SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Toys "R" Us, Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[graphic]
JOHN H. EYLER, JR.
CHIEF EXECUTIVE OFFICER
461 From Road
Paramus, New Jersey 07652
May 1, 2002
Dear Stockholder:
I am pleased to invite you to our Company's 2002 Annual Meeting of
Stockholders on Wednesday, June 5, 2002, beginning at 9:00 a.m. The meeting will
be held at the 200 Fifth Club, 200 Fifth Avenue, New York, New York 10010.
The formal Notice of Annual Meeting and the Proxy Statement follow. It is
important that your shares be represented and voted at the meeting, regardless
of the size of your holdings. Accordingly, please mark, sign and date the
enclosed proxy and return it promptly in the enclosed envelope to ensure that
your shares will be represented.
If you plan to attend the Annual Meeting, please bring this letter with you
to the meeting, as it will serve as your admittance pass to the meeting.
Sincerely,
[graphic]
[graphic]
461 FROM ROAD
PARAMUS, NEW JERSEY 07652
---------------------------------------------
NOTICE OF ANNUAL MEETING
---------------------------------------------
DEAR TOYS "R" US STOCKHOLDER:
On Wednesday, June 5, 2002, Toys "R" Us, Inc. will hold its 2002 Annual
Meeting of Stockholders at the 200 Fifth Club, 200 Fifth Avenue, New York, New
York 10010. The meeting will begin at 9:00 a.m.
Only stockholders who owned stock at the close of business on April 10, 2002
can vote at this meeting or any adjournments that may take place. At the meeting
we will consider:
1. The election of a Board of Directors; and
2. Any other business properly presented at the meeting.
At the meeting we will also report on Toys "R" Us' 2001 business results,
plans for 2002 and other matters of interest to stockholders.
The Proxy Statement also contains The Toys "R" Us, Inc. Corporate Governance
Guidelines, discusses our compensation practices and philosophy, and describes
the Audit Committee's recommendation to the Board regarding our 2001 financial
statements. We encourage you to read these materials carefully.
Whether or not you expect to attend the meeting, we urge you to vote
promptly.
The approximate date of mailing for this proxy statement and card as well as
a copy of the Toys "R" Us 2001 Annual Report is May 1, 2002. For further
information about Toys "R" Us, please visit our web site at www.toysrusinc.com
(the information on our website is not part of this Notice of Annual Meeting or
the Proxy Statement).
[graphic]
CHRISTOPHER K. KAY
Executive Vice President - Operations and
General Counsel and Secretary
May 1, 2002
TABLE OF CONTENTS
Page
----
Questions and Answers...................................................... 1
Proposals on Which You May Vote............................................ 5
Nominees for the Board of Directors........................................ 6
Audit Committee Report..................................................... 8
Appointment of Auditors.................................................... 9
Board Committee Membership Roster.......................................... 10
Corporate Governance....................................................... 11
Directors' Compensation.................................................... 12
Directors' and Officers' Ownership of Toys "R" Us Stock.................... 13
Stock Performance Graph.................................................... 14
Compliance with Section 16(a).............................................. 14
Executive Compensation: Report of the Compensation and Organizational
Development Committee.................................................... 15
Executive Compensation:
Summary Compensation Table......................................... 17
Option Grant Table................................................. 18
Aggregated Option Exercises and Fiscal Year-End Values............. 19
Long-Term Incentive Plan Awards.................................... 19
Employment Agreements...................................................... 19
Exhibits
Exhibit A: Corporate Governance Guidelines of Toys "R" Us, Inc..... A-1
i
QUESTIONS AND ANSWERS
1. Q: Who is entitled to vote?
A: Stockholders as of the close of business on the record date of April
10, 2002 are entitled to vote at the Annual Meeting.
2. Q: How do I cast my vote?
A: There are four different ways you may cast your vote this year. You
may vote by:
(1) telephone, using the toll-free number listed on each proxy card
(if you are a stockholder of record) or vote instruction card (if
your shares are held by a bank or broker);
(2) the Internet, at the address provided on each proxy or vote
instruction card;
(3) marking, signing, dating, and mailing each proxy card or vote
instruction card and returning it in the envelope provided; or
(4) attending the meeting (if your shares are registered directly in
your name on Toys "R" Us' books and not held through a broker,
bank or other nominee).
If you are the stockholder of record (that is, if you hold your stock
in your name), you can vote by telephone or electronically through the
Internet by following the instructions provided on the proxy card. You
will need to use the individual control number that is printed on your
proxy card in order to authenticate your ownership.
If your shares are held in "street name" (that is, they are held in
the name of a broker, bank or other nominee) you will receive
instructions with your materials that you must follow in order to have
your shares voted. Please check your proxy or voting instructions card
to determine whether you will be able to vote by telephone or
electronically.
The deadline for voting by telephone or electronically is 11:59 a.m.
Eastern U.S. Time, June 4, 2002.
3. Q: How do I revoke or change my vote?
A: To revoke or change your vote:
(1) notify the Toys "R" Us Corporate Secretary in writing at any
time before the meeting;
(2) submit a later dated proxy by mail, telephone or via the
Internet; or
(3) vote in person at the meeting (if your shares are registered
directly in your name on the Toys "R" Us' books and not held
through a broker, bank, or other nominee).
The latest dated, properly completed proxy that you submit whether by
mail, telephone or the Internet will count as your vote. If a vote has
been recorded for your shares and you submit a proxy card that is not
properly signed or dated, the previously recorded vote will stand.
4. Q: Who will count the vote?
A: Representatives of American Stock Transfer & Trust Company, our
transfer agent, will count the votes and act as the inspector of
election.
5. Q: Is My Vote Confidential?
A: Yes, your vote is confidential. Only the inspectors of election and
certain employees associated with processing proxy cards and counting
the vote have access to your vote. All comments you direct to
management (whether written on the proxy card or elsewhere) will
remain confidential unless you ask that your name or comments be
disclosed.
1
6. Q: What shares are included on the proxy or vote instruction card(s)?
A: The shares on your proxy or vote instruction card(s) represent those
shares registered directly in your name or those held in "street name"
by your broker. If you do not cast your vote, your shares will not be
voted.
7. Q: What does it mean if I get more than one proxy or vote instruction card?
A: If your shares are registered differently and are in more than one
account, you will receive more than one card. Please complete and
return all of the proxy or vote instruction cards you receive (or vote
by telephone or the Internet) to ensure that all of your shares are
voted.
8. Q: How many shares can vote?
A: As of the April 10, 2002 record date, 197,312,349 shares of Toys "R"
Us common stock were issued and outstanding. Every stockholder of
common stock is entitled to one vote for each share held as of the
record date. In the election of directors, stockholders have
cumulative voting rights. Each stockholder is entitled to one vote
for each share held multiplied by the number of directors to be
elected. Each stockholder may cast all those votes for a single
director or may distribute them among all or some of the director
nominees.
9. Q: What is a "quorum"?
A: A "quorum" is a majority of the outstanding shares. They may be
present at the meeting or represented by proxy. There must be a quorum
for the meeting to be held, and a proposal must receive more than 50%
of the shares voting to be adopted. If you submit a timely, properly
executed proxy or vote instruction card, then you will be considered
part of the quorum, even if you abstain from voting.
Abstentions: Abstentions are not counted in the tally of votes FOR
or AGAINST a proposal. A WITHHELD vote is the same as an abstention.
Abstentions and withheld votes are counted as shares present and
entitled to be voted.
Broker Non-Votes: Broker non-votes occur when shares held by a broker
are not voted with respect to a proposal because (1) the broker has
not received voting instructions from the stockholder, and (2) the
broker lacks the authority to vote the shares at his/her discretion.
Thus, broker non-votes will not affect the outcome of any of the
matters being voted upon at the meeting, and they are not counted as
shares present and entitled to be voted with respect to the matter on
which the broker has not voted expressly.
10. Q: Who can attend the Annual Meeting?
A: All stockholders who owned shares on April 10, 2002 may attend. Just
check the box on your proxy or vote instruction card, or as indicated
on the Internet site, or press the appropriate key if voting by
telephone.
11. Q: How will voting on any other business be conducted?
A: If any other business is presented at the Annual Meeting, your
signed proxy or vote instruction card or your authenticated Internet
or telephone proxy gives authority to John H. Eyler, Jr., Toys "R"
Us' Chairman and Chief Executive Officer and Arthur B. Newman, a
Toys "R" Us Director and Chairman of the Audit Committee, to vote on
such matters at their discretion.
12. Q: Do I have to continue receiving multiple copies of the annual report
and proxy statement in the mail?
A: With your consent and the consent of other stockholders in your
household, we may send one set of the proxy statement and annual
report to a household where two or more Toys "R" Us stockholders
reside if we believe they are members of the same family. Each
consenting shareholder would continue to receive a separate notice of
annual meeting and proxy through the mail. This procedure, referred to
as
2
"householding," would reduce the volume of duplicate information you
receive, and would also reduce our Company's printing and mailing
costs.
(1) If you are a registered stockholder: contact our transfer agent
at (877) 777-0800 and arrange to receive only one copy of Toys
"R" Us' annual report and other mailings during the year,
regardless of the number of accounts you have; or
(2) If you hold shares through a stock broker: contact your broker
to determine if you are eligible to receive one set of
materials.
13. Q: Does any stockholder own 5% or more of Toys "R" Us' common stock?
A: The information below is based on a review of all statements on
Schedules 13D and 13G filed with the Securities and Exchange
Commission, except as otherwise known by the Company. As of April 10,
2002, these stockholders have reported the following ownership of Toys
"R" Us' common stock:
Stockholder Name and Address Shares Percent of Outstanding Shares
------------- ---------- -----------------------------
Harris Associates L.P.(1)
Two North LaSalle St.
Suite 500
Chicago, IL 60602........... 23,523,165 11.96
Brandes Investment Partners,
L.P.(2)
11988 El Camino Real
Suite 500
San Diego, CA 92130......... 21,025,745 10.66
Legg Mason, Inc.(3)
100 Light Street
Baltimore, MD 21202......... 14,812,068 7.53
--------
(1) According to the Amendment No. 2 to Schedule 13G, dated February 12,
2002, filed with the Securities and Exchange Commission (the
"Commission") by Harris Associates L.P., an Investment Adviser and
Delaware limited partnership, and Harris Associates Inc., a Delaware
corporation and the general partner of Harris Associates L.P.
(collectively, "Harris"), at December 31, 2001, Harris was the
beneficial owner of 23,523,165 shares of common stock with shared
voting power over all 3,523,165 shares, sole dispositive power over
7,599,665 shares and shared dispositive power over 15,923,500 shares.
12,798,500 shares for which Harris has shared voting and dispositive
power are held by the Harris Associates Investment Trust.
(2) According to the Schedule 13G/A, dated April 15, 2002, filed with the
Commission by Brandes Investment Partners, L.P., an Investment
Adviser and California limited partnership, Brandes Investment
Partners, Inc., Brandes Holdings, L.P., Charles H. Brandes, Glen R.
Carlson and Jeffrey A. Busby (collectively, "Brandes"), at March 31,
2002, Brandes was the beneficial owner of 21,025,745 shares of common
stock with shared voting power over 16,045,461 shares and shared
dispositive power over 21,025,745 shares.
(3) According to the Schedule 13G/A, filed with the Commission on
February 14, 2002, by Legg Mason, Inc., a parent holding company
incorporated in Maryland ("Legg Mason"), Legg Mason beneficially
owned 14,812,068 shares of common stock with shared voting power and
shared dispositive power over 14,812,068 shares. The Legg Mason
subsidiaries that acquired common stock were identified and
classified as follows: Legg Mason Funds Management, Inc., as
investment advisor; Legg Mason Wood Walker, Inc., as investment
adviser and broker/dealer with discretion; Legg Mason Capital
Management, Inc., as investment adviser and broker/dealer with
discretion; Brandywine Asset Management, Inc., as investment adviser
and Perigee Investment Counsel, Inc., as investment advisor.
14. Q: When are the stockholder proposals for the 2003 Annual Meeting due?
A: All stockholder proposals to be considered for inclusion in next
year's proxy statement must be submitted in writing to Christopher
K. Kay, Executive Vice President--Operations and General Counsel,
and Corporate Secretary, Toys "R" Us, Inc., 461 From Road, Paramus,
New Jersey 07652 by January 1, 2003.
Additionally, any stockholder proposal to be presented from the floor
of the 2003 Annual Meeting must be submitted in writing to Christopher
K. Kay at the above address, by March 17, 2003, and must be
accompanied by:
o the name, residence and business address of the proposing
stockholder;
3
o a representation that the stockholder is a record holder of Toys
"R" Us stock or holds Toys "R" Us stock through a broker and the
number of shares held; and
o a representation that the stockholder intends to appear in person
or by proxy at the 2003 Annual Meeting to present the proposal. A
proposal may be presented from the floor only after Toys "R" Us'
Board of Directors has determined that it is a proper matter for
consideration under our by-laws.
15. Q: Who pays the cost of soliciting proxies?
A: The Board of Directors of Toys "R" Us is soliciting this proxy and
Toys "R" Us will bear the cost of soliciting proxies pursuant to
this proxy statement. It is anticipated that the mailing of this
proxy statement will commence on or about May 1, 2002. In addition
to solicitation by mail, directors, officers and employees of the
Company may solicit proxies by telephone or otherwise. We also
reimburse brokerage houses and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for
forwarding proxy and solicitation materials to stockholders.
4
PROPOSALS ON WHICH YOU MAY VOTE
1. ELECTION OF DIRECTORS
There are 10 nominees for election this year. Detailed information on each
is provided on pages 6 and 7. All directors are elected annually, and serve
a one-year term until the next Annual Meeting or until a sucessor has been
elected. If any director is unable to stand for re- election, the board may
reduce its size or designate a substitute. If a substitute is designated,
proxy votes in favor of the original director candidate will be counted for
the substituted candidate.
Your Board unanimously recommends a vote FOR each of these directors.
5
NOMINEES FOR THE BOARD OF DIRECTORS
The Nominating Committee of the Board of Directors has proposed for election
at the Annual Meeting of Stockholders the 10 individuals listed below to serve
(subject to the Company's By-Laws) as directors of the Company until the next
annual meeting and until the election and qualification of their successors. All
of the nominees are current directors of the Company and were elected by the
stockholders at the annual meeting held in 2001, except for Roger N. Farah and
Peter A. Georgescu who were elected on September 7, 2001. If any person
nominated 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 is entitled to as many votes as
the number of shares they owned of record multiplied by the number of directors
to be elected, and may cast all of those votes for a single director or may
distribute them among all or some of the directors to be voted for, as the
stockholder sees fit. Unless contrary instructions are given, the persons named
in the proxy will have discretionary authority to accumulate votes in the same
manner.
Certain information for each nominee for director is set forth below:
NOMINEES FOR THE BOARD OF DIRECTORS
Principal Occupation
and Business
Name Age Experience during past
---- --- 5 years and other Directorships
----------------------------------------------------
RoAnn Costin................................ 49 years Director of the Company since June 1996; President of Reservoir
Capital Management, Inc., an investment management firm since
prior to 1997.
John H. Eyler, Jr........................... 54 years President, Chief Executive Officer and director of the Company
since 2000; Chairman of the Board since June 6, 2001; Chairman
and Chief Executive Officer of FAO Schwartz since prior to 1997
to January 16, 2000; director of Donna Karan International Inc.
Roger N. Farah.............................. 49 years Director of the Company since September 2001; President and
Chief Operating Officer of Polo Ralph Lauren and a member of
Polo Ralph Lauren's board of directors since April 2000; From
1994 until joining Polo Ralph Lauren, Mr. Farah was Chairman of
the Board and Chief Executive Officer of Venator Group, Inc.
Peter A. Georgescu.......................... 62 years Director of the Company since September 2001; Chairman Emeritus
of Young & Rubicam Inc. since January 2000; Chairman and Chief
Executive Officer of Young & Rubicam from 1994 until January
2000; director of Levi Straus & Co., Briggs & Stratton Corp.
and International Flavors & Fragrances, Inc.
6
Principal Occupation
and Business
Name Age Experience during past
---- --- 5 years and other Directorships
----------------------------------------------------
Michael Goldstein........................... 60 years Chairman of the Board of the Company from February 1998 to June
2001; Acting Chief Executive Officer of the Company from
September 1999 to January 2000; Vice Chairman of the Board and
Chief Executive Officer of the Company since prior to 1997 to
February 1998; director of the Company since 1989; director of
United Retail Group Inc., and director of Finlay Enterprises,
Inc.
Calvin Hill................................. 55 years Director of the Company since 1997; Independent Consultant since
prior to 1997; director of the Rand Corporation Drug Policy
Research Center, NCAA Foundation and The Special Olympics.
Nancy Karch................................. 54 years Director of the Company since 2000; Member of McKinsey Advisory
Council; director (Senior Partner) of McKinsey & Company from
1988 to 2000; director of Liz Claiborne, Garden Ridge
Corporation, Corporate Executive Board and the Westchester Land
Trust.
Charles Lazarus............................. 78 years Chairman Emeritus of the Board of the Company since February
1998; Chairman of the Board since prior to 1997 to February
1998; director of the Company since 1969; director of Loral
Space and Communication.
Norman S. Matthews.......................... 69 years Director of the Company since 1996; Independent retail
consultant since prior to 1997; President of Federated
Department Stores, Inc. from 1987 to 1988 and Vice Chairman of
the Board of Federated Department Stores, Inc. from 1983 to
1988; director of Gaylan's Trading Co., Henry Schein, Inc.,
Finlay Enterprises, Inc., Progressive Corp., and Sunoco, Inc.
Arthur B. Newman............................ 58 years Director of the Company since 1997; Senior Managing Director of
The Blackstone Group L.P., a private investment firm, since
prior to 1997.
On April 24, 1998, RoAnn Costin and Reservoir Capital Management, Inc.
("Reservoir"), an investment advisor as to which Ms. Costin is the sole officer,
director and stockholder, without admitting or denying the findings contained
therein (other than as to jurisdiction) consented to the issuance of an order by
the Commission in which the Commission (i) made findings that Reservoir and Ms.
Costin had violated portions of Sections 206, 204 and 207 of the Investment
Advisers Act of 1940 (the "Advisers Act") and certain rules promulgated
thereunder and (ii) ordered respondents to cease and desist from committing or
causing violation of certain provisions of the Advisers Act and the rules
promulgated thereunder; censured respondents and ordered payment of a civil
money penalty; and ordered Reservoir to comply with specified undertakings. The
Commission's order does not impact Ms. Costin's ability to serve as a director
of the Company.
7
AUDIT COMMITTEE REPORT
In accordance with its written charter adopted by the Board of Directors (the
"Board"), the Audit Committee of the Board (the "Committee") assists the Board
in fulfilling its responsibility for oversight of the quality and integrity of
the accounting, internal auditing, and financial reporting practices of the
Company and the independence and performance of the Company's independent
auditors. During fiscal 2001, the Committee met seven times.
In discharging its oversight responsibility as to the audit process, the
Committee obtained from the independent auditors a formal written statement
describing all relationships between the auditors and the Company that might
bear on the auditors' independence consistent with Independence Board Standard
No. 1, "Independence Discussions with Audit Committees," discussed with the
auditors any relationships that may impact their objectivity and independence
and satisfied itself as to the auditors' independence. The Committee has
considered whether the provision of non-audit services is compatible with
maintaining the auditors' independence. The Committee did not identify any
factors that would indicate such an impairment. The Committee also discussed
with management, the internal auditors and the independent auditors the quality
and adequacy of the Company's internal controls and the internal audit
function's organization, responsibilities, budget and staffing. The Committee
reviewed with both the independent and the internal auditors their audit plans,
audit scope, and identification of audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Committee also discussed the results of the
internal audit examinations.
The Committee reviewed the audited financial statements of the Company as of
and for the fiscal year ended February 2, 2002, with management and the
independent auditors. Management has the responsibility for the preparation of
the Company's financial statements and the independent auditors have the
responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Committee recommended to the Board that the Company's
audited financial statements be included in its Annual Report on Form 10-K for
the fiscal year ended February 2, 2002, for filing with the Securities and
Exchange Commission. The Committee also recommended the reappointment of Ernst &
Young LLP as independent auditors of the Company and the Board concurred in such
recommendation.
Arthur B. Newman, Chair
RoAnn Costin
Nancy Karch
Members of the Audit
Committee of the
Board of Directors
8
APPOINTMENT OF AUDITORS
The Board of Directors has appointed Ernst & Young LLP as the Company's
independent auditors to conduct the audit of the Company's books and records for
the fiscal year ending February 1, 2003. Ernst & Young LLP also served as the
Company's independent auditors for the previous fiscal year. Representatives of
Ernst & Young LLP are expected to be present at the Annual Meeting to respond to
questions and to make a statement should they so desire.
Audit Fees
The aggregate fees billed by Ernst & Young LLP and the member firms of Ernst
& Young, and their respective affiliates (collectively, "Ernst & Young") for
professional services rendered for the audit of the Company's annual financial
statements for the fiscal year ended February 2, 2002 and for the reviews of the
financial statements included in the Company's Quarterly Reports on Form 10-Q
for that fiscal year, and for other services rendered during that fiscal year on
behalf of the Company were as follows:
Audit Fees ........................................................ $1,330,000
Financial Information Systems Design and Implementation Fees (a) .. -
Other Fees:
Audit-Related and Tax Service Fees (b) ........................... $1,461,000
Other Fees ....................................................... $ 95,000
Total Other Fees ................................................. $1,556,000
It is expected that Ernst & Young will continue to provide additional
auditing and tax services to the Company; however, the Company will not engage
Ernst & Young for financial information systems design and implementation
services and will continue its practice of not using its independent auditors
for internal auditing services.
---------------
(a) Ernst & Young was not engaged to perform work in connection with Financial
Information Systems Design and Implementation.
(b) Includes fees for tax services, audits of employee benefit plans,
procedures related to registration statements and consultation on
accounting matters.
9
BOARD COMMITTEE MEMBERSHIP ROSTER1
Compensation and
Corporate Organizational
Name Audit2 Governance Executive Nominating Development
---- ------ ---------- --------- ---------- -----------
RoAnn Costin X X
-----------------------------------------------------------------------------------------------------------------------------------
John H. Eyler, Jr. X
-----------------------------------------------------------------------------------------------------------------------------------
Roger N. Farah
-----------------------------------------------------------------------------------------------------------------------------------
Peter A. Georgescu
-----------------------------------------------------------------------------------------------------------------------------------
Michael Goldstein X X3
-----------------------------------------------------------------------------------------------------------------------------------
Calvin Hill X3 X
-----------------------------------------------------------------------------------------------------------------------------------
Nancy Karch X X
-----------------------------------------------------------------------------------------------------------------------------------
Charles Lazarus X
-----------------------------------------------------------------------------------------------------------------------------------
Norman S. Matthews X X X3
-----------------------------------------------------------------------------------------------------------------------------------
Arthur B. Newman X3 X X
-----------------------------------------------------------------------------------------------------------------------------------
Number of Meetings in Fiscal Year 2001 7 1 1 2 4
-----------------------------------------------------------------------------------------------------------------------------------
---------------
1 Information presented as of February 2, 2002.
2 All members of the Audit Committee are "independent" as defined in the
listing standards of the New York Stock Exchange.
3 Committee Chairperson.
There is no family relationship among any of the directors or executive
officers of the Company.
The Board of Directors met seven times during the Company's last fiscal year.
The Board of Directors has an Executive Committee, a Nominating Committee, an
Audit Committee, a Compensation and Organizational Development Committee (the
"Compensation Committee"), and a Corporate Governance Committee. Each current
director attended 75% or more of the aggregate number of meetings of the Board
of Directors and Board Committees on which he or she served that were held
during such period.
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 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 Company's By-Laws provide that nominations for the election of directors
may be made by any stockholder of at least $1,000 in current value of shares of
the Company entitled to vote for the election of directors in writing, delivered
or mailed to the executive offices of the Company, Toys "R" Us, Inc., 461 From
Road, Paramus, New Jersey 07652, not less than 90 days nor more than 120 days
prior to the meeting, except that if less than 100 days notice of the meeting is
given, such written notice shall be delivered or mailed not later than the close
of business on the tenth day following the day on which notice of the meeting
was mailed. Each notice shall set forth: (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director: (i)
the name, age, business address and residence address of such person; (ii) the
principal occupation or employment of such person; (iii) the class and number of
shares of the Company that are beneficially owned by such person; and (iv) any
other information that is required to be disclosed in solicitations of proxies
for election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934 (including without
limitation such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (b) as to the
Company's stockholder giving the notice: (i) the name and address, as they
appear on the Company's books, of such stockholder; (ii) the class and number of
shares of the Company that are beneficially owned by such stockholder as of the
record date; (iii) a representation that the stockholder intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice; and (iv) a description of all arrangements or understandings between
the stockholder and
10
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedure, such nomination will be
disregarded.
The Audit Committee: (i) reviews the procedures employed in connection with
the internal auditing program and accounting procedures; (ii) obtains from the
independent auditors a written statement identifying all relationships between
the auditors and the Company and recommends to the Board appropriate action to
address and resolve any issues affecting independence of the auditors; (iii)
consults with the independent auditors, including with respect to review of the
Company's quarterly financial statements, and reviews the reports submitted by
such independent auditors; and (iv) makes such reports and recommendations to
the Board of Directors as it may deem appropriate.
The Compensation Committee reviews management compensation standards and
practices and functions as the independent committee under certain of the
Company's compensation plans. (See "Executive Compensation: Report of the
Compensation and Organizational Development Committee.")
The Corporate Governance Committee: (i) reviews compliance with the "insider
trading" rules of the NYSE and the Commission; (ii) reviews that proper
guidelines are established for compliance with laws in the jurisdictions in
which the Company does business; (iii) periodically reviews the Company's Code
of Ethical Standards and Business Practices and Conduct, the Code of Conduct,
the Corporate Governance Guidelines and compliance thereunder; and (iv) reviews
stockholder proposals.
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee are Messrs. Hill,
Matthews and Newman, none of whom is a current or former officer or employee of
the Company. There were no "Compensation Committee Interlocks" during fiscal
year 2001.
CORPORATE GOVERNANCE
The Board of Directors is responsible for the control and direction of the
Company. It represents and is accountable only to stockholders. The Board's
primary purpose is to build long-term stockholder wealth. The Board delegates
the conduct of business to the Toys "R" Us senior management team. The Board
believes it is in the best interest of the stockholders to ensure that Toys "R"
Us follows superior corporate governance practices. To this end, the Board has
adopted the Corporate Governance Guidelines of Toys "R" Us, Inc. The Corporate
Governance Guidelines of Toys "R" Us, Inc. are attached to this proxy statement
as Exhibit A.
The Board of Directors has the legal responsibility for overseeing the
affairs of the Company and, thus, an obligation to keep informed about the
Company's business and strategies. The role that the Board plays is inextricably
linked to the development and review of the Company's strategic plan. This
involvement enables the Board to provide guidance to management in formulating
and developing plans and to exercise independently its decision- making
authority on matters of importance to the Company. Acting as a full Board and
through the Board's five committees, the Board is fully involved in the
Company's strategic planning process. Each year, the Board devotes one meeting
to develop, discuss and refine the Company's long-range operating plan and
overall corporate strategy. Following the Board's annual strategic planning
meeting, the Board reviews the progress of one or more strategic initiatives at
each scheduled meeting. In addition, throughout the entire year directors may
add strategic planning items to the agenda of any Board meeting.
Specific operating priorities are developed to effectuate the Company's
long-range plan. Some of the priorities are short-term in focus; others are
based on longer-term planning horizons. Senior management reviews the
conclusions reached by the Board and is charged with implementing those
conclusions. At subsequent Board meetings, the Board continues to substantively
review the Company's progress against its strategic plans and to exercise
oversight and decision-making authority regarding strategic areas of importance.
For example, the Board annually reviews the Company's overall annual performance
and considers the following year's operating budget and capital expenditures
plan. The Board establishes specific criteria against which the Company's
performance will be evaluated for that year. Through the established procedures,
the Board, consistent with good corporate
11
governance, encourages the long-term success of the Company by exercising sound
and independent business judgment on the strategic issues that are important to
the Company's business.
DIRECTORS' COMPENSATION
Directors who are not officers or employees of the Company or any of its
subsidiaries ("Non-Employee Directors") are compensated pursuant to: (i) the
Non-Employee Directors' Stock Option Plan (the "Directors' Option Plan"); (ii)
the Non-Employee Directors' Stock Unit Plan (the "Directors' Unit Plan"); and
(iii) the Non-Employee Directors' Deferred Compensation Plan (the "Directors'
Deferred Plan"). Each of the Directors' Option Plan, Directors' Unit Plan, and
Directors' Deferred Plan was approved by stockholders and became effective on
June 10, 1999. Directors who are also officers or employees of the Company
receive no additional compensation for services as a Director, Committee
participation, or special assignments.
Non-Employee Directors receive an annual cash retainer of $30,000 for service
on the Board. Meeting fees are paid in the form of stock units valued at $1,500
for each Board meeting attended and $1,000 for each Committee meeting attended.
Each Non-Employee Director who serves as a Chairperson of a Committee receives
additional stock units valued at $10,000. Each Non-Employee Director who serves
on the Executive Committee receives additional stock units valued at $35,000.
New Non-Employee Directors receive stock units valued at $50,000 after six
months of service. Stock units generally vest one year from the initial award
date and are awarded and valued, pending vesting, during the first week of each
fiscal quarter. Unless a deferral election is made, stock units will generally
be settled: (i) by delivery of common stock upon vesting; or (ii) upon
termination due to a Non-Employee Director's earlier (a) death; (b) retirement
after age 60 at least six months after the date of the award; (c) resignation to
enter public service; or (d) disability.
Non-Employee Directors are granted stock options pursuant to the Directors'
Option Plan. Non-Employee Directors were granted options to purchase 30,000
shares of stock on June 10, 1999, and will receive a further grant of an option
to purchase 30,000 shares on each three-year anniversary of such original option
grant date. In addition, new Non-Employee Directors are entitled to receive
stock option grants after one year of service, to purchase a pro-rated number of
shares of common stock based on the number of months remaining in any respective
three-year cycle of options granted to existing Non-Employee Directors. Subject
to certain exceptions, one-third of such options become exercisable on a
cumulative basis on each of the third, fourth, and fifth anniversaries of the
date of grant. Non-Employee Directors may elect to receive the grant of an
option in lieu of the payment of all or any portion of the annual cash retainer
or stock units at the exchange ratio specified by the Directors' Option Plan and
in accordance with the terms and conditions of the Plan.
Pursuant to the Directors' Deferred Plan, Non-Employee Directors can elect to
defer compensation, which may be in the form of cash, shares of stock, stock
units, and shares of common stock receivable upon the exercise of a stock
option. Any such election is generally irrevocable. Payment in settlement of any
amounts of cash, common stock, or other property deposited in the deferral
accounts established for Non-Employee Directors will generally be made as soon
as practicable after the expiration of the deferral period, and in such number
of installments as elected by a Non-Employee Director.
Effective January 31, 1994, Charles Lazarus terminated his employment as
Chief Executive Officer of the Company and, pursuant to his employment
agreement, exercised his right to become a consultant to the Company for a
five-year period. Under the terms of his agreement, Mr. Lazarus is required to
refrain from competing either directly or indirectly with any business carried
on by the Company during the term of his consulting period and for three years
thereafter. The employment agreement also provides that Mr. Lazarus is entitled
to receive a retirement benefit payment of $200,000 a year for five years
commencing February 1999, the termination of his consulting period.
Effective June 6, 2001, Michael Goldstein terminated his employment as
Chairman of the Board of the Company. Thereafter, Mr. Goldstein has served as
a Non-Employee Director of the Company.
12
DIRECTORS' AND OFFICERS' OWNERSHIP OF
TOYS "R" US STOCK
The following table shows how much Toys "R" Us common stock each Named
Executive Officer* and director beneficially owned as of March 13, 2002. No
officer or director except Mr. Eyler owns more than 1.0% of the common stock,
and directors and executive officers as a group beneficially owned 6,431,361
shares of common stock representing approximately 3.17% of our common stock. As
of March 13, 2002 Mr. Eyler owned approximately 1.02% of Toys "R" Us common
stock.
Common Stock
Beneficially
Name Owned as of
---- March 13, 2002
--------------
John Barbour ........................................... 100,000(a)
RoAnn Costin ........................................... 31,052(b)(c)
Michael D'Ambrose ...................................... 80,000(d)
John H. Eyler, Jr. ..................................... 2,065,000(e)
Roger N. Farah ......................................... 1,118(c)
Peter A. Georgescu ..................................... 5,326(c)
Michael Goldstein ...................................... 462,609(c)(f)
Calvin Hill ............................................ 27,908(b)(c)(g)
Nancy Karch ............................................ 5,358(c)
Charles Lazarus ........................................ 73,391(c)
Richard L. Markee ...................................... 560,058(d)
Norman S. Matthews ..................................... 51,667(b)(c)
Arthur B. Newman ....................................... 48,819(b)(c)
Gregory L. Staley ...................................... 633,111(d)
---------------
* The Chief Executive Officer and the next four most highly compensated
executive officers during the last fiscal year. The chart does not include
Michael G. Shannon who is no longer an officer of the Company.
(a) Mr. Barbour has the right to acquire upon exercise of currently exercisable
options, provided that the shares acquired upon the exercise of such
options having a value equal to the aggregate fair market value over the
exercise price of such options are generally subject to forfeiture under
certain conditions. The percentage of his aggregate ownership is calculated
on the basis that all such shares are deemed outstanding.
(b) Includes 19,500, 15,600, 27,900 and 23,400 shares for Ms. Costin, Mr.
Hill, and Messrs. Matthews and Newman, respectively, which such persons
have the right to acquire upon exercise of currently exercisable options,
and the percentage is calculated on the basis that such shares are deemed
outstanding.
(c) Includes 11,052, 1,118, 326, 2,189, 12,173, 4,502, 4,092, 19,767 and
20,419 Stock Units (rounded down to the nearest whole share) for Ms.
Costin, Mr. Farah, Mr. Georgescu, Mr. Goldstein, Mr. Hill, Ms. Karch, Mr.
Lazarus, Mr. Matthews and Mr. Newman (collectively the "Non-Employee
Directors"), respectively. Each Stock Unit represents the right to
receive a share of Common Stock and was received in lieu of cash for all
or a portion of their director's fees. The stock underlying the Stock
Units was purchased by the Company in its name for the benefit of each
Non-Employee Director and will be delivered to each Non-Employee Director
in exchange for Stock Units upon vesting. Stock Units awarded prior to
June 1999 vest upon the Non-Employee Director's death, retirement, or
resignation. Stock Units awarded pursuant to the Non-Employee Directors'
Stock Unit Plan, which became effective on June 10, 1999, vest on the
first anniversary of the award date.
(d) Includes 80,000, 560,000 and 630,000 shares which Messrs. D'Ambrose, Markee
and Staley, respectively, have a right to acquire upon exercise of
currently exercisable options. The shares which may be acquired upon the
exercise of such options having a value equal to the aggregate fair market
value over the exercise price of such options are generally subject to
forfeiture under certain conditions. The percentage of Messrs. Barbour's,
D'Ambrose's, Markee's and Staley's aggregate ownership is calculated on the
basis that all such shares are deemed outstanding.
(e) Includes 2,040,000 shares which Mr. Eyler has the right to acquire upon
exercise of currently exercisable options, provided that the shares
acquired upon the exercise of such options having a value equal to the
aggregate fair market value over the exercise price of such options are
generally subject to forfeiture under certain conditions. The percentage of
Mr. Eyler's aggregate ownership is calculated on the basis that all such
shares are deemed outstanding.
(f) Includes 460,420 shares which Mr. Goldstein has the right to acquire upon
exercise of currently exercisable options. The shares which may be acquired
upon the exercise of such options having a value equal to the aggregate
fair market value over the exercise price of such options are generally
subject to forfeiture under certain conditions. The percentage of Mr.
Goldstein's aggregate ownership is calculated on the basis that all such
shares are deemed outstanding.
(g) Includes 135 shares beneficially owned by his wife, as to which shares
Mr. Hill disclaims beneficial ownership.
13
STOCK PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN ON
TOYS "R" US COMMON STOCK, S&P 500 AND S&P RETAIL COMPOSITE INDEX
[graphic]
YEAR
1996 1997 1998 1999 2000 2001
Toys "R" Us 100 114 122 68 46 119
Standard & Poor's 500 100 126 160 212 234 232
Standard & Poor's Retail 100 119 177 290 290 310
Compliance with Section 16(a)
The Company believes that all persons who were subject to Section 16(a) of
the Securities Exchange Act for the past fiscal year complied with the filing
requirements thereof. In making this disclosure, the Company has relied on
written representations of its directors and executive officers and its ten
percent holders (if any) and copies of the reports that they have filed with the
Commission.
14
EXECUTIVE COMPENSATION: REPORT OF THE
COMPENSATION AND ORGANIZATIONAL DEVELOPMENT COMMITTEE
The Compensation and Organizational Development Committee (the "Committee")
is composed entirely of independent outside Directors, none of whom is or has
been an officer or employee of the Company.
The Company's executive compensation program is based on its pay for
performance policy and has been designed to:
o attract high-caliber talent to meet the organization's executive
resource needs;
o retain top-performing executives at the corporate level and in each
of the divisions;
o provide compensation opportunities that are fair and competitive with
those offered by comparable organizations with whom the Company
competes for business and talent;
o motivate high performance by executive officers and all employees;
o reward executives based on corporate and division annual and long-
term strategic progress, business results, and the creation of
stockholder value; and
o align executive officers and all employees with stockholders'
interests.
Compensation for the Chairman and Chief Executive Officer
During the fiscal year ended February 2, 2002, John H. Eyler, Jr. served as
the Company's Chairman and Chief Executive Officer. Mr. Eyler has entered into
an employment agreement with the Company, as described under "Employment
Agreements."
The Chief Executive Officer of the Company participates in the Company's
executive compensation plans on the same basis as all other executive officers
and key employees. In determining the Chief Executive Officer's compensation
opportunities and performance goals, the Committee periodically conducts a
competitive review and analysis, as it does for other executive officers. For
the fiscal year ended February 2, 2002, the Committee established the Chief
Executive Officer's total compensation (base salary, annual incentives,
restricted stock and stock options) for target performance between the 50th and
the 75th percentiles for chief executive officers from the competitive
marketplace.
Mr. Eyler's base salary was $1,000,000, as described under "Employment
Agreements". Under the Management Incentive Compensation Plan, two-thirds of Mr.
Eyler's bonus is based on predetermined objectives for improving the operating
performance of the entire corporation. One-third of the bonus is based on
achieving certain strategic goals. During the fiscal year ended February 2,
2002, the Company did not meet its predetermined objectives for improving its
operating performance, and therefore Mr. Eyler did not receive that portion of
his bonus. The Committee determined that Mr. Eyler achieved his strategic
objectives relating to corporate, store and merchandise transformation and
awarded him one-third of his target bonus, an amount of $700,000. The Committee,
in recognition of his outstanding leadership and performance on several critical
strategic initiatives, approved a supplemental discretionary award to Mr. Eyler
in the amount of $250,000, to be deferred under the Company's Deferred
Compensation Plan until a date at least six months after Mr. Eyler's retirement
from the Company.
The Committee determined that in order to ensure alignment of interests
between management and stockholders, equity awards to senior management should
continue to be a significant amount of total annual compensation during the
fiscal year ended February 2, 2002. Mr. Eyler, as well as other officers and key
employees, was eligible to receive an award of stock options and restricted
units. For the fiscal year ended February 2, 2002, Mr. Eyler received an award
of 320,000 stock options.
15
Compensation of Other Executive Officers
Total compensation for target performance under the Company's compensation
program for executive officers for the fiscal year ended February 2, 2002 was
generally positioned at the 50th to the 75th percentile of the competitive
marketplace, depending upon the individual's level, position, responsibilities
and degree of difficulty and challenge associated with the fiscal year ended
February 2, 2002's performance objectives.
Base salaries for Executive Officers are reviewed annually. Base salary
levels are set so that the principal compensation opportunities are derived from
annual cash incentives and increases in the market value of the Company's common
stock. During the fiscal year ended February 2, 2002 several officers and key
employees took on significantly larger responsibilities. Base salaries for those
officers were increased to reflect the new roles.
Annual incentives for executive officers are governed by the Company's
Management Incentive Compensation Plan (the same plan that applies to the
Chairman and Chief Executive Officer). Each officer was eligible to receive a
target bonus based on meeting predetermined financial and strategic objectives.
Two-thirds of the annual incentive opportunity for executive officers were based
on improvement in operating performance of the entire Company, with combined
corporate and division performance for certain executive officers who also have
divisional responsibilities. The plan is designed to provide participants above
market total cash compensation for meeting or exceeding performance objectives
and below market total cash compensation for not meeting those objectives. For
the fiscal year ended February 2, 2002, Messrs. Staley, Markee and Barbour
received a portion of their bonus based on achieving the operating performance
improvement goals within certain divisions. All executive officers received a
portion (or some sub-part thereof) of their bonus, which was based on achieving
predetermined strategic objectives. Mr. D'Ambrose received an incentive award
based on his employment agreement (see "Employment Agreements").
Equity compensation has historically been a cornerstone of the Company's
program for executive and employee compensation. For the fiscal year ended
February 2, 2002, the Committee authorized grants of stock options and
restricted units to certain executive officers, including the Chief Executive
Officer, to reinforce the Company's ability to attract, retain and motivate a
highly qualified management team.
Tax Considerations
Section 162(m) of the Internal Revenue Code limits the Company's tax
deduction to $1 million for compensation paid to the named proxy officers unless
certain exemptions apply. One of the exemptions is for performance- based
compensation. The Management Incentive Compensation Plan and the 1994 Stock
Option and Performance Incentive Plan, which were approved by stockholders, are
designed to qualify for this exemption. The Committee's policy is to preserve
corporate tax deductions attributable to the compensation of executives while
maintaining flexibility to approve, when appropriate, compensation arrangements
which it deems to be in the best interests of the Company and its stockholders,
but which may not always qualify for full tax deductibility.
Norman S. Matthews, Chair
Calvin Hill
Arthur B. Newman
Members of The Compensation
and Organizational
Development Committee
16
EXECUTIVE COMPENSATION
Summary Compensation Table
Annual Compensation
-----------------------------------------------------
Other
Name and Principal Position(1) Annual
------------------------------ Year Salary ($) Bonus ($) Compensation ($)
-------- ---------- --------- ----------------
John H. Eyler, Jr. ............................................ 02/02/02 1,000,000 950,000 206,266(7)
Chairman, President and 02/03/01 1,000,000 1,916,900
Chief Executive Officer 01/29/00 38,462 0
John Barbour .................................................. 02/02/02 644,234 416,500
Executive Vice President,
President - Toys "R" Us
International
Michael D'Ambrose ............................................. 02/02/02 473,077 600,000
Executive Vice President -
Human Resources
Richard L. Markee ............................................. 02/02/02 608,078 532,344
President - Specialty 02/03/01 565,192 1,151,714
Business and International 01/29/00 483,072 468,805
Gregory R. Staley ............................................. 02/02/02 676,942 330,598
President, U.S. Toy Store 02/03/01 631,538 965,601
Division 01/29/00 483,072 401,969
Michael G. Shannon ............................................ 02/02/02 616,539 794,000
President - Administration 02/03/01 577,844 872,112
and Logistics 01/29/00 554,996 257,125
Long-Term Compensation Awards
----------------------------------------------------------------
Restricted
Name and Principal Position(1) Stock Stock and LTIP All Other
------------------------------ Options (#) Stock Units ($)(2) Payouts ($) Compensation ($)(3
----------- --------------- ----------- ----------------
John H. Eyler, Jr. ............................................ 740,000 3,037,200(8) 0 341,557
Chairman, President and 300,000 0 0 104,305
Chief Executive Officer 1,000,000 2,288,000(4) 0 0
300,000(6)
John Barbour .................................................. 0 0 0 0
Executive Vice President,
President - Toys "R" Us
International
Michael D'Ambrose ............................................. 80,000 612,500(4) 0 0
Executive Vice President -
Human Resources
Richard L. Markee ............................................. 115,000 0 0 189,437
President - Specialty 115,000 1,121,750(5) 0 113,204
Business and International 90,000 457,600(4) 0 100,980
90,000(6)
Gregory R. Staley ............................................. 175,000 0 0 176,802
President, U.S. Toy Store 125,000 853,930(5) 0 112,730
Division 90,000 453,800(4) 0 72,206
90,000(6)
Michael G. Shannon ............................................ 115,000 0 0 165,280
President - Administration 115,000 229,068(5) 0 97,442
and Logistics 90,000 0 0 133,982
110,000(6)
---------------
(1) All positions represent the capacities in which individuals served as of
February 2, 2002, except Mr. Shannon is no longer an officer of the
Company.
(2) The data reflects the value of Restricted Stock and Restricted Units
based on the closing price on the date of issuance. The value of
Restricted Stock and Restricted Units issued for the fiscal year ended
February 2, 2002 is $25.31 for Mr. Eyler and $24.50 for Mr. D'Ambrose,
respectively. The value of Restricted Stock issued for the fiscal year
ended February 3, 2001 is $14.00 for Messrs. Markee, Staley and Shannon.
The value of Restricted Units issued for the fiscal year ended January
29, 2000 is $11.44 for Mr. Eyler, $22.88 for Mr. Markee and $22.69 for
Mr. Staley.
At February 2, 2002, the number and value (based upon the closing price
of $19.50 per share of Common Stock at February 2, 2002) of non-dividend
paying Restricted Units awarded and outstanding are:
Restricted Units: 25,000 (487,500) for Mr. D'Ambrose.
Restricted Stock: 120,000 (2,340,000) for Mr. Eyler.
(3) "All Other Compensation" includes, but is not limited to, the Company's
contributions to the "TRU" Partnership Employee's Savings and Profit
Sharing Plan and to its Supplemental Executive Retirement Plan for the
accounts of the Named Executive Officers. See "Executive Compensation:
Report of the Compensation and Organizational Development Committee."
(4) Restricted Stock Units ("Restricted Units") were issued pursuant to the
executives' Retention Agreements. Restricted Units represent the right to
receive a like number of shares of Common Stock upon satisfactorily
meeting the vesting, employment, and non-compete requirements specified
in the Retention Agreements. Failure to meet such requirements subject
the Restricted Units to forfeiture. In the case of Mr. Eyler, Restricted
Units vest 33 1/3% per annum, commencing February 1, 2002 (subject to
certain performance criteria). Restricted Units are issued under the Toys
"R" Us, Inc. Amended and Restated 1994 Stock Option and Performance
Incentive Plan (the "1994 Plan"). With respect to Messrs. Markee, Shannon
and Staley, Restricted Units vest on the fifth anniversary of the grant,
subject to certain performance criteria. With respect to Mr. D'Ambrose,
subject to certain performance criteria being met, 50% of the Restricted
Units granted vest on the second anniversary of the grant and the
remaining 50% vest on the third anniversary of the grant.
(5) Restricted shares awarded during the fiscal year ended February 3, 2001
included shares issued in exchange for the surrender and cancellation of
previously granted stock options; shares issued in exchange for the early
termination of the Strategic Incentive Plan; and shares issued in payment
of bonuses earned but mandatorily deferred under the Management Incentive
Compensation Plan. The number of stock options surrendered (and the
number of restricted shares issued in exchange) for Messrs. Markee and
Staley were 425,300 (47,561) and 267,300 (33,418), respectively. The
number of restricted shares issued in exchange for the early termination
of the Strategic Incentive Plan for Messrs. Markee, Shannon and Staley
were 16,362, 16,362 and 23,780, respectively. The number of restricted
shares issued in payment of previously earned bonuses for Messrs. Markee
and Staley were 16,202 and 3,797, respectively. Restricted shares are
forfeitable in their entirety if the executive's employment terminates
prior to the second anniversary of the grant date and 50% of the shares
are forfeited if the executive's employment terminates after the second
anniversary but prior to the third anniversary of the grant date.
(6) Represents grants of options to acquire Common Stock of Toysrus.com Inc.
All grants vest 25% one year from the grant date and 2.08% per month
during each of the three years following the first anniversary of the
grant date.
(7) Includes $156,002 for personal use of company aircraft.
(8) Restricted shares granted to Mr. Eyler will vest on the fifth anniversary
of the grant date provided that the average price of Toys "R" Us common
stock is at least $41.19 at the vesting date.
17
Option Grant Table
The following table sets forth certain information concerning stock options
granted by the Company during the fiscal year ended February 2, 2002 to the
Named Executive Officers. The hypothetical present value on date of grant shown
below is presented pursuant to the rules of the Commission and is calculated
under the Modified Black-Scholes Model for pricing options. The actual
before-tax amount, if any, realized upon the exercise of a stock option will
depend upon the excess, if any, of the market price of the Common Stock over the
exercise price per share of the stock option at the time the stock option is
exercised. There is no assurance that the hypothetical present value or any
value of the stock options reflected in these tables will be realized.
Individual Grants
------------------------------------------------------------------------
% of Total Grant Date
Name Options Exercise Expiration Present
---- Options (#) Granted(2) Price/Share ($) Date Value ($)(3)
----------- ---------- --------------- ---------- ------------
John H. Eyler, Jr...................................... 400,000(1) 4.65% 25.58 4/6/11 3,708,000
68,000(4) .79% 28.13 4/6/11 597,720
68,000(4) .79% 30.69 4/6/11 567,120
68,000(4) .79% 33.25 4/6/11 539,240
68,000(4) .79% 35.81 4/6/11 513,400
68,000(4) .79% 38.36 4/6/11 489,600
John Barbour........................................... 0 0 -- -- --
Michael D'Ambrose...................................... 80,000(1) .93% 24.70 4/16/11 724,800
Richard L. Markee...................................... 115,000(1) 1.34% 25.58 4/6/11 1,066,050
Gregory R. Staley...................................... 175,000(1) 2.03% 25.58 4/6/11 1,622,250
Michael G. Shannon..................................... 115,000(1) 1.34% 25.58 4/6/11 1,066,050
---------------
(1) Stock options granted in April 2001 for Messrs. Eyler, D'Ambrose, Markee,
Staley and Shannon under the 1994 Plan. Such options became exercisable six
months after the date of grant. Upon exercise of options, the number of
shares having a value equal to the aggregate fair market value over the
exercise price of the options is generally subject to forfeiture if the
grantee does not remain with the Company until the second anniversary from
the date the options are granted. In addition, 50% of the number of shares
having a value equal to the aggregate fair value over the exercise price of
the options are generally subject to forfeiture if the grantee does not
remain with the Company until the third anniversary from the date the
options are granted.
(2) Based upon a total of 8,609,015 Toys "R" Us, Inc. options granted to
32,235 employees of the Company.
(3) The hypothetical present values on grant date are calculated under the
Modified Black-Scholes Model, which is a mathematical formula used to value
options traded on stock exchanges. This formula considers a number of
factors in estimating an option's present value. Factors used to value
original options issued in the fiscal year ended February 2, 2002 include
the following:
Toys "R" Us, Inc.
April 6, April 16,
2001 2001
---- ----
Volatility................................ 52.30% 52.28%
Risk Free Rate............................ 4.578% 5.003%
Additional assumptions of 0% dividend yield, 5 year projected time to
exercise, and 8% to 10% per annum risk of forfeiture are applied to all
original options granted in 2001. Restoration option values are calculated
using the same model and factors as original options, except that the
projected date of exercise is generally the remaining term of the prior
option and the stock's expected volatility rate and risk free rate of
return are calculated at date of grant of the restoration option.
(4) Each option vests on the fifth anniversary of the date of grant subject to
certain specified performance criteria.
18
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
The following table sets forth information concerning the exercise of options
by the Named Executive Officers during the last fiscal year and the value of
unexercised options held by the Named Executive Officers as of the fiscal year
ended February 2, 2002:
Value of
Shares of Unexercised
Common Stock In-the-Money
Shares of Value Realized ($) Underlying Options Options at
Common Stock (Market Price at FY-End (#) FY-End ($)
Name Acquired on at Exercise Less Exercisable/ Exercisable/
---- Exercise (#) Exercise Price) Unexercisable Unexercisable
------------ ------------------ ------------------ -------------
John H. Eyler, Jr. ..................................... 0 0 2,040,000(1)(2)(4) 9,107,500
John Barbour ........................................... 0 0 100,000(5) 333,000
Michael D'Ambrose ...................................... 0 0 80,000(4) 0
Richard L. Markee ...................................... 0 0 560,000(1)(3)(4) 806,550
Gregory R. Staley ...................................... 0 0 630,000(1)(3)(4) 847,050
Michael G. Shannon ..................................... 0 0 560,000(1)(3)(4) 465,750
---------------
(1) Included in the totals for "Shares of Common Stock Underlying Options at
FY-End Exercisable/Unexercisable" are all options which, although
exercisable, provide that the shares acquired upon the exercise of such
options having a value equal to the aggregate fair value over the exercise
price of such options are generally subject to forfeiture.
(2) In the case of Mr. Eyler, such options were subject to forfeiture in their
entirety if the grantee did not remain employed by the Company until
February 1, 2002, 66 2/3% of such options are subject to forfeiture if the
grantee is not employed by the Company until February 1, 2003 and 33 1/3%
of such options are subject to forfeiture if the grantee is not employed by
the Company until February 1, 2004.
(3) In the case of Messrs. Markee, Staley and Shannon such options are
generally subject to forfeiture if the grantee does not remain employed by
the Company until the fifth anniversary of the grant date (for options
granted prior to April 1999) and the third anniversary of the grant date
(for options granted beginning April 1999).
(4) Beginning in March 2000, all options granted are generally subject to
forfeiture if the grantee does not remain employed by the Company until the
second anniversary of the grant. 50% of such grants shall vest on the
second anniversary of the grant, with the remaining 50% vesting, provided
the employee remains employed by the Company, on the third anniversary of
the grant.
(5) Mr. Barbour's options were granted on August 2, 1999 and vest on March 1,
2004.
Long Term Incentive Plan Awards
No awards were made to the named executive officers during the last fiscal
year under any long-term incentive plan, as defined by the Securities and
Exchange Commission.
Toys "R" Us Employment Agreements
Retention Agreement--Mr. Eyler
On January 6, 2000, the Company entered into a retention agreement with John
H. Eyler, Jr. upon his selection as President and Chief Executive Officer. The
original term of employment under the agreement was to expire on January 17,
2002, subject to renewal as described below. The retention agreement was
automatically renewed for the fiscal year ending February 3, 2003. The agreement
provides for automatic one-year renewals, unless terminated by either party in
accordance with the terms thereof. Mr. Eyler's agreement provides for a base
salary of $1,000,000. The agreement also provides for participation in any and
all insurance and other plans for the benefit of the Company's officers, which
are in effect during the employment period and entitle the executive to
participate in the Company's various incentive bonus plans on a basis
commensurate with his prior participation.
19
If the executive's employment is terminated for death, disability, or
retirement, he would be entitled to a lump sum cash payment equal to the sum of:
(i) his pro-rated annual base salary payable through the date of termination and
his actual earned incentive bonus for any completed fiscal year to the extent
not already paid; and (ii) his pro-rated targeted amount of incentive bonus that
would have been payable with respect to the fiscal year in which the date of
termination occurs. The executive would be vested in all equity awards and
account balances under the Company's plans. Vested options would remain
exercisable through the expiration date of such options. The Company would be
obligated to provide for the continuation of benefits (or benefits to the
executive's spouse and dependent children in the event of his death) under the
Company's benefit plans. In consideration for these payments and benefits, the
executive must comply with a three-year non-solicitation/ non-hiring of
employees restrictive covenant as well as a two-year non- competition covenant.
Upon termination of the executive's employment by the Company without "Cause"
(as defined in the agreement) or by the executive for "Good Reason," he would be
entitled to receive: (i) his pro-rated annual base salary on the date of
termination, plus his pro-rated targeted annual and long-term incentive awards
through the date of termination; and (ii) his annual base salary on the date of
termination, plus the targeted annual and long-term incentive awards that would
have been paid to him during the fiscal period in which he was terminated, in
equal installments to be paid at least monthly during each of the two years
following his termination. Receipt of such payments and the continuation of
benefits under the Company's benefit plans and immediate vesting of all awarded
options is conditioned upon the executive's compliance with non-competition and
non-solicitation/non-hiring of employee's restrictive covenants for a two-year
period.
If the executive's employment is terminated within three years after a Change
of Control (as defined in the agreements), other than for "Cause," the executive
will be entitled to receive the amounts described in the first sentence of the
paragraph above, plus an additional year's worth of annual base salary and
targeted incentive awards, and such payments will not be subject to the
restrictive covenants. Following termination of employment, the executive would
also be entitled to exercise any stock options granted under any stock option
plan of the Company for their full term. If termination of employment were to
occur in connection with a Change of Control, the executive would also be paid
an amount pursuant to his agreement intended to reimburse him for any excise tax
imposed under Section 4999 of the Internal Revenue Code, including any tax
payable by reason of such reimbursement.
Retention Agreements--Messrs. Markee, Shannon, and Staley
The Company is also party to retention agreements (each a "Retention
Agreement") with each of Messrs. Markee, Shannon, and Staley. The current term
of employment under the Retention Agreements with Messrs. Markee and Staley
expires on May 1, 2002. Mr. Shannon terminated his employment with the Company
on February 1, 2002, subject to the terms and conditions of his Retention
Agreement. Each Retention Agreement provides for automatic one-year renewals,
unless the Company provides the executive with notice of non-renewal at least
six months prior to the next renewal date. Each Retention Agreement provides for
a base salary per year commensurate with the executive's current base salary
plus participation in any and all insurance and other plans for the benefit of
the Company's officers, which are in effect during the employment period. The
executives are also entitled to participate in the Company's incentive bonus
plans.
Each Retention Agreement provides that, if, prior to the expiration or
termination thereof, a Change of Control (as defined in the Retention Agreement)
occurs and thereafter the Company terminates his employment without "Cause" (as
defined in the Retention Agreement), or, if the executive terminates his
employment for "Good Reason" (as defined in each Retention Agreement) or is
terminated by the Company without "Cause" prior to a Change of Control, the
executive would be entitled to receive payment of a lump sum cash amount
consisting of: (i) his pro-rated annual base salary on the date of termination
to the extent not paid plus his pro-rated targeted annual and long-term
incentive awards through the date of termination, payable within 30 days after
termination; and (ii) his annual base salary on the date of termination, plus
the targeted annual awards that would have been paid to him during the fiscal
period in which he was terminated, in equal installments to be paid at least
monthly during each of the two years following his termination. Unvested options
would continue to vest in accordance with their terms for two years after the
date of termination, with all remaining unvested options vesting on the second
anniversary of the termination date. Options that are vested at termination or
vest thereafter would be exercisable until the earlier of the thirty-month
anniversary of the termination date or the expiration
20
date of the options. Any other unvested equity-based awards (including, without
limitation, restricted stock and stock units) would vest on a pro rata basis on
the second anniversary of the date of termination. In addition, the executive
would be entitled to continuation of health benefits, with the Company obligated
to pay the medical premiums for the first two years after the date of
termination. The executive would by fully vested in any account balance or other
benefits provided under any of the Company's benefit plans. Each executive would
also be paid an amount pursuant to his Retention Agreement intended to reimburse
the executive for any excise tax imposed under Section 4999 of the Internal
Revenue Code, including any tax payable by reason of such reimbursement. In
exchange for these payments and benefits, the executives are subject to a
two-year non-competition covenant (other than in the event of termination
following a Change of Control) and a two-year non- solicitation/non-hiring
covenant.
Employment Agreement--Mr. D'Ambrose
On April 16, 2001, the Company entered into an employment agreement
("Employment Agreement") with Michael D'Ambrose. The Employment Agreement
provides for a two-year term with automatic one-year renewals, unless the
Company provides a notice of non-renewal at least six months prior to the next
renewal date. The Employment Agreement provides for an initial base salary of
$600,000 with annual compensation evaluations. The executive is eligible to
receive annual incentive awards paid in accordance with the Company's incentive
plans. For the fiscal year ending February 2, 2002, the executive was guaranteed
an annual incentive of at least $600,000. Thereafter, there will be no guarantee
and he will participate in the same plan as other senior executives. During the
employment period, the executive may participate in all other Company plans at a
level commensurate with his position. In conjunction with joining the Company,
the executive received 25,000 restricted units and 80,000 stock options.
The Employment Agreement with Mr. D'Ambrose includes termination provisions
similar to those of the other Named Executives discussed above (excluding Mr.
Eyler). Additionally, the Employment Agreement provides for a cash payment in
the event that employment is terminated upon expiration of the initial two- year
term due to the decision not to renew or extend the employment period other than
for "Cause" by the Company or by the executive for "Good Reason." Under these
circumstances, the executive would be entitled to a lump sum cash payment within
30 days of termination consisting of: (i) his pro-rated annual base to the
extent unpaid; (ii) his pro-rated target annual bonus and incentive awards that
would have been paid to him during the fiscal period in which he was terminated;
and (iii) any unpaid earned annual bonus or incentive awards. All unvested
options, profit shares, or other equity-based awards would vest at termination.
Options would be exercisable until the earlier of the thirty-month anniversary
of the termination date or the expiration date.
Employment Agreement--Mr. Barbour
On July 19, 1999, the Company entered into an employment agreement
("Employment Agreement") with John Barbour. In addition to base salary and
annual incentive awards, the executive is eligible to participate in all
employee benefit plans. If the executive's employment is terminated without
"Cause" or he terminates for "Good Reason," for the one-year period following
the date of written notice, he would be entitled to receive an amount equal to
two times his current base salary plus he would be entitled to continue to
participate in his current employee benefit plans. In addition, the executive
would receive: (i) the greater of (a) fifty percent of his signing grant of
options for shares of toysrus.com stock; or (b) the number of such options that
would vest through the first anniversary of the date of termination; plus (ii)
the number of options in Company stock that would vest through the first
anniversary of the date of termination. Any options that are unvested at the
first anniversary of the date of termination would be cancelled. In the event of
termination due to disability, for the one-year period following the date of
termination, the executive would continue to receive his annual salary plus he
would be entitled to continue participating in his current employee benefit
plans. Depending on the circumstance of the termination, the executive may be
subject to non-competition and non-solicitation covenants for a period of one
year from the date of termination. If a Change of Control occurs, all options to
acquire both toysrus.com shares and Toys "R" Us shares would immediately vest
and become exercisable.
21
Exhibit A
CORPORATE GOVERNANCE GUIDELINES
OF
TOYS "R" US, INC.
Adopted as of March 13, 2002
Toys "R" Us, Inc.
Corporate Governance Guidelines
The following Corporate Governance Guidelines (the "Guidelines") have been
adopted by the Board of Directors (the "Board") of Toys "R" Us, Inc. (the
"Company" or "Toys "R" Us") to assist the Board in the exercise of its
responsibilities. These Guidelines reflect the Board's commitment to monitor the
effectiveness of policy and decision-making both at the Board and management
level, and to enhance stockholder value over the long term. These Guidelines are
a statement of policy and are not intended to change or interpret any federal or
state law or regulation, including the Delaware General Corporation Law, or the
Certificate of Incorporation or By-laws of the Company. The Guidelines are
subject to periodic review by the Corporate Governance Committee of the Board
and to modification from time to time by the Board.
BOARD COMPOSITION
1. Selection of Chair of the Board and Chief Executive Officer
The Board shall be free to choose its Chair in any way that seems best for
the Company at any given point in time. The Board believes, however, that if the
offices of the Chief Executive Officer and Chair of the Board are filled by
different people, the Chair of the Board should be selected from the non-
employee directors.
2. Size of the Board
The Board believes that it should generally have no fewer than nine and no
more than eleven directors. This range permits diversity of experience without
hindering effective discussion or diminishing individual accountability.
3. Selection of New Directors
The entire Board shall be responsible for nominating candidates for election
to the Board at the Company's annual meeting of stockholders and for filling
vacancies on the Board that may occur between annual meetings of stockholders.
The Nominating Committee is responsible for identifying, screening and
recommending candidates to the entire Board for Board membership. When
formulating its Board membership recommendations, the Nominating Committee shall
also consider any advice and recommendations offered by the Chief Executive
Officer or the stockholders of the Company or any outside advisors the
Nominating Committee may retain.
4. Board Membership Criteria
Nominees for director shall be selected on the basis of broad experience;
wisdom; integrity; ability to make independent analytical inquiries;
understanding of the Company's business environment; and willingness to devote
adequate time to Board duties.
The Nominating Committee shall be responsible for assessing the appropriate
balance of skills and characteristics required of Board members.
The Board shall be committed to a diversified membership, in terms of both
the individuals involved and their various experiences and areas of expertise.
Each director shall be expected to have purchased at least 1000 shares of
stock within (1) year of first becoming a Board member.
5. Percentage of Independent Directors on Board
Independent directors shall constitute a substantial majority of the Board.
The Board should be encouraged to invite senior management to attend board
meetings, but Company executives should understand that board membership is
generally limited to outside directors. No more than two Company employees may
serve on the Board at the same time.
A-1
6. Board Definition of Director Independence
An independent director is one who is free from any relationship that would
interfere with the exercise of independent judgment as a director. No officer or
employee of Toys "R" Us or its subsidiaries nor any immediate family member of
any officer or employee of Toys "R" Us or its subsidiaries shall qualify as an
independent director. A director who is an executive officer of another
corporation where any of the Company's executives serves on that corporation's
compensation committee shall not qualify as an independent director. An
individual (a) who is a partner, controlling stockholder, or executive officer
of an organization that has a business relationship with the Company that is
material either to the director or to the Company or (b) who has a direct
business relationship with the Company that is material either to the director
or to the Company, may not serve as an independent member of the Board. The
materiality of the business relationship shall be determined by the Corporate
Governance Committee, and its determination shall be final. Further, an
individual may not serve as an independent member of the Board for a period of
three years following the termination of any of the relationships delineated
above, unless the Board expressly determines otherwise.
7. Chair of the Corporate Governance Committee
The Chair of the Corporate Governance Committee shall be an independent
director.
8. Retirement Age
No director after having attained the age of 72 years shall be nominated for
re-election or reappointment to the Board, without the prior approval of the
Corporate Governance Committee.
9. Directors Who Change Their Present Job Responsibility
The Corporate Governance Committee shall review the continued appropriateness
of Board membership if a Board member has a material change in employment
circumstances and the affected director shall be expected to act in accordance
with the Corporate Governance Committee's recommendation.
10. Term Limits
The Board does not mandate term limits for its directors.
11. Board Compensation
The Company's employees shall not receive additional compensation for their
service as directors. Director compensation shall be reviewed annually as
determined by the Compensation and Organizational Development Committee.
The Company believes that compensation for non-employee directors should be
competitive. Further, the Company believes is in the best interest of its
shareholders that a portion of annual director compensation be paid in Company
stock.
12. Evaluation of Board
The Board shall be responsible for annually conducting a self-evaluation of
the Board as a whole. The Corporate Governance Committee shall be responsible
for establishing the evaluation criteria and implementing the process for such
evaluation.
13. Evaluation of Committees of the Board
The Corporate Governance Committee shall conduct an annual review of each
committee's contribution to the Company. In its review of the committees, the
Corporate Governance Committee shall review each committee's objectives, as
stated at the beginning of each fiscal year, and compare those stated objectives
to the results and time expended to achieve such results at the end of that
year.
A-2
14. Evaluation of Board Members
The Corporate Governance Committee shall conduct an annual review of each
Board member. It shall be responsible for establishing the evaluation criteria
and implementing the evaluation process.
15. Board Contact with Senior Management
Board members shall have complete access to management. Board members shall
use sound business judgment to ensure that such contact is not distracting, and,
if in writing, shall be copied to the Chief Executive Officer and the Chair of
the Board.
Furthermore, the Board encourages senior management, from time to time, to
bring employees into Board meetings who: (a) can provide additional insight
concerning the items being discussed because of personal involvement in these
areas; (b) represent significant aspects of the Company's business; and (c)
assure the Board of exposure to employees with future potential to assure
adequate plans for management succession within the Company.
16. Board Interaction with Institutional Investors and Press
The Board believes that management generally should speak for the Company,
consistent with all regulations governing such communications and with common
sense. Unless otherwise agreed to or requested by the Chair, each director shall
refer all inquiries from institutional investors and the press to designated
members of senior management or to the Chair.
BOARD MEETINGS
17. Frequency of Meetings
There shall be at least five regularly scheduled meetings of the Board each
year.
18. Selection of Agenda Items for Board Meetings
The Chair of the Board, in consultation with the Corporate Secretary and the
Chief Executive Officer, shall annually prepare a "Board of Directors Master
Agenda." This Master Agenda shall set forth a minimum agenda of items to be
considered by the Board at each of its specified meetings during the year. Each
meeting agenda shall include an opportunity for each committee chair to raise
issues or report to the Board. Thereafter, the Chair of the Board, and the Chief
Executive Officer, may adjust the agenda to include special items not
contemplated during the initial preparation of the annual Master Agenda.
Upon completion, a copy of the Master Agenda shall be provided to the entire
Board. Each Board member shall be free to suggest inclusion of items on the
Master Agenda for any given meeting. Thereafter, any Board member may suggest
additional subjects that are not specifically on the agenda for any particular
meeting. In that case, the Board member should contact the Chair or the
Secretary at least ten days prior to the relevant meeting.
19. Strategic Discussions at Board Meetings
At least one Board meeting will be primarily devoted to long-range strategic
plans. It is also probable that specific short and/or long-range strategic plans
will be discussed at other Board meetings throughout the year.
20. Executive Sessions
The Board shall meet in executive session, without the presence of the
Company's officers, on at least two occasions each year. These meetings can be
in person or held telephonically.
21. Board Materials Distributed in Advance
Information and data is important to the Board's understanding of the
business and essential to prepare Board members for productive meetings.
Presentation materials relevant to each meeting will be distributed in writing
to the Board in advance of the meeting unless doing so would compromise the
confidentiality of
A-3
competitive information. In the event of a pressing need for the Board to meet
on short notice, it is recognized that written materials may not be available in
advance of the meeting. Management will make every effort to provide
presentation materials that are brief and to the point, yet communicate the
essential information.
COMMITTEE MATTERS
22. Number and Names of Board Committees
The Company shall have five standing committees: Audit, Nominating, Corporate
Governance, Compensation and Organizational Development, and Executive. The
duties for each of these committees shall be outlined in each of the committee's
charter and by resolution of the Board. The Board may form a new committee or
disband a current committee depending on circumstances.
23. Independence of Audit and Corporate Governance and Compensation and
Organizational Development Committee
The Audit, Corporate Governance, and Compensation and Organizational
Development committees shall be composed entirely of independent directors.
24. Assignment and Rotation of Committee Members
The Nominating Committee shall be responsible, after consultation with the
Chair of the Board, for making recommendations to the Board with respect to the
assignment of Board members to various committees. After reviewing the
Nominating Committee's recommendations, the Board shall be responsible for
appointing the Chairs and members to the committees on an annual basis.
The Chair and the Nominating Committee shall annually review the Committee
assignments and shall consider the rotation of Chairs and members with a view
toward balancing the benefits derived from continuity against the benefits
derived from the diversity of experience and viewpoints of the various
directors.
25. Annual Review by Committee
Each Board Committee shall annually review its charter and recommend to the
Board any changes it deems necessary. In addition all Board Committees shall
annually review the Corporate Governance guidelines, and recommend to the
Corporate Governance Committee any changes it deems necessary. In addition to
its charter, the Corporate Governance Committee will annually review the
Corporate Governance Guidelines and recommend to the full Board any changes it
deems necessary.
LEADERSHIP DEVELOPMENT
26. Evaluation of Chief Executive Officer
The Board shall conduct an ongoing evaluation of the Chief Executive Officer.
The evaluation of the Chief Executive Officer is accomplished through the
following process:
o The Chief Executive Officer meets with the Compensation and
Organizational Development Committee to develop appropriate goals and
objectives for the next year, which are then discussed with the entire
Board.
o At year end, the Compensation and Organizational Development
Committee, with input from the Board, evaluates the performance of the
Chief Executive Officer in meeting those goals and objectives.
o This evaluation is communicated to the Chief Executive Officer at an
executive session of the Board.
o The Compensation and Organizational Development Committee uses this
evaluation in determining the Chief Executive Officer's compensation.
A-4
27. Succession Planning
The Company understands the importance of succession planning. Therefore, the
Compensation and Organizational Development Committee, along with the Chief
Executive Officer, shall analyze the current management, identify possible
successors to senior management, and timely develop a succession plan. The plan
shall then be reviewed by the entire Board, and reviewed periodically
thereafter.
28. Management Development
The Board, with the assistance of the Compensation and Organizational
Development Committee, shall periodically review the plans for the education,
development, and orderly succession of senior and mid-level managers throughout
the Company.
29. Interpretation
In cases where the Chair of the Board and the Chief Executive Officer are the
same individual, procedures calling for consultation or communications between
such positions need not be followed.
CONFLICTS OF INTEREST
30. Interest Matters
If a director, directly or indirectly, has a financial or personal interest
in a contract or transaction to which the corporation is to be a party, or is
contemplating entering into a transaction that involves use of corporate assets
or competition against the corporation, the director is considered to be
`interested' in the matter. The director should contact the Chief Executive
Officer, the Corporate Secretary or the Chairman of the Corporate Governance
Committee. The director's involvement or interest will be reviewed by the
Company's General Counsel, and then referred for resolution to the Corporate
Governance Committee. Interested directors should be identified and/or
disclosed, and they shall not participate in any discussion or any vote relating
to the matter in which they have been deemed to be interested. The decision of
the Corporate Governance Committee on all matters of "interest" shall be final.
A-5
[graphic]
461 FROM ROAD
PARAMUS, NJ 07652
[graphic]
TOYS "R" US, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 5, 2002
The undersigned hereby appoints JOHN H. EYLER, JR. and ARTHUR B. NEWMAN, jointly
and severally, proxies with power of substitution, to vote at the Annual Meeting
of Stockholders of TOYS "R" US, INC. to be held June 5, 2002 (including
adjournments), with all the powers the undersigned would possess if personally
present, as specified on the reverse side with respect to the election of
directors (including discretionary authority to accumulate votes) and the other
matters to be considered, and in accordance with their discretion on any other
business that may come before the meeting, and revokes all proxies previously
given by the undersigned with respect to the shares covered hereby.
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. In either event, please sign and
return this card.
(Continued and to be signed on reverse side)
--------------------
SEE REVERSE
SIDE
--------------------
Please Detach and Mail in the Envelope Provided
[X] Please mark your votes as in this example.
Item 1. Election of Directors
The Board of Directors Recommends a Vote "FOR" Item 1.
FOR WITHHELD
Item 1. ELECTION [ _ ] [ _ ]
OF
DIRECTORS
For, except vote withheld from the following nominee(s):
----------------------------------------------------------------
Election of Directors, Nominees:
RoAnn Costin
John H. Eyler, Jr.
Roger N. Farah
Peter A. Georgescu
Michael Goldstein
Calvin Hill
Nancy Karch
Charles Lazarus
Norman S. Matthews
Arthur B. Newman
Item 2. In their discretion upon such other business as may properly be brought
before the meeting.
If this proxy is properly executed and returned, the shares represented hereby
will be voted, if not otherwise specified (or unless discretionary authority to
accumulate votes is exercised), FOR Item 1 and Item 2.
SIGNATURE DATE
-------------------------------- -------------------------------
SIGNATURE DATE
-------------------------------- -------------------------------
Note: Please date and sign above exactly as name appears on this proxy.
Executors, administrators, trustees, etc. should give full title. If shares are
held jointly, each holder should sign.