 47,200 shares of Common Stock (the "May 17, 1995 Grant"),
10,000 shares of common stock on May 30, 1995 (the "May 30, 1995 Grant"), 15,000
shares of common stock on March 14, 1996 (the "March 14, 1996 Grant"), 20,000
shares of common stock on November 3, 1997 (the "November 3, 1997 Grant"),
80,000 shares of common stock on March 13, 1998 (the "March 13, 1998 Grant"),
240,000 shares of common stock on September 8, 1998 (the "September 8, 1998
Grant") and 90,000 shares of common stock on April 7, 1999 (the "April 7, 1999
Grant"); and
WHEREAS, Executive desires to resign, for personal reasons, his employment
with the Company and his position as President - Toys "R" Us -- U.S.
Merchandising and Marketing and all other officer and employee positions, if
any, held by Executive in the Company and any of its subsidiaries effective as
of June 9, 1999 (the "Termination Date"); and
WHEREAS, the parties desire to set forth their respective rights and
obligations in respect of Executive's resignation from the above positions;
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties, intending to be legally bound,
agree as follows:
AGREEMENT
1. Resignation.
(a) Effective as of the Termination Date, Executive will resign from his
position as President - Toys "R" Us -- U.S. Merchandising and Marketing and all
other officer and employee positions, if any, held by Executive in the Company
and any of its subsidiaries. It
<PAGE>
is agreed by the parties that, on and as of the Termination Date, all rights and
obligations of Executive and the Company with respect to such employment shall
terminate.
(b) On the Termination Date, Executive will deliver to the Company a letter
of resignation in the form of Exhibit A hereto and a certificate of release in
the form of Exhibit B hereto.
2. Benefits. In consideration of the agreements of Executive herein,
Executive will be entitled to the benefits set forth in this Section 2.
(a) Salary. From the Termination Date through the second anniversary of the
Termination Date and regardless of whether Executive obtains other employment,
the Company will pay Executive $26,875 per month, such amount to be payable in
accordance with the Company's regular payroll policies as in effect from time to
time. All payments to Executive under this Section 2(a) will be less applicable
withholdings for federal, state and local taxes.
(b) Prorated Bonus. The Company will pay Executive the bonus which
Executive would have been entitled to receive for fiscal year 1999, prorated at
4/12ths of the actual amount that would have been earned by Executive, and
payable on or about April 1, 2000.
(c) Relocation Expenses. If, during the two year period commencing on the
Termination Date the Executive relocates his household to an area other than
Northeastern New Jersey for any reason, the Company will reimburse the
Executive's relocation expenses, up to a maximum reimbursement of thirty
thousand dollars ($30,000). A new employer would be expected to pay relocation
costs if such a program exists for newly-hired executives.
(d) Health Benefits. From the Termination Date until the earlier to occur
of (i) the second anniversary of the Termination Date or (ii) the date Executive
commences employment with another employer which offers health benefits, the
Company will permit Executive to continue to participate in the medical,
prescription and dental plans maintained by the Company from time to time at a
level commensurate with the level at which senior executives of the Company
participate.
(e) Stock Units. Executive hereby forfeits all of the Stock Units in their
entirety, except 7,500 of such Units which will vest on February 25, 2003,
irrespective of the fact that the Executive is no longer employed by the
Company, subject to the achievement of the performance objective set forth on
Exhibit A to the Stock Unit Agreement. Except as modified by the preceding
sentence, the Stock Unit Agreement shall continue in full force and effect.
(f) Stock Options. The stock options granted to Executive as part of the
Plan will be treated as follows: Executive shall retain all of the options
granted pursuant to the May 17, 1995 Grant, the May 30, 1995 Grant and the March
14, 1996 Grant; the Executive shall also retain 6,333 of the 20,000 options
granted in the November 3, 1997 Grant; 20,000 of the 80,000 options granted in
the March 13, 1998 Grant; 36,000 of the 240,000 options granted in the September
8, 1998 Grant; and 5,000 of the 90,000 options granted in the April 7, 1999
Grant. All stock options retained by Executive pursuant to this paragraph (d)
shall be subject to the terms and conditions (including vesting requirements) of
the original grants; provided, however, Executive shall vest in options on the
scheduled vesting date, irrespective of the fact that
2
<PAGE>
Executive is no longer employed by the Company and Executive shall have the
period for exercise of such options preserved. All stock options not retained by
Executive pursuant to this paragraph shall be deemed terminated and canceled as
of the Termination Date.
(g) Life Insurance. From the Termination Date until the earlier to occur of
(i) the second anniversary of the Termination Date or (ii) the date Executive
commences employment with another employer which in the normal course of
business would provide these benefits, the Company will permit Executive to
continue to participate in the Company's basic life insurance and accidental
death and dismemberment policy for a benefit equal to two times the annual
compensation payable by the Company pursuant to Section 2(a) of this Agreement.
(h) SERP. Upon the vesting of Executive's interest in the Company's
Supplemental Executive Retirement Plan on February 1, 2001, Executive shall be
entitled to his interest in such plan. The Company will make no further
contributions to this Plan. Payment shall be made to Executive in a lump sum
(with interest from the date of this Agreement through February 1, 2001) as soon
as practicable after such date. (i) Automobile. Executive will retain use of the
automobile currently leased for him by the Company until the earlier to occur of
(i) Automobile. Executive will retain use of the automobile currently
leased for him by the Company until the earlier to occur of (i) June 1, 2001 or
(ii) the date Executive commences employment with another employer.
(j) Profit Sharing/401(k). Executive will no longer participate in the
Company's Profit Sharing/401(k) plan. Distribution may occur as soon after the
separation date as practicable.
(k) The Executive's Residence Petition. The Company shall continue to
sponsor given the Executive is on the payroll and functions in a consulting
capacity, to the extent permitted by law, the Permanent Residence petition.
(l) No Other Benefits. Executive acknowledges that he is not entitled to
receive benefits from the Company other than as set forth in this Section 2,
except for any benefits afforded Executive by applicable law.
(m) Effectiveness of Payments. No payments shall be made under this Section
2 until this Agreement becomes effective pursuant to Section 20 hereof.
3. Termination of All Existing Agreements. All rights and obligations of
the Company and the Executive under any employment agreement, arrangement or
understanding and any other agreement between the Company and the Executive are
hereby canceled and terminated as of the Termination Date without liability of
any party hereunder, except that this Agreement, the Stock Unit Agreement (as
modified by Section 2(c) above) and the Partnership Option Agreements dated as
of May 17, 1995, May 30, 1995, March 14, 1996, November 3, 1997, March 13, 1998,
September 8, 1998 and April 7, 1999, between the Company and Executive (as
modified by Section 2(d) above) shall continue in full force and effect.
4. No Solicitation of Employees or Customers. Executive hereby represents
and warrants that during the six month period preceding the date of this
Agreement he has not (i) solicited any customers of the Company or induced any
customer of the Company to enter into a
3
<PAGE>
business relationship with Executive or any other person or (ii) solicited for
employment or induced any person employed by the Company to terminate
employment. During the two year period commencing on the Termination Date, the
Executive shall not, directly or indirectly, (i) employ or seek to employ any
person who is as of the Termination Date, or was at any time during the six
month period preceding the Termination Date, an officer, general manager, or
director or equivalent or more senior level employee of the Company or any of
its subsidiaries or otherwise solicit, encourage, cause or induce any such
employee of the Company or any of its subsidiaries to terminate such employee's
employment with the Company or such subsidiary for the employment of another
company (including for this purpose the contracting with any person who was an
independent contractor (excluding consultant) of the Company during such period)
or (ii) take any action that would interfere with the relationship of the
Company or its subsidiaries with their suppliers and franchisees without, in
either case, the prior written consent of the Company, or engage in any other
action or business that would have a material adverse effect on the Company.
5. Non-competition and Consulting.
(a) During the two year period commencing on the Termination Date (the
"Consulting Period"), the Executive shall not, directly or indirectly and,
provided that prior written consent is requested of the Executive and no
response is received from the Company within 14 business days, approval shall be
deemed to be granted:
(x) engage in any managerial, administrative, advisory, consulting or
operational or sales activities in Restricted Business anywhere in the
Restricted Area, including, without limitation, as a director or partner of such
Restricted Business, or
(y) organize, establish, operate, own, manage or control or have a direct
or indirect investment or ownership interest in a Restricted Business or in any
corporation, partnership (limited or general), limited liability company
enterprise or other business entity that engages in a Restricted Business
anywhere in the Restricted Area.
(b) During the Consulting Period, the Executive shall:
(x) be available to render services to the Company as an independent
contractor/consultant but not as an employee of the Company; and
(y) perform such duties as may be reasonably requested in writing from time
to time during the Consulting Period by the Company's Chief Executive Officer,
provided that such duties shall not conflict with the duties of the Executive
for a new employer if such employment does not violate the terms of Section
5(a). The Company will reimburse Executive for his reasonable expenses incurred
in rendering such duties.
(c) Nothing in this Section 5 shall prohibit or otherwise restrict the
Executive from acquiring or owning, directly or indirectly, for passive
investment purposes not intended to circumvent this Agreement, securities of any
entity engaged, directly or indirectly, in a Business if either (i) such entity
is a public entity and the Executive (A) is not a controlling Person of, or a
member of a group that controls, such entity and (B) owns, directly or
indirectly, no more than 3% of any class of equity securities of such entity or
(ii) such entity is not a public entity and the
4
<PAGE>
Executive (A) is not a controlling Person of, or a member of a group that
controls, such entity and (B) does not own, directly or indirectly, more than 1%
of any class of equity securities of such entity.
(d) For purposes of this Section 5, "Restricted Business" shall mean the
retail store or mail order business or internet business or any business, in
each case if it is involved in the manufacture or marketing of toys, juvenile or
baby products, juvenile furniture or children's clothing or any other business
in which the Company may be engaged on the Termination Date. "Restricted Area"
means any country in which the Company or its subsidiaries owns or franchises
any retail store operations or otherwise has operations on the Termination Date.
6. Retained Property. No later than the Termination Date, Executive shall
return all property of the Company in his possession, including, but not limited
to, credit cards, security key cards, telephone cards, car service cards,
computer software or hardware, Company identification cards, Company records and
copies of records, correspondence and copies of correspondence and other books
or manuals issued by the Company. Executive also warrants that he has no debts
to or loans from the Company. Notwithstanding the foregoing, Executive shall
have the right to retain (i) duplicate photocopies of books and records of the
Company that do not fall within the category of "Confidential Information" (as
defined below), (ii) all personal property of the Executive located on the
premises of the Company, and (iii) Executive will be provided the opportunity to
purchase the current Company computer equipment currently in use by the
Executive at a fair price to be determined by the Company.
7. Confidentiality. Executive acknowledges that he has had and through the
Termination Date will continue to have access to Confidential Information (as
hereinafter defined) of the Company. Executive agrees not to disclose,
communicate or divulge to, or use for the direct or indirect benefit of, any
person (including Executive), firm, association or other entity (other than the
Company or its affiliates) any Confidential Information. "Confidential
Information" includes, but is not limited to, customer and vendor lists,
database, computer programs, frameworks, models, marketing programs, sales,
financial, marketing, training and technical information, business methods,
business policies, procedures, techniques, research or development projects or
results, trade secrets (which Executive agrees include the Company's customer
and prospective customer lists), pricing policies, business plans, computer
software, intellectual property, information concerning how the Company creates,
develops, acquires or maintains its products and marketing plans, targets its
potential customers, and operates its retail and other businesses, and any other
information not otherwise available to the general public. If any person
(including any government employee) requests the disclosure or release of
Confidential Information, Executive shall (i) promptly notify the Company of
such request so that the Company may, at its own expense, pursue any available
remedies to prevent the disclosure or release of such Confidential Information
and (ii) furnish the Company a copy of all written materials pertaining to such
request for Confidential Information as the Company shall deem appropriate.
8. No Inducements. Executive warrants that he is entering into this
Agreement voluntarily, and that, except as set forth herein, no promises or
inducements for this Agreement have been made, and he is entering into this
Agreement without reliance upon any statement or representation by any of the
Company and its affiliates, and its and their present and
5
<PAGE>
former stockholders, directors, officers, employees, agents, attorneys,
successors and assigns or any other person, concerning any fact material hereto.
9. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
any and all prior agreements or understandings between the parties arising out
of or relating to the Executive's employment and the cessation thereof. This
Agreement may only be changed by written agreement executed by the parties.
10. Governing Law. This Agreement shall be governed by the laws of the
State of New Jersey, without giving effect to the conflicts of law principles
thereof.
11. Representations and Warranties. Each party represents and warrants to
the other party that (i) the execution and delivery of this Agreement has been
duly authorized and all actions necessary for the due execution of this
Agreement have been taken, (ii) this Agreement constitutes the legal, valid and
binding obligation of the parties, and (iii) this Agreement has been executed
and delivered as its own free act and deed and not as the result of duress by
the other party hereto. Executive specifically acknowledges that he has been
advised to consult legal counsel prior to executing this Agreement, and has been
afforded the opportunity of at least 21 days to consider this Agreement.
12. Non-Disparagement. Executive covenants and agrees not to engage in any
act or say anything that is intended, or may reasonably be expected to harm the
reputation, business, prospects or operations of the Company, its officers,
directors, stockholders or employees. The Company agrees that it will engage in
no act which is intended, or may reasonably be expected to harm the reputation,
business or prospects of Executive.
13. Public Announcement. Except as required by law, Executive agrees not to
make any public disclosure with respect to this Agreement, the events leading up
to this Agreement, and the transactions contemplated by this Agreement.
14. No Admissions. Nothing contained in this Agreement shall be considered
an admission by either party of any wrongdoing or liability under any Federal,
state or local statute, public policy, tort law, contract law, common law or
otherwise.
15. Expenses. Each party shall pay its own costs incident to the
negotiation, preparation, performance, execution, and enforcement of this
Agreement, and all fees and expenses of its or his counsel, accountants, and
other consultants, advisors and representatives for all activities of such
persons undertaken in connection with this Agreement.
16. Cooperation. Upon reasonable notice, Executive agrees to cooperate
reasonably with the Company and its affiliated corporation entities in the
defense of any claim asserted against them and as to which Executive has, or may
have, knowledge. The Company agrees to reimburse Executive for any reasonable
and ordinary expenses, including the advancement of reasonable attorneys fees,
incurred in connection with such cooperation.
17. No Third Party Claims. Executive represents and warrants that no other
person or entity has, or to the best knowledge of Executive, claims, any
interest in any potential
6
<PAGE>
claims, demands, causes of action, obligations, damages or suits pursuant to
this Agreement; that he is the owner of all other claims, demands, causes of
action, obligations, damages or suits pursuant to this Agreement; that he has
full and complete authority to execute this Agreement; and that he has not sold,
assigned, transferred, conveyed or otherwise disposed of any claim, demand,
cause of action, obligation or liability subject to this Agreement.
18. No Third Party Beneficiaries. Except as expressly stated herein, the
parties do not intend to make any person or entity who is not a party to this
Agreement a beneficiary hereof, and this Agreement should not be construed as
being made for the benefit of any person or entity not expressly provided for
herein.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be one and the same instrument.
20. Acceptance and Revocation. Executive shall have a period of twenty-one
(21) days from the date of receipt of this Agreement to review and accept this
Agreement. Executive shall have seven (7) days following his execution of this
Agreement during which time he may revoke this Agreement by providing the
Company with written notice of the revocation. This Agreement shall become
effective and enforceable after the expiration of seven (7) days following
Executive's execution of the Agreement, and is not enforceable until after the
seven-day revocation period expires.
21. Future Employment. Executive hereby waives any right to reinstatement
or future employment with the Company following the Termination Date.
22. Arbitration. Except as otherwise provided for herein, any controversy
arising under, out of, in connection with, or relating to, this Agreement, and
any amendment hereof, or the breach hereof or thereof, shall be determined and
settled by arbitration in New York, New York, by a three person panel mutually
agreed upon, or in the event of a disagreement as to the selection of
arbitrators, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Any award rendered therein shall specify the
findings of fact of the arbitrator or arbitrators and the reasons of such award,
with references to and reliance on relevant law. Any such award shall be final
and binding on each and all of the parties thereto and their personal
representatives, and judgment may be entered thereon in any court having
jurisdiction thereof.
23. Employment Inquiries. All employment inquiries in regard to Executive
shall be referred to the Head of Human Resources at the time the inquiry is
made.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TOYS "R" US, INC.
By: /s/ Roger C. Gaston
-------------------------------------
Name: Roger C. Gaston
Title: Senior Vice President - Human Resources
EXECUTIVE
/s/ Keith Van Beek
------------------------------------------
Keith Van Beek
Original Document issued to Keith Van Beek on June 7, 1999
8
<PAGE>
June 9, 1999
Board of Directors
Toys "R" Us, Inc.
Ladies and Gentlemen:
I, Keith Van Beek, hereby resign for personal reasons from (i) my positions
as President - Toys "R" Us U.S. Merchandising and Marketing of Toys "R" Us,
Inc., (the "Company"), its subsidiaries and affiliates and (ii) all officer or
employee positions held by me in the Company, its subsidiaries and affiliates,
all effective as of June 9, 1999.
Very truly yours,
Keith Van Beek
<PAGE>
RELEASE
Except as specifically provided in the following paragraph, and in
consideration of and except for the obligations of the Company set forth in the
Separation Agreement dated as of June 9, 1999 (the "Agreement") and in
consideration of the Agreement which provides for payments and other benefits to
Keith Van Beek (the "Releasor"), in addition to payments and benefits to which
the Releasor would otherwise be entitled, the Releasor, on behalf of the
Releasor and the Releasor's heirs, executors and assigns, hereby releases and
forever discharges Toys "R" Us, Inc. (the "Company"), its past and present
stockholders, its past and present divisions, subsidiaries, affiliates and
related entities, its successors and assigns and all past and present directors,
officers, employees, agents, heirs, executors and administrators and the heirs
and assigns, and any and all employee pension benefit or welfare benefit plans
of the Company, including current and former trustees and administrators of such
employee pension benefit and welfare plans (collectively, the "Releasees"), from
all actions, causes of action in law or in equity, administrative proceedings,
suits, claims, debts, liens, sums of money, charges, accounts, reckonings,
bonds, bills, specialties, covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgments, extents, executions,
claims, and demands whatsoever, in law, admiralty or equity, whether known or
unknown, which against the Releasees the Releasor or the Releasor's successors
and assigns ever had, now have or hereafter can, shall or may have, for, upon,
or by reason of any matter, cause or thing whatsoever from the beginning of the
world to the date of this Release, including without limitation, any claims the
Releasor may have arising from or relating to the Releasor's employment or
termination from employment with the Company, including a release of any rights
or claims the Releasor may have under Title VII of the Civil Rights Act of 1964,
as amended, and the Civil Rights Act of 1991 (which
<PAGE>
prohibit discrimination in employment based upon race, color, sex, religion, and
national origin); the Americans with Disabilities Act of 1990, as amended, and
the Rehabilitation Act of 1973 (which prohibit discrimination based upon
disability); the Family and Medical Leave Act of 1993 (which prohibits
discrimination based on requesting or taking a family or medical leave); Section
1981 of the Civil Rights Act of 1866 (which prohibits discrimination based upon
race); Section 1985(3) of the Civil Rights Act of 1871 (which prohibits
conspiracies to discriminate); the Employee Retirement Income Security Act of
1974, as amended (which prohibits discrimination with regard to benefits); any
other federal, state or local laws against discrimination; or any other federal,
state, or local statute, or common law relating to employment, wages, hours, or
any other terms and conditions of employment. This includes a release by the
Releasor of any claims for wrongful discharge, breach of contract, torts or any
other claims in any way related to the Releasor's employment with or resignation
or termination from the Company. This release also includes a release of any
claims for age discrimination under the Age Discrimination in Employment Act, as
amended ("ADEA"). The ADEA requires that the Releasor be advised to consult with
an attorney before the Releasor waives any claim under ADEA. In addition, the
ADEA provides the Releasor with at least 21 days to decide whether to waive
claims under ADEA and seven days after the Releasor signs the Agreement to
revoke that waiver.
This release does not encompass any rights or claims under the ADEA that
may arise after the date of the Releasor's signing of the Agreement, and shall
in no way be construed to affect either party's right to enforce any and all
terms of the Agreement. THIS LANGUAGE MEANS THAT, BY SIGNING THIS RELEASE, THE
RELEASOR HAS WAIVED ANY RIGHTS HE MAY HAVE TO BRING A LAWSUIT OR MAKE ANY CLAIM
AGAINST
2
<PAGE>
THE RELEASEES BASED ON ANY ACTS OR OMISSIONS TAKEN BY THE RELEASEES UP TO JUNE
9, 1999.
Releasor represents and warrants that he has not assigned or otherwise
transferred any actions, causes of action, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages,
embarrassment, injury to business, injury to reputation, judgments, executions,
claims, or demands whatsoever, whether known or unknown, suspected or
unsuspected, disclosed or undisclosed, fixed or contingent, accrued or
unaccrued, asserted or unasserted, which against the Releasees, the Releasor and
his administrators, agents, successors and assigns ever had, now have or
hereafter can, shall or may have from the beginning of the world to the date of
this Release. Releasor and his administrators, agents, successors and assigns
shall indemnify Releasees, and hold them harmless from, all damages, losses,
costs and expenses which Releasees may suffer or incur as a result of the
assertion against them of any of the foregoing matters which were assigned or
otherwise transferred by Releasor in a transaction which constitutes a breach of
the representation and warranty contained in the immediately preceding sentence.
This Release may not be changed orally.
The Company has informed Executive that it does not know of any conduct
which may cause the Company to take any legal action against the Executive at
this time.
This Release shall be governed by the substantive law of the State of New
Jersey without regard to its principles of conflicts of laws.
3
<PAGE>
This release shall in no way be construed to affect Releasor's rights as a
stockholder of the Company.
IN WITNESS WHEREOF, the Releasor has caused this Release to be executed as
of June 9,1999.
_______________________________________
Keith Van Beek
STATE OF ____________, County of ___________ ss:
On this ______ day of __________, 1999, before me personally came KEITH
VAN BEEK, to me known and known to me to be the individual described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed the same.
_______________________________________
Notary Public
4
Exhibit 10AA
September 20, 1999
Mr. Michael J. Madden
10 Finn Court
Mahwah, NJ 07430
Dear Mr. Madden:
Toys "R" Us, Inc. (the "Company") regretfully accepts your resignation from all
officer positions you hold in the Company, its subsidiaries and affiliates,
effective as of September 24, 1999 (the "Resignation Date"). The employment
relationship between the Company and you will terminate on the Resignation Date.
In consideration of your agreement to continue to be bound by the restrictions
set forth in Sections 11(b), 11(c), 11(f) and 13(e) of the Retention Agreement
dated as of May 1, 1997 between you and the Company (the "Retention Agreement")
through January 31, 2002, the Company agrees as follows:
(a) As soon as practicable following January 31, 2000, the Company will
calculate the value of your interest in the Company's Supplemental
Executive Retirement Plan (the "SERP"), including the Company's
January 31, 2000 notional contribution.
(b) As soon as practicable after January 31, 2002, the Company will
calculate the value of your interest in the SERP and pay you an
equal amount in cash, provided you have complied with the
restrictions set forth in Sections 11(b), 11(c), 11(f) and 13(e) of
the Retention Agreement through January 31, 2002.
(c) At all times, your interest in the SERP will be administered in
accordance with the SERP and the Grantor Trust established by the
Company.
Except as provided in this letter or as otherwise provided by applicable law,
you will not be entitled to any further benefits or payments from the Company
from and after the Resignation Date. Except as provided herein with respect to
Sections 11(b), 11(c), 11(f) and 13(e) of the Retention Agreement, all rights
and obligations of you and the Company under the Retention Agreement and any
other agreement, arrangement or understanding between you and the Company are
hereby cancelled and terminated as of the Resignation Date.
<PAGE>
Mr. Michael J. Madden
September 20, 1999
Page 2
If the foregoing satisfactorily reflects the understanding between us, please
sign and return the enclosed copy of this letter, which will then constitute our
agreement with respect to the foregoing matters. This letter may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Very truly yours,
/s/ Roger C. Gaston
Roger C. Gaston
Senior Vice President
Human Resources
Accepted and Agreed:
/s/ Michael J. Madden
- ----------------------------
Michael J. Madden
Exhibit 10BB
RETENTION AGREEMENT
BETWEEN
TOYS "R" US, INC.
AND
JOHN H. EYLER, JR.
DATED AS OF
January 6, 2000
<PAGE>
TOYS "R" US, INC.
RETENTION AGREEMENT
AGREEMENT (this "Agreement"), by and between Toys "R" Us, Inc., a Delaware
corporation (the "Company"), and John H. Eyler, Jr. (the "Executive"), dated as
of January 6, 2000. Capitalized terms used in this Agreement and in Exhibit A
hereto that are not defined in the operative provisions shall have the meanings
ascribed to them on Exhibit B hereto.
1. Employment Period. The Company hereby agrees to employ the Executive
and the Executive hereby agrees to remain in the employ of the Company subject
to the terms and conditions of this Agreement, for the Employment Period. The
term "Employment Period" means the period commencing on January 17, 2000 and
ending on the second anniversary of such date as automatically extended for
successive additional one-year periods unless, at least six months prior to the
scheduled expiration of the Employment Period, the Company, based upon a
determination by the Board, shall give notice to the Executive that the
Employment Period shall not be so extended.
2. Terms of Employment.
(a) Position. (i) Commencing on January 17, 2000 and for the remainder of
the Employment Period, the Executive shall serve as President and Chief
Executive Officer of the Company. The Executive shall be based in Paramus, New
Jersey.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote his full time during normal business hours to the
business and affairs of the Company and to use his best efforts to perform
faithfully and efficiently such responsibilities. The Executive shall be
entitled to not less than four weeks of paid vacation during each calendar
year of the Employment Period.
(iii) During the Employment Period, the Executive may, so long as
such activities do not materially interfere with the performance of his
responsibilities to the Company in accordance with this Agreement,
continue the corporate directorships on which the Executive serves, if
any, as of the date hereof and such other corporate directorships as are
consented to by the Committee. It is expressly understood and agreed that
to the extent that any such activities have been conducted by the
Executive with the knowledge of the Company prior to a Change of Control,
the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to a Change of Control
shall not thereafter be deemed to violate this Agreement.
(iv) The Board shall appoint or nominate and recommend Executive for
election, and shall use its best efforts to cause Executive to be elected
and reelected to (1) membership on the Board effective from and after
January 17, 2000 through the remainder of the Employment Period and (2)
the position of Chairman of the Board effective from and after not later
than June 30, 2001, through the remainder of the
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Employment thereafter. Executive shall also be a member of the Board's
Executive Committee and a member ex-officio of the Board's Nominating
Committee.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive his Annual Base Salary, which will be paid in accordance
with the Company's regular payroll policies as in effect from time to time.
(ii) Incentive Bonus. The Executive shall also be eligible, for each
fiscal year ending during the Employment Period, to receive an Incentive
Bonus, in accordance with guidelines established by the Committee. Each
such Incentive Bonus shall be paid in accordance with the Company's
Incentive Bonus plan.
(iii) Participation in Plans. During the Employment Period, the
Executive shall be eligible to participate in all Plans (including,
without limitation, stock option and other equity-based award programs) at
a level not less than that which is commensurate with other senior
executives of the Company.
(iv) Stock Units. As further inducement for the Executive to enter
into this Agreement and to continue in the employ of the Company, the
Company agrees to grant to the Executive 200,000 stock units contingent on
performance and future service, pursuant to the Stock Unit Agreement to be
executed and delivered by the Company in the form attached as Annex A
hereto.
(v) Internet Subsidiary Stock Options. As further inducement to
enter into this Agreement and to continue in the employ of the Company,
the Company agrees to cause the Internet Subsidiary to grant to the
Executive options to acquire 300,000 shares of the Internet Subsidiary's
common stock pursuant the Stock Option Agreement to be executed and
delivered by the Internet Subsidiary (the "Internet Subsidiary Stock
Option Agreement"). Notwithstanding any provision of the Internet
Subsidiary Stock Option Agreement, the options granted to the Executive in
the Internet Subsidiary shall be governed by this Agreement.
(vi) TRU Stock Options. As further inducement for the Executive to
enter into this Agreement and to continue in the employ of the Company,
the Company agrees to grant to the Executive stock options to acquire (A)
700,000 shares of common stock of the Company, pursuant to the Partnership
Option Agreement to be executed and delivered by the Company (the
"Partnership Option Agreement") and (B) subject to approval by the
Company's stockholders of a new employee stock option plan at the
Company's next annual meeting of stockholders, 300,000 shares of common
stock of the Company, pursuant to the Stock Option Agreement to be
executed and delivered by the Company (the "Stock Option Agreement" and
together the Partnership Option Agreement, the "TRU Stock Option
Agreements"). As of April 1 of each year during the Employment Period,
commencing with April 1, 2001, the Company shall grant to the Executive
additional stock options to acquire shares of common stock of the Company.
Each such annual grant shall consist of options to acquire not less than
300,000 shares of common stock of the Company.
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(vii) Supplemental Executive Retirement Plans. All contributions to
the Executive's Supplemental Executive Retirement Plan account shall be
fully vested immediately upon contribution.
(viii) Company's Long-Term Incentive Performance Awards. The
Executive acknowledges that the Company may issue restricted stock as an
award to employees in connection with the elimination of the Company's
outstanding long-term incentive performance awards and that the Executive
will not be eligible to receive any shares of restricted stock in the
Company in connection with the elimination of such awards; provided,
however, that Executive shall be eligible to participate in any incentive
compensation program that replaces or is otherwise established following
elimination of the current long-term incentive award program.
3. Termination of Employment.
(a) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with this Agreement. Notice of
Termination by the Company for Cause shall be subject to, and may be given only
in full compliance with the substantive and procedural requirements set forth in
clauses (a), (b) and (c) of the definition of "Cause" appearing in Exhibit B to
this Agreement.
(b) Termination for Death, Disability or Retirement. The Executive's
employment shall terminate upon his death, Disability or Retirement during the
Employment Period. In the event of such termination:
(i) the Company shall make a lump sum cash payment to the Executive
(or, in the event that termination results from the death of the
Executive, to his estate) within 30 days after the Date of Termination in
an amount equal to the sum of:
(A) the Executive's pro rata Annual Base Salary payable
through the Date of Termination to the extent not already paid;
(B) the targeted amount of the Executive's Incentive Bonus
that would have been payable with respect to the fiscal year in
which the Date of Termination occurs, absent the termination of the
Executive's employment, prorated for the portion of such fiscal year
through the Date of Termination taking into account the number of
complete months during such fiscal year through the Date of
Termination;
(C) the Executive's actual earned Incentive Bonus for any
completed fiscal year or period not theretofore paid; and
(D) the account balances provided for under the Plans subject
to the terms and conditions of the Plans; and
(ii) (1) all unvested options to acquire stock of the Company or of
the Internet Subsidiary held by the Executive shall vest on the Date of
Termination, (2) all unvested
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profit shares held by the Executive or for the benefit of the Executive by
a grantor trust established by the Company shall vest on the Date of
Termination and shall be promptly delivered to the Executive or his
estate, (3) all other unvested equity-based awards (including, without
limitation, restricted stock and stock units together with all property
attributable thereto) held by the Executive or for the benefit of the
Executive by a grantor trust established by the Company shall vest on the
Date of Termination and shall be promptly delivered to the Executive, or
in the event of termination due to his death, the Executive's estate,
entirely in the form of Common Stock, $.10 par value per share ("Common
Stock") of the Company, (4) all options to acquire stock of the Company or
of the Internet Subsidiary (including, without limitation, options that
vest pursuant to this clause (ii)) held by the Executive shall remain
exercisable in whole or in part at all times, and from time to time,
following the Date of Termination through the expiration date of such
options, and (5) the Executive shall not be entitled to any additional
grants of any stock options, restricted stock, or other equity-based or
long-term awards following the Date of Termination; and
(iii) the Executive (and his spouse and dependent children) will be
entitled to continuation of health benefits under the Plans at a level
commensurate with the Executive's current position and if the Executive
(or his spouse and dependent children upon his death) elects to receive
such health benefits, the Executive shall pay the premium charged to
former employees of the Company pursuant to Section 4980B of the Code;
provided, that the Executive and his spouse will only be entitled to
receive such health benefits until attaining the age of sixty-five (65)
and dependent children will only be entitled to receive such health
benefits as long as such children qualify as dependent children for
federal income tax purposes. The Company can amend or otherwise alter the
Plans to provide health benefits to the Executive that are no less than
those commensurate with the Executive's current position. To the extent
such health benefits cannot be provided to the Executive under the terms
of the Plans or the Plans cannot be so amended in any manner not adverse
to the Company, the Company shall pay the Executive, on an after-tax
basis, an amount necessary for the Executive to acquire such benefits from
an independent insurance carrier. The obligations of the Company under
this clause (iii) shall be terminated if, at any time after the Date of
Termination, the Executive is employed by or is otherwise affiliated with
a party that offers comparable health benefits to the Executive and his
spouse and dependent children.
(c) Termination by the Company for Cause. If the Executive's employment
shall be terminated for Cause during the Employment Period as provided in this
Agreement, the Employment Period shall terminate without further obligations to
the Executive other than (i) the obligation to pay him (x) the Executive's pro
rata Annual Base Salary payable through the Date of Termination to the extent
not theretofore paid, (y) the Executive's actual earned Incentive Bonus for any
completed fiscal year or period not theretofore paid, and (z) all payments and
benefits due, in accordance with the Company's Plans through the Date of
Termination and (ii) the obligations of the Company and Internet Subsidiary
under all stock options, stock units and other equity-based awards that are
vested as of the date of Termination.
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(d) Termination by the Company Without Cause or By the Executive for Good
Reason. If the Executive's employment shall be terminated during the Employment
Period by the Company without Cause, or by the Executive for Good Reason, then:
(i) the Company shall make a lump sum cash payment to the Executive
within 30 days after the Date of Termination of (x) the Executive's pro
rata Annual Base Salary payable through the Date of Termination to the
extent not theretofore paid, (y) the targeted amount of the Executive's
Incentive Bonus that would have been payable with respect to the fiscal
year in which the Date of Termination occurs, absent the termination of
the Executive's employment, prorated for the portion of such fiscal year
through the Date of Termination taking into account the number of complete
months during such fiscal year through the Date of Termination and (z) the
Executive's actual earned Incentive Bonus for any completed fiscal year or
period not theretofore paid; and
(ii) the Company shall pay to the Executive in equal installments,
made at least monthly, over the twenty-four months following the Date of
Termination, an aggregate amount equal to (1) two times the Executive's
Annual Base Salary in effect on the Date of Termination and (2) two times
the targeted amount of the Incentive Bonus that would have been paid or
accrued to the Executive with respect to the Company's fiscal year in
which such Date of Termination occurs; and
(iii) the Company shall continue to provide, in the manner and
timing provided for in the Plans (other than as provided in clauses (i),
(ii), (iv) and (v) of this Section 3(d)), the benefits provided under the
Plans that the Executive would receive if the Executive's employment
continued for two years after the Date of Termination, assuming for this
purpose that the Executive's compensation during such two-year period is
the amount paid pursuant to clause (ii) above, and the Executive shall be
fully vested in any account balance and all other benefits under the
Plans; provided, however, that the benefits provided under the Plans under
this clause (iii) shall be limited to the amounts permitted by law or as
would otherwise not potentially adversely impact on the tax qualification
of any Plans; and provided, further, that if any such benefits may not be
continued under the Plans, the Company shall pay to the Executive an
amount equal to the amount that the Executive would have received had such
benefits been continued under the Plans; and
(iv) (1) all unvested options to acquire stock of the Company or of
the Internet Subsidiary held by the Executive shall vest on the Date of
Termination, (2) all unvested profit shares held by the Executive or for
the benefit of the Executive by a grantor trust established by the Company
shall vest on the Date of Termination and 50% of such vested profit shares
shall be delivered to the Executive promptly following the Date of
Termination and 50% of such vested profit shares shall be delivered to the
Executive on the first anniversary of the Date of Termination, (3) all
other unvested equity-based awards (including, without limitation,
restricted stock and stock units together with all property attributable
thereto) held by the Executive or for the benefit of the Executive by a
grantor trust established by the Company shall vest on the Date of
Termination and 50% of such vested awards shall be delivered to the
Executive promptly following the Date of Termination and 50% of such
vested awards shall be delivered to
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the Executive on the first anniversary of the Date of Termination, (4) all
options to acquire stock of the Company or of the Internet Subsidiary
(including, without limitation, options that vest pursuant to this clause
(iv)) held by the Executive shall remain exercisable in whole or in part
at all times, and from time to time, following the Date of Termination
through the expiration date of such options and (5) the Executive shall
not be entitled to any additional grants of any stock options, restricted
stock, or other equity-based or long-term awards following the Date of
Termination; and
(v) the Executive, his spouse and dependent children shall be
entitled to the benefits set forth under Section 3(b)(iii).
4. Obligations of the Company Relating to a Change of Control.
(a) Notwithstanding any provision of this Agreement or any Plan, in no
event shall the compensation or benefits, individually or in the aggregate, to
which the Executive shall be entitled for the three years following a Change of
Control be less favorable than that to which the Executive would have been
entitled based upon the most favorable of the Company's Plans in effect for the
Executive at any time during the 120-day period immediately preceding such
Change of Control.
(b) If the Executive's employment shall have been terminated by the
Company (other than for Cause) or by the Executive for Good Reason during a
Change of Control Period:
(i) the Company shall make a lump sum cash payment to the Executive
within 30 days after the Date of Termination in an amount equal to the sum
of the amounts provided by Sections 3(d)(i) and (ii) except that all
references in Section 3(d)(ii) therein to "two times" shall be "three
times"; and
(ii) the Company shall make a lump sum cash payment to the Executive
within 30 days after the Date of Termination in an amount equal to the
cumulative amounts that would have been provided by Section 3(d)(iii) if
the Executive's employment continued for three years after the Date of
Termination, assuming for this purpose that the Executive's compensation
during such three-year period is the amount payable pursuant to clause (i)
above; and
(iii) (1) all unvested options to acquire stock of the Company or of
the Internet Subsidiary held by the Executive shall vest on the Date of
Termination, (2) all unvested profit shares held by the Executive or for
his benefit by a grantor trust established by the Company shall vest on
the Date of Termination and shall be delivered to Executive promptly, (3)
all other unvested equity awards (including, without limitation,
restricted stock and stock units together with all property attributable
thereto) held by the Executive or for his benefit by a grantor trust
established by the Company shall vest on the Date of Termination and be
promptly delivered to the Executive entirely in the form of Common Stock,
(4) all options to acquire stock of the Company or of the Internet
Subsidiary (including, without limitation, options that vest pursuant to
this Section 4(c)) held by the Executive may be exercised until the
expiration date of the options, and (5) the Executive
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<PAGE>
shall not be entitled to any additional grants of any stock options,
restricted stock, and other equity-based or long term awards following the
Date of Termination; and
(iv) the Executive, his spouse and dependent children shall be
entitled to the benefits set forth in Section 3(b)(iii).
5. Release Agreement. The benefits pursuant to Section 3 are contingent
upon the Executive (i) executing a Separation and Release Agreement (the
"Release Agreement") upon or after any Date of Termination, a copy of which is
attached as Exhibit A to this Agreement and (ii) not revoking or challenging the
enforceability of the Release Agreement or this Agreement.
6. Offset. The Company shall have the right to offset the amounts required
to be paid to the Executive under this Agreement against any amounts owed by the
Executive to the Company, and nothing in this Agreement shall prevent the
Company from pursuing any other available remedies against the Executive.
7. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any Plan for which
the Executive may qualify nor shall anything herein limit or otherwise affect
such rights as the Executive may have under any contract or agreement with the
Company. Amounts that are vested benefits or that the Executive is otherwise
entitled to receive under any Plan, contract or agreement with the Company at or
subsequent to the Date of Termination shall be payable in accordance with such
Plan, or contract or agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees.
(a) No Obligation to Mitigate. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement, and, except as specifically provided in this Agreement, such amounts
shall not be reduced whether or not the Executive obtains other employment.
(b) Expenses of Contests. The following shall apply for any dispute
arising hereunder, under the Release Agreement or under either the Stock Unit
Agreement or the TRU Stock Option Agreements:
(i) Other than with respect to claims brought by the Executive
against, or defenses by the Executive of any claim of, the Company with
respect to this Agreement, the Release Agreement or either of the Stock
Unit Agreement or the TRU Stock Option Agreements that were determined to
have been made or asserted by the Executive in bad faith or frivolously,
the Company agrees to pay all reasonable legal and professional fees and
expenses that the Executive may reasonably incur as a result of any
contest by the Executive, by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement,
the Release Agreement or either the Stock Unit Agreement or the TRU Stock
Option Agreements (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each
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case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code or any successor Section
of the Code.
(ii) The Executive shall reimburse the Company for its reasonable
legal and professional fees and expenses, to the extent there is a final
determination that such fees or expenses relate to claims brought by the
Executive against, or defenses by the Executive of any claim of, the
Company with respect to this Agreement, the Release Agreement or either
the Stock Unit Agreement or the TRU Stock Option Agreements that were
determined to have been made or asserted by the Executive in bad faith or
frivolously.
9. Certain Additional Payments by the Company. Anything in this Agreement
to the contrary notwithstanding, in the event that any actual or constructive
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement, either the Stock Unit Agreement or the TRU Stock Option
Agreements or otherwise) is subject to the excise tax imposed by Section 4999 of
the Code or any successor provision of the Code (the "Excise Tax"), then the
Company shall make the payments described on Exhibit C hereto.
10. Restrictions and Obligations of the Executive.
(a) Consideration for Restrictions and Covenants. The parties hereto
acknowledge and agree that the principal consideration for the agreement to make
the payments provided in Sections 3 and 4 hereof from the Company to the
Executive and the grant to the Executive of the stock options and stock units of
the Company as set forth in Section 2 hereof is the Executive's compliance with
the undertakings set forth in this Section 10. Specifically, the Executive
agrees to comply with the provisions of this Section 10 irrespective of whether
the Executive is entitled to receive any payments under Section 3 or 4 of this
Agreement.
(b) Confidentiality. The confidential and proprietary information and in
any material respect trade secrets of the Company are among its most valuable
assets, including but not limited to, its customer and vendor lists, database,
computer programs, frameworks, models, its marketing programs, its sales,
financial, marketing, training and technical information, and any other
information, whether communicated orally, electronically, in writing or in other
tangible forms concerning how the Company creates, develops, acquires or
maintains its products and marketing plans, targets its potential customers and
operates its retail and other businesses. The Company has invested, and
continues to invest, considerable amounts of time and money in obtaining and
developing the goodwill of its customers, its other external relationships, its
data systems and data bases, and all the information described above
(hereinafter collectively referred to as "Confidential Information"), and any
misappropriation or unauthorized disclosure of Confidential Information in any
form, would irreparably harm the Company. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all Confidential Information
relating to the Company and its business, which shall have been obtained by the
Executive during the Executive's employment by the Company and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or
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as may otherwise be required by law or legal process, communicate, divulge or
use any such information, knowledge or data to anyone other than the Company and
those designated by it.
(c) Non-Solicitation or Hire. During the Employment Period and for a
three-year period following the Date of Termination, the Executive shall not,
directly or indirectly (i) employ or seek to employ any person who is at the
Date of Termination, or was at any time within the six-month period preceding
the Date of Termination, an officer, general manager or director or equivalent
or more senior level employee of the Company or any of its subsidiaries or
otherwise solicit, encourage, cause or induce any such employee of the Company
or any of its subsidiaries to terminate such employee's employment with the
Company or such subsidiary for the employment of another company (including for
this purpose the contracting with any person who was an independent contractor
(excluding consultant) of the Company during such period) or (ii) take any
action that would interfere with the relationship of the Company or its
subsidiaries with their suppliers and franchisees without, in either case, the
prior written consent of the Company's Board of Directors; provided, however,
that if the Executive terminates the Agreement for "Good Reason" or the Company
terminates the Executive's employment hereunder without Cause, the obligations
under this Section 10(c) shall survive for only a two-year period following the
Date of Termination.
(d) Non-Competition and Consulting. (i) During the Employment Period and
for a two-year period following the Date of Termination, the Executive shall
not, directly or indirectly:
(x) engage in any managerial, administrative, advisory, consulting,
operational or sales activities in a Restricted Business anywhere in the
Restricted Area, including, without limitation, as a director or partner
of such Restricted Business, or
(y) organize, establish, operate, own, manage, control or have a
direct or indirect investment or ownership interest in a Restricted
Business or in any corporation, partnership (limited or general), limited
liability company enterprise or other business entity that engages in a
Restricted Business anywhere in the Restricted Area; and
(z) interfere with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between the Company and any customer, supplier,
lessor, lessee, employee, consultant, research partner or investor of the
Company.
(e) Litigation Assistance. The Executive agrees to cooperate with the
Company and its counsel in regard to any litigation presently pending or
subsequently initiated involving matters of which the Executive has particular
knowledge as a result of your employment with the Company. Such cooperation
shall consist of the Executive making himself available at reasonable times for
consultation with officers of the Company and its counsel and for depositions or
other similar activity should the occasion arise. Reasonable travel costs and
out-of-pocket expenses in connection with such cooperation shall be reimbursed
by the Company. The Executive shall not receive any additional compensation for
providing assistance pursuant to this Section 10(e) following the Date of
Termination; provided that such assistance, together with any assistance
provided by the Executive pursuant to Section 12(e), does not
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require an aggregate of more than 10 days during the entire period following the
Date of Termination. If such assistance requires more than 10 days during the
entire period following the Date of Termination, the Company will pay Executive
an amount per day equal to the Executive's Annual Base Salary on the Date of
Termination divided by 250, for each day on which assistance is provided that
exceeds the foregoing limits. The obligations under this Section 10(e) shall
survive for a five-year period following the Date of Termination.
(f) Exceptions. Sections 10(c) and (d) shall not bind the Executive during
any period following the termination of the Executive's employment if there has
been a Change of Control, irrespective of whether the Change of Control occurs
before or after the Date of Termination.
(g) Permitted Investments. Nothing contained in Section 10(d) shall
prohibit or otherwise restrict the Executive from acquiring or owning, directly
or indirectly, for passive investment purposes not intended to circumvent this
Agreement, securities of any entity engaged, directly or indirectly, in a
Restricted Business if either (i) such entity is a public entity and Executive
(A) is not a controlling person of, or a member of a group that controls, such
entity and (B) owns, directly or indirectly, no more than 3% of any class of
equity securities of such entity or (ii) such entity is not a public entity and
the Executive (A) is not a controlling person of, or a member of a group that
controls, such entity and (B) does not own, directly or indirectly, more than 1%
of any class of equity securities of such entity.
(h) Definitions. For purposes of this Section 10:
(i) "Restricted Business" means any retail store, mail order, electronic
commerce or Internet business or any business, in each case if it is involved in
the manufacture, sale or marketing of toys, juvenile or baby products (other
than children's clothing), juvenile furniture or any other business in which the
Company may be engaged on the Date of Termination, provided that such entity
derives at least 10% or more of its revenues in the aggregate from such products
and/or business in its most recent fiscal year. Notwithstanding the foregoing, a
Restricted Business shall not include non-discount department stores, such as
Federated Department Stores (whether or not such a non-discount department store
would otherwise meet the definition set forth in the preceding sentence), but
shall include discount stores, such as Wal-Mart, K-Mart and Target to the extent
such a discount department store meets the definition set forth in the preceding
sentence.
(ii) "Restricted Area" means any country in which the Company or its
subsidiaries owns or franchises any retail store operations or otherwise
has operations on the Date of Termination.
(i) Relief. The parties hereto hereby acknowledge that the
provisions of this Section 10 are reasonable and necessary for the
protection of the Company and its subsidiaries. In addition, the Executive
further acknowledges that the Company and its subsidiaries will be
irrevocably damaged if such covenants are not specifically enforced.
Accordingly, the Executive agrees that, in addition to any other relief to
which the Company may be entitled, the Company will be entitled to seek
and obtain injunctive relief (without the requirement of any bond) from a
court of competent jurisdiction for
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the purposes of restraining the Executive from any actual or threatened
breach of such covenants.
11. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will, within thirty days after a Change of Control, and
the Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company within thirty days after any such event of
succession to, assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid that assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without reference to
principles of conflict of laws.
(b) Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(c) Amendment. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to the Executive, to the address on file with the Company;
and
(ii) If to the Company, to it at Toys "R" Us, Inc., 461 From Road,
Paramus, New Jersey 07652, Attention: Senior Vice President - Human
Resources;
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
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(e) Assistance to Company. At all times during and after the Employment
Period and at the Company's expense for out-of-pocket expenses actually and
reasonably incurred by the Executive in connection therewith, the Executive
shall provide reasonable assistance to the Company in the collection of
information and documents and shall make the Executive available when reasonably
requested by the Company in connection with claims or actions brought by or
against third parties or investigations by governmental agencies based upon
events or circumstances concerning the Executive's duties, responsibilities and
authority during the Employment Period. The Executive shall not receive any
additional compensation for providing assistance pursuant to this Section 12(e)
following the Date of Termination; provided that such assistance, together with
any assistance provided by the Executive pursuant to Section 10(e) does not
require an aggregate of more than 10 days during the entire period following the
Date of Termination. If such assistance requires more than 10 days during the
entire period following the Date of Termination, the Company will pay Executive
an amount per day equal to the Executive's Annual Base Salary on the Date of
Termination divided by 250, for each day on which assistance is provided that
exceeds the foregoing limits.
(f) Severability of Provisions. Each of the sections contained in this
Agreement shall be enforceable independently of every other section in this
Agreement, and the invalidity or nonenforceability of any section shall not
invalidate or render unenforceable any other section contained in this
Agreement. The Executive acknowledges that the restrictive covenants contained
in Section 10 are a condition of this Agreement and are reasonable and valid in
geographical and temporal scope and in all other respects. If any court or
arbitrator determines that any of the covenants in Section 10, or any part of
any of them, is invalid or unenforceable, the remainder of such covenants and
parts thereof shall not thereby be affected and shall be given full effect,
without regard to the invalid portion. If any court or arbitrator determines
that any of such covenants, or any part thereof, is invalid or unenforceable
because of the geographic or temporal scope of such provision, such court or
arbitrator shall reduce such scope to the minimum extent necessary to make such
covenants valid and enforceable.
(g) Withholding. The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(h) Waiver. The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(i) Arbitration. Except as otherwise provided for herein, any controversy
arising under, out of, in connection with, or relating to, this Agreement, and
any amendment hereof, or the breach hereof or thereof, shall be determined and
settled by arbitration in New York, New York, by a three person panel mutually
agreed upon, or in the event of a disagreement as to the selection of the
arbitrators, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Any award rendered therein shall specify the
findings of fact of the arbitrator or arbitrators and the reasons of such award,
with the reference to and reliance on relevant law. Any such award shall be
final and binding on each and
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all of the parties thereto and their personal representatives, and judgment may
be entered thereon in any court having jurisdiction thereof.
13. Indemnification; Directors and Officers Liability Coverage.
(a) Indemnification. The Executive shall be indemnified and held harmless
by the Company to the greatest extent permitted under applicable Delaware law as
the same now exists or may hereafter be amended if Executive was, is or is
threatened to be made, a party to any pending, completed or threatened action,
suit, arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding whether civil, criminal,
administrative or investigative, and whether formal or informal, by reason of
the fact that Executive is or was, or had agreed to become, a director, officer,
employee, agent or fiduciary of the Company or any other entity which Executive
is or was serving at the request of the Company ("Proceeding"), against all
expenses (including, without limitation, all reasonable attorneys' fees,
retainers, court costs, transcripts, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other reasonable disbursements or
expenses customarily required in connection with asserting or defending claims)
("Expenses") and all claim, damages, liabilities and losses (including, without
limitation, judgments; fines; liabilities under the Code or the Employee
Retirement Income Security Act of 1974, as amended, for damages, excise taxes or
penalties; damages, fines or penalties arising out of violation of any law
related to the protection of the public health, welfare or the environment; and
amounts paid or to be paid in settlement) incurred or suffered by any person or
to which the Executive may become subject for any reason.
(b) Advancement of Expenses and Costs. All Expenses incurred by or on
behalf of the Executive in defending or otherwise being involved in a Proceeding
shall be paid by the Company in advance of the final disposition of a
Proceeding, including any appeal therefrom, within ten (10) days after the
receipt by the Company of a statement or statements from the Executive
requesting such advance or advances from time to time. Such statement or
statements shall reasonably evidence the Expenses incurred by the Executive in
connection therewith.
(c) Effect of Certain Proceedings. The termination of any Proceeding by
judgment, order, settlement or conviction, or upon a plea of nolo contendre or
its equivalent, except, in each case, to the extent that the terms thereof
expressly so provide, shall not, of itself (1) adversely affect the rights of
the Executive to indemnification, or (2) create a presumption that the Executive
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification or contribution is not
permitted by applicable law.
(d) Other Rights to Indemnification. The Executive's rights of
indemnification and advancement of Expenses provided by this Section shall not
be deemed exclusive of any other rights to which the Executive may now or in the
future be entitled under applicable law, the certificate of incorporation,
by-laws, agreement, vote of stockholders, or resolution of the Board of the
Company, or other provisions of this Agreement or any other agreement, or
otherwise.
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(e) Expenses Incurred By the Executive to Enforce This Agreement. Expenses
incurred by the Executive in connection with the Executive's request for, or
efforts to secure, preserve, establish entitlement to or obtain indemnification
or advances hereunder shall be reimbursed by the Company on a current basis in
accordance with the provisions of Section 13(b).
(f) Representations. The Company represents and warrants that this Section
does not conflict with or violate its certificate of incorporation or by-laws,
and agrees that it will not amend its certificate of incorporation or by-laws in
a manner that would limit the rights of the Executive hereunder. The Company
represents that the execution, delivery and performance of this Agreement by the
Company has been duly and validly authorized by its Board.
(g) Survival of Indemnity. This Section shall survive any termination of
the relationship of the Executive with the Company and shall be binding on, and
inure to the benefit of the successors and assigns of the Company and the
successors, assigns, heirs and personal representatives of the Executive.
(h) Directors and Officers Liability Coverage. The Company shall at all
time maintain directors and officers liability insurance coverage for the
benefit of Executive in a form that is no less broad than that which is
currently in effect, a copy of which is set forth as Exhibit D hereto.
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IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and the Company has caused these presents to be executed in its
name on its behalf, all as of the day and year first above written.
JOHN H. EYLER, JR.
/s/ John H. Eyler, Jr.
-------------------------------
TOYS "R" US, INC.
By: /s/ Michael Goldstein
---------------------------
Name: Michael Goldstein
Title: Chairman of the Board
Accepted and Agreed:
TOYRSRUS.COM, INC.
By: /s/ Michael Goldstein
-----------------------------
Name: Michael Goldstein
Title: Chairman of the Board
<PAGE>
EXHIBIT A
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is entered into as of
this __ day of __________________, ____, among TOYS "R" US, INC., a Delaware
corporation, and any successor thereto ("TRU"), TOYSRUS.COM, INC. and any
successor thereto (.COM and collectively with TRU, the "Company") and John H.
Eyler, Jr. (the "Executive").
The Executive and the Company agree as follows:
1. The employment relationship between the Executive and the Company
terminated on __________________________________ (the "Termination Date").
2. In accordance with the Executive's Retention Agreement (the "Retention
Agreement"), the Company has agreed to pay the Executive certain payments and to
make certain benefits available after the Date of Termination as set forth in
Section 3 of the Retention Agreement. No payments shall be made under this
Agreement or the Retention Agreement until the seven (7) day revocation period
set forth in Section 12 hereof has expired.
3. In consideration of the above, the sufficiency of which the Executive
hereby acknowledges, the Executive, on behalf of the Executive and the
Executive's heirs, executors and assigns, hereby releases and forever discharges
the Company and its members, parents, affiliates, subsidiaries, divisions, any
and all current and former directors, officers, employees, agents, and
contractors and their heirs and assigns, and any and all employee pension
benefit or welfare benefit plans of the Company, including current and former
trustees and administrators of such employee pension benefit and welfare benefit
plans, from all claims, charges, or demands, in law or in equity, whether known
or unknown, which may have existed or which may now exist from the beginning of
time to the date of this letter agreement, including, without limitation, any
claims the Executive may have arising from or relating to the Executive's
employment or termination from employment with the Company, including a release
of any rights or claims the Executive may have under Title VII of the Civil
Rights Act of 1964, as amended, and the Civil Rights Act of 1991 (which prohibit
discrimination in employment based upon race, color, sex, religion, and national
origin); the Americans with Disabilities Act of 1990, as amended, and the
Rehabilitation Act of 1973 (which prohibit discrimination based upon
disability); the Family and Medical Leave Act of 1993 (which prohibits
discrimination based on requesting or taking a family or medical leave); Section
1981 of the Civil Rights Act of 1866 (which prohibits discrimination based upon
race); Section 1985(3) of the Civil Rights Act of 1871 (which prohibits
conspiracies to discriminate); the Employee Retirement Income Security Act of
1974, as amended (which prohibits discrimination with regard to benefits); any
other federal, state or local laws against discrimination; or any other federal,
state, or local statute, or common law relating to employment, wages, hours, or
any other terms and conditions of employment. This includes a release by the
Executive of any claims for wrongful discharge, breach of contract, torts or any
other claims in any way related to the Executive's employment with or
resignation or termination from the Company. This release also includes a
release of any claims for age discrimination under the Age Discrimination in
Employment Act, as amended
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("ADEA"). The ADEA requires that the Executive be advised to consult with an
attorney before the Executive waives any claim under ADEA. In addition, the ADEA
provides the Executive with at least 21 days to decide whether to waive claims
under ADEA and seven days after the Executive signs the Agreement to revoke that
waiver. Notwithstanding the foregoing provisions of this Section 3, the release
given by Executive hereunder shall not apply to, and the Executive shall retain
and shall be entitled to enforce by arbitration as provided in the Retention
Agreement, all rights arising under or with respect to (i) the obligations of
the Company to indemnify and hold harmless the Executive whether pursuant to the
provisions of Section 13 of the Retention Agreement, the certificate of
incorporation or by-laws of the Company, or otherwise; (ii) any and all
directors and officers liability insurance coverage applicable to the Executive,
and (iii) any and all benefits under the Plans to which the Executive shall be
entitled in the ordinary course.
Additionally, the Company agrees to discharge and release the Executive
and the Executive's heirs from any claims, demands, and/or causes of action
whatsoever, presently known or unknown, that are based upon facts occurring
prior to the date of this Agreement, including, but not limited to, any claim,
matter or action related to the Executive's employment and/or affiliation with,
or termination and separation from the Company; provided that such release shall
not release the Executive from any loan or advance by the Company or any of its
subsidiaries, any act that would constitute "Cause" under the Executive's
Retention Agreement or a breach under Sections 8(b), 10 or 12(e) of the
Executive's Retention Agreement.
4. This Agreement is not an admission by either the Executive or the
Company of any wrongdoing or liability.
5. The Executive waives any right to reinstatement or future employment
with the Company following the Executive's separation from the Company on the
Termination Date.
6. The Executive agrees not to engage in any act after execution of the
Separation and Release Agreement that is intended, or may reasonably be expected
to harm the reputation, business, prospects or operations of the Company, its
officers, directors, stockholders or employees. The Company further agrees that
it will engage in no act which is intended, or may reasonably be expected to
harm the reputation, business or prospects of the Executive. Executive is
required to request and receive approval of the Company of the content of any
voluntary statements, whether oral or written, to be made by Executive to any
media-third party regarding Executive's employment with the Company, termination
of employment with the Company, or the reputation, goodwill, business, business
relationships, prospects or operations of the Company, its past and present
divisions, affiliates, officers, directors, stockholders, employees or agents.
The Company is required to request and receive approval of the Executive of the
content of any voluntary statements, whether oral or written, to be made by the
Company or any representative thereof to any media-third party regarding
Executive's employment with the Company, termination of employment with the
Company, or the reputation, business or prospects of the Executive. Executive
and the Company each hereby covenants and agrees not to make any public
statements to any media-third party, including, without limitation, to any
representative of any news organization, which is inconsistent in any material
respect with the
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agreed upon statements to the public. "Media-Third Party" refers to the press,
news organizations, public relations firms and research analysts for securities
firms.
7. The Executive shall continue to be bound by Sections 8(b), 10 and 12(e)
of the Executive's Retention Agreement.
8. The Executive shall promptly return all the Company property in the
Executive's possession, including, but not limited to, the Company keys, credit
cards, cellular phones, computer equipment, software and peripherals and
originals or copies of books, records, or other information pertaining to the
Company business. The Executive shall return any leased or Company automobile at
the expiration of the restrictions under Section 10(d) of the Executive's
Retention Agreement.
9. This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey, without reference to the principles of
conflict of laws. Exclusive jurisdiction with respect to any legal proceeding
brought concerning any subject matter contained in this Agreement shall be
settled by arbitration as provided in the Executive's Retention Agreement.
10. This Agreement represents the complete agreement between the Executive
and the Company concerning the subject matter in this Agreement and supersedes
all prior agreements or understandings, written or oral. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
11. Each of the sections contained in this Agreement shall be enforceable
independently of every other section in this Agreement, and the invalidity or
nonenforceability of any section shall not invalidate or render unenforceable
any other section contained in this Agreement.
12. It is further understood that for a period of 7 days following the
execution of this Agreement in duplicate originals, the Executive may revoke
this Agreement, and this Agreement shall not become effective or enforceable
until the revocation period has expired.
13. This Agreement has been entered into voluntarily and not as a result
of coercion, duress, or undue influence. The Executive acknowledges that the
Executive has read and fully understands the terms of this Agreement and has
been advised to consult with an attorney before executing this Agreement.
Additionally, the Executive acknowledges that the Executive has been afforded
the opportunity of at least 21 days to consider this Agreement.
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The parties to this Agreement have executed this Agreement as of the day
and year first written above.
TOYS "R" US, INC.
By:
-------------------------------
Name:
Title:
TOYSRUS.COM, INC.
By:
-------------------------------
Name:
Title:
-----------------------------
JOHN H. EYLER, JR.
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EXHIBIT B
Capitalized terms used in the Agreement that are not elsewhere defined in
the Agreement have the definitions set forth below:
"Annual Base Salary" means $1,000,000 per annum or such greater amount as
may be determined from time to time in the discretion of either the Board, the
Committee or any appropriate committee of the Board. After any such increase,
Annual Base Salary shall not be reduced and the term "Annual Base Salary" shall
thereafter refer to the increased amount.
"Board" means the Board of Directors of the Company.
"Cause" means:
(a) (i) the conviction of, or pleading guilty or nolo contendere to, a
felony involving moral turpitude which conviction is non-appealable or for which
the period for filing an appeal has expired; (ii) the willful commission of any
fraud, misappropriation or misconduct which causes demonstrable injury to the
Company and its affiliates taken as a whole; (iii) a willful act of dishonesty
resulting or intended to result, directly or indirectly, in material gain or
personal enrichment to the Executive at the expense of the Company and its
affiliates taken as a whole; (iv) any willful and material breach of the
Executive's fiduciary duties to the Company as an employee or director; (v) a
serious and willful violation of the Toys "R" Us Ethics Agreement or any other
serious and willful violation of a Company policy which causes demonstrable
injury to the Company and its affiliates taken as a whole; (vi) the willful and
continued failure of the Executive to perform substantially the Executive's
duties with the Company or one of its subsidiaries (other than any such failure
resulting from incapacity due to physical or mental illness resulting in a
Disability), within a reasonable time after a written demand for substantial
performance is delivered to the Executive by the Board, which specifically
identifies the manner in which the Board believes that the Executive has not
substantially performed the Executive's duties; (vii) the willful failure by the
Executive to comply, in any material respect, with the provisions of Section 10
of the Agreement; or (viii) the willful failure by the Executive to comply with
any other undertaking set forth in the Agreement which causes demonstrable
injury to the Company and its affiliates taken as a whole. For purposes of this
provision, no act or failure to act, on the part of the Executive, shall be
considered "willful" unless it is done, or omitted to be done, by the Executive
in bad faith or without reasonable belief that the Executive's action or
omission was in or not opposed to the interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company.
(b) Notwithstanding the foregoing, Cause shall not include any or more of
the following: (i) an error in judgment or negligence; (ii) any act or omission
believed by the Executive in good faith to have been in or not opposed to the
interests of the Company; (iii) any act or omission with respect to which a
determination could properly have been made by the Board that the Executive met
the applicable standard of conduct for indemnification or reimbursement under
the Company's by-laws, any applicable indemnification agreement, or
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applicable law, in each case in effect at the time of such act or omission or
(iv) any act or omission with respect to which notice of termination of
employment of the Executive is given more than six months after the earliest
date on which any member of the Board, not a party to the act or omission, knew
or should have known of such act or omission.
(c) The Company may not terminate the Executive's employment for Cause
unless: (i) no fewer than 60 days prior to the Date of Termination, the Company
provides Executive with written notice (the "Notice of Consideration") of its
intent to consider termination of Executive's employment for Cause, including a
detailed description of the specific reasons which form the basis for such
consideration; (ii) Executive shall have the opportunity to appear before the
Board, with or without legal representation, at Executive's election, to present
arguments and evidence on his own behalf; and (iii) following the presentation
to the Board provided in (ii) above or following Executive's failure to appear
before the Board at a date and time specified in the Notice of Consideration
(which date shall not be less than 30 days after the date the Notice of
Consideration is provided), Executive may be terminated for Cause only if (x)
the Board, by the affirmative vote of not less than a majority of all of its
members (excluding Executive and any other member of the Board reasonably
believed by the Board to be involved in the events leading the Board to
terminate Executive for Cause), determines that the actions or inactions of the
Executive specified in the Notice of Consideration occurred, that such actions
or inactions constitute Cause, and that Executive's employment should
accordingly be terminated for Cause; and (y) the Board provides Executive with a
Notice of Termination together with a written determination (a "Determination of
Cause") setting forth in specific detail the basis of such termination of
employment for Cause, which Determination of Cause shall be consistent with the
reasons set forth in the Notice of Consideration.
Unless the Company establishes by clear and convincing evidence, both (x)
its full compliance with the substantive and procedural requirements of clauses
(a), (b) and (c) of this provision prior to giving Notice of Termination, and
(y) that Executive's action or inaction specified in the Determination of Cause
did occur and constitutes Cause, any Notice of Termination and any termination
of employment thereby resulting shall, for all purposes of this Agreement, be
deemed to be other than for Cause, and the obligations of the Company to the
Executive shall be governed by Section 3(d) of the Retention Agreement.
"Change of Control" means, after the date hereof:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition by
the Company or any of its subsidiaries, (ii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
subsidiary of the Company, (iii) any acquisition by any Person pursuant to a
transaction that
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complies with clauses (i), (ii) and (iii) of subsection (c) below, or (iv) any
acquisition by any entity in which the Executive has a material direct or
indirect equity interest; or
(b) The cessation of the "Incumbent Board" for any reason to constitute at
least a majority of the Board. "Incumbent Board" means the members of the Board
on the date hereof and any member of the Board subsequent to the date hereof
whose election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board, except that the Incumbent Board shall not include any member of
the Board whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors, any other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board.
(c) The consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, immediately following such
Business Combination each of the following would be correct:
(i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the Person resulting from such Business Combination
(including, without limitation, a Person which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, and
(ii) no Person (excluding (A) any employee benefit plan (or related
trust) sponsored or maintained by the Company or any subsidiary of the
Company, or such corporation resulting from such Business Combination or
any Affiliate of such corporation, or (B) any entity in which the
Executive has a material equity interest, or any "Affiliate" (as defined
in Rule 405 under the Securities Act of 1933, as amended) of such entity)
beneficially owns, directly or indirectly, 25% or more of, respectively,
the then outstanding shares of common stock of the corporation resulting
from such Business Combination, or the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination, and
(iii) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
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(d) Approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
"Change of Control Period" means the period commencing 120 days prior to a
Change of Control and expiring on the third anniversary date of a Change of
Control.
"Committee" means the Company's Management Compensation and Stock Option
Committee of the Board of Directors or any successor committee of the Board
performing equivalent functions.
"Date of Termination" means (i) if the Executive's employment is
terminated by the Company for Cause, or by the Executive for Good Reason, the
date of receipt of the Notice of Termination or any later date specified
therein, as the case may be (although such Date of Termination shall
retroactively cease to apply if the circumstances providing the basis of
termination for Cause or Good Reason are cured in accordance with the
Agreement), (ii) if the Executive's employment is terminated by the Company
other than for Cause, the Date of Termination shall be the date so designated by
the Company in its notification to the Executive of such termination, (iii) if
the Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive or the effective
date of the Disability, as the case may be, (iv) if the Executive's Employment
is terminated by the Executive without Good Reason, the Date of Termination
shall be the last day on which the Executive is employed by the Company as a
regular employee, or (v) the last day of the Employment Period during which the
Company shall have given notice to the Executive that the Employment Period
shall not be extended.
"Disability" means the determination that the Executive is disabled
pursuant to the terms of the TRU Partnership Employees' Savings and Profit
Sharing Plan, as amended and restated as of October 1, 1993, as the same may be
amended from time to time.
"Good Reason" means, without the Executive's prior written consent, the
occurrence of any of the following, provided that the Executive delivers a
Notice of Termination specifying such occurrence within six months after
Executive first has knowledge of such occurrence:
(i) the assignment of the Executive to a position other than
President and Chief Executive Officer; or
(ii) any failure by the Company to comply in any material respect
with any of the provisions of the Retention Agreement, other than failure
not occurring in bad faith and that is remedied by the Company within a
reasonable time after receipt of notice thereof given by the Executive;
(iii) any failure by the Company to comply with and satisfy Section
11(c) of the Retention Agreement; or
(iv) notice by the Company that it is not extending the termination
date of the Employment Period; or
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(v) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including offices, titles,
reporting requirements or responsibilities), authority or duties as
contemplated by Section 2(a) of the Retention Agreement, or any other
action by the Company, which results in a diminution or other adverse
changes in such position, authority or duties or in the status,
responsibilities or perquisites of the Executive; or
(vi) failure of the Executive to be elected or reelected to
membership on the Board; or
(vii) from and after June 30, 2001, failure of the Executive to be
elected or reelected Chairman of the Board; or
(viii) the Company's requiring the Executive to be based at any
office or location that is more than 35 miles distance from Paramus, New
Jersey; or
(ix) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by the Retention
Agreement; or
(x) the delivery to Executive of a Notice of Consideration pursuant
to clause (c) of the definition of Cause if, within a period of 90 days
thereafter, the Board fails for any reason to terminate the Executive for
Cause in compliance with all of the substantive and procedural
requirements set forth in clauses (a), (b) and (c) of the definition of
Cause.
Any termination of employment by the Executive for Good Reason shall be
communicated to the Company by Notice of Termination.
"Incentive Bonus" means the sum of (i) an incentive payment, calculated
annually, targeted at 100% of the Executive's Annual Base Salary and based on
financial measurements approved by the Committee following consideration of the
Executive's recommendations with regard thereto, and (ii) (A) for the fiscal
year ending February 4, 2001 only, a strategic incentive payment, targeted at
50% of the Executive Annual Base Salary and (B) for the fiscal years ending
after February 4, 2001, an incentive payment that is of equivalent value to the
strategic incentive payment for the fiscal year ending February 4, 2001, in each
case based on qualitative criteria approved by the Committee following
consideration of the Executive's recommendations with regard thereto. The
Incentive Bonus may be modified from time to time in the discretion of the
Board, the Committee, or any appropriate Committee of the Board following
consideration of the Executive's recommendations with regard thereto, provided
the Incentive Bonus for the other senior executives of the Company is similarly
modified and any such modification does not reduce Executive's then current
total annual compensation.
"Internet Subsidiary" means Toysrus.com, Inc., a Delaware corporation.
"Notice of Termination" means a written notice that (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the
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Executive's employment under the provision so indicated and (iii) if the Date of
Termination (as defined above) is other than the date of receipt of such notice,
specifies the termination date.
"Partnership Plan" means the Partnership Group Deferred Compensation Plan
of the Company.
"Plans" means all employee compensation, benefit and welfare plans,
policies and programs of the Company, including, without limitation, incentive,
savings, retirement, stock option, restricted stock, supplemental executive
retirement, the Partnership Plan, medical, prescription, dental, disability,
salary continuance, group life, accidental death and travel accident insurance
plans, vacation practices, fringe benefit practices and policies relating to the
reimbursement of business expenses.
"Retirement" shall have the meaning ascribed to that term in the Plan
under which benefits are being sought by the Executive or, if such meaning is
inapplicable, the term shall mean a termination of employment with the Company
or a subsidiary on a voluntary basis after attaining the age of sixty (60). The
term "Retirement" shall also include "early" retirement prior to the age of
sixty (60) provided that the Committee, in its sole discretion, consents in
writing to accept such early retirement.
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EXHIBIT C
TAX GROSS-UP
(a) If required by Section 9 of the Agreement, in addition to the payments
described in Section 4 of the Agreement, the grants described in the Stock Unit
Agreement, and all other obligations of the Company to the Executive whether
under the Retention Agreement or otherwise, the Company shall pay to the
Executive an amount (the "Gross-up") equal to the product of (i) the amount of
Excise Taxes multiplied by (ii) the Gross-up Multiple (as hereinafter defined).
The Gross-up is intended to compensate the Executive for the Excise Taxes and
any Federal, state, local or other income or excise taxes or other taxes payable
by the Executive with respect to the Gross-up. The "Gross-up Multiple" shall
equal a fraction, the numerator of which is one (1.0) and the denominator of
which is one (1.0) minus the sum, expressed as a decimal fraction, of the rates
of all Federal, state, local and other taxes and any Excise Taxes applicable to
the Gross-up after taking into account the deductibility of state, local and
other taxes. If different rates of tax are applicable to various portions of the
Gross-up, the weighted average of such rates shall be used. For purposes of
determining the amount of any Gross-up, it shall be assumed that (i) the
Executive is subject to Federal, state and local income tax at the highest
marginal statutory rates in effect for the relevant period after taking into
account any deduction (and any limitations on the use thereof) available in
respect of any such tax and (ii) the deduction available for state and local
income taxes in computing Federal income taxes is subject to the maximum
adjusted gross income limitations.
(b) Subject to the provisions of paragraph (c) of this Exhibit C, the
determination of whether a Gross-up is required and the amount of such Gross-up
shall be made in accordance with the assumptions set forth in paragraph (a) of
this Exhibit C by Ernst & Young LLP or such other "Big Six" accounting firm
designated by the Executive and reasonably acceptable to the Company.
(c) The Executive shall notify the Company as soon as practicable in
writing of any claim by the Internal Revenue Service that, if successful, would
require any Gross-up payment. The Executive shall not pay such claim prior to
the expiration of the 30-day period following the date on which it gives such
notice to the Company. If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall take all actions necessary to permit the Company to control all
proceedings taken in connection with such contest. In that connection, the
Company may, at its sole option, pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences in respect of such claim and may,
at its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner; provided, however,
that the Company shall pay and indemnify the Executive from and against all
costs and expenses incurred in connection with such contest; provided further,
however, that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the Executive
on an interest-free basis and at no net after-tax cost to the Executive. If the
Executive becomes entitled to receive any refund or credit with respect to such
claim (or would be entitled to a refund or credit but for a counterclaim for
taxes not indemnified hereunder), the Executive shall promptly pay to the
Company the amount of such refund
C-1
<PAGE>
(together with any interest paid or credited thereon) plus the amount of any tax
benefit available to the Executive as a result of making such payment (any such
benefit calculated based on the assumptions that (i) the Executive is subject to
the highest marginal statutory rates of Federal, state and local income tax for
the relevant periods after taking into account any deductions (and limitations
on the use thereof) available in respect to any such tax and (ii) any deduction
available for state and local taxes or other Form 1040 Schedule A amounts is
subject to the maximum adjusted gross income limitations).
C-2
<PAGE>
ANNEX A
STOCK UNIT AGREEMENT
STOCK UNIT AGREEMENT, dated as of January 17, 2000 (the "Unit Agreement"),
between TOYS "R" US, INC., a Delaware corporation (the "Company"), and JOHN H.
EYLER, JR. (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive and the Company have entered into a Retention
Agreement, dated as of January 6, 2000 (the "Retention Agreement");
WHEREAS, as further inducement for the Executive to execute the Retention
Agreement and continue in the employ of the Company and subject to the terms of
the Company's 1994 Stock Option and Performance Incentive Plan (the "Plan"), the
Management Compensation and Stock Option Committee (the "Committee") has
determined to grant the Executive Performance Shares (as defined in the Plan and
referred to herein as "Stock Units") as described in this Stock Unit Agreement
based on performance criteria that may be utilized by the Committee, and
WHEREAS, the Board and the Committee desire that the compensation arising
from the Stock Units shall qualify as "performance-based compensation" for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended.
WHEREAS, shares of the Company's common stock to be issued hereunder to
Executive will be issued pursuant to a registration statement on Form S-8 filed
with and declared effective by the Securities and Exchange Commission.
NOW, THEREFORE, in consideration of the covenants set forth herein and for
other good and valuable consideration, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition shall
have the meanings ascribed to them in the Plan and in the Retention Agreement.
2. Stock Unit Grant. Subject to the terms and conditions set forth in this
Unit Agreement and in Section 10 of the Plan, the Executive is hereby granted
200,000 Stock Units. Each Stock Unit represents the right to receive one share
of Common Stock (collectively, with other shares of Common Stock relating to the
Stock Units and held in the Executive's account in the Trust (as defined below)
in respect of the Stock Units, the "Shares"). The 200,000 Shares shall be
promptly deposited after the date hereof in the grantor trust created pursuant
to the Grantor Trust Agreement, dated as of October 1, 1995 between the Company
and American Express Trust Company, a Minnesota trust company (together with any
grantor trust subsequently established by the Company, the "Trust") and shall be
allocated by the Trust to the Executive's account therein subject to the vesting
and payment provisions of Sections 3 and 4
Annex A-1
<PAGE>
below. Any property attributable to the Shares, including, without limitation,
dividends and distributions thereon shall be deposited into the Trust, shall as
promptly as practicable be reinvested in shares of Common Stock, and shall be
allocated by the Trust to the Executive's account therein subject to the vesting
and payment provisions of Sections 3 and 4 below.
3. Vesting.
(a) Subject to earlier vesting, as provided in the Retention Agreement and
subject to Section 4(b), the Stock Units shall vest at the rate of thirty-three
and one-third percent (33 1/3 %) per annum on February 1 of each year, beginning
on February 1, 2002, throughout the Employment Period; provided that, the
Committee has determined that the Performance Objective set forth in Exhibit A
has been achieved.
(b) The Committee shall determine whether the Performance Objective set
forth on Exhibit A has been achieved as soon as practicable, but no later than
the earlier of (x) February 1, 2004 or (y) the Date of Termination.
4. Payment of Stock Units. (a) Subject to Executive's election to defer
receipt thereby, the Shares, together with any property attributable thereto
(including, without limitation, dividends and distributions thereon), shall be
delivered to the Executive immediately upon vesting as provided in Section 3 or
upon such earlier vesting as provided in the Retention Agreement.
(b) The provisions of Sections 8(b) and 9 of the Retention Agreement shall
apply to the Stock Units and related Shares, whether or not the Retention
Agreement is then in effect.
5. Registration Representation. The Company represents that the Shares
acquired by the Executive under this Unit Agreement are registered under the
Securities Act of 1933, as amended (the "Act").
6. Liability; Indemnification. No member of the Committee, nor any person
to whom ministerial duties have been delegated, shall be personally liable for
any action, interpretation or determination made with respect to this Unit
Agreement, and each member of the Committee shall be fully indemnified and
protected by the Company with respect to any liability such member may incur
with respect to any such action, interpretation or determination, to the extent
permitted by applicable law and to the extent provided in the Company's
Certificate of Incorporation and Bylaws, as amended from time to time, or under
any agreement between any such member and the Company.
7. Severability. Each of the Sections contained in this Unit Agreement
shall be enforceable independently of every other section in this Unit
Agreement, and the invalidity or nonenforceability of any section shall not
invalidate or render unenforceable any other section contained in this Unit
Agreement.
8. Governing Law. This Unit Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey, without reference to
principles of conflict of laws. Exclusive jurisdiction with respect to any legal
proceeding brought concerning
Annex A-2
<PAGE>
any subject matter contained in this Unit Agreement shall be settled by
arbitration as provided in the Retention Agreement.
9. Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
10. Amendment. This Unit Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
11. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to the Executive, to the address on file with the Company;
and
(ii) If to the Company, to it at Toys "R" Us, Inc., 461 From Road,
Paramus, New Jersey 07652, Attention: Senior Vice President - Human
Resources;
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
12. Interpretation. The interpretation and decision with regard to any
question arising under this Unit Agreement or with respect to the Stock Units
shall be made by the Committee.
13. Successors. This Unit Agreement shall be binding upon the Company and
its successors and assigns.
Annex A-3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Company by one
of its duly authorized officers as of the date specified above.
TOYS "R" US, INC.
---------------------------------
Name:
Title:
I hereby acknowledge receipt of the Stock Units and agree to the
provisions set forth in this Agreement.
---------------------------------
John H. Eyler, Jr.
Annex A-4
<PAGE>
EXHIBIT A
Performance Objective
Under Section 3(ii) of the Stock Unit Agreement
For any fiscal quarter in the Company's 2000, 2001, 2002 or 2003 fiscal year,
the consolidated net earnings of the Company is at least equal to the amount of
any corresponding quarter in the Company's fiscal year ending January 29, 2000.
For these purposes, "consolidated net earnings" shall exclude extraordinary or
unusual items reported by the Company as such.
Annex A-5
EXHIBIT 13
2000 & Beyond:
"R" Winning Strategies
[Logo]
Toys "R" Us(R)
1999 Annual Report
<PAGE>
[Photo Omitted]
Table of Contents
Financial Highlights .................................................. page 3
Letter to Our Shareholders ............................................ page 5
Divisional Highlights ................................................. page 8
Management's Discussion and Analysis
of Results of Operations and Financial Condition ...................... page 21
Financial Statements .................................................. page 25
Report of Management and
Report of Independent Auditors ........................................ page 35
Directors and Officers ................................................ page 36
Quarterly Financial Data,
Market Information and Store Locations ................................ page 38
Corporate Data and Citizenship ........................................ page 39
2
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Financial Highlights
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars in millions except per share data) Fiscal Year Ended
==================================================================================================================================
Jan. 29, Jan. 30, Jan. 31, Feb.1, Feb. 3, Jan. 28, Jan. 29, Jan. 30, Feb. 1, Feb. 2,
2000* 1999** 1998 1997** 1996** 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net Sales $11,862 $11,170 $11,038 $ 9,932 $ 9,427 $ 8,746 $ 7,946 $ 7,169 $ 6,124 $ 5,510
Net Earnings/(Loss) 279 (132) 490 427 148 532 483 438 340 326
Basic Earnings/(Loss)
Per Share 1.14 (0.50) 1.72 1.56 0.54 1.88 1.66 1.51 1.18 1.12
Diluted Earnings/(Loss)
Per Share 1.14 (0.50) 1.70 1.54 0.53 1.85 1.63 1.47 1.15 1.11
FINANCIAL POSITION AT YEAR END:
Working Capital $ 35 $ 106 $ 579 $ 619 $ 326 $ 484 $ 633 $ 797 $ 328 $ 177
Real Estate-Net 2,342 2,354 2,435 2,411 2,336 2,271 2,036 1,877 1,751 1,433
Total Assets 8,353 7,899 7,963 8,023 6,738 6,571 6,150 5,323 4,583 3,582
Long-Term Debt 1,230 1,222 851 909 827 785 724 671 391 195
Stockholders' Equity 3,680 3,624 4,428 4,191 3,432 3,429 3,148 2,889 2,426 2,046
NUMBER OF STORES AT YEAR END:
Toys"R"Us - United States 710 704 700 682 653 618 581 540 497 451
Toys"R"Us - International 462 452 441 396 337 293 234 167 126 97
Kids"R"Us - United States 205 212 215 212 213 204 217 211 189 164
Babies"R"Us - United States 131 113 98 82 -- -- -- -- -- --
Imaginarium 40 -- -- -- -- -- -- -- -- --
Total Stores 1,548 1,481 1,454 1,372 1,203 1,115 1,032 918 812 712
</TABLE>
* Includes the company's Internet subsidiary, toysrus.com.
** After restructuring and other charges.
3
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[Photo Omitted]
4
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To Our
Shareholders
[Photo Omitted]
This is my first formal opportunity to communicate with many of you, and I'm
pleased to share with you my enthusiasm for the future of Toys"R"Us.
As a relative newcomer, I have a different perspective of the company, and I'd
like you to take a moment to see it through my eyes. When I look at Toys"R"Us, I
see a great family of brands and a financially healthy company with a solid cash
flow. I also see lots of opportunity.
It comes as no surprise to anyone that Toys"R"Us needs to improve its
performance. No doubt many of you have been frustrated by the performance of the
company over the last few years, including the holiday season of 1999 which
yielded disappointing results. Those financials are thoroughly examined in this
report. While we can't change the past, we can learn from it. I believe we have,
and I want to tell you why I'm optimistic about the future of Toys"R"Us, and
what our priorities are for the next 24 months.
We've got a strong organization of talented and dedicated people, a brand that
is second to none in the toy industry, and a solid financial foundation. Let me
share with you the strategies that we are focused on executing in 2000 and 2001.
Differentiation.
We're going to focus on four key priorities, beginning with our merchandise
offering. It is essential that we differentiate our content from that of our
competitors. We will still be the headquarters for the toy brands known and
loved by our customers, but we'll be more. We are committed to offering new and
exciting products first, and to that end we will be focusing a significant
amount of time and attention on developing exclusive new concepts and
technologies to offer more unique, fun and interesting products.
We made important strides in that effort here in the U.S. recently. In February,
we announced a new line of exclusive branded products with Animal Planet. Animal
Planet is the fastest growing cable station in the U.S., and this unique,
interactive product line will be unlike anything else on the market. The Animal
Planet line will be introduced in our stores this fall, and it is only the
beginning of new, exclusive products to come.
The company has also entered into an exclusive partnership with Home Depot.
Together with Home Depot, we'll be the store where kids and their parents can
buy "real" tools for kids -- actual working tools that are scaled appropriately
to a kid's size and capability. These will come complete with accessories like
tool belts, safety goggles and work aprons. We'll also offer construction kits
for kids that will enable them to build things such as a birdhouse or a
bookshelf on their own or under the guidance of an adult. And the Home Depot
line of toys will also include role-play items like workbenches or drills that
actually simulate the motion of a real drill. We will begin introducing these
products in our stores in May with a full assortment rolled out by the end of
the summer. We are very excited about this partnership and this line of creative
and interactive toys available only at Toys"R"Us.
We've signed a unique licensing agreement with OshKosh B'Gosh, Inc., for a line
of baby products under the well-known OshKosh brand. These products, which will
be available in our stores in August, bring additional equity to our juvenile
line and will include items such as basic juvenile toys, dolls, plush, soft toys
and other items.
Toys"R"Us will also develop exclusive products with our most important resources
that support their principal brands. This will further strengthen our
relationships with key manufacturers while providing interesting and unique
products available only at Toys"R"Us.
[Photo Omitted]
The Animal Planet Line is only the beginning of new, exclusive products to come.
5
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[Photo Omitted]
Our focus is on better category segmentation
Refining our Store Format.
There is no question that we have made significant financial investment in
remodeling stores over the last few years, both in the C-3 and the Concept 2000
formats. The good news is that the new store formats are out performing the old
ones -- and the gap continues to widen with this more customer-friendly format.
The new format is a major step forward, and provides a solid foundation on which
to build. We also think it provides us with further opportunity to unlock
additional performance gains.
The best news, though, is that even with the progress we've made, we're not yet
close to maximizing the potential of our new format. That's why we've developed
16 test stores across the country to provide us with laboratories for
experimenting with new concepts and refinements.
This test store effort focuses on the reconfiguration of fixturing, better
category segmentation and clear projection of merchandising concepts -- all
designed to make the shopping experience more pleasant and productive for our
guests, the customers who shop at Toys"R"Us. It also includes the addition of
many new business categories, the addition of Imaginarium as a child development
center, demonstration areas where we can delight our guests with the newest
products, and a redefinition of our service level. These test stores include
selling specialists and a truly service-focused management commitment. We
believe the opportunities for sales growth and guest satisfaction are material.
As these concepts are validated, we expect to execute significant rollout by
holiday season 2000.
Redeployment of Inventory Investment.
We are redeploying inventory investment to ensure major intensification
supporting the most important volume-producing toys in our assortment. We missed
many selling opportunities during the holiday season in 1999 by not having
enough investment behind the top 1,000 items. We will dramatically improve this
process in 2000, and have already begun substantial order placements to ensure
key item availability.
Our objective this year is to fund a doubling of the investment in our top 1,000
items by reducing our current levels of non-key inventory and by working with
our resources to more tightly focus our investment behind their most important
properties. We will still offer the broadest selection of any bricks and mortar
store in the world, but this redeployment of inventory depth behind the most
important items will help to energize our sales this coming holiday season by
ensuring that we have the most wanted items.
Redeployment of Expense Dollars.
We have challenged each operating and support division worldwide to analyze
every expense dollar and to eliminate spending that does not productively serve
our guests, generate sales or improve productivity.
Those expense dollars are being redeployed to fund guest service, pricing and
marketing initiatives designed to drive sales growth in our stores.
Unlocking the Value of our Assets.
There are many assets within this company that offer tremendous value to our
shareholders. This was evident in our recent announcement regarding an initial
public offering (IPO) plan for Toys"R"Us - Japan. Under the IPO plan, Toys"R"Us
- - Japan and the company will offer primary and secondary shares, respectively,
to the public in Japan. Such shares should begin trading on the
Demonstration areas delight our customers
[Photo Omitted]
6
<PAGE>
[Photo Omitted]
Babies "R" US ia a clear winner
Japanese OTC market on April 25, 2000. Following that offering, the company will
retain a 48% ownership stake of Toys"R"Us - Japan.
This action is beneficial to our shareholders in several ways: we will continue
to derive benefits from our 48% share of Toys"R"Us - Japan's future earnings, as
well as through royalty income. In addition, the IPO will enable Toys"R"Us -
Japan to fund its future growth without support from the company, therefore
greatly enhancing our financial flexibility. Furthermore, we expect that the
sale of shares, which reduces our ownership position from 80% to 48%, will
result in a significant gain for the company.
We will continue to explore other opportunities and alternatives as appropriate
to further unlock the value of our assets.
Other Aspects of the Business.
We have begun many initiatives in our U.S. toy stores already, and more are
planned in the months ahead. But we're making strides in other areas of our
business as well.
Babies"R"Us is a clear winner in the juvenile products market. This division
marked the new millenium by reaching the billion-dollar sales mark in January.
Babies"R"Us has excelled in all areas of the business, including outstanding
guest service, terrific juvenile assortment and strong merchandising and
operational capabilities. In addition, the success we have had with our Baby
Registry is second to none -- Babies"R"Us registers more expectant parents than
any other retailer in the U.S. We're pleased with the strong growth of
Babies"R"Us and expect to open 20 new stores this year.
Performance of Kids"R"Us has reached a plateau, but we are making substantial
progress in rethinking how to rekindle growth in sales and profits for this
division. We have seen significant success with leveraging our Kids"R"Us buying
expertise and infrastructure up to our combo stores -- essentially placing
Kids"R"Us stores within Toys"R"Us stores -- and we expect to roll out many more
of these in 2000.
I mentioned the addition of Imaginarium child development centers within our
Toys"R"Us stores earlier in this letter. Based on the tremendous success of the
19 initial tests of this concept, we plan to have upwards of 100 Imaginarium
worlds within our Toys"R"Us stores by year-end. In addition, we expect to open
five or more free-standing Imaginarium "neighborhood stores" this year as well.
Our International business had a terrific year with a much-improved performance,
as the financials indicate. Our International stores have been the vanguard of
the redeployment of expense and inventory dollars to maximize their
opportunities for this past holiday. We think the future has never been brighter
for that segment of our business. A major milestone for the year 2000 will
include the opening of our 100th store in Japan, our largest International
market.
Finally, our toysrus.com business has proven the power of our brand on the
Internet, and we are confident that our "clicks and mortar" strategy will be a
long-term winner.
During the last few months of 1999, toysrus.com became one of the fastest
growing Web sites on the Internet. With its new management, the advantage of an
unbeatable brand name, and brick and mortar assets, we are confident that
toysrus.com will become the undisputed one-stop shop for kids, parents and
grandparents anywhere in the world.
We took a giant step forward in achieving that goal in February when we
announced an exciting strategic partnership between Toys"R"Us, toysrus.com and
SOFTBANK, the world's leading Internet venture capital firm. SOFTBANK's $57
million investment is a strong endorsement of our Internet business. SOFTBANK's
investment capital will be used to accelerate the development of toysrus.com's
infrastructure to support further growth. Their track record, international
savvy and unbeatable industry experience will help us in building a world-class
e-commerce platform.
Conclusion.
As we look at the months ahead and as we begin to write a new chapter in
Toys"R"Us history, it's important to remember that we're building on a strong
foundation. Ours is a profitable business that can and will do much better.
We're moving ahead aggressively with our store refinements, adding new products
and pockets of excitement as we go. Our stores are going to be more fun and
interactive, and more guest-friendly. Our merchandise assortments will be more
interesting and captivating with greater guest appeal than competitors can
offer. These are realistic, achievable goals, and my commitment to you is that
our company will put every resource we have against these goals. We're going to
get better, we're going to perform better, and we're going to maintain that
momentum.
Many people have asked me over the past few months about my decision to join
Toys"R"Us. I can say in all honesty that after working with this organization
and looking at what needs to be done, I am even more optimistic and enthusiastic
than I was when I first joined. We know what we need to do. Some of you may be
skeptical and say that you've heard this before. My request to you, as a
shareholder, is to have the patience and the faith in Toys"R"Us to let this
strategy unfold. We are moving forward with the greatest possible energy,
emotion and commitment. When I look ahead to the future of Toys"R"Us, I see a
bright future, and I know that the best days of this company are still in front
of us.
/s/ John H. Eyler Jr.
- ---------------------
John H. Eyler Jr.
President and
Chief Executive Officer
March 27, 2000
7
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vision
[Photo Omitted]
8
<PAGE>
[Photo Omitted]
The power of our brand strengthens our connection with our customer and inspires
us to create a shopping experience that is truly satisfying and memorable.
The Toys"R"Us brand has become synonymous with family fun and kids' wishes come
true. Such positive associations have made Toys"R"Us among the top-ranked brands
for kids, in the company of giants like Disney and McDonald's.
We recognize that the quality of the shopping experience in our stores must be
superior to our competition to ensure the continuing strength of our brand. We
are committed to making our customers - now referred to as our guests - central
to everything we work for in our company.
We have taken actions to ensure that our guests will find the products they are
shopping for when they visit our stores. We have improved our forecasting and
inventory replenishment process so that we do a better job of being in-stock on
the products our guests want - including the most requested and unusual items
which are not available in other retail outlets.
[Logo] Toys "R" Us
When kids refer to Toys"R"Us as their favorite store, we are motivated to be
even better for them. To meet this objective, we are enhancing the layout of our
stores to create greater interactivity and provide more opportunities to
demonstrate products. Our desire to bring products to life in a better shopping
environment is certain to create more fun and excitement for all our guests.
Our guests have told us that friendly and knowledgeable sales associates are
important factors in bringing the shopping experience to a satisfying
conclusion. With that in mind, we have undertaken a major initiative to upgrade
the quality of our store management and associate teams, as well as to provide
funding for improved levels of customer service.
These significant new dimensions to serve our guests better reinforce the single
premise that Toys"R"Us is the one place that's all for them. Improving
merchandise offerings and customer service are ongoing priorities for all
stores; and we anticipate completing the remodeling of all our U.S. stores in
two years. We will work every day to continually give our guests more reasons to
choose Toys"R"Us over other retailers.
Toys"R"Us will be the brand and the store that captures the most share of heart
and mind, the source of all the best for kids, family and fun.
[Two Photos Omitted]
Our remodeled stores feature exciting "worlds" that make shopping easier and
more fun for all our guests.
9
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teamwork
[Photo Omitted]
10
<PAGE>
[Logo] TOYS "R" US INTERNATIONAL
With 462 stores in 26 countries, Toys"R"Us is a global leader in retailing for
kids and families. Our powerhouse brand is recognized by children everywhere,
and no matter what language is spoken, Toys"R"Us translates universally into the
best store for fun, excitement, and learning for the whole family.
Our extraordinary success in Japan is a prime example of the strength of our
International Brand plus our ability to leverage our global resources. Our
incredible growth since we opened our first store in Arakawaoki in 1991 has
enabled us to become market leaders for toys and juvenile products in Japan. In
1999, we surpassed the one billion dollar sales level in that market. We have
recently announced an initial public offering of stock in Toys"R"Us-Japan; and
we will achieve another milestone there in the year 2000 when we open our 100th
store.
Our worldwide presence has enabled us to identify trends, and provide our guests
with unique products and proprietary brands that are available only at
Toys"R"Us. In most of our countries worldwide, we have successfully expanded our
juvenile merchandise offerings through the Babies"R"Us departments in our toy
stores. These examples prove that our global leverage is one of our greatest
assets.
Excellent management and dedicated associates in each international market,
combined with strategic assistance from the corporate support team enables us to
serve a record number of customers in "R"World.
Our international presence gives us great opportunities to learn and share the
best practices from around the world with the introduction of new and unique
product lines, enhanced merchandise presentations and innovative marketing
campaigns. Our goal is to make the Toys"R"Us shopping experience even better,
store by store and country by country.
These success stories are a tribute to the continuing excellence displayed by
our international associates and their partnership with the corporate support
team.
We will continue to work together to build the brand that kids and their
families love worldwide. Our on-going emphasis on maintaining the best
merchandise assortments, presenting in-store excitement and excellent customer
service will reinforce our global commitment to kids, family and fun.
[Photo Omitted]
11
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opportunity
[Photo Omitted]
12
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[Logo] toysrus.com
Toysrus.com experienced massive growth in the fourth quarter of 1999, during the
key holiday selling season. We accomplished these successes on a new website
(launched in October), with a new management team, and using a fraction of the
marketing and promotion investment of our online competitors - a testament to
the drawing power of the "R"Us brand.
We learned valuable lessons and made some tough calls, including the proactive
decision to inform a small percentage of our guests that their orders may not
arrive on time. (Over 97% of our shipments arrived by Dec. 25th.) We can and
will rise to the challenge of retailing on the Internet, bringing customers a
better and more confident online presence and responding to the needs of the
Internet shopper.
The growth and acceptance of shopping for goods and services on the worldwide
web presents a major sales opportunity. Over the next five years, the number of
online users around the world is projected to increase more than three-fold to
400 million. Our goal is to build a world-class e-commerce infrastructure,
taking toysrus.com forward into an exciting future.
In the fourth quarter of 1999, with heightened website traffic and orders,
toysrus.com was the...
Number One*
o fastest growing e-commerce site on the Internet
o online toy site, the first traditional retailer to surpass a pure e-tailer
o e-commerce site for women
o bricks-and-mortar site
Number Five*
o e-commerce site overall
* Source:Media Metrix.
[Photo Omitted]
As we enter a revolutionary period in retail and consumer marketing, toysrus.com
is uniquely positioned to become a global leader on the Internet.
13
<PAGE>
[Photo Omitted]
14
<PAGE>
[Photo Omitted]
Our guests can look forward to a more focused assortment of key items and the
newest fashion trends.
[Photo Omitted]
Through extensive consumer research, our Kids"R"Us customers have given us a
clear picture of the store that they would like us to be. Our guests want an
exciting store that's easier to shop, with a more focused assortment of key
items and the newest fashion trends. They want us to offer them the best value
propositions. They want us to be more available to assist them with their
shopping needs. Our focus for the year ahead is clear: make it happen for our
guests.
We will continue to grow by adding over 70 more Kids"R"Us combo stores within
Toys"R"Us stores by the end of the year, bringing our guests added convenience
and leveraging our "R"Us family connection. In addition, programs are underway
that focus on "guest delight" and elevating service levels, with associate
training and recognition components.
Our customer communications will be more targeted as well. A fresh new look in
our advertising and direct mail efforts will enable us to present clear branding
and value messages to our guests throughout the year.
[Photo Omitted]
focus
We're sharpening our merchandise mix, making shopping more rewarding for our
guests, and taking Kids"R"Us forward in the competitive marketplace.
15
<PAGE>
[Photo Omitted]
16
<PAGE>
[Logo] BABIES"R"US (R)
Baby Superstore (R)
In January 2000, Babies"R"Us reached the billion dollar sales mark. We could not
have asked for a better way to enter the new millennium. The growth and success
of this "Billion Dollar Baby" is testimony to our commitment to excellence at
all levels of our organization.
Looking ahead, we will continue to establish Babies"R"Us as the premier retailer
of baby products, and to grow our market share. As we open more new stores, the
guest focus that is pervasive throughout the "R"Us Family will drive our
initiatives in marketing, merchandising and human resources.
We will reach our guests through strategic marketing and advertising, with
messages that build the strength of our brand and communicate the benefits and
services at our stores. Local events like our BabyFest Weekends, combined with
programs that allow us to partner with childbirth educators, OB-GYNs, and
hospitals will also help us reach potential customers as early as possible.
We will make our in-store experience even more unique, through merchandise that
is exclusive to our stores. As we expand and develop our Koala Baby and
Especially for Baby brands, our guests can look forward to quality products that
can only be found at Babies"R"Us.
[Photo Omitted]
The success we have had with our Baby Registry is second to none. Babies"R"Us
registers more expectant parents than any other retailer in the U.S.
To make sure that we provide our guests with the best service possible, programs
that focus on product training and product knowledge are in place for all our
associates.
Our guests have paid us the ultimate compliment by returning to our stores again
and again. They expect and deserve the best selection and the highest level of
service. Babies"R"Us will deliver - for 2000 and beyond.
[Photo Omitted]
growth
1999 was a banner year for Babies"R"Us, with our chain that grew to 131 total
stores across the country. We directed our resources towards establishing our
leadership position in the juvenile retail market.
17
<PAGE>
[Photo Omitted]
18
<PAGE>
[Photo Omitted]
The addition of Imaginarium stores to the "R"Us Family enables us to explore new
ways to delight our customers.
Imaginarium stores immerse children and adults in a fun environment that
stimulates all the senses - where play and exploration are encouraged to the
fullest. Children and their parents quickly become part of a memorable in-store
experience. From the children's music that fills the store, to the many product
demonstrations and in-store craft classes they can participate in, Imaginarium
offers children and their parents something to enjoy and remember.
Our neighborhood stores are located in 40 towns (and growing) across the
country. Each Imaginarium store carries the finest collection of quality toys
from around the world. Every item in our "Galaxy of Toys"(a) is specially chosen
by our "Master Toyologist"(a), whose criteria for selection includes high play
and learning values, excellent quality and, most of all, fun!
[Logo] Imaginarium(R)
A Galaxy of Toys(R)
The attraction and appeal of the Imaginarium neighborhood stores and specialty
merchandise was recreated inside 19 Toys"R"Us stores in October 1999. New
specialty brands, known for their quality and educational value, were introduced
to Toys"R"Us and presented along with traditional favorites for a successful
merchandise mix. These test stores generated positive sales results and customer
feedback.
Moving forward into the year 2000, Imaginarium will focus on three key
initiatives. The first is the expansion of the Imaginarium "worlds" within the
Toys"R"Us stores. The second is the addition of new neighborhood stores; and the
third is the expansion of our Imaginarium.com site (integrating with the
toysrus.com site). Imaginarium is committed to merchandise the finest playthings
to promote learning and fun, while providing outstanding customer service - all
in an environment of fun and discovery.
[Photo Omitted]
discovery
19
<PAGE>
[Photo Omitted]
Financial Section
Management's Discussion and Analysis
of Results of Operations and
Financial Condition ............................. page 21
Financial Statements ........................... page 25
Report of Management and
Report of Independent Auditors .................. page 35
Directors and Officers .......................... page 36
Quarterly Financial Data,
Market Information
and Store Locations ............................. page 38
Corporate Data and
Citizenship ..................................... page 39
20
<PAGE>
Manangement's Discussion and Analysis
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS*
Comparison of Fiscal Year 1999 to 1998
The company's total sales increased 6% to $11.9 billion from $11.2 billion. The
total sales growth was primarily driven by a 3% increase in comparable store
sales, as well as continued new store expansion, partially offset by the closing
of 46 under-performing stores in 1999 and 1998 (see "Restructuring and Other
Charges" below). Comparable store sales for the USA toy store division increased
3% . The USA comparable toy store sales increases were driven primarily by
improved merchandising trends and strong sales of Pokemon and electronic and
video products. These gains were partially offset by the deflationary impact of
video hardware sales, and were limited by industry-wide shortages of electronic
and other products during the holiday season. The International toy store
division results of operations discussed below include the results of Toys"R"Us
- - Japan. Total sales for the International toy store division increased 7% and
comparable international toy store sales, on a local currency basis, increased
2%. The comparable international toy store sales increases reflect improved
performances in several merchandise categories, in particular, the juvenile, toy
and electronics categories. Total sales for the Babies"R"Us division exceeded
the $1 billion milestone in 1999 and increased 28%. Comparable store sales for
Babies"R"Us increased 9%. The Kids"R"Us division reported a 3% comparable store
sales decrease. The company's toysrus.com Internet subsidiary reported total
sales of $49 million from its inception in May 1999.
International sales were favorably impacted by the translation of local currency
into U.S. dollars by approximately $59 million in 1999 and unfavorably impacted
by approximately $30 million in 1998. Neither the translation of currency into
U.S. dollars nor inflation had a material effect on the company's operating
results for 1999.
In 1998, the company recorded restructuring and other non-recurring charges of
$698 million to reposition its world-wide business, as set forth below. For
comparability purposes, the following discussion regarding results of operations
excludes the impact of these charges.
On a consolidated basis, 1999's cost of sales as a percentage of sales was 70.1%
versus 70.2%. The USA toy store division reported cost of sales as a percentage
of sales of 71.6% as compared to 71.0%. This increase was a result of increased
markdowns to keep inventory fresh. The International toy store division reported
cost of sales as a percentage of sales of 69.2% versus 69.1%. The Babies"R"Us
division reported cost of sales as a percentage of sales of 67.2% versus 69.0%,
reflecting a favorable change in the sales mix.
On a consolidated basis, selling, general and administrative expenses (SG&A) as
a percentage of sales increased to 23.1% from 21.3%. This increase was due in
part to establishing and operating toysrus.com, the company's Internet
subsidiary, the implementation of strategic initiatives targeted to improve the
company's long-term performance, and costs related to the reformatting of the
company's toy stores to the C-3 format. The USA toy store division reported SG&A
as a percentage of sales of 19.8% versus 18.6%, while the International toy
store division reported SG&A as a percentage of sales of 23.4% versus 23.6%. The
Babies"R"Us division reported SG&A as a percentage of sales of 24.0% versus
25.0%.
Depreciation and amortization increased to $278 million from $255 million. This
increase was due in part to additional new stores and renovations to the C-3
format, as well as strategic investments to improve management information
systems.
Interest expense decreased by $11 million. This decrease was due primarily to
lower average interest rates in 1999. Also included in 1998 interest expense is
$6 million relating to the early extinguishment of long-term debt.
Included in the company's 1999 results are net costs to establish and operate
the company's Internet subsidiary, toysrus.com. Excluding the impact of these
net costs, 1999 earnings before income taxes, net earnings and diluted earnings
per share would have been $526 million, $334 million and $1.36, respectively.
The company's effective tax rate was unchanged at 36.5%, excluding the
restructuring and other charges.
Comparison of Fiscal Year 1998 to 1997
The company's total sales increased to $11.2 billion from $11.0 billion. In
1998, sales were negatively impacted by the overall weakness in the worldwide
toy industry which was cycling against strong sales of virtual pets, action
figures and plush from the prior year. In addition, sales were negatively
impacted by sales of video hardware and software at lower price points as well
as the deflationary effect from sales of clearance merchandise related to the
company's inventory reduction program. Comparable store sales for the USA toy
store division declined 4%, while the International toy store division had a 2%
comparable store sales decline, in local currency. The Babies"R"Us division
reported a 19% comparable store sales increase and the Kids"R"Us division
reported a 2% comparable store sales decrease.
International sales were unfavorably impacted by the translation of local
currency into U.S. dollars by approximately $30 million in 1998 and $250 million
in 1997. Neither the translation of currency into U.S. dollars nor inflation had
a material effect on the company's operating results for 1998 and 1997.
* References to 1999, 1998, and 1997, are for the 52 weeks ended January 29,
2000, January 30, 1999 and January 31, 1998, respectively.
21
<PAGE>
Manangement's Discussion and Analysis
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On a consolidated basis, cost of sales as a percentage of sales was 70.2% versus
69.8%. The USA toy store division reported cost of sales as a percentage of
sales of 71.0% versus 70.5%. The International toy store division reported cost
of sales as a percentage of sales of 69.1% versus 68.8%. These increases were
due to a shift in the sales mix to lower margin video software merchandise from
higher margin action figures and virtual pet products. The Babies"R"Us division
reported cost of sales as a percentage of sales of 69.0% versus 70.7%.
On a consolidated basis, SG&A as a percentage of sales was 21.3% versus 20.2%.
The USA toy store division reported SG&A as a percentage of sales of 18.6%
versus 17.5%, the International toy store division reported SG&A as a percentage
of sales of 23.6% versus 23.1%. These increases were primarily a result of the
implementation of strategic initiatives, as well as store expansion. The
Babies"R"Us division reported SG&A as a percentage of sales of 25.0% versus
27.1%.
Depreciation, amortization and write-offs were $255 million as compared to $253
million.
Interest expense increased by $17 million primarily due to higher average
borrowings outstanding throughout the year as a result of the company's share
repurchase programs. Also included in 1998 interest expense is $6 million
relating to the early extinguishment of long-term debt.
The company's effective tax rate for 1998 was unfavorably affected by the
restructuring and other charges recorded in 1998. Excluding the impact of these
charges, the company's effective tax rate was unchanged at 36.5%.
Restructuring and Other Charges
During 1998, the company announced strategic initiatives to reposition its
worldwide business and other charges including the customer-focused reformatting
of its toy stores into the new C-3 format, as well as the restructuring of its
international operations, all of which resulted in a charge of $353 million
($279 million net of tax benefits, or $1.05 per share). The strategic
initiatives resulted in a restructuring charge of $294 million. The other
charges of $59 million primarily consisted of changes in accounting estimates
and provisions for legal settlements. The company has closed 46 underperforming
stores and 7 administrative offices, as well as 4 distribution centers. The
company is continuing to aggressively negotiate the closing/downsizing of the
remaining stores and distribution centers included in its repositioning program
and intends to execute the remainder of the initiatives included in the program.
Details on the components of the charges are described in the notes to the
consolidated financial statements and are as follows:
Reserve Reserve
Utilized Balance Utilized Balance
Description Charge in 1998 1/30/99 in 1999 1/29/00
- --------------------------------------------------------------------------------
Closings/downsizings:
Lease commitments $ 81 $ -- $ 81 $19 $62
Severance and
other closing costs 29 4 25 11 14
Write-down of property,
plant and equipment 155 155 -- -- --
Other 29 5 24 13 11
- --------------------------------------------------------------------------------
Total restructuring $294 $164 $130 $43 $87
================================================================================
Changes in accounting
estimates and provisions
for legal settlements $ 59 $ 20 $ 39 $ 9 $30
================================================================================
In 1998, the company also announced markdowns and other charges of $345 million
($229 million net of tax benefits, or $0.86 per share). Of this charge, $253
million related to markdowns required to clear excess inventory from stores,
primarily to enable the company to proceed with the C-3 conversions on an
accelerated basis. The company's objective with its new C-3 concept is to
provide customers with a better shopping experience leading to increased sales
and higher inventory turns. In addition, the company recorded $29 million in
markdowns related to the store closings discussed previously. The company also
recorded charges to cost of sales of $63 million related to inventory system
refinements and changes in accounting estimates. Unused reserves at January 29,
2000 are expected to be utilized in the company's upcoming business cycle.
Details of the markdowns and other charges are as follows:
Reserve Reserve
Utilized Balance Utilized Balance
Description Charge in 1998 1/30/99 in 1999 1/29/00
- --------------------------------------------------------------------------------
Markdowns
Clear excess
inventory $253 $179 $ 74 $72 $ 2
Store closings 29 2 27 15 12
Change in accounting
estimates and other 63 57 6 6 --
- --------------------------------------------------------------------------------
Total cost of sales $345 $238 $107 $93 $14
================================================================================
The company has substantially completed its restructuring program that was
announced in 1995, with the exception of long-term lease commitment reserves
that will be utilized throughout 2000 and thereafter.
The company believes all reserves are adequate to complete its restructuring
programs.
Liquidity and Capital Resources
The company's cash flow from operations were $865 million in 1999 and $964
million in 1998. The difference relates primarily to the non-cash portion of the
1998 restructuring charge as well as a significant decrease in inventories in
1998, partially offset by higher net earnings in 1999. Cash flows from
operations increased to $964 million in 1998 from $509 million in 1997 primarily
due to a significant reduction in inventories during 1998 as well as higher
accounts payable, accrued expenses and other liabilities.
22
<PAGE>
Manangement's Discussion and Analysis
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Cash flows used for investing activities increased by $182 million in 1999, due
to new store expansion in the Babies"R"Us division and International toy store
division, USA toy store conversions to the C-3 format, as well as capital
requirements to establish and operate the company's toysrus.com Internet
subsidiary. The company now operates 170 toy stores in the U.S. in the C-3
format and 163 additional toy stores in the U.S. with retrofitted "front-ends".
In addition, the company invested $43 million for the purchase of Imaginarium
(see "Other Matters" below). Cash flows used for investing activities decreased
by $94 million in 1998 from 1997, primarily due to fewer new store openings in
1998, as well as fewer store conversions in 1998.
Cash flows used for financing activities decreased to $102 million in 1999 from
$344 million in 1998. As discussed above, the company increased the number of
toy stores converted to its C-3 format in 1999 and thus decreased the amount of
cash used for its share repurchase program to $200 million in 1999, from $723
million in 1998. In addition, net borrowings decreased by $279 million for 1999
verses 1998. Cash flows used for financing activities decreased to $344 million
in 1998 from $498 million in 1997 primarily due to repayment of a $115 million
Baby Superstore obligation in 1997.
For 2000, capital requirements for new stores, conversions of existing stores
and other capital investments are estimated at approximately $550 million. These
plans include the addition of approximately 20 new Babies"R"Us stores in the
United States, approximately 30 new International toy stores, including 17 new
stores in Japan and 10 franchise stores. The company is also planning the
conversion of approximately 70 toy stores in the U.S. into C-3 combo stores. In
addition, the company's capital investment plans also include major revisions to
its distribution center structure and enhancements to its management information
systems.
In 1999, the company repurchased 12 million shares of its common stock through
its share repurchase programs for a total of $200 million. At January 29, 2000,
the company has $130 million remaining in its $1 billion share repurchase
program announced in January 1998. On March 20,2000, the company announced that
its Board of Directors approved a new $1 billion share repurchase program. The
company will continue to repurchase additional shares when appropriate.
The company announced several major strategic initiatives regarding online
retailing, as part of the company's strategy to become a global leader in the
online retail market for toys and children's products. Although online sales
currently represent only a very small percentage of the overall toy business, it
is a rapidly growing retail segment. Over the next five years, the number of
online users around the world is forecasted to increase more than three fold to
over 400 million. The key initiatives include the establishment of toysrus.com
as a separate subsidiary of the company and the acquisition of a 500,000 square
foot distribution center dedicated solely to the fulfillment of orders placed
with toysrus.com. In addition, on February 24, 2000, the company entered into a
partnership with SOFTBANK Venture Capital and affiliates that included an
investment of $57 million in toysrus.com. During the last few months of 1999,
toysrus.com became one of the fastest growing web sites on the Internet. The
company plans to continue making strategic investments in toysrus.com to
capitalize on the company's brand names, brick and mortar assets, and SOFTBANK's
Internet expertise to reach the goal of making toysrus.com a global leader in
the online retail market for toys and children's products.
The seasonal nature of the business (approximately 42% of sales take place in
the fourth quarter) typically causes cash to decline from the beginning of the
year through October as inventory increases for the holiday selling season and
funds are used for land purchases and construction of new stores, which usually
open in the first ten months of the year. The company has a $1 billion
multi-currency unsecured committed revolving credit facility expiring in
December 2002, from a syndicate of financial institutions. There were no
outstanding balances under this revolver at January 2000, 1999 and 1998. Cash
requirements for operations, capital expenditures, lease commitments and the
share repurchase program will be met primarily through operating activities,
borrowings under the $1 billion revolving credit facility, issuance of
commercial paper and/or other bank borrowings of foreign subsidiaries.
Other Matters
On August 20, 1999, the company acquired all of the capital stock of Imaginarium
Toy Centers, Inc. for approximately $43 million in cash and the assumption of
certain liabilities. The company believes this acquisition will accelerate its
strategy to establish a leadership position in the learning and educational
category and will provide further opportunities for new growth. The company is
currently operating existing Imaginarium stores under the Imaginarium name. The
operating results of Imaginarium from the date of acquisition were not material
to the overall results or financial condition of the company.
On August 26, 1999, Robert C. Nakasone resigned as the company's Chief Executive
Officer and as a director. Also on that date Michael Goldstein, Chairman of the
Board of Directors, was named Chief Executive Officer on an interim basis. Mr.
Goldstein was Chief Executive Officer of the company from 1994 to 1998. On
January 17, 2000, John H. Eyler, Jr. was named President and Chief Executive
Officer and a director of the company. Mr. Goldstein remains Chairman of the
Board of Directors. In connection with the resignation of Mr. Nakasone as Chief
Executive Officer and a director, the company entered into a Separation and
Release Agreement with Mr. Nakasone providing for cash payments, the immediate
vesting of all unvested options and unvested profit shares held by Mr. Nakasone,
as well as the prorated vesting of other unvested equity based awards on the
second anniversary of the termination date. The company accrued all costs
related to this matter as of January 29, 2000. These amounts were not material
to the overall results or financial condition of the company.
23
<PAGE>
Manangement's Discussion and Analysis
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On March 20, 2000, the company announced the planned initial public offering
("IPO") in Japan of shares of Toys"R"Us - Japan. Under the initial public
offering plan, Toys"R"Us - Japan and the company will offer primary and
secondary shares respectively, to the public in Japan during the first half of
fiscal 2000. This offering is subject to Japanese government approval and risks
associated with market conditions. After the offering, the company will retain a
significant ownership stake of Toys"R"Us - Japan, although less than 50% of the
then outstanding shares. Accordingly, subsequent to the completion of the
planned IPO, the company will no longer consolidate the financial statements of
Toys"R"Us - Japan. Toys"R"Us - Japan will operate as a licensee of Toys"R"Us,
Inc.
Quantitative and Qualitative
Disclosures About Market Risks
The company is exposed to market risk from potential changes in interest rates
and foreign exchange rates. The company regularly evaluates these risks and has
taken the following measures to mitigate these risks: the countries in which the
company owns assets and operates stores are politically stable; the company's
foreign exchange risk management objectives are to stabilize cash flow from the
effects of foreign currency fluctuations; the company will, whenever practical,
offset local investments in foreign currencies with borrowings denominated in
the same currencies; the company also enters into foreign exchange contracts or
purchases options to eliminate specific transaction risk. The market risk
related to these derivative contracts is offset by the changes in value of the
underlying items being hedged. Approximately half of the company's long-term
debt is at fixed interest rates and therefore, the fair value is affected by
changes in market interest rates. The company believes the amount of risk and
the use of derivative financial instruments described above are not material to
the company's financial condition or results of operations.
Impact of Year 2000
In prior years, the company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The company will continue to monitor its mission-critical computer applications
and those of its suppliers and vendors throughout the Year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133. This pronouncement requires the company to adopt SFAS No 133,
Accounting for Derivative Instruments and Hedging Activities, on February 4,
2001. SFAS No. 133 requires the company to recognize all derivative instruments
as assets or liabilities in its balance sheet and measure them at fair value.
The company does not expect the adoption of SFAS No. 133 to have a material
impact on its financial position, results of operations or cash flows.
Euro Conversion
The company has developed a plan to ensure business and systems continuity
during the introduction of the Euro currency in certain of the company's
European operations. The initial phase of this plan was implemented prior to the
January 1, 1999 (Phase 1) introduction of the Euro. Further implementation of
this plan is scheduled to coincide with the transition phases (Phases 2 and 3)
of completely converting from local denominated currencies to the Euro (the
"Euro conversion"). Total costs for the entire Euro conversion program are not
expected to be material. Based on the actions taken to date, the company does
not expect the Euro conversion to have a material effect on the consolidated
financial position, results of operations or cash flows of the company.
Forward Looking Statements
This annual report contains "forward looking" statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. All statements that are not historical facts, including
statements about the company's beliefs or expectations, are forward-looking
statements. Such statements involve risks and uncertainties that exist in the
company's operations and business environment that could render actual outcomes
and results materially different than predicted. The company's forward-looking
statements are based on assumptions about many factors, including, but not
limited to, ongoing competitive pressures in the retail industry, changes in
consumer spending, general economic conditions in the United States and other
jurisdictions in which the company conducts business (such as interest rates and
consumer confidence) and normal business uncertainty. While the company believes
that its assumptions are reasonable at the time forward-looking statements were
made, it cautions that it is impossible to predict the actual outcome of
numerous factors and, therefore, readers should not place undue reliance on such
statements. Forward-looking statements speak only as of the date they are made,
and the company undertakes no obligation to update such statements in light of
new information or future events that involve inherent risks and uncertainties.
Actual results may differ materially from those contained in any forward looking
statement.
24
<PAGE>
Consolidated Statements of Earnings
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------
January 29, January 30, January 31,
(In millions except per share data) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $11,862 $11,170 $ 11,038
Cost of sales 8,321 8,191 7,710
- ------------------------------------------------------------------------------------------------------------
Gross Profit 3,541 2,979 3,328
- ------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 2,743 2,443 2,231
Depreciation, amortization and asset write-offs 278 255 253
Restructuring charge -- 294 --
- ------------------------------------------------------------------------------------------------------------
Total Operating Expenses 3,021 2,992 2,484
- ------------------------------------------------------------------------------------------------------------
Operating Income/(Loss) 520 (13) 844
Interest expense 91 102 85
Interest and other income (11) (9) (13)
- ------------------------------------------------------------------------------------------------------------
Interest Expense, Net 80 93 72
- ------------------------------------------------------------------------------------------------------------
Earnings/(loss) before income taxes 440 (106) 772
Income taxes 161 26 282
- ------------------------------------------------------------------------------------------------------------
Net earnings/(loss) $ 279 $ (132) $ 490
============================================================================================================
Basic earnings/(loss) per share $ 1.14 $ (0.50) $ 1.72
============================================================================================================
Diluted earnings/(loss) per share $ 1.14 $ (0.50) $ 1.70
============================================================================================================
</TABLE>
See notes to consolidated financial statements.
[Photo Omitted]
25
<PAGE>
[Photo Omitted]
Consolidated Balance Sheets
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
January 29, January 30,
(In millions) 2000 1999
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 584 $ 410
Accounts and other receivables 182 204
Merchandise inventories 2,027 1,902
Prepaid expenses and other current assets 80 81
- ----------------------------------------------------------------------------------------
Total current assets 2,873 2,597
Property and Equipment:
Real estate, net 2,342 2,354
Other, net 2,113 1,872
- ----------------------------------------------------------------------------------------
Total property and equipment 4,455 4,226
Goodwill, net 374 347
Other assets 651 729
- ----------------------------------------------------------------------------------------
$ 8,353 $ 7,899
========================================================================================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Short-term borrowings $ 278 $ 156
Accounts payable 1,617 1,415
Accrued expenses and other current liabilities 836 696
Income taxes payable 107 224
- ----------------------------------------------------------------------------------------
Total current liabilities 2,838 2,491
Long-Term Debt 1,230 1,222
Deferred Income Taxes 362 333
Other Liabilities 243 229
Stockholders' Equity:
Common stock 30 30
Additional paid-in capital 453 459
Retained earnings 4,757 4,478
Foreign currency translation adjustments (137) (100)
Treasury shares, at cost (1,423) (1,243)
- ----------------------------------------------------------------------------------------
Total stockholders' equity 3,680 3,624
- ----------------------------------------------------------------------------------------
$ 8,353 $ 7,899
========================================================================================
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
Consolidated Statements of Cash Flows
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
January 29, January 30, January 31,
(In millions) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings/(Loss) $ 279 $ (132) $ 490
Adjustments to reconcile net earnings/(loss) to net cash
provided by operating activities:
Depreciation, amortization and asset write-offs 278 255 253
Deferred income taxes 156 (90) 18
Restructuring and other charges -- 546 --
Changes in operating assets and liabilities:
Accounts and other receivables 35 (43) (40)
Merchandise inventories (192) 233 (265)
Prepaid expenses and other operating assets (69) (27) (9)
Accounts payable, accrued expenses and other liabilities 497 229 22
Income taxes payable (119) (7) 40
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 865 964 509
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (533) (373) (494)
Other assets (28) (49) (22)
Purchase of Imaginarium, net of cash acquired (43) -- --
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (604) (422) (516)
=======================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net 95 4 (142)
Long-term borrowings 593 771 11
Long-term debt repayments (604) (412) (176)
Exercise of stock options 14 16 62
Share repurchase program (200) (723) (253)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (102) (344) (498)
=======================================================================================================================
Effect of exchange rate changes on cash and cash equivalents 15 (2) (42)
CASH AND CASH EQUIVALENTS
Increase/(decrease) during year 174 196 (547)
Beginning of year 410 214 761
- -----------------------------------------------------------------------------------------------------------------------
End of Year $ 584 $ 410 $ 214
=======================================================================================================================
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Income tax payments $ 126 $ 122 $ 192
Interest payments $ 92 $ 109 $ 83
=======================================================================================================================
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
Consolidated Statements of Stockholders' Equity
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock
---------------------------------- Foreign
Issued In Treasury Additional currency Total
---------------- --------------- paid-in translation Retained stockholders'
(In millions) Shares Amount Shares Amount capital adjustments earnings equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1997 300.4 $ 30 (12.6) $ (388) $ 489 $ (60) $ 4,120 $ 4,191
Net earnings for the year -- -- -- -- -- -- 490 490
Foreign currency translation
adjustments -- -- -- -- -- (62) -- (62)
--------
Comprehensive income 428
Share repurchase program -- -- (8.2) (253) -- -- -- (253)
Exercise of stock options, net -- -- 2.8 84 (22) -- -- 62
- --------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998 300.4 30 (18.0) (557) 467 (122) 4,610 4,428
- --------------------------------------------------------------------------------------------------------------------------------
Net loss for the year -- -- -- -- -- -- (132) (132)
Foreign currency translation
adjustments -- -- -- -- -- 22 -- 22
--------
Comprehensive loss (110)
Share repurchase program -- -- (32.2) (723) -- -- -- (723)
Issuance of restricted stock -- -- -- 15 (2) -- -- 13
Exercise of stock options, net -- -- .4 22 (6) -- -- 16
- --------------------------------------------------------------------------------------------------------------------------------
Balance, January 30, 1999 300.4 30 (49.8) (1,243) 459 (100) 4,478 3,624
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings for the year -- -- -- -- -- -- 279 279
Foreign currency translation
adjustments -- -- -- -- -- (37) -- (37)
--------
Comprehensive income 242
Share repurchase program -- -- (12.0) (200) -- -- -- (200)
Issuance of restricted stock, net -- -- -- 3 (4) -- -- (1)
Exercise of stock options, net -- -- .7 17 (2) -- -- 15
================================================================================================================================
Balance, January 29, 2000 300.4 $ 30 (61.1) $(1,423) $ 453 $ (137) $ 4,757 $ 3,680
================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
[Photo Omitted]
28
<PAGE>
Notes to Consolidated Financial Statements
TOYS"R"US, INC. AND SUBSIDIARIES
(Amounts in millions except per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The company's fiscal year ends on the Saturday nearest to January 31. References
to 1999, 1998 and 1997 are for the 52 weeks ended January 29, 2000, January 30,
1999 and January 31, 1998, respectively.
Reclassification
Certain amounts in the 1998 Consolidated Balance Sheet have been reclassified to
conform with the 1999 presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of the company and
its subsidiaries. All material intercompany balances and transactions have been
eliminated. Assets and liabilities of foreign operations are translated at
current rates of exchange at the balance sheet date while results of operations
are translated at average rates in effect for the period. Translation gains or
losses are shown as a separate component of stockholders' equity.
Cash and Cash Equivalents
The company considers its highly liquid investments with original maturities of
less than three months to be cash equivalents.
Merchandise Inventories
Merchandise inventories for the U.S.A. toy store operations, which represent
approximately 60% of total inventories, are stated at the lower of LIFO
(last-in, first-out) cost or market, as determined by the retail inventory
method. If inventories had been valued at the lower of FIFO (first-in,
first-out) cost or market, inventories would show no change at January 29, 2000
or January 30, 1999. All other merchandise inventories are stated at the lower
of FIFO cost or market as determined by the retail inventory method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets or, where applicable, the terms of the respective leases, whichever is
shorter. The company evaluates the need to recognize impairment losses relating
to long-lived assets based on several factors including, but not limited to,
management's plans for future operations, recent operating results and projected
cash flows.
Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents and short and long-term borrowings approximate their fair market
values.
Forward Foreign Exchange Contracts
The company enters into forward foreign exchange contracts to eliminate the risk
associated with currency movement relating to its short-term intercompany loan
program with foreign subsidiaries and inventory purchases denominated in foreign
currency. Gains and losses, which offset the movement in the underlying
transactions, are recognized as part of such transactions. Gross deferred
unrealized gains and losses on the forward contracts were not material at either
January 29, 2000 or January 30, 1999. The related receivable, payable and
deferred gain or loss are included on a net basis in the balance sheet. The
company had $59 and $209 of short term outstanding forward contracts at January
29, 2000 and January 30, 1999, maturing in 2000 and 1999, respectively. These
contracts are entered into with counterparties that have high credit ratings and
with which the company has the contractual right to net forward currency
settlements. In addition, the company had a $342 currency swap obligation
outstanding at January 29, 2000 and January 30, 1999, respectively, related to
its 475 Swiss franc note payable due 2004.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
29
<PAGE>
PROPERTY AND EQUIPMENT
Useful Life January 29, January 30,
(in years) 2000 1999
- ---------------------------------------------------------------------
Land $ 827 $ 829
Buildings 45-50 1,859 1,842
Furniture and equipment 5-20 2,046 1,861
Leaseholds and
leasehold improvements 12 1/2-35 1,432 1,213
Construction in progress 42 42
Leased property
under capital leases 26 27
- ---------------------------------------------------------------------
6,232 5,814
Less accumulated depreciation
and amortization 1,777 1,588
=====================================================================
$ 4,455 $ 4,226
=====================================================================
SEASONAL FINANCING
AND LONG-TERM DEBT
January 29, January 30,
2000 1999
- ----------------------------------------------------------------------
Commercial Paper
interest rates from 5.64% to 5.98% $ 368 $ 368
475 Swiss franc note payable, due 2004(a) 342 342
8 3/4% debentures, due 2021,
net of expenses 198 198
Japanese yen loans with interest payable
at annual rates from 1.49% to 6.47%,
due in varying amounts through 2012 242 198
Industrial revenue bonds,
net of expenses(b) 52 60
7% British pound sterling loan payable,
due quarterly through 2001(c) 19 33
8 1/4% sinking fund debentures,
due 2017, net of discounts 12 24
Mortgage notes payable at annual
interest rates from 10.16% to 11.00%(d) 10 11
Obligations under capital leases 8 11
- ----------------------------------------------------------------------
1,251 1,245
Less current portion (e) 21 23
======================================================================
$ 1,230 $ 1,222
======================================================================
(a) Supported by a 406 Swiss franc bank letter of credit. This note has been
converted by an interest rate and currency swap to a floating rate, US dollar
obligation at 3 month LIBOR less approximately 95 basis points.
(b) Bank letters of credit of $35, expiring in 2001, support certain of these
industrial revenue bonds. The company expects that the bank letters of credit
will be renewed. The bonds have fixed or variable interest rates with an average
rate of 4.1% and 3.6% at January 29, 2000 and January 30, 1999, respectively.
(c) Collateralized by property with a carrying value of $156 and $160 at January
29, 2000 and January 30, 1999, respectively.
(d) Collateralized by property and equipment with an aggregate carrying value of
$12 and $15 at January 29, 2000 and January 30, 1999, respectively.
(e) Included in accrued expenses and other current liabilities on the
consolidated balance sheets.
The fair market value of the company's long-term debt at January 29, 2000 and
January 30, 1999, exclusive of commercial paper, was approximately $932 and
$980, respectively. The fair market value was estimated using quoted market
rates for publicly traded debt and estimated interest rates for non-public debt.
The company has a $1 billion unsecured committed revolving credit facility
expiring in December 2002. This multi-currency facility permits the company to
borrow at the lower of LIBOR plus a fixed spread or a rate set by competitive
auction. The facility is available to support domestic commercial paper
borrowings and to meet worldwide cash requirements.
Commercial paper of $368 is classified as long-term debt at January 29, 2000 and
January 30, 1999, as the company maintains long-term committed credit
agreements, as described above, to support these borrowings and intends to
refinance them on a long-term basis through continued commercial paper
borrowings. Commercial paper of $152 at January 29, 2000 was included in
short-term debt.
Additionally, the company has lines of credit with various banks to meet the
short-term financing needs of its foreign subsidiaries.
The weighted-average interest rates on short-term borrowings outstanding at
January 29, 2000 and January 30, 1999 were 4.8% and 3.8%, respectively.
The annual maturities of long-term debt at January 29, 2000, excluding
commercial paper of $368, are as follows:
- ---------------------------------------------------------------
2000 $ 21
2001 55
2002 10
2003 352
2004 10
2005 and subsequent 435
===============================================================
$ 883
===============================================================
LEASES
The company leases a portion of the real estate used in its operations. Most
leases require the company to pay real estate taxes and other expenses; some
require additional amounts based on percentages of sales.
Minimum rental commitments under noncancelable operating leases having a term of
more than one year as of January 29, 2000 are as follows:
Gross Net
minimum Sublease minimum
rentals income rentals
- ---------------------------------------------------------------
2000 $ 353 $ 23 $ 330
2001 349 20 329
2002 344 18 326
2003 341 15 326
2004 333 12 321
2005 and subsequent 2,968 59 2,909
===============================================================
$ 4,688 $ 147 $ 4,541
===============================================================
Total rent expense, net of sublease income was $350, $334 and $309 in 1999, 1998
and 1997, respectively.
30
<PAGE>
STOCKHOLDERS' EQUITY
The common shares of the company, par value $0.10 per share, were as follows:
January 29, January 30,
2000 1999
- ---------------------------------------------------------------
Authorized shares 650.0 650.0
- ---------------------------------------------------------------
Issued shares 300.4 300.4
- ---------------------------------------------------------------
Treasury shares 61.1 49.8
===============================================================
Issued and outstanding shares 239.3 250.6
===============================================================
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
1999 1998 1997
- ---------------------------------------------------------------
Numerator:
Net income/(loss) available to
common stockholders $ 279 $ (132) $ 490
Denominator for basic earnings
per share - weighted average
shares 244.8 265.4 285.3
Effect of diluted securities:
Stock options, etc. .6 -- 3.1
Denominator for diluted
earnings per share - adjusted
weighted average shares 245.4 265.4 288.4
===============================================================
Basic earnings/(loss) per share $ 1.14 $ (0.50) $ 1.72
===============================================================
Diluted earnings/(loss) per share $ 1.14 $ (0.50) $ 1.70
===============================================================
Options to purchase approximately 38.7, 25.0 and 6.0 shares of common stock were
outstanding during 1999, 1998 and 1997, respectively, but were not included in
the computation of diluted earnings/(loss) per share because either the option
exercise prices were greater than the average market price of the common shares,
or the effect would be antidilutive.
TAXES ON INCOME
The provisions for income taxes consist of the following:
1999 1998 1997
- ----------------------------------------------------------------
Current:
Federal $ (12) $ 78 $ 199
Foreign 17 18 35
State -- 20 30
- ----------------------------------------------------------------
5 116 264
- ----------------------------------------------------------------
Deferred:
Federal 31 (64) 32
Foreign 124 (9) (17)
State 1 (17) 3
- ----------------------------------------------------------------
156 (90) 18
================================================================
Total tax provision $ 161 $ 26 $ 282
================================================================
The tax effects of temporary differences and carry forwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
January 29, January 30,
2000 1999
- ----------------------------------------------------------------
Deferred tax assets:
Foreign loss carryforwards $ 330 $ 311
Restructuring 67 92
Other 48 51
- ----------------------------------------------------------------
Gross deferred tax assets 445 454
Valuation allowances related to
foreign loss carryforwards (273) (141)
- ----------------------------------------------------------------
$ 172 $ 313
- ----------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 316 281
LIFO inventory 30 50
- ----------------------------------------------------------------
Gross deferred tax liabilities $ 346 $ 331
================================================================
Net deferred tax liability $ 174 $ 18
================================================================
On January 29, 2000, the company had $845 of foreign loss carryforwards of which
$340 must be utilized within the next five years and $505 over an indefinite
period.
The valuation allowances related to foreign loss carryforwards increased to $273
from $141 in recognition of the uncertainty of obtaining tax benefit from
foreign loss carryforwards.
A reconciliation of the federal statutory tax rate with the effective tax rate
follows:
1999 1998 1997
- -----------------------------------------------------------------
Statutory tax rate 35.0% (35.0)% 35.0%
State income taxes, net of
federal income tax benefit 0.6 4.2 3.2
Foreign taxes (2.6) (22.4) (2.3)
Valuation allowances for foreign
loss carryforwards 30.0 74.7 --
Tax benefit of
branch election (22.5) -- --
Subpart F income 1.0 8.5 --
Foreign tax credits (1.6) (6.8) --
Amortization of goodwill 0.7 3.0 0.4
Other, net (4.1) (1.7) 0.2
=================================================================
Effective tax rate 36.5% 24.5% 36.5%
=================================================================
In 1999, the company elected to treat two of its foreign subsidiaries as U.S.
branches, claimed deductions for its investments in these subsidiaries, and
reduced its current tax expense. In future years, income earned by these foreign
subsidiaries can be offset by foreign loss carryforwards but will be subject to
current U.S. income tax.
In 1998, certain foreign tax benefits have been offset by valuation allowances
related to foreign loss carryforwards due in part to the restructuring and other
charges recorded in 1998.
31
<PAGE>
Deferred income taxes are not provided on unremitted earnings of foreign
subsidiaries that are intended to be indefinitely invested. Exclusive of
amounts, that if remitted would result in little or no tax under current U.S.
tax laws, unremitted earnings were approximately $568 at January 29, 2000. Net
income taxes of approximately $167 would be due if these earnings were to be
remitted.
STOCK OPTIONS
The company has Stock Option Plans (the "Plans") which provide for the granting
of options to purchase the company's common stock. The plans cover substantially
all employees and directors of the company and provide for the issuance of
non-qualified options, incentive stock options, performance share options,
performance units, stock appreciation rights, restricted shares, restricted
units and unrestricted shares. Of the total number of shares reserved for the
Plans, 3.0 shares of company stock have been reserved for the issuance of
restricted shares, restricted units, performance units, and unrestricted shares.
The Plans provide for a variety of vesting dates with the majority of the
options vesting approximately five years from the date of grant. Prior to June
10, 1999, options granted to directors are exercisable 20% each year on a
cumulative basis commencing one year from the date of grant. Effective June 10,
1999, the options granted to directors are exercisable one-third on a cumulative
basis commencing on the third, fourth and fifth anniversaries from the date of
grant.
In addition to the aforementioned plans, 1.0 stock options were granted to
certain senior executives during the period from 1993 to 1996 pursuant to
stockholder approved individual plans. Of this total, 0.25 options vest 20% each
on a cumulative basis commencing one year from the date of grant with the
balance of the options vesting five years from the date of grant. Of this total,
0.25 options became vested on September 5, 1999, 1998 and 1997.
The exercise price per share of all options granted has been the average of the
high and low market price of the company's common stock on the date of grant.
All options must be exercised within ten years from the date of grant.
At January 29, 2000, an aggregate of 45.3 shares of authorized common stock were
reserved for all of the Plans noted above, of which 5.5 were available for
future grants. All outstanding options expire at dates ranging from January 31,
2000 to January 17, 2010.
Stock option transactions are summarized as follows:
Exercise Price Weighted-Average
Shares Per Share Exercise Price
- --------------------------------------------------------------------------------
Outstanding at February 1, 1997 23.2 $12.33 - $40.94 $ 25.82
Granted 6.8 25.38 - 36.47 34.74
Exercised (3.3) 12.33 - 33.13 22.11
Canceled (2.6) 13.00 - 40.94 28.82
- --------------------------------------------------------------------------------
Outstanding at January 31, 1998 24.1 14.78 - 40.94 29.12
- --------------------------------------------------------------------------------
Granted 17.7 16.94 - 28.38 22.18
Exercised (0.7) 14.78 - 27.81 17.99
Canceled (4.3) 14.99 - 39.88 28.89
- --------------------------------------------------------------------------------
Outstanding at January 30, 1999 36.8 14.78 - 40.94 26.02
- --------------------------------------------------------------------------------
Granted 9.7 11.69 - 24.22 18.63
Exercised (1.3) 18.16 - 25.44 17.71
Canceled (5.4) 18.16 - 39.88 25.34
- --------------------------------------------------------------------------------
Outstanding at January 29, 2000 39.8 $11.69 - $40.94 $ 24.59
================================================================================
Options exercisable and the weighted-average exercise prices were 8.4 and $26.38
at January 31, 1998, 10.8 and $28.25 at January 30, 1999, and 20.7 and $23.94 at
January 29, 2000, respectively.
The company utilizes a restoration feature to encourage the early exercise of
certain options and retention of shares, thereby promoting increased employee
ownership. This feature provides for the grant of new options when previously
owned shares of company stock are used to exercise existing options. Restoration
option grants are non-dilutive as they do not increase the combined number of
shares of company stock and options held by an employee prior to exercise. The
new options are granted at a price equal to the fair market value on the date of
the new grant, and generally expire on the same date as the original options
that were exercised.
The company has adopted the disclosure only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, issued in October 1995. In accordance
with the provisions of SFAS No. 123, the company applies APB Opinion 25 and
related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost. If the company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below:
1999 1998 1997
- ----------------------------------------------------------------
Net income/(loss) - as reported $ 279 $ (132) $ 490
Net income/(loss) - pro forma 232 (162) 470
Basic earnings/(loss) per share -
as reported 1.14 (0.50) 1.72
Basic earnings/(loss) per share -
pro forma 0.95 (0.61) 1.65
Diluted earnings/(loss) per share -
as reported 1.14 (0.50) 1.70
Diluted earnings/(loss) per share -
pro forma 0.95 (0.61) 1.63
================================================================
32
<PAGE>
The weighted-average fair value at date of grant for options granted in 1999,
1998 and 1997 was $6.26, $5.31 and $7.66, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model. As there were a number of options granted during the years of
1997 through 1999, a range of assumptions are provided below:
1999 1998 1997
- --------------------------------------------------------------------------------
Expected stock price volatility .351 - .568 .283 - .347 .294 - .334
Risk-free interest rate 4.7% - 6.7% 4.7% - 5.8% 5.0% - 6.9%
Weighted average
expected life of options 6 years 6 years 6 years
================================================================================
The effects of applying SFAS No. 123 and the results obtained through the use of
the Black-Scholes option pricing model are not necessarily indicative of future
values.
PROFIT SHARING PLAN
The company has a profit sharing plan with a 401(k) salary deferral feature for
eligible domestic employees. The terms of the plan call for annual contributions
by the company as determined by the Board of Directors, subject to certain
limitations. The profit sharing plan may be terminated at the company's
discretion. Provisions of $48, $41 and $39 have been charged to earnings in
1999, 1998 and 1997, respectively.
ACQUISITION
On August 20, 1999, the company acquired all of the capital stock of Imaginarium
Toy Centers, Inc. ("Imaginarium"), a leading educational specialty retailer with
41 stores in 13 states, for approximately $43 in cash and the assumption of
certain liabilities. The acquisition is accounted for using the purchase method
of accounting and the results of Imaginarium operations have been combined with
those of the company from the date of acquisition. The excess of purchase price
over net assets acquired of approximately $38 has been recorded as goodwill and
is being amortized on a straight-line basis over the estimated useful life of 10
years. The operating results of Imaginarium from the date of acquisition were
not material to the overall results or financial condition of the company, as
such, proforma information has not been provided.
SEGMENTS
The company's reportable segments are Toys"R"Us-USA, Toys"R"Us - International,
Toys"R"Us-Japan, Babies"R"Us and toysrus.com. The division that does not meet
quantitative reportable thresholds is Kids"R"Us. Toys"R"Us - USA operates toy
stores in 49 states and Puerto Rico and Toys"R"Us - International operates or
franchises toy stores in 26 countries outside the United States. Information on
segments and a reconciliation to income/(loss) before income taxes, are as
follows:
Year ended
- ---------------------------------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- ---------------------------------------------------------------------------
Sales
Toys"R"Us - USA $ 6,819 $ 6,581 $ 6,814
Toys"R"Us - International(b) 1,990 2,090 2,072
Toys"R"Us - Japan(c) 1,208 906 795
Babies"R"Us 1,036 810 563
toysrus.com 49 -- --
Kids"R"Us 760 783 794
- ---------------------------------------------------------------------------
Total $11,862 $11,170 $11,038
- ---------------------------------------------------------------------------
Operating earnings/(loss)
Toys"R"Us - USA $ 386 $ 501 $ 654
Toys"R"Us - International(b) 73 85 106
Toys"R"Us - Japan,
net of minority interest(c) 88 61 59
Babies"R"Us 69 30 (6)
toysrus.com (86) -- --
Kids"R"Us 18 29 47
General corporate expenses (28) (21) (16)
Interest expense, net (80) (93) (72)
Restructuring and other charges -- (698) --
- ---------------------------------------------------------------------------
Earnings/(loss) before taxes
on income $ 440 $ (106) $ 772
===========================================================================
Identifiable assets
Toys"R"Us - USA $ 4,801 $ 4,300 $ 4,732
Toys"R"Us - International(b) 1,274 1,742 1,734
Toys"R"Us - Japan(c) 813 680 548
Babies"R"Us 389 295 232
toysrus.com 65 -- --
Kids"R"Us 427 472 504
Corporate(a) 584 410 213
===========================================================================
Total $ 8,353 $ 7,899 $ 7,963
===========================================================================
Depreciation, amortization
and asset write-offs
Toys"R"Us - USA $ 172 $ 154 $ 158
Toys"R"Us - International(b) 47 52 52
Toys"R"Us - Japan(c) 16 11 9
Babies"R"Us 22 19 15
toysrus.com 2 -- --
Kids"R"Us 19 19 19
===========================================================================
Total $ 278 $ 255 $ 253
===========================================================================
(a) Consists primarily of cash and cash equivalents.
(b) Excludes Toys"R"Us - Japan.
(c) 80% owned.
RESTRUCTURING AND OTHER CHARGES
On September 16, 1998, the company announced strategic initiatives to reposition
its worldwide business. The cost to implement these initiatives, as well as
other charges resulted in a total charge of $333 ($266 net of tax benefits, or
$1.00 per share). The company determined that the strategic initiatives required
a restructuring charge of $294 to close and/or downsize stores, distribution
centers and administrative functions. This worldwide plan included the closing
of 50 toy stores in the International division, predominately in continental
Europe, and 9 in the United States that did not meet the company's return on
investment objectives. The plan also included the closing of
33
<PAGE>
31 Kids"R"Us stores and conversion of 28 nearby USA toy stores into combination
stores in the company's C-3 format. Combination stores include toys and an
apparel selling space of approximately 5,000 square feet. Other charges
consisted primarily of changes in accounting estimates and provisions for legal
settlements of $39 recorded in selling, general and administrative expenses. Of
the total restructuring and other charges, $149 related to domestic operations
and $184 related to international operations.
Also on September 16, 1998, the company announced mark-downs and other charges
to cost of sales of $345 ($229 net of tax benefits, or $0.86 per share). Of this
charge, $253 related to markdowns required to clear excess inventory from its
stores so the company could proceed with its new C-3 store format on an
accelerated basis. Another component of the charge was inventory markdowns of
$29 related to the closing and/or downsizing of stores discussed above. The
company also recorded charges to cost of sales of $63 related to inventory
system refinements and changes in accounting estimates. Of these charges, $288
related to domestic operations and $57 related to International operations.
Remaining reserves of $14 are expected to be used in the company's upcoming
business cycle.
Additionally, in the fourth quarter of 1998 the company recorded a charge of $20
($13 net of tax benefits, or $0.05 per share), related to the resolution of
third party claims asserted from allegations made by the Federal Trade
Commission. This charge was in addition to a $15 charge relating to the same
matter, included in the charges mentioned above. (See Other Matters).
The company intends to execute the remainder of the initiatives included in its
repositioning program and will utilize the remaining reserves of $117 as these
initiatives are completed.
The company has substantially completed its restructuring program that was
announced in 1995, with the exception of long-term lease commitment reserves
that will be utilized throughout 2000 and thereafter.
The company believes all reserves are adequate to complete its restructuring
programs.
Other Matters
On May 22, 1996, the Staff of the Federal Trade Commission (the "FTC") filed an
administrative complaint against the company alleging that the company is in
violation of Section 5 of the Federal Trade Commission Act for its practices
relating to warehouse clubs. The complaint alleges that the company reached
understandings with various suppliers that such suppliers not sell to the clubs
the same items that they sell to the company. The complaint also alleges that
the company "facilitated understandings" among the manufacturers that such
manufacturers not sell to clubs. The complaint seeks an order that the company
cease and desist from this practice. The matter was tried before an
administrative law judge in the period from March through May of 1997. On
September 30, 1997, the administrative law judge filed an Initial Decision
upholding the FTC's complaint against the company. On October 13, 1998, the FTC
issued a final order and opinion upholding the FTC's complaint against the
company.
The company has appealed the FTC's decision to the United States Court of
Appeals for the Seventh Circuit. The appeal was argued on May 18, 1999 and is
awaiting decision from the Court.
After the filing of the FTC complaint, several class action suits were filed
against the company in State courts in Alabama and California, alleging that the
company had violated certain state competition laws as a consequence of the
behavior alleged in the FTC complaint. After the Initial Decision was handed
down, more than thirty purported class actions were filed in federal and state
courts in various jurisdictions alleging that the company had violated the
federal antitrust laws as a consequence of the behavior alleged in the FTC
complaint. In addition, the attorneys general of forty-four states, the District
of Columbia and Puerto Rico filed a suit against the company in their capacity
as representatives of the consumers of their states, alleging that the company
had violated federal and state antitrust laws as a consequence of the behavior
alleged in the FTC complaint. These suits sought damages in unspecified amounts
and other relief under state and/or federal law and were consolidated in the
United States District Court for the Eastern District of New York.
The company believes that it has always acted fairly and in the best interests
of its customers and that both its policy and its conduct in connection with the
foregoing have been and are within the law. However, to avoid the cost and
uncertainty of protracted litigation the company has reached an agreement to
settle all of the class action and attorney general lawsuits in a manner which
will not have a material adverse effect on its financial condition, results of
operations or cash flow. The Court granted final approval of the agreement on
February 17, 2000. The company had accrued all anticipated costs relating to
this matter as of January 30, 1999.
The company is party to certain other litigation which, in management's
judgement, based in part on the opinion of legal counsel, will not have a
material adverse effect on the company's financial position.
[Photo Omitted]
34
<PAGE>
REPORT OF MANAGEMENT
Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report rests with the management of Toys"R"Us. The
accompanying financial statements have been prepared from accounting records
which management believes fairly and accurately reflect the operations and
financial position of the company. Management has established a system of
internal controls to provide reasonable assurance that assets are maintained and
accounted for in accordance with its policies and that transactions are recorded
accurately on the company's books and records.
The company's comprehensive internal audit program provides for constant
evaluation of the adequacy of the adherence to management's established policies
and procedures. The company has distributed to key employees its policies for
conducting business affairs in a lawful and ethical manner.
The Audit Committee of the Board of Directors, which is comprised solely of
outside directors, provides oversight to the financial reporting process through
periodic meetings with our independent auditors, internal auditors and
management.
The financial statements of the company have been audited by Ernst & Young LLP,
independent auditors, in accordance with auditing standards generally accepted
in the United States, including a review of financial reporting matters and
internal controls to the extent necessary to express an opinion on the
consolidated financial statements.
/s/ Louis Lipschitz
- -------------------
Louis Lipschitz
Executive Vice President
and Chief Financial Officer
Report of Independent Auditors
The Board of Directors and Stockholders
Toys"R"US", Inc.
We have audited the accompanying consolidated balance sheets of Toys"R"Us, Inc.
and subsidiaries as of January 29, 2000 and January 30, 1999, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended January 29, 2000. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Toys"R"Us, Inc.
and subsidiaries at January 29, 2000 and January 30, 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended January 29, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
- ---------------------
New York, New York
March 8, 2000
35
<PAGE>
Directors and Officers
Note of Thanks
On behalf of the "R"Us family, we would like to express our deep appreciation to
Robert A. Bernhard and Howard W. Moore who are retiring from our Board of
Directors this year. Bob became a member of the Board of Directors in 1980 and
Howard in 1984. They both served our Board and our company with distinction, and
their insight and counsel will be greatly missed. Their commitment and
dedication to our company was exemplary, and we sincerely thank them for their
tireless efforts on behalf of us all. Bob and Howard may be leaving our Board of
Directors, but we know that in their hearts they will always be true Toys"R"Us
kids.
With deepest appreciation,
The"R"Us Family
Directors
CHARLES LAZARUS
Chairman Emeritus of the company
MICHAEL GOLDSTEIN
Chairman of the Board of the company
ROBERT A. BERNHARD
Real Estate Developer
ROANN COSTIN
President,
Reservoir Capital Management, Inc.
JOHN H. EYLER, JR.
President and Chief Executive Officer
of the company
CALVIN HILL
Consultant
SHIRLEY STRUM KENNY
President, State University of
New York at Stony Brook
NORMAN S. MATTHEWS
Consultant and former Vice Chairman
of the Board and President of
Federated Department Stores
HOWARD W. MOORE
Consultant
ARTHUR B. NEWMAN
Senior Managing Director,
Blackstone Group
Corporate and Administrative
JOHN H.EYLER, JR.
President and Chief Executive Officer
MICHAEL G. SHANNON
President - Administration and Logistics
WARREN F. KORNBLUM
Executive Vice President - Worldwide
Marketing and Brand Management
LOUIS LIPSCHITZ
Executive Vice President -
Chief Financial Officer
FRANCESCA L. BROCKETT
Senior Vice President -
Strategic Planning/Business Development
ROGER C. GASTON
Senior Vice President -
Human Resources
JOHN HOLOHAN
Senior Vice President -
Chief Information Officer
REBECCA A. CARUSO
Vice President -
Corporate Communications
MICHAEL J. CORRIGAN
Vice President -
Compensation and Benefits
RICHARD N. CUDRIN
Vice President -
Associate Relations
MARIANITA HOWARD
Vice President -
Creative Services
JON W. KIMMINS
Vice President - Treasurer
DAVID P. PICOT
Vice President - Real Estate,
Design and Construction
DION C. ROONEY
Vice President - Systems Development
MICHAEL L. TUMOLO
Vice President - Counsel
PETER W. WEISS
Vice President - Taxes
DENNIS J. BLOCK
Secretary
Partner - Cadwalader, Wickersham & Taft
36
<PAGE>
Toys"R"Us United States
GREGORY R. STALEY
President
JAMES E. FELDT
Executive Vice President
President - Merchandising and Marketing
DENNIS J. WILLIAMS
Senior Vice President - Operations
KRISTOPHER M. BROWN
Vice President - Logistics
STEVEN M. COOK
Vice President - Distribution Operations
THOMAS F. DELUCA
Vice President - Imports, Product
Development and Safety Assurance
ANDREW R. GATTO
Vice President -
Product Development
ALBERT FORTIER
Vice President - World Leader
EMANUEL J. FRANCIONE
Vice President - World Leader
JONATHAN M. FRIEDMAN
Vice President - Chief Financial Officer
DANIEL D. HLAVATY
Vice President - Loss Prevention
JEREL G. HOLLENS
Vice President -
Merchandise Planning
FREDERICK L. HURLEY
Vice President - World Leader
ELIZABETH S. JORDAN
Vice President - Human Resources
MITCHELL B. LOUKOTA
Vice President - World Leader
JULIE E. LYNN
Vice President - World Leader
THOMAS J. LYNN
Vice President and President of
Imaginarium Stores
CHARLENE MADY
Vice President -
Area Merchandise Planning
GERALD S. PARKER
Vice President -
Sales and Service
TIMOTHY J. SLADE
Vice President - Store Planning
WILLIAM A. STEPHENSON
Vice President -
Merchandise Planning and Allocation
DAVID S. WALKER
Vice President - Advertising
THOMAS A. DRUGAN
Regional Vice President - Midwest
HARVEY J. FINKEL
Regional Vice President - Northeast
MICHAEL K. HEFFNER
Regional Vice President - West
SAMUEL M. MARTIN
Regional Vice President - Pacific
JOHN J. PRAWLOCKI
Regional Vice President - Southeast
EDWARD F. SIEGLER
Regional Vice President - Mid-Atlantic
KEVIN VANDERGRIEND
Regional Vice President - Great Lakes
Toys"R"Us International
ERNEST V. SPERANZA
Senior Vice President - Marketing
ROBERT J. BAKER
Vice President - Finance
JOAN W. DONOVAN
Vice President -
General Merchandise Manager
LARRY D. GARDNER
Vice President - Operations
MICHAEL C. TAYLOR
Vice President - Franchising/Logistics
DAVID RURKA
Managing Director -
Toys"R"Us United Kingdom and Chairman
of the European Management Board
JOHANNES DERCKS
President -
Toys"R"Us Central Europe
JACQUES LEFOLL
President -
Toys"R"Us France
MONIKA MERZ
President - Toys"R"Us Canada
JOHN SCHRYVER
Managing Director -
Toys"R"Us Australia
MANABU TAZAKI
President -
Toys"R"Us Japan
ANTONIO URCELAY
Managing Director -
Toys"R"Us Iberia
Babies"R"Us and Kids"R"Us
RICHARD L. MARKEE
President - Babies"R"Us and
Chairman - Kids"R"Us
JAMES G. PARROS
Senior Vice President -
Stores and Distribution Center Operations
THERESE R. DENA
Vice President -
Planning and Allocation
JAMES L. EASTON
Vice President -
General Merchandise Manager
MARTIN E. FOGELMAN
Vice President -
General Merchandise Manager Babies"R"Us and Toys"R"Us
VINCENT A. SCARFONE
Vice President - Human Resources
CHRISTOPHER M. SCHERM
Vice President - Advertising
DAVID E. SCHOENBECK
Vice President -
Operations - Babies"R"Us
SANDEE A. SPRINGER
Vice President -
Divisional Merchandise Manager
PAMELA B. WALLACK
Vice President -
Divisional Merchandise Manager
ROBERT S. ZARRA
Vice President - Chief Financial Officer
Kids"R"Us and Babies"R"Us
* Kids"R"Us Officer, unless otherwise indicated.
toysrus.com
JOHN BARBOUR
Chief Executive Officer
JONATHAN F. FOSTER
Executive Vice President -
Chief Operating Officer and
Chief Financial Officer
JOEL D. ANDERSON
Vice President - General Manager
RAYMOND L. ARTHUR
Vice President - Finance and Controller
LAWRENCE MC GUIRE
Vice President - Human Resources
JOHN P. SULLIVAN
Vice President - General Manager
GREGG TREADWAY
Vice President - Logistics
37
<PAGE>
Quarterly Financial Data and Market Information
TOYS"R"US, INC. AND SUBSIDIARIES
Quarterly Financial Data
(In millions except per share data)
The following table sets forth certain unaudited quarterly financial
information.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------
1999
- ------------------------------------------------------------
Net Sales $2,166 $2,204 $2,465 $5,027
Cost of Sales 1,505 1,522 1,704 3,590
Net Earnings 17 12(a) 15(a) 235(a)
Basic Earnings
per Share $ .07 $ .05 $ .06 $ .98
Diluted Earning s
per Share $ .07 $ .05 $ .06 $ .98
1998
- ------------------------------------------------------------
Net Sales $2,043 $2,020 $2,171 $4,936
Cost of Sales 1,417 1,390 1,831 3,553
Net Earnings/(Loss) 19 14 (475)(b) 310(c)
Basic Earnings/(Loss)
per Share $ .07 $ .05 $(1.85) $ 1.23
Diluted Earnings/(Loss)
per Share $ .07 $ .05 $(1.85) $ 1.23
(a) Includes costs to establish and operate toysrus.com, the company's
Internet subsidiary as follows:
Second quarter - $5 million ($3 million net of tax, or $0.01 per
share).
Third quarter - $17 million ($11 million net of tax, or $0.04 per
share).
Fourth quarter - $64 million ($41million net of tax, or $0.17 per
share).
(b) Includes restructuring and other charges of $678 ($495 net of tax
benefits, or $1.93 per share)
(c) Includes provisions for legal settlements of $20 ($13 net of tax benefits,
or $.05 per share).
Market Information
The company's common stock is listed on the New York Stock Exchange. The
following table reflects the high and low prices (rounded to the nearest
one-sixteenth) based on New York Stock Exchange trading since January 31, 1998.
The company has not paid any cash dividends, however, the Board of Directors of
the company reviews this policy annually.
The company had approximately 31,100 Stockholders of Record on March 7, 2000.
High Low
- ---------------------------------------------------------------
1998 1st Quarter 30 7/8 25 7/8
2nd Quarter 29 1/2 22 5/16
3rd Quarter 23 13/16 15 5/8
4th Quarter 21 1/2 14 7/16
- ---------------------------------------------------------------
1999 1st Quarter 23 1/4 13 5/8
2nd Quarter 24 3/4 15 15/16
3rd Quarter 17 3/16 13 1/8
4th Quarter 19 9 3/4
Store Locations
Stores Across the United States
Toys Kids Babies Imaginarium
- --------------------------------------------------------------------------------
Alabama 8 1 2 --
Alaska 1 -- -- --
Arizona 12 -- 3 1
Arkansas 4 -- -- --
California 88 22 13 7
Colorado 11 -- 2 --
Connecticut 11 5 -- 2
Delaware 2 1 1 --
Florida 47 10 10 --
Georgia 20 4 6 --
Hawaii 1 -- -- --
Idaho 2 -- -- --
Illinois 35 19 6 2
Indiana 13 7 2 --
Iowa 8 1 -- --
Kansas 5 1 1 --
Kentucky 8 -- 2 1
Louisiana 11 -- 1 --
Maine 2 1 -- --
Maryland 19 8 3 4
Massachusetts 19 6 4 --
Michigan 25 13 6 --
Minnesota 11 2 1 2
Mississippi 5 -- -- --
Missouri 13 4 3 --
Montana 1 -- -- --
Nebraska 3 -- -- --
Nevada 4 -- 2 --
New Hampshire 5 2 -- --
New Jersey 26 18 8 7
New Mexico 4 -- -- --
New York 47 24 6 3
North Carolina 16 1 5 --
North Dakota 1 -- -- --
Ohio 33 18 8 5
Oklahoma 5 -- 1 --
Oregon 8 -- 2 1
Pennsylvania 33 15 3 --
Rhode Island 1 1 1 --
South Carolina 9 -- 3 --
South Dakota 2 -- -- --
Tennessee 15 2 4 --
Texas 54 8 13 --
Utah 6 3 1 --
Vermont 1 -- -- --
Virginia 22 5 6 2
Washington 15 -- 2 3
West Virginia 4 -- -- --
Wisconsin 10 3 -- --
Puerto Rico 4 -- -- --
================================================================================
710 205 131 40
================================================================================
Toys"R"Us International - 462
- --------------------------------------------------------------------------------
Australia - 23
Austria - 7
Bahrain - 1(a)
Canada - 63
Denmark - 10(a)
France - 31
Germany - 53
Hong Kong - 5(a)
Indonesia - 3(a)
Israel - 19(a)
Japan - 91(b)
Malaysia - 5(a)
Netherlands - 10(a)
Norway - 1(a)
Portugal - 6
Qatar - 1(a)
Saudi Arabia - 3(a)
Singapore - 4(a)
South Africa - 7(a)
Spain - 30
Sweden - 7(a)
Switzerland - 4
Taiwan - 6(a)
Turkey - 7(a)
United Arab Emirates - 2(a)
United Kingdom - 63
(a) Franchise or joint venture.
(b) 80 % owned.
38
<PAGE>
Corporate Data and Citizenship
TOYS"R"US, INC. AND SUBSIDIARIES
Annual Meeting
The Annual Meeting of the Stockholders of Toys"R"Us will be held at The 200
Fifth Club, 200 Fifth Avenue, New York, New York, on June 7, 2000 at 10:00 A.M.
The Offices of The
Company are Located at
461 From Road
Paramus, New Jersey 07652
Telephone: 201-262-7800
225 Summit Avenue
Montvale, New Jersey 07645
Telephone: 201-802-5000
General Counsel
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10036
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
Registrar and Transfer Agent
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
Telephone: 718-921-8200
Common Stock Listed
New York Stock Exchange, Symbol: TOY
Stockholder Information
The company will supply to any owner of its common stock, upon written request
to Mr. Louis Lipschitz of the company at the above address and without charge, a
copy of the annual report on Form 10-K for the year ended January 29, 2000,
which has been filed with the Securities and Exchange Commission.
Stockholder information, including quarterly earnings and other corporate news
releases, can be obtained by calling 800-785-TOYS, or at our web site on the
Internet at www.toysrus.com
Significant news releases are
anticipated to be available as follows:
Call after... For the following...
May 15, 2000 1st Quarter Results
Aug. 14, 2000 2nd Quarter Results
Nov. 13, 2000 3rd Quarter Results
Jan. 4, 2001 Holiday Sales Results
Mar. 14, 2001 2000 Results
Corporate Citizenship
Toys"R"Us maintains a company-wide giving program focused on improving the
health care needs of children by supporting many national and regional
children's health care organizations. The Counsel on Economic Priority awarded
Toys"R"Us the Pioneer Award in Global Ethics. This award was the direct result
of the implementation of our Code of Conduct for suppliers which outlines the
company's position against child labor and unsafe working conditions. In order
for a vendor's product to be sold in any of our stores, they must comply with
our Code of Conduct. If you would like to receive more information on Toys"R"Us'
corporate citizenship please write to Mr. Roger Gaston of the company at the
above address.
Visit us on the Internet at www.toysrus.com and www.imaginarium.com.
[Photo Omitted]
39
<PAGE>
[Logo] Toys "R" Us
[Logo] Kids "R" Us(R)
[Logo] Babies "R" Us(R)
[Logo] toysrus.com(R)
Imaginarium(R)
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
AS OF JANUARY 29, 2000
- --------------------------------------------------------------------------------
Name Jurisdiction of Incorporation
- --------------------------------------------------------------------------------
ABG Corp. Nevada
- --------------------------------------------------------------------------------
Baby Superstore, Inc. South Carolina
- --------------------------------------------------------------------------------
Geoffrey, Inc. Delaware
- --------------------------------------------------------------------------------
MLK, Inc. Missouri
- --------------------------------------------------------------------------------
MMT, Inc. Utah
- --------------------------------------------------------------------------------
Toysrus.com, Inc. Delaware
- --------------------------------------------------------------------------------
Toysrus.com, LLC Delaware
- --------------------------------------------------------------------------------
Toys "R" Us - Belgium, Inc. Delaware
- --------------------------------------------------------------------------------
Toys "R" Us - Delaware, Inc. Delaware
- --------------------------------------------------------------------------------
Toys "R" Us - Del. Operations, Inc. Delaware
- --------------------------------------------------------------------------------
Toys "R" Us Group, Inc. Delaware
- --------------------------------------------------------------------------------
Toys "R" Us - Mass, Inc. Massachusetts
- --------------------------------------------------------------------------------
Toys "R" Us - NY/Texas Holdings, Inc. Delaware
- --------------------------------------------------------------------------------
Toys "R" Us - NY LLC New York
- --------------------------------------------------------------------------------
Toys "R" Us - NYTEX, Inc. Delaware
- --------------------------------------------------------------------------------
Toys "R" Us - Ohio, Inc. Delaware
- --------------------------------------------------------------------------------
Toys "R" Us - Penn, Inc. Pennsylvania
- --------------------------------------------------------------------------------
Toys "R" Us - Texas LLC Delaware
- --------------------------------------------------------------------------------
Toys "R" Us - Value, Inc. Arkansas
- --------------------------------------------------------------------------------
TRU (ANTS) Inc. Delaware
- --------------------------------------------------------------------------------
TRU Belgium Holdings II, Inc. Delaware
- --------------------------------------------------------------------------------
TRU Foreign Sales Corporation California
- --------------------------------------------------------------------------------
TRU Gulf Services, Inc. Delaware
- --------------------------------------------------------------------------------
TRU, Inc. Delaware
- --------------------------------------------------------------------------------
TRU - LSM Redevelopment Corporation Missouri
- --------------------------------------------------------------------------------
TRU Mass Properties Holdings, Inc. Delaware
- --------------------------------------------------------------------------------
TRU Mass Properties, Inc. Delaware
- --------------------------------------------------------------------------------
TRU Netherlands Holdings I, Inc. Delaware
- --------------------------------------------------------------------------------
TRU Netherlands Holdings II, Inc. Delaware
- --------------------------------------------------------------------------------
TRU Ohio Properties Holdings, Inc. Delaware
- --------------------------------------------------------------------------------
TRU Ohio Properties, Inc. Delaware
- --------------------------------------------------------------------------------
TRU Penn Properties Holdings, Inc. Delaware
- --------------------------------------------------------------------------------
TRU Penn Properties Trust Pennsylvania
- --------------------------------------------------------------------------------
TRU Properties Holdings, Inc. Delaware
- --------------------------------------------------------------------------------
TRU Properties, Inc. Delaware
- --------------------------------------------------------------------------------
TRU (Vermont), Inc. Vermont
- --------------------------------------------------------------------------------
Toys "R" Us (Australia) Pty, Ltd. Australia
- --------------------------------------------------------------------------------
Toys "R" Us (Head Office) Pty. Ltd. Australia
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Name Jurisdiction of Incorporation
- --------------------------------------------------------------------------------
Toys "R" Us (Wholesale) Pty. Ltd. Australia
- --------------------------------------------------------------------------------
TRU (Aust) Superannuation Pty. Ltd. Australia
- --------------------------------------------------------------------------------
Toys "R" Us Handelsgesellschaft m.b.H. Austria
- --------------------------------------------------------------------------------
TRU (Barbados), Ltd. Barbados
- --------------------------------------------------------------------------------
Toys "R" Us - Belgium SCA Belgium
- --------------------------------------------------------------------------------
TRU (NRO III) Investments Ltd. Alberta, Canada
- --------------------------------------------------------------------------------
Toys "R" Us (Canada) Ltd. Ontario, Canada
- --------------------------------------------------------------------------------
TRU (Cayman Islands) Limited Cayman Islands
- --------------------------------------------------------------------------------
TRU (Cayman Islands) Investments LLC Cayman Islands
- --------------------------------------------------------------------------------
Toys "R" Us A/S Denmark
- --------------------------------------------------------------------------------
Toys "R" Us S.A.R.L. France
- --------------------------------------------------------------------------------
Toys "R" Us GmbH Germany
- --------------------------------------------------------------------------------
Toys "R" Us Logistik GmbH Germany
- --------------------------------------------------------------------------------
Toys "R" Us Operations GmbH Germany
- --------------------------------------------------------------------------------
TRU (HK) Limited Hong Kong
- --------------------------------------------------------------------------------
IOCA Limited Ireland
- --------------------------------------------------------------------------------
Toys "R" Us - Japan, Ltd. Japan
- --------------------------------------------------------------------------------
Toys "R" Us (Luxembourg) S.A. Luxembourg
- --------------------------------------------------------------------------------
Toys (Labuan) Ltd. Malaysia (Labuan)
- --------------------------------------------------------------------------------
Sumus Nos Limited Mauritius
- --------------------------------------------------------------------------------
Toys "R" Us (Netherlands), B.V. Netherlands
- --------------------------------------------------------------------------------
TRU (Netherlands) B.V. Netherlands
- --------------------------------------------------------------------------------
TRU (Netherlands) Investments B.V. Netherlands
- --------------------------------------------------------------------------------
Toys R Us Portugal, Limitada Portugal
- --------------------------------------------------------------------------------
TRU of Puerto Rico, Inc. Puerto Rico
- --------------------------------------------------------------------------------
Toys R Us, Iberia, S.A. Spain
- --------------------------------------------------------------------------------
Toys "R" Us, Aktiebolag Sweden
- --------------------------------------------------------------------------------
Toys R Us AG Switzerland
- --------------------------------------------------------------------------------
Toys "R" Us Holdings PLC United Kingdom
- --------------------------------------------------------------------------------
Toys "R" Us Holdings (UK) Limited United Kingdom
- --------------------------------------------------------------------------------
Toys "R" Us Limited United Kingdom
- --------------------------------------------------------------------------------
Toys "R" Us Properties Limited United Kingdom
- --------------------------------------------------------------------------------
Tru Toys (UK) Limited United Kingdom
- --------------------------------------------------------------------------------
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Toys "R" Us, Inc. and subsidiaries of our report dated March 8, 2000,
included in the 1999 Annual Report to Stockholders of Toys "R" Us, Inc. and
subsidiaries.
We also consent to the incorporation by reference in Registration
Statements (Form S-4 Number 33-56303 and 333-18863; Form S-3 Numbers 2-87794,
33-23264, 33-34273, 33-11461, 33-42237 and 33-51359; Form S-8 Numbers 2-64887,
2-91834, 33-42627, 333-11861, 333-15841, 333-23441, 333-20385, 33-64315,
333-61827 and 333-82377) of Toys "R" Us, Inc. and subsidiaries of our report
dated March 8, 2000, with respect to the consolidated financial statements
incorporated herein by reference.
/s/ Ernst & Young LLP
New York, New York
April 26, 2000
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis Lipschitz and Dennis J. Block and each of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign the Annual Report on Form 10-K of
Toys "R" Us, Inc. for the fiscal year ended January 29, 2000, and any amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform such and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or his or her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
This Power of Attorney may be executed in separate counterparts, each of
which shall be an original, but all such counterparts shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the 7th day of March, 2000.
Name Title Signature
---- ----- ---------
Michael Goldstein Chairman of the Board /s/ Michael Goldstein
-------------------------
Robert A. Bernhard Director /s/ Robert A. Bernhard
-------------------------
RoAnn Costin Director /s/ RoAnn Costin
-------------------------
Calvin Hill Director /s/ Calvin Hill
-------------------------
Shirley Strum Kenny Director /s/ Shirley Strum Kenny
-------------------------
Charles Lazarus Director, Chairman Emeritus /s/ Charles Lazarus
-------------------------
Norman S. Matthews Director /s/ Norman S. Matthews
-------------------------
Howard W. Moore Director /s/ Howard W. Moore
-------------------------
Arthur B. Newman Director /s/ Arthur B. Newman
-------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Earnings as reported
in Exhibit 13 of the Form 10-K and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 584,000
<SECURITIES> 0
<RECEIVABLES> 182,000
<ALLOWANCES> 0
<INVENTORY> 2,027,000
<CURRENT-ASSETS> 2,873,000
<PP&E> 6,232,000
<DEPRECIATION> 1,777,000
<TOTAL-ASSETS> 8,353,000
<CURRENT-LIABILITIES> 2,838,000
<BONDS> 1,230,000
<COMMON> 30,000
0
0
<OTHER-SE> 3,650,000
<TOTAL-LIABILITY-AND-EQUITY> 8,353,000
<SALES> 11,862,000
<TOTAL-REVENUES> 11,862,000
<CGS> 8,321,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 278,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,000
<INCOME-PRETAX> 440,000
<INCOME-TAX> 161,000
<INCOME-CONTINUING> 279,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 279,000
<EPS-BASIC> 1.14
<EPS-DILUTED> 1.14
</TABLE>
