SCHEDULE 14A INFORMATION
(Rule 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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EXCHANGE ACT OF 1934
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/X/ Preliminary Proxy Statement
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TOYS "R" US, INC.
______________________________________________________________________________
(Name of Registrant as Specified in its Charter)
TOYS "R" US, INC.
______________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
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<PAGE>
PRELIMINARY COPY
TOYS "R" US, INC.
461 From Road
Paramus, New Jersey 07652
_______________
Notice of Annual Meeting of
Stockholders to be Held
June 8, 1994
_______________
To the Stockholders of
TOYS "R" US, INC.
The Annual Meeting of Stockholders of Toys "R" Us, Inc. (the "Company")
will be held at the offices of the Company, 461 From Road, Paramus, New Jersey
07652 on Wednesday, June 8, 1994 at 10:00 A.M., for the following purposes:
1. to elect directors;
2. to consider and act upon a proposal to amend the Company's Restated
Certificate of Incorporation to authorize additional shares of Common
Stock;
3. to consider and act upon a proposal to approve the Toys "R" Us, Inc.
1994 Stock Option and Performance Incentive Plan; and
4. to consider and transact such other business as may properly be
brought before the meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on April 11, 1994
will be entitled to vote at the meeting.
Andre Weiss
Secretary
April __, 1994
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED, SELF-
ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
TOYS "R" US, INC.
461 From Road
Paramus, New Jersey 07652
_______________
Annual Meeting of Stockholders
June 8, 1994
_______________
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Toys "R"
Us, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held at the offices of the Company, 461 From
Road, Paramus, New Jersey 07652, on Wednesday, June 8, 1994 at 10:00 A.M., or
at any adjournment or adjournments thereof.
A stockholder who executes a proxy may revoke it at any time before it is
voted. Attendance at the meeting shall not have the effect of revoking a
proxy unless the stockholder so attending shall, in writing, so notify the
secretary of the meeting at any time prior to the voting of the proxy. A
proxy which is properly signed and not revoked will be voted for the nominees
for election as directors listed herein unless contrary instructions are given
or the persons named in the proxy elect to exercise their discretionary
authority to accumulate votes in favor of less than all nominees, and such
proxy may be voted by the persons named in the proxy in their discretion upon
such other business as may be properly brought before the meeting. As to the
other matters to be presented at the meeting, all proxies received pursuant to
this solicitation will be voted except as to matters where authority to vote
is specifically withheld and, where a choice is specified as to the proposal,
they will be voted in accordance with such specification, and if no
instructions are given, the persons named in the proxy intend to vote FOR
approval of each of the proposal to amend the Company's Restated Certificate
of Incorporation to authorize additional shares of Common Stock and the
proposal to approve the Company's 1994 Stock Option and Performance Incentive
Plan. The Board of Directors knows of no other business to come before the
meeting, but if other matters properly come before the meeting, the persons
named in the proxy intend to vote thereon in accordance with their best
judgment.
The cost of soliciting proxies will be borne by the Company. In addition
to solicitation by mail, directors, officers and employees of the Company may
solicit proxies by telephone or otherwise. The Company will reimburse brokers
or other persons holding stock in their names or in the names of their
nominees for their charges and expenses in forwarding proxies and proxy
material to the beneficial owners of such stock. It is anticipated that the
mailing of this Proxy Statement will commence on or about April __, 1994.
VOTING SECURITIES
The Company had outstanding ___________ shares of common stock ("Common
Stock") at the close of business on April 11, 1994, which are the only
securities of the Company entitled to be voted at the meeting. Each share of
Common Stock is entitled to one vote (except as stated below under "Election
of Directors") on each matter as may properly be brought before the meeting.
Only stockholders of record at the close of business on April 11, 1994 will be
entitled to vote.
With regard to the election of directors, votes may be cast in favor of or
withheld from each nominee. Votes that are withheld will be excluded entirely
from the vote and will have no effect. Abstentions may be specified on any
proposal other than the election of directors and will be counted as present
for purposes of determining the existence of a quorum regarding such proposal.
Pursuant to applicable law, abstentions will have the same effect as a
negative vote. Under the rules of the New York Stock Exchange, brokers who
hold shares in street name have the authority to vote on certain "routine"
matters when they have not received instructions from beneficial owners.
Brokers that do not receive instructions are entitled to vote on the election
of directors and the proposal to amend the Company's Restated Certificate of
Incorporation to authorize additional shares of Common Stock. With respect to
the proposal to approve the Company's 1994 Stock Option and Performance
Incentive Plan, brokers may not vote shares held for customers without
specific instructions from such customers. Such broker non-votes will have no
effect on the outcome of such proposal pursuant to applicable law.
1
PRINCIPAL STOCKHOLDER
As of April 11, 1994, the following is the only entity known to the
Company to be the beneficial owner of more than five percent of the Common
Stock:
<TABLE>
<CAPTION>
Total Number
of Shares
Name and Address of Beneficially Percent
Beneficial Owner Owned of Class
-------------------- ------------ ---------
<S> <C> <C>
Petrie Stores Corporation (1) [40,402,488 13.8%]
70 Enterprise Avenue
Secaucus, New Jersey 07094
____________________
<FN>
(1) The information relating to Petrie Stores Corporation was obtained
from securities forms filed by such corporation.
</TABLE>
ELECTION OF DIRECTORS
In accordance with the recommendation of its Nominating Committee, the
Board of Directors proposes for election at the Annual Meeting of Stockholders
the 10 persons listed below to serve (subject to the Company's By-Laws) as
directors of the Company until the next annual meeting and until the election
and qualification of their successors. If any such person should be unwilling
or unable to serve as a director of the Company (which is not anticipated) the
persons named in the proxy will vote the proxy for substitute nominees
selected by them unless the number of directors has been reduced to the number
of nominees willing and able to serve.
In electing directors, holders of Common Stock have cumulative voting
rights; that is, each holder of record of Common Stock shall be entitled to as
many votes as shall equal the number of shares owned of record multiplied by
the number of directors to be elected, and may cast all of such votes for a
single director or may distribute them among all or some of the directors to
be voted for, as such holder sees fit. Unless contrary instructions are
given, the persons named on the proxy will have discretionary authority to
accumulate votes in the same manner.
Certain information for each nominee for director is set forth below:
<TABLE>
<CAPTION>
Common Stock
Beneficially
Owned as of Percent
Principal Occupation, Employment, etc. March 9, 1994 of Class
--------------------------------------- --------------- -------
<S> <C> <C>
Robert A. Bernhard (a). . . . . . . . . . . . . . . . . . . . . . . . . 38,441(b)(c) *
Private real estate developer since prior to 1989;
director of the Company since 1980; age 67 years.
Michael Goldstein (d) . . . . . . . . . . . . . . . . . . . . . . . . . 648,553(e) *
Vice Chairman of the Board and Chief Executive
Officer of the Company since February 1994 (also
Chief Administrative Officer of the Company from
1989 to February 1994 and Chief Financial Officer
from 1989 to January 1993); director of the
Company since 1989; age 52 years.
Milton S. Gould (d) . . . . . . . . . . . . . . . . . . . . . . . . . . 31,176(c) *
Senior Partner of the New York City law firm of
Shea & Gould since prior to 1989; director of the
Company since 1978; age 84 years.
Shirley Strum Kenny . . . . . . . . . . . . . . . . . . . . . . . . . . 6,137(c) *
President of Queens College of The City University
of New York since prior to 1989; director of the
Company since 1990; age 59 years.
2
<CAPTION>
Common Stock
Beneficially
Owned as of Percent
Principal Occupation, Employment, etc. March 9, 1994 of Class
--------------------------------------- --------------- -------
<S> <C> <C>
Charles Lazarus (d) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,454,169(f) *
Chairman of the Board since prior to 1989; Chief
Executive Officer of the Company from prior to
1989 to February 1994; director of the Company
since 1969; director of Automatic Data Processing,
Inc. and Loral Corporation; age 70 years.
Reuben Mark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,600(c) *
Chairman and Chief Executive Officer of Colgate-
Palmolive Company, a producer of consumer goods,
since prior to 1989; director of the Company since
1990; director of Time Warner, Inc., The New York
Stock Exchange, Inc. and Pearson, p.l.c.; age 55
years.
Howard W. Moore . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,839(g) *
President of Howard Moore Associates, business
consultants, since 1990; formerly Executive Vice
President - General Merchandise Manager of the
Company from prior to 1989 to 1990; director of
the Company since 1984; age 63 years.
Robert C. Nakasone (h). . . . . . . . . . . . . . . . . . . . . . . . . 748,385(i) *
President and Chief Operating Officer since
February 1994; Vice Chairman of the Board and
President of World Wide Toy Stores of the Company
from 1989 to February 1994; director of the
Company since 1989; director of Staples, Inc.; age
46 years.
Norman M. Schneider . . . . . . . . . . . . . . . . . . . . . . . . . . 8,722(c) *
Management consultant since prior to 1989;
director of the Company since 1978; director of
Park Electrochemical Corp. and Datascope Corp.;
age 83 years.
Harold M. Wit (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,327(c) *
Managing Director, Director and a member of the
Executive Committee of Allen & Company
Incorporated, investment bankers, since prior to
1989; director of the Company since 1978; director
of Allegheny & Western Energy Corporation; age 65
years.
___________________
<FN>
(a) Member of the Executive Committee of the Board of Directors (the
"Executive Committee") until January 31, 1994.
(b) Includes shares owned by a profit sharing plan of which Mr. Bernhard is
the sole beneficiary.
(c) Includes 3,600 shares with respect to which such person has the right to
acquire beneficial ownership upon exercise of currently exercisable
options and the percentage (less than 1% of outstanding Common Stock) is
calculated on the basis that such shares are deemed outstanding.
(d) Member of the Executive Committee.
(e) Includes 612,500 shares with respect to which Mr. Goldstein has the right
to acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares
are deemed outstanding.
(f) Includes 1,125,000 shares with respect to which Mr. Lazarus has the right
to acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares
are deemed outstanding. Also includes shares beneficially owned by his
wife as to which shares Mr. Lazarus disclaims beneficial ownership.
(g) Includes 105,839 shares with respect to which Mr. Moore has the right to
acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares
are deemed outstanding.
(h) Member of the Executive Committee since February 1994.
(i) Includes 680,102 shares with respect to which Mr. Nakasone has the right
to acquire beneficial ownership upon exercise of currently exercisable
options, and the percentage is calculated on the basis that such shares
are deemed outstanding. Also includes shares beneficially owned by his
minor children as to which shares Mr. Nakasone disclaims beneficial
ownership.
* Less than 1% of the outstanding Common Stock.
</TABLE>
3
The address of each person named in the table above is c/o Toys "R" Us,
Inc., 461 From Road, Paramus, New Jersey 07652.
As of March 9, 1994, all executive officers and directors of the Company
as a group (15 persons) owned beneficially 3,224,297 shares of Common Stock
(including 2,738,089 shares with respect to which such persons had the right
to acquire beneficial ownership as of such date and shares beneficially owned
by the family members of certain executive officers and directors as to which
shares such executive officers and directors disclaim beneficial ownership),
which constituted approximately 1.1% of the shares deemed outstanding on that
date. Except for shares beneficially owned by such family members, such
executive officers and directors have sole voting power and sole investment
power with respect to such shares. In addition, as of March 9, 1994, Named
Officers (as hereinafter defined) not identified in the table above, Roger V.
Goddu, Executive Vice President- General Merchandise Manager of USA Toy
Stores, owned beneficially 58,523 shares of Common Stock and Richard L. Markee,
President of Kids "R" Us Division, owned beneficially 491 shares of Common
Stock (each less than 1% of the shares deemed outstanding on such date).
The Board of Directors held six meetings during the Company's last
fiscal year. The Board of Directors has an Executive Committee, a Nominating
Committee, an Audit Committee, a Management Compensation and Stock Option
Committee (the "Compensation Committee"), and an Operating Committee.
The Executive Committee of the Board of Directors has and may exercise
all the powers and authority of the full Board of Directors, subject to
certain exceptions. The Executive Committee took action twice by unanimous
written consent during the Company's last fiscal year.
Effective January 31, 1994, the Board of Directors designated a
Nominating Committee, consisting of Robert A. Bernhard, Charles Lazarus and
Harold M. Wit (Chairman). The Nominating Committee recommends to the Board of
Directors the individuals to be nominated for election as directors at the
annual meeting of stockholders and has the authority to recommend the
individuals to be elected as directors to fill any vacancies or additional
directorships which may arise from time to time on the Board of Directors.
The Nominating Committee considers nominations made in accordance with the
procedure in the following paragraph.
The Company's By-Laws provide that nominations for the election of
directors may be made by any stockholder in writing, delivered or mailed by
first class mail to the Secretary of the Company, Toys "R" Us, Inc., 461 From
Road, Paramus, New Jersey 07652, not less than 14 days nor more than 50 days
prior to the meeting, except that if less than 21 days' notice of the meeting
is given, such written notice shall be delivered or mailed not later than the
close of the tenth day following the day on which notice of the meeting was
mailed. Each notice shall set forth (i) the name, age, business address and,
if known, residence address of each nominee proposed in such notice, (ii) the
principal occupation or employment of each such nominee, and (iii) the number
of shares of stock of the Company which is beneficially owned by each such
nominee. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedure, such nomination shall be
disregarded.
The Audit Committee currently has as its members three directors who are
not officers or employees of the Company: Shirley Strum Kenny, Norman M.
Schneider and Harold M. Wit. Mr. Wit serves as the Audit Committee's
Chairman. The committee held two meetings during the last fiscal year. The
Audit Committee (i) reviews the procedures employed in connection with the
internal auditing program and accounting procedures, (ii) consults with the
independent public accountants, (iii) reviews the reports submitted by such
public accountants and (iv) makes such reports and recommendations to the
Board of Directors as it may deem appropriate.
The Compensation Committee has as its members three directors who are
not officers or employees of the Company: Robert A. Bernhard, Milton S. Gould
and Norman M. Schneider. The Compensation Committee held two meetings and
took action fifteen times by unanimous written consent during the last fiscal
year. The Compensation Committee reviews management compensation standards
and practices and functions as the independent Committee under the Company's
Stock Option Plan and will function as such under the Company's 1994 Stock
Option and Performance Incentive Plan if such plan is approved by stockholders
at the meeting. (See below, "Report of the Compensation Committee on
Executive Compensation" and "Proposal to Approve the 1994 Stock Option and
Performance Incentive Plan.")
The Operating Committee consists of three directors and has as its
members Charles Lazarus, Michael Goldstein and Robert C. Nakasone. The
Operating Committee is authorized to incur indebtedness on behalf of the
Company within limits established by the full Board. The Operating Committee
took action twenty-three times by unanimous written consent during the last
fiscal year.
4
Compensation of Directors
Directors who are not officers or employees of the Company or any of its
subsidiaries ("Non-Employee Directors") each receive $20,000 per annum for
service on the Board and an additional $1,000 for attending any meetings of
the Board and any committee meetings held on a date other than the date of
Board meetings. Directors who are also officers of the Company receive no
additional compensation for services as a director, committee participation or
special assignments.
In addition, effective November 1, 1993, each Non-Employee Director was
granted options to purchase 1,000 shares of Common Stock under the Company's
Non-Employee Directors' Stock Option Plan. Subject to certain conditions,
one-fifth of such options become exercisable on a cumulative basis on each
anniversary of the date of grant at an exercise price of $39.88 per share, the
market value of Common Stock on the date of grant. Options expire ten years
after the date of grant.
Executive Compensation
The following table sets forth, for the Company's last three fiscal
years, the annual and long-term compensation of those persons who were, at
January 29, 1994, (i) the chief executive officer and (ii) the other four most
highly compensated executive officers of the Company (the "Named Officers"):
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------- ------------
Shares of
Common Stock
Fiscal Underlying All Other
Name and Principal Position Year Ended Salary Bonus Options(#) Compensation(4)
- --------------------------- ---------- ------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Charles Lazarus 1/29/94 $315,000 $7,547,530 -0- $24,214
Chairman of the Board (1) 1/30/93 315,000 6,710,240 -0- 23,510
2/1/92 315,000 5,209,290 -0-
Michael Goldstein 1/29/94 175,000 772,753 425,000 25,942
Vice Chairman of the Board 1/30/93 175,000 689,024 -0- 25,175
and Chief Executive Officer (2) 2/1/92 175,000 538,929 -0-
Robert C. Nakasone 1/29/94 210,000 772,753 425,000 25,942
President and Chief Operating 1/30/93 210,000 689,024 -0- 25,175
Officer 2/1/92 210,000 538,929 -0-
Roger V. Goddu 1/29/94 200,000 257,584 190,000 25,942
Executive Vice President - 1/30/93 200,000 229,675 15,000 25,175
General Merchandise Manager 2/1/92 200,000 179,643 15,000
of USA Toy Stores
Richard L. Markee 1/29/94 275,000 157,885 72,500 25,942
President of
Kids "R" Us Division(3)
_________________
<FN>
(1) Served as Chief Executive Officer of the Company until January 31, 1994.
(2) Appointed Chief Executive Officer effective January 31, 1994.
(3) Prior to March 1, 1993, Mr. Markee was not an executive officer of the
Company.
(4) All Other Compensation represents the Company's contributions to the TRU
Partnership Employees' Savings and Profit Sharing Plan for the accounts of
the Named Officers. In accordance with the transitional provisions
applicable to the revised rules on executive officer and director
compensation disclosure adopted by the Securities and Exchange Commission,
amounts of All Other Compensation are excluded for the Company's fiscal
year ended February 1, 1992.
</TABLE>
5
The compensation of Charles Lazarus reported in the foregoing table was
determined pursuant to his employment agreement with the Company which was
entered into in 1978 and has subsequently been amended and extended several
times. The agreement provided for Mr. Lazarus' employment as Chief Executive
Officer until January 30, 1994 at a base salary of $315,000 and incentive
compensation equal to 1% of the Company's pre-tax profits in excess of
$18,000,000. Pursuant to the agreement, Mr. Lazarus terminated his employment
as Chief Executive Officer effective January 31, 1994 and exercised his right
to become a consultant to the Company for a five-year period. As a
consultant, Mr. Lazarus is obligated to render such consulting services as may
be requested by the Board of Directors at such times as may be mutually
convenient for the Company and Mr. Lazarus. Mr. Lazarus is entitled to
receive as compensation during the five-year consulting period the following
amounts: for the first year an amount equal to his total compensation (base
salary and incentive compensation) received for the full fiscal year prior to
his becoming a consultant (i.e., for the fiscal year ended January 29, 1994)
and for the second through fifth years, 90%, 80%, 70% and 60% of such amount,
respectively. The employment agreement also provides that Mr. Lazarus is
entitled to receive a payment of $200,000 a year for five years commencing at
the termination of his consulting period. During the term of Mr. Lazarus'
consulting period and for three years thereafter, he has agreed to refrain
from competing either directly or indirectly with any business carried on by
the Company.
The following table sets forth, for the Company's fiscal year ended
January 29, 1994, information concerning grants of stock options to the Named
Officers:
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants Grant Date Value
---------------------------------------------------- ----------------
Shares of
Common Stock % of Total
Underlying Options Granted Exercise
Options to Employees in Price Expiration Grant Date
Name Granted (#) Fiscal Year (4) (per share) Date Present Value(5)
- ---- ----------- --------------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Charles Lazarus -- -- -- -- --
Michael Goldstein 250,000(1) 4.43% $38.19 2/01/03 $5,107,500
175,000(2) 3.10% 40.94 12/07/03 3,608,500
Robert C. Nakasone 250,000(1) 4.43% 38.19 2/01/03 5,107,500
175,000(2) 3.10% 40.94 12/07/03 3,608,500
Roger V. Goddu 15,000(3) 0.27% 39.88 11/01/03 298,200
175,000(2) 3.10% 40.94 12/07/03 3,608,500
Richard L. Markee 7,500(3) 0.13% 38.50 2/17/03 154,050
15,000(3) 0.27% 39.88 11/01/03 298,200
50,000(2) 0.89% 40.94 12/07/03 1,031,000
_________________
<FN>
(1) Options granted effective February 1, 1993 under agreements between the
Company and such officers. Such options become exercisable in five equal
annual installments on the last day of the Company's fiscal year,
commencing with the fiscal year ended January 29, 1994, subject to certain
conditions.
(2) Performance Stock Options granted effective December 7, 1993 under the
Toys "R" Us, Inc. 1994 Stock Option and Performance Incentive Plan,
subject to stockholder approval of such Plan. One-half of such options
become exercisable, subject to certain conditions, if the market price of
Common Stock equals or exceeds $60 per share and the balance become
exercisable if the Common Stock reaches various market prices between $62
and $80 per share, in each case, within six years of the date of grant;
provided, however, that all such options become exercisable, subject to
certain conditions, on December 7, 2002. See "Report of the Compensation
Committee on Executive Compensation."
(3) Options granted effective February 17, 1993 or November 1, 1993 under the
Toys "R" Us, Inc. Stock Option Plan. Such options become exercisable four
years and nine months after the date of grant, provided that the grantee
remains in the employ of the Company.
(4) Based on a total of 5,645,280 options granted to 28,796 employees of the
Company.
(5) In accordance with Securities and Exchange Commission rules, the Black-
Scholes option pricing model was used to estimate the grant date present
value of the options set forth in this table. The Company's use of this
model should not be construed as an endorsement of its accuracy at valuing
options. All option valuation models, including Black-Scholes, require a
prediction about the future movement of the stock price. The actual
value, if any, an executive may realize will depend on the excess of the
stock price over the exercise price on the date the option is exercised.
The estimated values under the model are based on the following
assumptions and variables: (i) the exercise of all options occurs at their
expiration dates, (ii) the weighted five-year historic stock price
volatility of the Common Stock is 23% and (iii) for purposes of present
value calculations, the ten-year zero-coupon Treasury bond interest rate
at the date of grant was used.
</TABLE>
6
The following table sets forth, for the Company's fiscal year ended
January 29, 1994, information concerning the exercise of options by the Named
Officers and the value of unexercised options of the Named Officers:
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<CAPTION>
Shares of Common
Stock Underlying Value of Unexercised
Shares of Value Realized Unexercised In-the-Money
Common Stock (Market price Options at FY-End(#) Options at FY-End
Acquired at exercise less Exercisable/ Exercisable/
Name on Exercise(#) exercise price) Unexercisable Unexercisable
- ---- -------------- ---------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Charles Lazarus -- -- 900,000 $18,490,500
225,000 4,622,625
Michael Goldstein -- -- 612,500 12,754,688
375,000 --
Robert C. Nakasone -- -- 680,102 14,287,563
375,000 --
Roger V. Goddu -- -- 56,250 1,141,594
267,500 814,788
Richard L. Markee -- -- 0 --
110,000 406,463
</TABLE>
Report of the Compensation Committee
on Executive Compensation
Overview and Philosophy
The Compensation Committee of the Board of Directors is composed
entirely of non-management or outside directors. It has been delegated the
authority to review and consider the Company's management compensation
standards and practices and to recommend to the Board of Directors on an
annual basis the compensation to be paid to the executive officers of the
Company. In addition, the Compensation Committee administers the Company's
stock option plans and agreements and approves all grants to be made in
connection therewith. If the Company's 1994 Stock Option and Performance
Incentive Plan (the "1994 Plan") is approved by stockholders at the Annual
Meeting, the Compensation Committee will administer and approve grants under
the 1994 Plan. See "Proposal to Approve the 1994 Stock Option and Performance
Incentive Plan" below.
The Committee's compensation and stock option programs are designed so
that the Company may attract and retain talented managers and motivate such
managers to enhance profitability and stockholder returns. Over the past
several years, the Committee has implemented such objectives by having a
substantial portion of executive officers' cash compensation tied to annual
corporate earnings and by providing incentives to management through the use
of stock options. For the Company's last fiscal year, incentive cash bonuses
awarded at year's end constituted approximately 85% of the total cash
compensation paid to executive officers. In keeping with the Committee's
ongoing responsibility to review the Company's management compensation
practices, the Committee recommended to the Board of Directors a proposal to
adopt a new compensation structure for the current year. That proposal is
currently under review by the Board of Directors.
Chief Executive Officer's Compensation
The Compensation Committee did not determine the compensation of
Charles Lazarus, who served as the Company's Chief Executive Officer during
the past fiscal year. Since 1978, such compensation was fixed pursuant to the
employment agreement described above under the caption "Executive
Compensation." Mr. Lazarus's employment agreement provided for substantially
the same salary and incentive compensation formula during that period.
Effective January 31, 1994, Mr. Lazarus exercised his right under the
employment agreement to become a consultant to the Company and to cease to be
the Chief Executive Officer. Mr. Lazarus is continuing to serve as Chairman
of the Board and, for a five-year period, will continue to be compensated
pursuant to the foregoing agreement for services rendered to the Company as a
consultant. The compensation of Michael
7
Goldstein, who replaced Mr. Lazarus as Chief Executive Officer of the Company
on January 31, 1994, was determined for the preceding fiscal year as
described below under "Other Executive Officers' Compensation."
Other Executive Officers' Compensation
Each year, the Chief Executive Officer presents a proposal to the
Compensation Committee for executive officers' compensation. The Compensation
Committee reviews and considers such proposal and presents its recommendation
for adoption by the Board of Directors. Under the Company's current practice,
each executive officer of the Company receives a base salary, an incentive
cash bonus and long-term incentive compensation in the form of stock options.
In determining base salaries and incentive bonuses, the Compensation
Committee reviews compensation data regarding other specialty retailers,
selected on the basis of similarities in size and work environment. However,
the Committee is aware that the responsibilities and contributions of certain
of the Company's executive officers transcend those ordinarily associated with
their office titles. The Committee may also take into account an individual's
experience and performance as well as cost-of-living levels in the locality in
which the individual is based.
For the past fiscal year, base salary amounts for executive officers
were set somewhat below the levels of most specialty and other comparable
retailers and a substantial portion of compensation was keyed to earnings and
back-end loaded through a year-end incentive bonus. The total cash
compensation paid to the Company's executive officers for the past fiscal
year, however, is believed to be comparable to such other specialty retailers.
Each executive officer who was employed through the end of the past fiscal
year received a cash bonus either based on a percentage of the Company's
consolidated pre-tax earnings for the fiscal year or, in the case of certain
divisional officers, based on formulas relating to divisional profits.
Individual contributions were also taken into account in some circumstances.
The weight accorded to such individual contributions was determined
subjectively on a case-by-case basis.
With respect to its recommendation for the current fiscal year, the
Compensation Committee took special notice of management's contributions to
the continued success of the Company as a preeminent worldwide specialty
retailer, marked by the Company's growth in earnings during the past fiscal
year. The Committee also recognizes that management has initiated expansion
projects in several new markets. While the expenses of such expansion create
a charge against current reported earnings, they provide the structure for
sustained long-term earnings growth. In addition, the Company initiated a
franchise program with the first franchises located in the Middle East.
The Compensation Committee is authorized to award grants of stock
options to all employees, including executive officers. Generally, such
options have an exercise price equal to the market value of the Company's
Common Stock on the date of grant, become exercisable four years and nine
months after the date of grant and are contingent upon the optionee's
continued employment. The number of options granted to an individual varies
according to his or her job title.
In addition, in the past fiscal year, the Committee has awarded under
the 1994 Plan, subject to stockholder approval of such plan, performance stock
options to certain officers expected to make significant future contributions
to the Company. The performance stock options have an exercise price of
$40.94, the market price of the Company's Common Stock on the date of grant.
One-half of such options become exercisable, subject to certain conditions
including the continued employment of the optionee, if the market price of the
Common Stock equals or exceeds $60 per share and the balance become
exercisable if the Common Stock reaches various market prices between $62 and
$80 per share, in each case, within six years of the date of grant; provided,
however, that all such options become exercisable, subject to certain
conditions, nine years after the date of grant. The Committee may, but
currently has no plans to, make use of the alternative types of awards, such
as stock appreciation rights, restricted stock awards, performance shares,
and performance units, available under the 1994 Plan.
With respect to stock option awards in the past fiscal year, the
Compensation Committee took special notice of the Company's recent financial
performance, its improved competitive position as a toy retailer and the fact
that the Company is engaged in several long-term expansion projects around the
world. The success of such projects is considered to depend in large part on
the sustained vision and commitment of management in future years. Generally,
the Committee has granted stock options to those employees of the Company and
its subsidiaries who have satisfied certain continuous service requirements.
The Committee believes that option awards provide the necessary long-term
incentive to focus managers on building profitability and stockholder value.
In addition, with respect to certain senior executive officers, including the
Named Officers, the Committee took into account the amount of options
previously awarded to such officers. As a general rule, however, the
Committee monitors
8
aggregate grants of options on a year-by-year basis, determining awards
based on position classifications and performance, without taking into
account prior option grants or exercises by individual officers or
employees.
In addition, the Company provides health care benefits and profit
sharing and stock purchase plan contributions for executive officers on terms
generally available to all Company employees. The Compensation Committee
believes that such benefits are comparable to those offered by other specialty
retailers. The amount of perquisites, as determined in accordance with the
rules of the Securities and Exchange Commission relating to executive
compensation, did not exceed $50,000 or 10% of the total salary and bonus of
any executive officer in the last fiscal year.
Impact of Recent Tax Legislation
Under the Revenue Reconciliation Act of 1993, effective January 1,
1994, Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), was amended to eliminate the deductibility of certain compensation in
excess of $1 million paid to the chief executive officer and the four other
most highly-compensated officers. Compensation which is "performance-based"
or which is paid under certain written agreements entered into prior to
February 17, 1993 is exempted from such deduction limitation. The
determination of whether compensation is performance-based depends upon a
number of factors including stockholder approval of the plan under which the
compensation is paid, the exercise price at which options or similar awards
are granted, the disclosure to and approval by stockholders of applicable
performance standards, the composition of the compensation committee and the
certification by the compensation committee that performance standards were
satisfied.
The Compensation Committee intends that all compensation paid to
executive officers, to the extent possible, will qualify for deductibility
under Section 162(m) of the Code.
Robert A. Bernhard
Milton S. Gould
Norman M. Schneider
Members of the Management
Compensation and Stock
Option Committee
Five-Year Stockholder Return Comparison
Set forth below is a line-graph presentation comparing the cumulative
stockholder return on the Company's Common Stock, on an indexed basis, against
the cumulative total returns of the S&P Composite-500 Stock Index and the S&P
Specialty Retail Index for the period of the Company's last five fiscal years
(January 31, 1989 = 100):
<TABLE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN ON TOYS "R" US, INC.
COMMON STOCK, S&P COMPOSITE-500 AND S&P SPECIALTY RETAIL INDICES
<CAPTION>
Measurement Period Ended January 31,
----------------------------------------------------
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Toys "R" Us, Inc. 100 146.04 162.63 195.30 228.72 216.84
S&P 500 Index 100 114.46 124.07 152.22 168.33 190.00
S&P Specialty Retail Index 100 116.87 134.29 181.39 238.48 233.12
</TABLE>
9
Certain Transactions
In connection with the annual solicitation of proxies (as required by
law) and to receive updated lists of stockholders, the Company reimburses all
brokers or other persons holding stock in their names or in the names of their
nominees for expenses incurred in forwarding proxies and proxy material to the
beneficial owners of such stock. In 1993, approximately $195,500 was so
reimbursed to Automatic Data Processing, Inc., of which Charles Lazarus,
Chairman of the Board of Directors of the Company, is a director. In the
ordinary course of business, the Company purchases merchandise from The Gitano
Group, Inc. and Colgate-Palmolive Company, as well as their competitors.
Michael Goldstein, Vice Chairman and Chief Executive Officer and a director of
the Company, was until February 1994 a director of The Gitano Group, Inc., and
Reuben Mark, a director of the Company, is Chairman and Chief Executive
Officer of Colgate-Palmolive Company. Such purchases are all on bases
comparable to transactions with other vendors.
An Australian subsidiary of the Company is leasing a distribution
center and office space in Australia from an Australian subsidiary of Colgate-
Palmolive Company, of which Reuben Mark, a director of the Company, is
Chairman and Chief Executive Officer. The lease term is eight years, with the
size of the leased premises to increase over the term. The lease payments
were the Australian dollar equivalent of approximately US$200,000 in the
Company's fiscal year ended January 29, 1994 and are expected to increase over
the term to a maximum of approximately US$1,300,000 per fiscal year, subject
to market adjustments. The terms of the lease are at fair market value.
PROPOSED AMENDMENT OF THE RESTATED CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors of the Company is proposing to amend the
Restated Certificate of Incorporation of the Company to increase the number of
authorized shares of Common Stock from 550,000,000 to 650,000,000, and has
adopted and recommends that the stockholders approve the following resolution:
RESOLVED, that subject to the approval of the stockholders of the
Company, Article Fourth of the Restated Certificate of Incorporation of
the Company is hereby amended in its entirety to read as follows:
"FOURTH: The aggregate number of shares which the Corporation
shall have authority to issue is Six Hundred Fifty Million
(650,000,000) shares of Common Stock, par value $.10 per share."
As of April __, 1994, there were ___________ shares of Common Stock
outstanding and an additional ___________ shares were reserved for issuance in
connection with stock options granted under the Company's 1978 Stock Option
Plan or granted or available to be granted under the 1994 Plan (subject to
stockholder approval of such plan), and options granted to certain executive
officers. The additional authorized shares that would be available for
issuance if the proposed amendment is approved may be issued for any proper
corporate purpose by the Board of Directors at any time without further
corporate approval (subject, however, to applicable statutes or the rules of
the New York Stock Exchange which, should the Company choose to comply,
require stockholder approval for the issuance of shares in certain
circumstances). The Board of Directors believes it is desirable to give the
Company this flexibility in considering such matters as stock dividends,
raising additional capital, acquisitions or other corporate purposes. The
authorization of such shares will enable the Company to act promptly and
without additional expense if appropriate circumstances arise which require
the issuance of such shares. The Company has no present agreements or
commitments to issue any additional shares, other than in connection with
existing stock options, although the Board of Directors does regularly
consider the subject of stock dividends and has declared a number of stock
dividends in past years. Holders of Common Stock are not entitled to
preemptive rights, and to the extent that any additional shares of Common
Stock or securities convertible into Common Stock may be issued on other than
a pro rata basis to current stockholders, the present ownership portion of
current stockholders may be diluted. Depending upon the circumstances in
which additional shares of Common Stock are issued, the overall effects of
such issuance may be to render more difficult or to discourage a merger,
tender offer, proxy contest or the assumption of control by a holder of a
large block of Common Stock and the removal of incumbent management.
Management of the Company is not aware of any possible takeover attempts at
this time.
Vote Required
The affirmative vote of the holders of at least a majority of the
outstanding shares of Common Stock is required to approve the resolution to
amend the Restated Certificate of Incorporation.
10
The Board of Directors recommends that stockholders vote their shares
FOR the adoption of such resolution.
PROPOSAL TO APPROVE THE
1994 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
Introduction
On December 7, 1994, the Board of Directors of the Company ratified,
subject to stockholder approval, the Toys "R" Us, Inc. 1994 Stock Option and
Performance Incentive Plan (the "1994 Plan") which was established and
recommended by the Compensation Committee. The 1994 Plan is intended to
replace the Toys "R" Us, Inc. Stock Option Plan originally adopted on April 7,
1978 and last amended and restated as of April 22, 1993. The following is a
fair summary of the terms of the 1994 Plan, which is nevertheless qualified in
its entirety by reference to the complete text of the 1994 Plan attached to
this Proxy Statement as Exhibit A.
Purpose of Plan
The purpose of the 1994 Plan is to encourage and enable all employees
of the Company and its subsidiaries to acquire a proprietary interest in the
Company through the ownership of the Company's Common Stock, and other rights
with respect to the Common Stock. Such ownership will provide such employees
with a more direct stake in the future welfare of the Company and encourage
them to remain with the Company and its subsidiaries. It is also expected
that the 1994 Plan will encourage qualified persons to seek and accept
employment with the Company and its subsidiaries.
Number of Authorized Shares
The maximum aggregate number of shares of Common Stock available for
award under the Plan to employees of the Company and its subsidiaries is
15,000,000; provided, however, that no employee may receive awards of or
relating to more than 250,000 shares of Common Stock in the aggregate in any
fiscal year of the Company. Corresponding Tax Offset Payments (as defined
below) also may be awarded at the discretion of the Committee (as defined
below). The shares of Common Stock available under the 1994 Plan and all
awards are subject to adjustment in certain circumstances as hereinafter
described. Shares of Common Stock attributable to lapsed or forfeited awards
may become available for subsequent awards under the 1994 Plan.
Administration of the Plan
A committee of two or more outside directors (the "Committee") must be
designated to administer the 1994 Plan. The Committee must be composed of
disinterested directors. The determination of which members of the Board may
serve on the Committee will be made in accordance with the requirements of
Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") (and any regulations promulgated thereunder). The Committee has the
full power in its discretion to grant awards under the 1994 Plan, to determine
the terms thereof, to interpret the provisions of the 1994 Plan and to take
such action as it deems necessary or advisable for the administration of the
1994 Plan. The Board of Directors has authorized its Compensation Committee
to function as the Committee under the 1994 Plan.
Eligibility and Participation
All employees of the Company and its subsidiaries are generally
eligible to receive awards under the 1994 Plan. Approximately 31,000
employees of the Company and its subsidiaries are eligible to participate in
the 1994 Plan. The Company anticipates that substantially all of the eligible
employees will participate in the 1994 Plan. Participation in the 1994 Plan
is at the discretion of the Committee and shall be based upon the employee's
present and potential contributions to the success of the Company and its
subsidiaries and such other factors as the Committee deems relevant.
11
Type of Awards Under the Plan
If approved by the stockholders, the 1994 Plan provides that the
Committee may grant awards to employees in any of the following forms, subject
to such terms, conditions and provisions as the Committee may determine to be
necessary or desirable: (i) incentive stock options ("ISOs"), (ii)
nonstatutory stock options ("NSOs"), (iii) stock appreciation rights ("SARs"),
(iv) shares of Common Stock subject to certain restrictions ("Restricted
Shares"), (v) units representing shares of Common Stock ("Performance
Shares"), (vi) units which do not represent shares of Common Stock but which
may be paid in Common Stock ("Performance Units"), (vii) shares of
unrestricted Common Stock ("Unrestricted Shares") and (viii) tax offset
payments ("Tax Offset Payments").
Grant of Options and SARs
The Committee may award ISOs and/or NSOs to employees (collectively,
"Options"). SARs may be awarded either in tandem with Options ("Tandem SARs")
or on a stand-alone basis ("Nontandem SARs").
Option Price
The option price is determined by the Committee at the time of grant.
The option price determined with respect to an Option shall also be applicable
in connection with the exercise of any Tandem SAR granted with respect to such
Option. At the time of grant of a Nontandem SAR, the Committee will specify
the base price of the shares of Common Stock to be used for determining the
amount of cash or number of shares of Common Stock to be distributed upon the
exercise of such Nontandem SAR. Neither the option price per share of Common
Stock nor the base price of Nontandem SARs will be less than 100% of the
market price of the Common Stock on the date of such grant (provided,
however, that NSOs may have an option price not less than 90% of the market
price on the date of grant). Notwithstanding the foregoing, the option
price for each NSO granted to an employee who is considered a "covered
employee" (within the meaning of Section 162(m)(3) of the Code) on the date
of exercise shall not be less than 100% of the market price of the Common
Stock on the date of grant. The closing market price of the Common Stock,
as reported in the New York Stock Exchange Composite Transactions tables on
February 28, 1994, was $36.50 per share.
Vesting
The Committee will determine at the time of grant the terms under which
Options and SARs shall vest and become exercisable.
Special Limitations on ISOs
No ISO may be granted to an employee who owns, at the time of the
grant, stock representing more than 10% of the total voting power of all
classes of stock of the Company or its subsidiaries (a "10% Stockholder")
unless the option price for the shares subject to such ISO is at least 110% of
the market price on the date of grant and such ISO award is not exercisable
more than five years after its date of grant. In addition, the total fair
market value of shares subject to ISOs which are exercisable for the first
time by an employee in a given calendar year shall not exceed $100,000, valued
as of the date of the ISO's grant. ISOs may not be granted more than ten
years after the date of adoption of the 1994 Plan by the Board of Directors.
Exercise of Options and SARs
An Option may be exercised in whole or in part in accordance with
procedures to be established by the Committee. Common Stock purchased upon
the exercise of the Option shall be paid for in full at the time of purchase.
Such payment shall be made in cash or the Committee may, at its discretion,
accept shares of Common Stock as payment (valued at the market price on the
date of exercise).
Tandem SARs are exercisable only to the extent that the related Option
is exercisable and only for the period determined by the Committee. Upon
exercise of all or a portion of Tandem SARs, the related Option shall be
cancelled with respect to an equal number of shares of Common Stock.
Similarly, upon exercise of all or a portion of an Option, the related Tandem
SARs shall be cancelled with respect to an equal number of shares of Common
Stock. Nontandem SARs shall be exercisable for the period determined by the
Committee.
12
Surrender or Exchange of SARs
Upon surrender of a Tandem SAR and the related unexercised Option, the
employee will be entitled to receive shares of Common Stock having an
aggregate market price equal to (i) the market price of the shares subject to
the unexercised Option, less (ii) the aggregate option price specified in the
Option. Upon surrender of a Nontandem SAR, the employee will be entitled to
receive shares of Common Stock having an aggregate market price equal to (i)
the market price of the shares covered by the Nontandem SAR, less (ii) the
aggregate base price of such shares specified by the Committee. The
Committee, at its discretion, shall cause all or any portion of the payment to
be made in cash in lieu of Common Stock. Any fractional shares resulting from
the exercise of an SAR will be paid in cash.
Nontransferability of Options and SARs
Options and SARs are not transferable except by will or applicable laws
of descent and distribution; however, the Committee may authorize certain
transfers to the extent allowable under applicable law.
Expiration of Options
Options will expire at such time as the Committee determines; however,
an ISO may not be exercised more than ten years from the date of the grant,
unless held by a 10% Stockholder, in which case such ISO may not be exercised
more than five years from the date of grant.
Termination of Options and SARs
Except as expressly determined by the Committee in its sole discretion,
no Option or SAR shall be exercisable after 30 days following an employee's
termination of employment with the Company or a subsidiary, unless such
termination of employment occurs by reason of such employee's Disability,
Retirement, death or a Relocation Event or Special Event (each as defined in
the 1994 Plan). In addition, the Committee may, in its sole discretion, cause
any Option or SAR to be forfeited upon an employee's termination of employment
if the employee was terminated for cause (as defined in the 1994 Plan).
Restricted Shares
Restricted Shares granted under the 1994 Plan may not be sold,
transferred, pledged or otherwise encumbered or disposed of during the
restricted period established by the Committee. The Committee may also impose
additional restrictions on an employee's right to dispose of or encumber
Restricted Shares.
It is intended that the vesting of Restricted Shares will be based upon
performance goals established by the Committee which would include increases
in the market price of a share of Common Stock during the restricted period.
Holders of Restricted Shares may not exercise the rights of a
stockholder, such as the right to vote the shares or receive dividends and
other distributions.
Upon termination of an employee's employment, Restricted Shares granted
to such employee shall be forfeited; however, in the event of such employee's
death or total disability, the Committee shall have the discretion to
determine otherwise.
Performance Shares and Performance Units
The Committee may award Performance Shares equivalent to one share of
Common Stock and Performance Units which will have a specified value or
formula-based value at the end of a performance period. The Committee shall
determine performance periods and performance objectives in connection with
each grant of Performance Shares or Performance Units.
Vesting of awards of Performance Shares and Performance Units will
occur upon achievement of the applicable objectives within the applicable
performance period. It is intended that vesting of awards of Performance
Shares and Performance Units will be based upon performance goals established
by the Committee which would include, without limitation, increases in the
market price of a share of Common Stock during the performance
13
period. The Committee may, at its discretion, permit vesting in the event
performance objectives are partially met or grant additional vested Performance
Shares or Performance Units in the event performance objectives are surpassed.
Payment for vested Performance Shares and Performance Units may be in cash,
Common Stock or any combination thereof, as determined by the Committee.
No voting or dividend rights attach to the Performance Shares; however,
the Committee may credit an employee's Performance Share account with
additional shares equivalent to the fair market value of any dividends on an
equivalent number of shares of Common Stock.
Unrestricted Shares
Unrestricted Shares may also be granted at the discretion of the
Committee. No payment shall be required for Unrestricted Shares.
Tax Offset Payments
The Committee may make Tax Offset Payments to assist employees in
paying income taxes incurred as a result of their participation in the 1994
Plan. The number of shares with respect to which Tax Offset Payments may be
awarded will not exceed the number of shares available for issuance under the
1994 Plan. The amount of the Tax Offset Payments will be determined by
multiplying a percentage (established by the Committee) times all or a portion
of the taxable income recognized by an employee upon (i) the exercise of a NSO
or SAR; (ii) the disposition of shares received upon exercise of an ISO; (iii)
the lapse of restrictions on Restricted Shares; (iv) the award of Unrestricted
Shares or (v) payments of Performance Shares or Performance Units.
Adjustment Upon Changes in Capitalization
The number and class of shares available under the 1994 Plan may be
adjusted by the Committee to prevent dilution or enlargement of rights in the
event of various changes in the capitalizations of the Company. At the time
of grant of any award, the Committee may provide that the number and class of
shares issuable in connection with such award shall be adjusted in certain
circumstances to prevent dilution or enlargement of rights.
Amendment and Termination
The Board of Directors may suspend, amend, modify or terminate the 1994
Plan; however, the Company's stockholders must approve any amendment that
would (i) materially increase the aggregate number of shares issuable under
the 1994 Plan, (ii) materially increase the benefits accruing to employees
under the 1994 Plan, or (iii) materially modify the requirements for
eligibility to participate in the 1994 Plan.
Awards granted prior to a termination of the 1994 Plan shall continue
in accordance with their terms following such termination. No amendment,
suspension or termination of the 1994 Plan shall adversely affect the rights
of an employee in awards previously granted without such employee's consent.
Federal Income Tax Consequences
The following summary is based upon an analysis of the Code as
currently in effect, existing laws, judicial decisions, administrative
rulings, regulations and proposed regulations, all of which are subject to
change. Moreover, the following is only a summary of federal income tax
consequences and the federal income tax consequences to employees may be
either more or less favorable than those described below depending on their
particular circumstances.
Incentive Stock Options
All options that qualify under the rules of Section 422 of the Code
will be entitled to "incentive option" treatment. In general, neither the
grant nor the exercise of an ISO granted under the 1994 Plan will result in
taxable income to the employee or a deduction to the Company. However, the
excess of the fair market value of the Common Stock acquired upon exercise of
an ISO over the option price is included in the "alternative minimum taxable
income" of the optionee for the year in which the ISO is exercised and may
subject the optionee to increased taxes under the "alternative minimum tax."
To receive incentive option treatment, generally, the optionee must not
dispose (a "disqualifying disposition") of the Common Stock within two years
after the option
14
is granted and must hold the Common Stock itself for at least one year after
the transfer of such Common Stock to such optionee.
If Common Stock acquired pursuant to the exercise of an ISO is disposed
of in a disqualifying disposition, any gain realized by the optionee generally
will be taxable at the time of such disqualifying disposition as (i) ordinary
income to the extent of the difference between the exercise price and the
lesser of (a) the fair market value of the Common Stock on the date the ISO is
exercised or (b) the amount realized on such disqualifying disposition and
(ii) short-term or long-term capital gain to the extent of any excess of the
amount realized on the disposition over the fair market value of the Common
Stock on the date the ISO is exercised. Upon a disqualifying disposition, the
Company will be entitled to a deduction equal to the amount of ordinary income
recognized by the optionee at the time such income is recognized. The Company
will be required to satisfy applicable withholding requirements in order to be
entitled to a tax deduction.
Payment for Common Stock upon the exercise of an ISO may, at the
discretion of the Committee, be made in whole or in part with other shares of
Common Stock. In such a case, if an optionee uses stock acquired pursuant to
the exercise of any ISO to acquire other stock in connection with the exercise
of an ISO, it may result in ordinary income if the stock so used has not met
the minimum statutory holding period necessary to receive incentive stock
option treatment.
Nonstatutory Stock Options
Generally, no taxable income will be recognized by the optionee and no
deduction will be allowed to the Company upon the grant of a NSO. Upon
exercise of a NSO, an optionee generally will recognize an amount of ordinary
income and the Company will be entitled to a corresponding tax deduction equal
to the amount by which the fair market value of the shares on the exercise
date exceeds the exercise price. The Company will be required to satisfy
applicable withholding requirements in order to be entitled to a tax
deduction.
Stock Appreciation Rights, Performance Shares and Performance Units
There will be no federal income tax consequences to either the employee
or the Company upon the grant of a SAR, Performance Share or Performance Unit.
Generally, the employee will recognize ordinary income upon the receipt of
payment pursuant to a SAR, Performance Share or Performance Unit in an amount
equal to the fair market value of the Common Stock and the aggregate amount of
cash received. The Company generally will be entitled to a corresponding tax
deduction equal to the amount includible in the employee's income, but with
respect to a SAR, Performance Share or Performance Unit paid in Common Stock,
the Company must satisfy applicable withholding requirements in order to be
eligible for a corresponding tax deduction.
Restricted Shares
Generally, absent an election to be taxed currently under Section 83(b)
of the Code (a "Section 83(b) Election"), there will be no federal income tax
consequences to either the employee or the Company upon the grant of
Restricted Shares. At the expiration of the restriction period and the
satisfaction of any other restrictions applicable to the Restricted Shares,
the employee will recognize ordinary income and the Company will be entitled
to a corresponding deduction (if applicable withholding requirements are
satisfied) equal to the fair market value of the Common Stock at that time.
If a Section 83(b) Election is made within 30 days after the date the
Restricted Shares are received, the employee will recognize an amount of
ordinary income at the time of the receipt of the Restricted Shares and the
Company will be entitled to a corresponding deduction (if applicable
withholding requirements are satisfied) equal to the fair market value
(determined without regard to applicable restrictions) of the shares at such
time. If a Section 83(b) Election is made, no additional income will be
recognized by the employee upon the lapse of restrictions on the shares, but,
if the shares are subsequently forfeited, the employee may not deduct the
income that was recognized pursuant to the Section 83(b) Election at the time
of the receipt of the shares.
Unrestricted Shares
Generally, the employee will recognize ordinary income upon the receipt
of Unrestricted Shares in an amount equal to the fair market value of the
Common Stock when received. The Company generally will be entitled to a
corresponding tax deduction equal to the amount includible in the employee's
income if applicable withholding requirements are satisfied.
Tax Offset Payments
Tax Offset Payments will constitute additional ordinary income to an
employee when received by an employee or when used by the Company to satisfy
its withholding obligations with respect to an employee. The
15
Company will be entitled to a tax deduction equal to the amount of the Tax
Offset Payment included in an employee's income.
Persons Subject to Liability Under Section 16(b) of the Exchange Act
Special rules apply under the Code which may delay the timing and alter
the amount of income recognized with respect to awards granted to persons
subject to liability under Section 16(b) of the Exchange Act. Such persons
include directors, "officers" for purposes of Section 16 of the Exchange Act
and holders of more than 10% of the outstanding Common Stock.
Limitations on the Company's Compensation Deduction
As discussed in more detail in "Report of the Compensation Committee on
Executive Compensation" above, beginning in the current fiscal year, Section
162(m) of the Code will limit the deduction which the Company may take for
otherwise deductible compensation payable to certain executive officers of the
Company to the extent that compensation paid to such officers for such year
exceeds $1 million, unless such compensation is performance-based, is approved
by the Company's stockholders and meets certain other criteria. To date, only
proposed, and not final, Treasury Regulations have been issued with respect to
Section 162(m) of the Code. Although the Company intends that awards under
the 1994 Plan will satisfy the requirements to be considered performance-
based for purposes of Section 162(m) of the Code, there is no assurance such
awards will satisfy such requirements, and, accordingly, the Company may be
limited by Section 162(m) of the Code in the amount of deductions it would
otherwise be entitled to take (as described in the foregoing summary) with
respect to awards under the 1994 Plan. In addition, because the grant of
Unrestricted Shares and the payment of Tax Offset Payments will not be
conditioned upon the achievement of performance goals, the deduction
attributable to the grant of Unrestricted Shares and the payment of Tax
Offset Payments may be limited under Section 162(m) of the Code.
Tax Withholding
The Committee may require payment, or withhold payments made by the
1994 Plan, in order to satisfy applicable withholding tax requirements.
Approval of Plan
Approval of the 1994 Plan requires the affirmative vote of a majority
of the shares of Common Stock represented at the meeting in person or by
proxy.
The Board of Directors recommends that stockholders vote their shares
FOR approval of the 1994 Plan as described herein.
APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed and designated
Ernst & Young, independent auditors, New York, New York, to audit the books
and accounts of the Company for the fiscal year ending January 28, 1995.
Representatives of Ernst & Young are expected to be present at the
meeting and will be afforded the opportunity to make a statement if they
desire to do so, and such representatives are expected to be available to
respond to appropriate questions.
On July 20, 1992, the Audit Committee of the Board of Directors
replaced the Company's previous independent auditors, Deloitte & Touche, with
Ernst & Young effective with the fiscal year ended January 30, 1993. Ernst &
Young had previously been the accounting firm for certain of the Company's
foreign subsidiaries. The Company decided, because of the growth of its non-
United States operations and revenues and the desire for increased
efficiencies, to select a single accounting firm for the Company and all
subsidiaries. The reports of Deloitte & Touche on the Company's financial
statements for the years ended February 2, 1991 and February 1, 1992 did not
contain an adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. Since
January 29, 1990, the Company has not had any disagreements with Deloitte &
Touche on any matter of accounting principles or practices, financial
statements disclosure or auditing scope or procedures that would require
disclosure here.
16
STOCKHOLDERS' PROPOSALS
Proposals of stockholders to be presented at the annual meeting to be
held in 1995 must be received for inclusion in the Company's proxy statement
and form of proxy by December __, 1994.
By order of the Board of Directors
Andre Weiss
Secretary
April __, 1994
17
EXHIBIT A
TOYS "R" US, INC.
1994 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
A-1
TOYS "R" US, INC.
1994 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
TABLE OF CONTENTS
Page
ARTICLE 1. ESTABLISHMENT AND PURPOSE. . . . . . . . . . . . . . . . A-4
1.1 Establishment and Effective Date. . . . . . . . . . . . . A-4
1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . A-4
ARTICLE 2. AWARDS . . . . . . . . . . . . . . . . . . . . . . . . A-4
2.1 Form of Awards. . . . . . . . . . . . . . . . . . . . . . A-4
2.2 Maximum Shares Available. . . . . . . . . . . . . . . . . A-4
2.3 Return of Prior Awards. . . . . . . . . . . . . . . . . . A-4
ARTICLE 3. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . A-5
3.1 Committee . . . . . . . . . . . . . . . . . . . . . . . . A-5
3.2 Powers of Committee . . . . . . . . . . . . . . . . . . . A-5
3.3 Delegation. . . . . . . . . . . . . . . . . . . . . . . . A-5
3.4 Interpretations . . . . . . . . . . . . . . . . . . . . . A-5
3.5 Liability; Indemnification. . . . . . . . . . . . . . . . A-5
ARTICLE 4. ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . A-5
ARTICLE 5. STOCK OPTIONS. . . . . . . . . . . . . . . . . . . . . A-6
5.1 Grant of Options. . . . . . . . . . . . . . . . . . . . . A-6
5.2 Designation as Non-qualified Stock Option
or Incentive Stock Option . . . . . . . . . . . . . . . A-6
5.3 Option Price. . . . . . . . . . . . . . . . . . . . . . . A-6
5.4 Limitation on Amount of Incentive
Stock Options . . . . . . . . . . . . . . . . . . . . . . A-6
5.5 Limitation on Time of Grant . . . . . . . . . . . . . . . A-7
5.6 Exercise and Payment. . . . . . . . . . . . . . . . . . . A-7
5.7 Term of Options . . . . . . . . . . . . . . . . . . . . . A-7
5.8 Rights as Stockholder . . . . . . . . . . . . . . . . . . A-7
5.9 General Restrictions. . . . . . . . . . . . . . . . . . . A-7
5.10 Cancellation of Stock Appreciation Rights . . . . . . . . A-7
ARTICLE 6. STOCK APPRECIATION RIGHTS. . . . . . . . . . . . . . . A-7
6.1 Grants of Stock Appreciation Rights . . . . . . . . . . . A-7
6.2 Limitations on Exercise . . . . . . . . . . . . . . . . . A-7
6.3 Surrender or Exchange of Tandem Stock
Appreciation Rights . . . . . . . . . . . . . . . . . . A-8
6.4 Exercise of Nontandem Stock Appreciation Rights . . . . . A-8
6.5 Settlement of Stock Appreciation Rights . . . . . . . . . A-8
6.6 Cash Settlement . . . . . . . . . . . . . . . . . . . . . A-8
ARTICLE 7. NONTRANSFERABILITY OF OPTIONS AND STOCK
APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . A-8
ARTICLE 8. EFFECT OF TERMINATION OF EMPLOYMENT, RELOCATION EVENT,
DISABILITY, RETIREMENT, DEATH OR SPECIAL
EVENT . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
8.1 General Rule. . . . . . . . . . . . . . . . . . . . . . . A-9
8.2 Relocation Event. . . . . . . . . . . . . . . . . . . . . A-9
A-2
8.3 Disability or Retirement. . . . . . . . . . . . . . . . . A-9
8.4 Death . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
8.5 Special Event . . . . . . . . . . . . . . . . . . . . . . A-10
8.6 Leave of Absence. . . . . . . . . . . . . . . . . . . . . A-10
ARTICLE 9. RESTRICTED SHARES. . . . . . . . . . . . . . . . . . . A-10
9.1 Grant of Restricted Shares. . . . . . . . . . . . . . . . A-10
9.2 Restrictions. . . . . . . . . . . . . . . . . . . . . . . A-10
9.3 Restricted Stock Certificates . . . . . . . . . . . . . . A-11
9.4 Rights of Holders of Restricted Shares. . . . . . . . . . A-11
9.5 Forfeiture. . . . . . . . . . . . . . . . . . . . . . . . A-11
9.6 Delivery of Restricted Shares . . . . . . . . . . . . . . A-11
ARTICLE 10. PERFORMANCE SHARES . . . . . . . . . . . . . . . . . . A-11
10.1 Award of Performance Shares . . . . . . . . . . . . . . . A-11
10.2 Performance Period. . . . . . . . . . . . . . . . . . . . A-11
10.3 Right to Payment of Performance Shares. . . . . . . . . . A-11
10.4 Payment for Performance Shares. . . . . . . . . . . . . . A-11
10.5 Voting and Dividend Rights. . . . . . . . . . . . . . . . A-12
ARTICLE 11. PERFORMANCE UNITS. . . . . . . . . . . . . . . . . . . A-12
11.1 Award of Performance Units. . . . . . . . . . . . . . . . A-12
11.2 Right to Payment of Performance Units . . . . . . . . . . A-12
11.3 Payment for Performance Units . . . . . . . . . . . . . . A-12
ARTICLE 12. UNRESTRICTED SHARES. . . . . . . . . . . . . . . . . . A-13
12.1 Award of Unrestricted Shares. . . . . . . . . . . . . . . A-13
12.2 Delivery of Unrestricted Shares . . . . . . . . . . . . . A-13
ARTICLE 13. TAX OFFSET PAYMENTS. . . . . . . . . . . . . . . . . . A-13
ARTICLE 14. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. . . . . . . A-13
ARTICLE 15. AMENDMENT AND TERMINATION. . . . . . . . . . . . . . . A-13
ARTICLE 16. WRITTEN AGREEMENT. . . . . . . . . . . . . . . . . . . A-14
ARTICLE 17. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . A-14
17.1 Tax Withholding . . . . . . . . . . . . . . . . . . . . . A-14
17.2 Compliance With Section 16(b) . . . . . . . . . . . . . . A-14
17.3 Successors. . . . . . . . . . . . . . . . . . . . . . . . A-14
17.4 General Creditor Status . . . . . . . . . . . . . . . . . A-14
17.5 No Right to Employment. . . . . . . . . . . . . . . . . . A-14
17.6 Other Plans . . . . . . . . . . . . . . . . . . . . . . . A-14
17.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . A-15
17.8 Severability. . . . . . . . . . . . . . . . . . . . . . . A-15
17.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . A-15
A-3
TOYS "R" US, INC.
1994 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
ARTICLE 1.
ESTABLISHMENT AND PURPOSE
1.1 Establishment and Effective Date. Toys "R" Us, Inc., a
Delaware corporation (the "Corporation"), hereby establishes a stock
incentive plan to be known as the "Toys "R" Us, Inc. 1994 Stock Option
and Performance Incentive Plan" (the "Plan"). The Plan shall become
effective as of November 1, 1993, subject to the approval of the
Corporation's stockholders at the 1994 Annual Meeting of Stockholders.
In the event that such stockholder approval is not obtained, any awards
made hereunder shall be cancelled and all rights of employees with
respect to such awards shall thereupon cease. Upon approval by the
Board of Directors of the Corporation (the "Board") and the Board's
Management Compensation and Stock Option Committee (the "Committee"),
awards may be made as provided herein.
1.2 Purpose. The purpose of the Plan is to encourage and enable
all employees (subject to such requirements as may be prescribed by the
Committee) of the Corporation and its subsidiaries to acquire a
proprietary interest in the Corporation through the ownership of the
Corporation's common stock, par value $.10 per share ("Common Stock"),
and other rights with respect to the Common Stock. Such ownership will
provide such employees with a more direct stake in the future welfare of
the Corporation and encourage them to remain with the Corporation and
its subsidiaries. It is also expected that the Plan will encourage
qualified persons to seek and accept employment with the Corporation and
its subsidiaries.
ARTICLE 2.
AWARDS
2.1 Form of Awards. Awards under the Plan may be granted in any
one or all of the following forms: (i) incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"); (ii) non-
qualified stock options ("Non-qualified Stock Options") (unless
otherwise indicated, references in the Plan to "Options" shall include
both Incentive Stock Options and Non-qualified Stock Options); (iii)
stock appreciation rights ("Stock Appreciation Rights"), as described in
Article 6 hereof, which may be awarded either in tandem with Options
("Tandem Stock Appreciation Rights") or on a stand-alone basis
("Nontandem Stock Appreciation Rights"); (iv) shares of Common Stock
which are restricted as provided in Article 9 hereof ("Restricted
Shares"); (v) units representing shares of Common Stock, as described in
Article 10 hereof ("Performance Shares"); (vi) units which do not
represent shares of Common Stock but which may be paid in the form of
Common Stock, as described in Article 11 hereof ("Performance Units");
(vii) shares of Common Stock that are not subject to any conditions to
vesting ("Unrestricted Shares"); and (viii) tax offset payments ("Tax
Offset Payments"), as described in Article 13 hereof.
2.2 Maximum Shares Available. The maximum aggregate number of
shares of Common Stock available for award under the Plan is 15,000,000
subject to adjustment pursuant to Article 14 hereof. In addition, Tax
Offset Payments which may be awarded under the Plan will not exceed the
number of shares available for issuance under the Plan. Shares of
Common Stock issued pursuant to the Plan may be either authorized but
unissued shares or issued shares reacquired by the Corporation. In the
event that prior to the end of the period during which Options may be
granted under the Plan, any Option or any Nontandem Stock Appreciation
Rights under the Plan expires unexercised or is terminated, surrendered
or cancelled (other than in connection with the exercise of Stock
Appreciation Rights) without being exercised in whole or in part for any
reason, or any Restricted Shares, Performance Shares or Performance
Units are forfeited, or if such awards are settled in cash in lieu of
shares of Common Stock, then such shares or units shall be available for
subsequent awards under the Plan, upon such terms as the Committee may
determine.
2.3 Return of Prior Awards. As a condition to any subsequent
award, the Committee shall have the right, at its discretion, to require
employees to return to the Corporation awards previously
A-4
granted under the Plan. Subject to the provisions of the Plan, such new
award shall be upon such terms and conditions as are specified by the
Committee at the time the new award is granted.
ARTICLE 3.
ADMINISTRATION
3.1 Committee. Awards shall be determined, and the Plan shall
be administered, by the Committee as appointed from time to time by the
Board, which Committee shall consist of not less than two (2) members of
the Board. Except as permitted by Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Act"), and by Section 162(m) of the Code
(or Regulations promulgated thereunder), no member of the Board may
serve on the Committee if such member: (i) is or has been granted or
awarded stock, stock options, stock appreciation rights or any other
equity security or derivative security of the Corporation or any of its
affiliates pursuant to the Plan or any other plan of the Corporation or
its affiliates either while serving on the Committee or during the one
year period prior to being appointed to the Committee; (ii) is an
employee or former employee of the Corporation; or (iii) receives
remuneration from the Corporation, either directly or indirectly, in any
capacity other than as a director.
3.2 Powers of Committee. Subject to the express provisions of
the Plan, the Committee shall have the power and authority (i) to grant
Options and to determine the purchase price of the Common Stock covered
by each Option, the term of each Option, the number of shares of Common
Stock to be covered by each Option and any performance objectives or
vesting standards applicable to each Option; (ii) to designate Options
as Incentive Stock Options or Non-qualified Stock Options and to
determine which Options, if any, shall be accompanied by Tandem Stock
Appreciation Rights, (iii) to grant Tandem Stock Appreciation Rights and
Nontandem Stock Appreciation Rights and to determine the terms and
conditions of such rights; (iv) to grant Restricted Shares and to
determine the term of the restricted period and other conditions and
restrictions applicable to such shares; (v) to grant Performance Shares
and Performance Units and to determine the performance objectives,
performance periods and other conditions applicable to such shares or
units; (vi) to grant Unrestricted Shares; (vii) to determine the amount
of, and to make, Tax Offset Payments; and (viii) to determine the
employees to whom, and the time or times at which, Options, Stock
Appreciation Rights, Restricted Shares, Performance Shares, Performance
Units and Unrestricted Shares shall be granted.
3.3 Delegation. The Committee may delegate to one or more of
its members or to any other person or persons such ministerial duties as
it may deem advisable; provided, however, that the Committee may not
delegate any of its responsibilities hereunder if such delegation would
cause the Plan to fail to comply with the "disinterested administration"
rules under Section 16 of the Act. The Committee may also employ
attorneys, consultants, accountants or other professional advisors and
shall be entitled to rely upon the advice, opinions or valuations of any
such advisors.
3.4 Interpretations. The Committee shall have sole
discretionary authority to interpret the terms of the Plan, to adopt and
revise rules, regulations and policies to administer the Plan and to
make any other factual determinations which it believes to be necessary
or advisable for the administration of the Plan. All actions taken and
interpretations and determinations made by the Committee in good faith
shall be final and binding upon the Corporation, all employees who have
received awards under the Plan and all other interested persons.
3.5 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 the Plan or awards made thereunder, and each member of
the Committee shall be fully indemnified and protected by the
Corporation with respect to any liability he or she may incur with
respect to any such action, interpretation or determination, to the
extent permitted by applicable law and to the extent provided in the
Corporation's Certificate of Incorporation and Bylaws, as amended from
time to time, or under any agreement between any such member and the
Corporation.
ARTICLE 4.
ELIGIBILITY
Awards may be made to all employees of the Corporation or any of
its subsidiaries (subject to such requirements as may be prescribed by
the Committee); provided, however, that no employee may receive awards
of or relating to more than 250,000 shares of Common Stock in the
aggregate in any
A-5
fiscal year of the Corporation. Awards may be made to a director of the
Corporation who is not also a member of the Committee, provided that the
director is also an employee. In determining the employees to whom
awards shall be granted and the number of shares to be covered by each
award, the Committee shall take into account the nature of the services
rendered by such employees, their present and potential contributions to
the success of the Corporation and its subsidiaries and such other
factors as the Committee in its sole discretion shall deem relevant.
As used herein, the term "subsidiary" shall mean any present or
future corporation, partnership or joint venture in which the
Corporation owns, directly or indirectly, 40% or more of the economic
interests. Notwithstanding the foregoing, only employees of the
Corporation and any present or future corporation which is or may be a
"subsidiary corporation" of the Corporation (as such term is defined in
Section 424 (f) of the Code) shall be eligible to receive Incentive
Stock Options.
ARTICLE 5.
STOCK OPTIONS
5.1 Grant of Options. Options may be granted under the Plan for
the purchase of shares of Common Stock. Options shall be granted in
such form and upon such terms and conditions, including the satisfaction
of corporate or individual performance objectives and other vesting
standards, as the Committee shall from time to time determine.
5.2 Designation as Non-qualified Stock Option or Incentive Stock
Option. In connection with any grant of Options, the Committee shall
designate in the written agreement required pursuant to Article 16
hereof whether the Options granted shall be Incentive Stock Options or
Non-qualified Stock Options, or in the case both are granted, the number
of shares of each.
5.3 Option Price. The purchase price per share under each
Incentive Stock Option shall be the Market Price (as hereinafter
defined) of the Common Stock on the date the Incentive Stock Option is
granted. The purchase price per share under each Non-qualified Stock
Option shall be specified by the Committee, but in no event shall it be
less than 90% of the Market Price on the date the Non-qualified Stock
Option is granted. In no case, however, shall the purchase price per
share of either an Incentive Stock Option or Non-qualified Stock Option
be less than the par value of the Common Stock ($.10). Notwithstanding
the foregoing, to the extent required by the Code, the purchase price
per share under each Non-qualified Stock Option granted to an employee
who is treated as a "covered employee" (as defined in Section 162(m)(3)
of the Code) on the date such Non-Qualified Option is exercised shall
not be less than 100% of the Market Price of the Common Stock on the
date of grant. In the case of an Incentive Stock Option granted to an
employee owning (actually or constructively under Section 424(d) of the
Code), more than 10% of the total combined voting power of all classes
of stock of the Corporation or of a subsidiary (a "10% Stockholder"),
the option price shall not be less than 110% of the Market Price of the
Common Stock on the date of grant.
The "Market Price" of the Common Stock on any day shall be
determined as follows: (i) if the Common Stock is listed on a national
securities exchange or quoted through the NASDAQ National Market System,
the Market Price on any day shall be the average of the high and low
reported Consolidated Trading sales prices, or if no such sale is made
on such day, the average of the closing bid and asked prices reported on
the Consolidated Trading listing for such day; (ii) if the Common Stock
is quoted on the NASDAQ inter-dealer quotation system, the Market Price
on any day shall be the average of the representative bid and asked
prices at the close of business for such day; or (iii) if the Common
Stock is not listed on a national stock exchange or quoted on NASDAQ,
the Market Price on any day shall be the average of the high bid and low
asked prices reported by the National Quotation Bureau, Inc. for such
day. In no event shall the Market Price of a share of Common Stock sub-
ject to an Incentive Stock Option be less than the fair market value as
determined for purposes of Section 422(b)(4) of the Code.
The Option price so determined shall also be applicable in
connection with the exercise of any Tandem Stock Appreciation Rights
granted with respect to such Option.
5.4 Limitation on Amount of Incentive Stock Options. In the
case of Incentive Stock Options, the aggregate Market Price (determined
at the time the Incentive Stock Option is granted) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the
first time by any optionee during any calendar year (under all plans of
the Corporation and any subsidiary) shall not exceed $100,000.
A-6
5.5 Limitation on Time of Grant. No grant of an Incentive Stock
Option shall be made under the Plan more than ten (10) years after the
date the Plan is approved by stockholders of the Corporation.
5.6 Exercise and Payment. Options may be exercised in whole or
in part. Common Stock purchased upon the exercise of Options shall be
paid for in full at the time of purchase. Such payment shall be made in
cash or, in the discretion of the Committee, through delivery of shares
of Common Stock or a combination of cash and Common Stock, in accordance
with procedures to be established by the Committee. Any shares so
delivered shall be valued at their Market Price on the date of exercise.
Upon receipt of notice of exercise and payment in accordance with
procedures to be established by the Committee, the Corporation or its
agent shall deliver to the person exercising the Option (or his or her
designee) a certificate for such shares.
5.7 Term. The term of each Option granted hereunder shall be
determined by the Committee; provided, however, that, notwithstanding
any other provision of the Plan, in no event shall an Incentive Stock
Option be exercisable after ten (10) years from the date it is granted,
or in the case of an Incentive Stock Option granted to a 10%
Stockholder, five (5) years from the date it is granted.
5.8 Rights as a Stockholder. A recipient of Options shall have
no rights as a stockholder with respect to any shares issuable or
transferable upon exercise thereof until the date a stock certificate is
issued to such recipient representing such shares. Except as otherwise
expressly provided in the Plan, no adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
5.9 General Restrictions. Each Option granted under the Plan
shall be subject to the requirement that, if at any time the Board shall
determine, in its discretion, that the listing, registration or qual-
ification of the shares issuable or transferable upon exercise thereof
upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such
Option or the issue, transfer, or purchase of shares thereunder, such
Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board.
The Board or the Committee may, in connection with the granting of
any Option, require the individual to whom the Option is to be granted
to enter into an agreement with the Corporation stating that as a
condition precedent to each exercise of the Option, in whole or in part,
such individual shall if then required by the Corporation represent to
the Corporation in writing that such exercise is for investment only and
not with a view to distribution, and also setting forth such other terms
and conditions as the Board or the Committee may prescribe.
5.10 Cancellation of Stock Appreciation Rights. Upon exercise of
all or a portion of an Option, the related Tandem Stock Appreciation
Rights shall be cancelled with respect to an equal number of shares of
Common Stock.
ARTICLE 6.
STOCK APPRECIATION RIGHTS
6.1 Grants of Stock Appreciation Rights. Tandem Stock
Appreciation Rights may be awarded by the Committee in connection with
any Option granted under the Plan, either at the time the Option is
granted or thereafter at any time prior to the exercise, termination or
expiration of the Option. Nontandem Stock Appreciation Rights may also
be granted by the Committee at any time. At the time of grant of
Nontandem Stock Appreciation Rights, the Committee shall specify the
number of shares of Common Stock covered by such right and the base
price of shares of Common Stock to be used in connection with the
calculation described in Section 6.4 below. The base price of any
Nontandem Stock Appreciation Rights shall be not less than 100% of the
Market Price of a share of Common Stock on the date of grant. Stock
Appreciation Rights shall be subject to such terms and conditions not
inconsistent with the other provisions of the Plan as the Committee
shall determine.
6.2 Limitations on Exercise. Tandem Stock Appreciation Rights
shall be exercisable only to the extent that the related Option is
exercisable and shall be exercisable only for such period as the
Committee may determine (which period may expire prior to the expiration
date of the related Option). Upon the exercise of all or a portion of
Tandem Stock Appreciation Rights, the related Option shall be cancelled
A-7
with respect to an equal number of shares of Common Stock. Shares of
Common Stock subject to Options, or portions thereof, surrendered upon
exercise of Tandem Stock Appreciation Rights shall not be available for
subsequent awards under the Plan. Nontandem Stock Appreciation Rights
shall be exercisable during such period as the Committee shall
determine.
6.3 Surrender or Exchange of Tandem Stock Appreciation Rights.
Tandem Stock Appreciation Rights shall entitle the recipient to
surrender to the Corporation unexercised the related Option, or any
portion thereof, and to receive from the Corporation in exchange
therefor that number of shares of Common Stock having an aggregate
Market Price equal to (A) the excess of (i) the Market Price of one (1)
share of Common Stock as of the date the Tandem Stock Appreciation
Rights are exercised over (ii) the option price per share specified in
such Option, multiplied by (B) the number of shares of Common Stock
subject to the Option, or portion thereof, which is surrendered. Cash
shall be delivered in lieu of any fractional shares.
6.4 Exercise of Nontandem Stock Appreciation Rights. The
exercise of Nontandem Stock Appreciation Rights shall entitle the
recipient to receive from the Corporation that number of shares of
Common Stock having an aggregate Market Price equal to (A) the excess of
(i) the Market Price of one (1) share of Common Stock as of the date on
which the Nontandem Stock Appreciation Rights are exercised over (ii)
the base price of the shares covered by the Nontandem Stock Appreciation
Rights, multiplied by (B) the number of shares of Common Stock covered
by the Nontandem Stock Appreciation Rights, or the portion thereof being
exercised. Cash shall be delivered in lieu of any fractional shares.
6.5 Settlement of Stock Appreciation Rights. As soon as is
reasonably practicable after the exercise of any Stock Appreciation
Rights, the Corporation shall (i) issue, in the name of the recipient,
stock certificates representing the total number of full shares of
Common Stock to which the recipient is entitled pursuant to Section 6.3
or 6.4 hereof and cash in an amount equal to the Market Price, as of the
date of exercise, of any resulting fractional shares, and (ii) if the
Committee causes the Corporation to elect to settle all or part of its
obligations arising out of the exercise of the Stock Appreciation Rights
in cash pursuant to Section 6.6 hereof, deliver to the recipient an
amount in cash equal to the Market Price, as of the date of exercise, of
the shares of Common Stock it would otherwise be obligated to deliver.
6.6 Cash Settlement. The Committee, in its discretion, may cause
the Corporation to settle all or any part of its obligation arising out
of the exercise of Stock Appreciation Rights by the payment of cash in
lieu of all or part of the shares of Common Stock it would otherwise be
obligated to deliver in an amount equal to the Market Price of such
shares on the date of exercise.
ARTICLE 7.
NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS
No Option or Stock Appreciation Rights may be transferred,
assigned, pledged or hypothecated (whether by operation of law or
otherwise), except as provided by will or the applicable laws of descent
and distribution, and no Option or Stock Appreciation Rights shall be
subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of an
Option or Stock Appreciation Rights not specifically permitted herein
shall be null and void and without effect. An Option or Stock
Appreciation Rights may be exercised by the recipient only during his or
her lifetime, or following his or her death pursuant to Section 8.4
hereof.
Notwithstanding anything to the contrary in the preceding
paragraph, the Committee may, in its sole discretion, cause the written
agreement relating to any Non-qualified Stock Options or Stock
Appreciation Rights granted hereunder to provide that the recipient of
such Non-qualified Stock Options or Stock Appreciation Rights may
transfer any of such Non-qualified Stock Options or Stock Appreciation
Rights other than by will or the laws of descent and distribution in any
manner authorized under applicable law; provided, however, that in no
event may the Committee permit any transfers which would cause this Plan
to fail to satisfy the applicable requirements of Rule 16b-3 under the
Act, or would cause any recipient of awards hereunder to fail to be
entitled to the benefits Rule 16b-3 or other exemptive rules under
Section 16 of the Act or be subject to liability thereunder.
A-8
ARTICLE 8.
EFFECT OF TERMINATION OF EMPLOYMENT, RELOCATION EVENT,
DISABILITY, RETIREMENT, DEATH OR SPECIAL EVENT
8.1 General Rule. Except as expressly determined by the
Committee in its sole discretion, no Option or Stock Appreciation Rights
shall be exercisable after 30 days following the recipient's termination
of employment with the Corporation or a subsidiary, unless such
termination of employment occurs by reason of (i) a Relocation Event (as
defined in Section 8.2), (ii) Retirement (as defined in Section 8.3),
(iii) death or (iv) a Special Event (as defined in Section 8.5),
provided that, in the case of a Special Event, the Committee shall have
modified such Option or Stock Appreciation Rights to remain exercisable
as provided in Section 8.5.
Options and Stock Appreciation Rights shall not be affected by any
change of employment so long as the recipient continues to be employed
by either the Corporation or a subsidiary. The Committee may, in its
sole discretion, cause any Option or Stock Appreciation Rights to be
forfeited upon an employee's termination of employment if the employee
was terminated for one (or more) of the following reasons: (i) the
employee's conviction, or plea of guilty or nolo contendere to the
commission of a felony, (ii) the employee's commission of any fraud,
misappropriation or misconduct which causes demonstrable injury to the
Corporation or a subsidiary, (iii) an act of dishonesty by the employee
resulting or intended to result, directly or indirectly, in gain or
personal enrichment at the expense of the Corporation or a subsidiary,
(iv) any breach of the employee's fiduciary duties to the Corporation as
an employee or officer, or (v) a violation by the employee of the Toys
"R" Us Ethics Agreement or any other serious violation of a Corporation
policy. It shall be within the sole discretion of the Committee to
determine whether the employee's termination was for one of the
foregoing reasons, and the decision of the Committee shall be final and
conclusive.
8.2 Relocation Event. Options and Stock Appreciation Rights
granted to an employee shall remain outstanding after termination of
such employee's employment with the Corporation or a subsidiary, if such
termination solely occurs by reason of a "Relocation Event," which shall
be deemed to occur if (i) husband and wife are both current employees of
the Corporation, (ii) the Corporation transfers one spouse to a new
location, (iii) the Corporation is unable to offer the other spouse a
position that is substantially comparable to his or her current
position, and (iv) as a result, the other spouse's employment with the
Corporation is terminated and the other spouse, as recipient, holds
outstanding Options or Stock Appreciation Rights.
In case of a Relocation Event, the Options or Stock Appreciation
Rights held by a terminated employee shall be exercisable for a period
equal to the lesser of (i) the period such Options or Stock Appreciation
Rights would be exercisable absent the termination of such employee, and
(ii) the period such Options or Stock Appreciation Rights would be
exercisable if granted to the spouse continuing in the Corporation's
employ on the date originally granted to the terminated spouse.
8.3 Disability or Retirement. Except as expressly provided
otherwise in the written agreement relating to any Option or Stock
Appreciation Rights granted under the Plan, in the event of the
Disability or Retirement of a recipient of Options or Stock Appreciation
Rights, the Options or Stock Appreciation Rights which are held by such
recipient on the date of such Disability or Retirement, whether or not
otherwise exercisable on such date, shall be exercisable at any time
until the expiration date of the Options or Stock Appreciation Rights;
provided, however, that any Incentive Stock Option of such recipient
shall no longer be treated as an Incentive Stock Option unless exercised
within three (3) months of the date of such Disability or Retirement (or
within one (1) year in the case of an employee who is "disabled" within
the meaning of Section 22(e)(3) of the Code).
"Disability" shall mean any termination of employment with the
Corporation or a subsidiary because of a long-term or total disability,
as determined by the Committee in its sole discretion. "Retirement"
shall mean a termination of employment with the Corporation or a
subsidiary either (i) on a voluntary basis by a recipient who is at
least 60 years of age and has at least 15 years of service with the
Corporation or a subsidiary or (ii) otherwise with the written consent
of the Committee in its sole discretion. The decision of the Committee
shall be final and conclusive.
8.4 Death. In the event of the death of a recipient of Options
or Stock Appreciation Rights while an employee of the Corporation or any
subsidiary, Options or Stock Appreciation Rights which are held by such
employee at the date of death, whether or not otherwise exercisable on
the date of death, shall be exercisable by the beneficiary designated by
the employee for such purpose (the "Designated Beneficiary") or if no
Designated Beneficiary shall be appointed or if the Designated
Beneficiary shall
A-9
predecease the employee, by the employee's personal representatives,
heirs or legatees at any time within three (3) years from the date of
death (subject to the limitation in Section 5.7 hereof), at which time
such Options or Stock Appreciation Rights shall terminate; provided,
however, that any Incentive Stock Option of such recipient shall no
longer be treated as an Incentive Stock Option unless exercised within
three (3) months of the date of the recipient's death.
In the event of the death of a recipient of Options or Stock
Appreciation Rights following a termination of employment due to
Retirement, Disability or a Special Event (as defined in Section 8.5
hereof), if such death occurs before the Options or Stock Appreciation
Rights are exercised, the Options or Stock Appreciation Rights which are
held by such recipient on the date of termination of employment, whether
or not otherwise exercisable on such date, shall be exercisable by such
recipient's Designated Beneficiary, or if no Designated Beneficiary
shall be appointed or if the Designated Beneficiary shall predecease
such recipient, by such recipient's personal representatives, heirs or
legatees to the same extent such Options or Stock Appreciation Rights
were exercisable by the recipient following such termination of
employment.
8.5 Special Event. In the case of a Special Event, the
Committee in its sole discretion may elect to modify all or any lesser
number of any Options or Stock Appreciation Rights held by an employee
terminated as a result of a Special Event which are or are not
exercisable on the date of termination, to provide that any of such
Options or Stock Appreciation Rights may continue to be exercisable for
the term and in the manner specified therein or for such other term and
subject to such other provisions and conditions (including, without
limitation, acceleration of the time or times at which any such Options
or Stock Appreciation Rights may be exercised) as the Committee shall
specify. The Committee shall have the sole discretion to determine the
employees to whom and in the manner in which any such modification shall
be made. If the Committee does not elect to modify an Option or Stock
Appreciation Rights, then only Options and Stock Appreciation Rights
currently exercisable at the date of termination shall be exercisable as
provided in the first sentence of Section 8.1 hereof.
A "Special Event" shall mean (i) the sale or other disposition of
a subsidiary or division of the Corporation; (ii) the closing or
discontinuation of a specific operation of the Corporation or any
subsidiary; (iii) the elimination of job categories; or (iv) a limited
program of terminations in connection with a personnel reorganization or
restructuring of the Corporation or any subsidiary of the Corporation
scheduled to be completed on a date certain, provided, however, that
only those employees who meet the terms and conditions as established by
the Board or the Committee in its discretion shall be eligible to
receive accelerated vesting of Options and Stock Appreciation Rights.
8.6 Leave of Absence. In the case of an employee on an approved
leave of absence, the Options and Stock Appreciation Rights of such
employee shall not be affected unless such leave is longer than 13
weeks. The date of exercisability of any Options or Stock Appreciation
Rights of an employee which are unexercisable at the beginning of an
approved leave of absence lasting longer than 13 weeks shall be
postponed for a period equal to the length of such leave of absence.
Notwithstanding the foregoing, the Committee may, in its sole
discretion, waive in writing any such postponement of the date of
exercisability of any Options or Stock Appreciation Rights due to a
leave of absence.
ARTICLE 9.
RESTRICTED SHARES
9.1 Grant of Restricted Shares. The Committee may from time to
time cause the Corporation to grant Restricted Shares under the Plan to
employees, subject to such restrictions, conditions and other terms as
the Committee may determine.
9.2 Restrictions. At the time a grant of Restricted Shares is
made, the Committee shall establish a period of time (the "Restricted
Period") applicable to such Restricted Shares. Each grant of Restricted
Shares may be subject to a different Restricted Period. The Committee
may, in its sole discretion, at the time a grant is made, prescribe
restrictions in addition to or other than the expiration of the
Restricted Period, including the satisfaction of corporate or individual
performance objectives, which shall be applicable to all or any portion
of the Restricted Shares. The Committee may also, in its sole
discretion, shorten or terminate the Restricted Period or waive any
other restrictions applicable to all or a portion of such Restricted
Shares. None of the Restricted Shares may be sold, transferred,
assigned, pledged or otherwise encumbered or disposed of during the
Restricted Period or prior to the satisfaction of any other restrictions
prescribed by the Committee with respect to such Restricted Shares.
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9.3 Restricted Stock Certificates. The Corporation shall issue,
in the name of each employee to whom Restricted Shares have been
granted, stock certificates representing the total number of Restricted
Shares granted to the employee, as soon as reasonably practicable after
the grant. The Corporation, at the direction of the Committee, shall
hold such certificates, properly endorsed for transfer, for the
employee's benefit until such time as the Restricted Shares are
forfeited to the Corporation, or the restrictions lapse.
9.4 Rights of Holders of Restricted Shares. Holders of
Restricted Shares shall not have the right to vote such shares or the
right to receive any cash dividends with respect to such shares. All
distributions, if any, received by an employee with respect to
Restricted Shares as a result of any stock split, stock distribution, a
combination of shares, or other similar transaction shall be subject to
the restrictions of this Article 9.
9.5 Forfeiture. Any Restricted Shares granted to an employee
pursuant to the Plan shall be forfeited if the employee terminates
employment with the Corporation or its subsidiaries prior to the
expiration or termination of the Restricted Period and the satisfaction
of any other conditions applicable to such Restricted Shares. Upon such
forfeiture, the Restricted Shares that are forfeited shall be retained
in the treasury of the Corporation and available for subsequent awards
under the Plan, unless the Committee directs that such Restricted Shares
be cancelled upon forfeiture. If the employee's employment terminates
as a result of his or her Disability, Retirement or death, or a
Relocation Event or Special Event, Restricted Shares of such employee
shall be forfeited, unless the Committee, in its sole discretion, shall
determine otherwise.
9.6 Delivery of Restricted Shares. Upon the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee, the restrictions applicable to
the Restricted Shares shall lapse and a stock certificate for the number
of Restricted Shares with respect to which the restrictions have lapsed
shall be delivered, free of all such restrictions, to the employee or
the employee's beneficiary or estate, as the case may be.
ARTICLE 10.
PERFORMANCE SHARES
10.1 Award of Performance Shares. For each Performance Period
(as defined in Section 10.2), Performance Shares may be granted under
the Plan to such employees of the Corporation and its subsidiaries as
the Committee shall determine in its sole discretion. Each Performance
Share shall be deemed to be equivalent to one (1) share of Common Stock.
Performance Shares granted to an employee shall be credited to an
account (a "Performance Share Account") established and maintained for
such employee.
10.2 Performance Period. "Performance Period" shall mean such
period of time as shall be determined by the Committee in its sole
discretion. Different Performance Periods may be established for
different employees receiving Performance Shares. Performance Periods
may run consecutively or concurrently.
10.3 Right to Payment of Performance Shares. With respect to
each award of Performance Shares under the Plan, the Committee shall
specify performance objectives (the "Performance Objectives") which must
be satisfied in order for the employee to vest in the Performance Shares
which have been awarded to him or her for the Performance Period. If
the Performance Objectives established for an employee for the
Performance Period are partially but not fully met, the Committee may,
nonetheless, in its sole discretion, determine that all or a portion of
the Performance Shares have vested. If the Performance Objectives for a
Performance Period are exceeded, the Committee may, in its sole
discretion, grant additional, fully vested Performance Shares to the
employee. The Committee may also determine, in its sole discretion,
that Performance Shares awarded to an employee shall become partially or
fully vested upon the employee's Disability, Retirement or death, or
upon a Relocation Event or Special Event, or upon the termination of the
employee's employment prior to the end of the Performance Period.
10.4 Payment for Performance Shares. As soon as practicable
following the end of a Performance Period, the Committee shall determine
whether the Performance Objectives for the Performance Period have been
achieved (or partially achieved to the extent necessary to permit
partial vesting at the discretion of the Committee pursuant to Section
10.3). If the Performance Objectives for the Performance Period have
been exceeded, the Committee shall determine whether additional
Performance Shares shall be granted to the employee pursuant to Section
10.3. As soon as reasonably practicable after such determinations, or
at such later date as the Committee shall determine at the time
A-11
of grant, the Corporation shall pay to the employee an amount with
respect to each vested Performance Share equal to the Market Price of a
share of Common Stock on such payment date or, if the Committee shall so
specify at the time of grant, an amount equal to (i) the Market Price of
a share of Common Stock on the payment date less (ii) the Market Price
of a share of Common Stock on the date of grant of the Performance
Share. Payment shall be made entirely in cash, entirely in Common Stock
(including Restricted Shares) or in such combination of cash and Common
Stock as the Committee shall determine in its sole discretion.
10.5 Voting and Dividend Rights. Except as provided in Article
14 hereof, no employee shall be entitled to any voting rights, to
receive any cash dividends, or to have his or her Performance Share
Account credited or increased as a result of any cash dividends or other
distribution with respect to Common Stock. Notwithstanding the
foregoing, within sixty (60) days from the date of payment of a cash
dividend by the Corporation on its shares of Common Stock, the
Committee, in its sole discretion, may credit an employee's Performance
Share Account with additional Performance Shares having an aggregate
Market Price equal to the cash dividend per share paid on the Common
Stock multiplied by the number of Performance Shares credited to his or
her account at the time the cash dividend was declared.
ARTICLE 11.
PERFORMANCE UNITS
11.1 Award of Performance Units. For each Performance Period (as
defined in Section 10.2), Performance Units may be granted under the
Plan to such employees of the Corporation and its subsidiaries as the
Committee shall determine in its sole discretion. The award agreement
covering such Performance Units shall specify a value for each
Performance Unit or shall set forth a formula for determining the value
of each Performance Unit at the time of payment (the "Ending Value").
If necessary to make the calculation of the amount to be paid to the
employee pursuant to Section 11.3, the Committee shall also state in the
award agreement the initial value of each Performance Unit (the "Initial
Value"). Performance Units granted to an employee shall be credited to
an account (a "Performance Unit Account") established and maintained for
such employee.
11.2 Right to Payment of Performance Units. With respect to each
award of Performance Units under the Plan, the Committee shall specify
Performance Objectives which must be satisfied in order for the employee
to vest in the Performance Units which have been awarded to him or her
for the Performance Period. If the Performance Objectives established
for an employee for the Performance Period are partially but not fully
met, the Committee may, nonetheless, in its sole discretion, determine
that all or a portion of the Performance Units have vested. If the
Performance Objectives for a Performance Period are exceeded, the
Committee may, in its sole discretion, grant additional, fully vested
Performance Units to the employee. The Committee may, in its sole
discretion, adjust the Performance Objectives or the Initial Value or
Ending Value of any Performance Units to reflect extraordinary events,
such as stock splits, recapitalizations, mergers, combinations,
divestitures, spin-offs and the like. The Committee may also determine,
in its sole discretion, that Performance Units awarded to an employee
shall become partially or fully vested upon the employee's termination
of employment due to Disability, Retirement, death or otherwise, or upon
a Relocation Event or Special Event.
11.3 Payment for Performance Units. As soon as practicable
following the end of a Performance Period, the Committee shall determine
whether the Performance Objectives for the Performance Period have been
achieved (or partially achieved to the extent necessary to permit
partial vesting at the discretion of the Committee pursuant to Section
11.2). If the Performance Objectives for the Performance Period have
been exceeded, the Committee shall determine whether additional
Performance Units shall be granted to the employee pursuant to Section
11.2. As soon as reasonably practicable after such determinations, or
at such later date as the Committee shall determine at the time of
grant, the Corporation shall pay to the employee an amount with respect
to each vested Performance Unit equal to the Ending Value of the
Performance Unit or, if the Committee shall so specify at the time of
grant, an amount equal to (i) the Ending Value of the Performance Unit
less (ii) the Initial Value of the Performance Unit. Payment shall be
made entirely in cash, entirely in Common Stock (including Restricted
Shares) or in such combination of cash and Common Stock as the Committee
shall determine in its sole discretion.
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ARTICLE 12.
UNRESTRICTED SHARES
12.1 Award of Unrestricted Shares. The Committee may cause the
Corporation to grant Unrestricted Shares to employees at such time or
times, in such amounts and for such reasons as the Committee, in its
sole discretion, shall determine. No payment shall be required for
Unrestricted Shares.
12.2 Delivery of Unrestricted Shares. The Corporation shall
issue, in the name of each employee to whom Unrestricted Shares have
been granted, stock certificates representing the total number of
Unrestricted Shares granted to the employee, and shall deliver such
certificates to the employee as soon as reasonably practicable after the
date of grant or on such later date as the Committee shall determine at
the time of grant.
ARTICLE 13.
TAX OFFSET PAYMENTS
The Committee shall have the authority at the time of any award
under the Plan or anytime thereafter to make Tax Offset Payments to
assist employees in paying income taxes incurred as a result of their
participation in the Plan. The Tax Offset Payments shall be determined
by multiplying a percentage established by the Committee times all or a
portion (as the Committee shall determine) of the taxable income
recognized by an employee upon (i) the exercise of Non-qualified Stock
Options or Stock Appreciation Rights, (ii) the disposition of shares
received upon exercise of Incentive Stock Options, (iii) the lapse of
restrictions on Restricted Shares, (iv) the award of Unrestricted
Shares, or (v) payments for Performance Shares or Performance Units.
The percentage shall be established, from time to time, by the Committee
at that rate which the Committee, in its sole discretion, determines to
be appropriate and in the best interests of the Corporation to assist
employees in paying income taxes incurred as a result of the events
described in the preceding sentence. Tax Offset Payments shall be
subject to the restrictions on transferability applicable to Options and
Stock Appreciation Rights under Article 7.
ARTICLE 14.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Notwithstanding any other provision of the Plan, the Committee
may: (i) at any time, make or provide for such adjustments to the Plan
or to the number and class of shares available thereunder or (ii) at the
time of grant of any Options, Stock Appreciation Rights, Restricted
Shares or Performance Shares, provide for such adjustments to such
Options, Stock Appreciation Rights, Restricted Shares or Performance
Shares, in each case, as the Committee shall deem appropriate to prevent
dilution or enlargement of rights, including, without limitation,
adjustments in the event of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations or exchanges of
shares, separations, spin-offs, reorganizations, liquidations and the
like.
ARTICLE 15.
AMENDMENT AND TERMINATION
The Board may suspend, terminate, modify or amend the Plan,
provided that any amendment that would (i) materially increase the
aggregate number of shares which may be issued under the Plan,
(ii) materially increase the benefits accruing to employees under the
Plan, or (iii) materially modify the requirements as to eligibility for
participation in the Plan, shall be subject to the approval of the
Corporation's stockholders, except that any such increase or
modification that may result from adjustments authorized by Article 14
hereof shall not require such stockholder approval. If the Plan is
terminated, the terms of the Plan shall, notwithstanding such
termination, continue to apply to awards granted prior to such
termination. No suspension, termination, modification or amendment of
the Plan may, without the consent of the employee to whom an award shall
theretofore have been granted, adversely affect the rights of such
employee under such award.
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ARTICLE 16.
WRITTEN AGREEMENT
Each award of Options, Stock Appreciation Rights, Restricted
Shares, Performance Shares, Performance Units, Unrestricted Shares and
Tax Offset Payments shall be evidenced by a written agreement containing
such restrictions, terms and conditions, if any, as the Committee may
require. In the event of any conflict between a written agreement and
the Plan, the terms of the Plan shall govern.
ARTICLE 17.
MISCELLANEOUS PROVISIONS
17.1 Tax Withholding. The Corporation shall have the right to
require employees or their beneficiaries or legal representatives to
remit to the Corporation an amount sufficient to satisfy Federal, state
and local withholding tax requirements, or to deduct from all payments
under the Plan, including Tax Offset Payments, amounts sufficient to
satisfy all withholding tax requirements. Whenever payments under the
Plan are to be made to an employee in cash, such payments shall be net
of any amounts sufficient to satisfy all Federal, state and local
withholding tax requirements. The Committee may, in its sole
discretion, permit an employee to satisfy his or her tax withholding
obligation either by (i) surrendering shares owned by the employee or
(ii) having the Corporation withhold from shares otherwise deliverable
to the employee. Shares surrendered or withheld shall be valued at
their Market Price as of the date on which income is required to be
recognized for income tax purposes.
17.2 Compliance With Section 16(b). In the case of employees who
are or may be subject to Section 16 of the Act, it is the intent of the
Corporation that the Plan and any award granted hereunder satisfy and be
interpreted in a manner that satisfies the applicable requirements of
Rule 16b-3, so that such persons will be entitled to the benefits of
Rule 16b-3 or other exemptive rules under Section 16 of the Act and will
not be subjected to liability thereunder. If any provision of the Plan
or any award would otherwise conflict with the intent expressed herein,
that provision, to the extent possible, shall be interpreted and deemed
amended so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, such provision shall be deemed
void as applicable to employees who are or may be subject to Section 16
of the Act.
17.3 Successors. The obligations of the Corporation under the
Plan shall be binding upon any successor corporation or organization
resulting from the merger, consolidation or other reorganization of the
Corporation, or upon any successor corporation or organization
succeeding to all or substantially all of the assets and business of the
Corporation. In the event of any of the foregoing, the Committee may,
at its discretion prior to the consummation of the transaction and
subject to Article 15 hereof, cancel, offer to purchase, exchange,
adjust or modify any outstanding awards, at such time and in such manner
as the Committee deems appropriate and in accordance with applicable
law.
17.4 General Creditor Status. Employees shall have no right,
title, or interest whatsoever in or to any investments which the
Corporation may make to aid it in meeting its obligations under the
Plan. Nothing contained in the Plan, and no action taken pursuant to
its provisions, shall create or be construed to create a trust of any
kind, or a fiduciary relationship between the Corporation and any
employee or beneficiary or legal representative of such employee. To
the extent that any person acquires a right to receive payments from the
Corporation under the Plan, such right shall be no greater than the
right of an unsecured general creditor of the Corporation. All payments
to be made hereunder shall be paid from the general funds of the
Corporation and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such amounts
except as expressly set forth in the Plan.
17.5 No Right to Employment. Nothing in the Plan or in any
written agreement entered into pursuant to Article 16 hereof, nor the
grant of any award, shall confer upon any employee any right to continue
in the employ of the Corporation or a subsidiary or to be entitled to
any remuneration or benefits not set forth in the Plan or such written
agreement or interfere with or limit the right of the Corporation or a
subsidiary to modify the terms of or terminate such employee's
employment at any time.
17.6 Other Plans. Effective upon the adoption of the Plan by the
stockholders, no further awards shall be made under The Toys "R" Us,
Inc. Stock Option Plan, originally adopted on April 7, 1978 and last
amended and restated as of April 22, 1993 (the "Prior Plan").
Thereafter, all awards made under the Prior Plan prior to adoption of
the Plan by the stockholders shall continue in accordance with the terms
of the Prior Plan.
A-14
17.7 Notices. Notices required or permitted to be made under the
Plan shall be sufficiently made if personally delivered to the employee
or sent by regular mail addressed (a) to the employee at the employee's
address as set forth in the books and records of the Corporation or its
subsidiaries, or (b) to the Corporation or the Committee at the principal
office of the Corporation clearly marked "Attention: Stock Option
Committee."
17.8 Severability. In the event that any provision of the Plan
shall be held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining parts of the Plan, and the
Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
17.9 Governing Law. To the extent not preempted by Federal law,
the Plan, and all agreements hereunder, shall be construed in accordance
with and governed by the laws of the State of New York.
A-15
<PAGE>
[FRONT SIDE OF PROXY CARD]
TOYS "R" US, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 8, 1994
The undersigned hereby appoints MICHAEL GOLDSTEIN and ROBERT C.
NAKASONE, jointly and severally, proxies, with power of substitution, to vote
at the Annual Meeting of Stockholders of TOYS "R" US, INC. to be held June 8,
1994 (including adjournments), with all the powers the undersigned would
possess if personally present, as specified on the reverse side with respect
to the election of directors (including discretionary authority to accumulate
votes) and the other matters to be considered, and in accordance with their
discretion on any other business that may come before the meeting, and revokes
all proxies previously given by the undersigned with respect to the shares
covered hereby.
Election of Directors. Nominees:
Robert A. Bernhard, Michael Goldstein, Milton S. Gould, Shirley Strum Kenny,
Charles Lazarus, Reuben Mark, Howard W. Moore, Robert C. Nakasone, Norman M.
Schneider and Harold M. Wit.
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. In either event
please sign and return this card.
SEE REVERSE
SIDE
<PAGE>
[REVERSE SIDE OF PROXY CARD]
[X] Please mark your
votes as in this
example.
1. Election of Directors FOR WITHHELD
(see reverse). [ ] [ ]
For, except vote withheld from the following nominee(s):
________________________________________________________
2. Proposal to Amend the Company's FOR AGAINST ABSTAIN
Restated Certificate of [ ] [ ] [ ]
Incorporation to Authorize
Additional Shares of Common
Stock.
3. Proposal to Approve the FOR AGAINST ABSTAIN
Company's 1994 Stock Option [ ] [ ] [ ]
and Performance Incentive Plan
4. In their discretion upon such other business as may properly be
brought before the meeting.
If this proxy is properly executed and returned, the shares represented
hereby will be voted, if not otherwise specified (or unless
discretionary authority to accumulate votes is exercised), this proxy
will be voted for the named persons nominated as directors and for
proposals (2) and (3).
Please date and sign below exactly as name appears on this proxy.
Executors, administrators, trustees, etc. should give full title. If
shares are held jointly, each holder should sign.
Date _______________________________
____________________________________
Signatures
____________________________________
Signatures
