Retention Agreement - Toys R Us Inc. and Michael Shannon
RETENTION AGREEMENT
BETWEEN
TOYS "R" US, INC.
AND
MICHAEL SHANNON
DATED AS OF
OCTOBER 12, 1998
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TOYS "R" US, INC.
RETENTION AGREEMENT
AGREEMENT (this "Agreement"), by and between Toys "R" Us, Inc., a Delaware
corporation (the "Company"), and MICHAEL SHANNON (the "Officer"), dated as of
October 12, 1998. Capitalized terms used in this Agreement and in Exhibit A
hereto that are not defined in the operative provisions shall have the meanings
ascribed to them on Exhibit B hereto.
1. Employment Period. The Company hereby agrees to continue to employ the
Officer and the Officer hereby agrees to remain in the employ of the Company
subject to the terms and conditions of this Agreement, for the Employment
Period. The term "Employment Period" means the period commencing on the date
hereof and ending on the second anniversary of such date as automatically
extended for successive additional one-year periods unless, at least six months
prior to the scheduled expiration of the Employment Period, the Company shall
give notice to the Officer that the Employment Period shall not be so extended.
2. Terms of Employment. (a) Position. (i) Commencing on the date hereof
and for the remainder of the Employment Period, the Officer shall serve in the
position of Executive Vice President and Chief Administrative Officer of the
Company or such other senior position to which the Officer may be appointed by
the Company. The Officer shall be based in Northeastern New Jersey.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Officer is entitled, the Officer agrees to devote
full time during normal business hours to the business and affairs of the
Company and to use the Officer's best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period, the Officer
may, so long as such activities do not interfere with the performance of the
Officer's responsibilities as an employee of the Company in accordance with this
Agreement, continue the corporate directorships on which the Officer serves, if
any, as of the date hereof and such other corporate directorships as are
consented to by the Chief Executive Officer. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Officer with the knowledge of the Company prior to a Change of Control, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to a Change of Control shall not thereafter
be deemed to violate this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Officer shall receive the Officer's Annual Base Salary which will be paid in
accordance with the Company's regular payroll policies as in effect from time to
time.
(ii) Incentive Bonus. The Officer shall also be eligible, for each fiscal
year ending during the Employment Period, to receive an annual incentive bonus
and long-term incentive awards pursuant to the Company's incentive Plans and
subject to the terms thereof at a level commensurate with the Company's grants
to the officer currently serving as Executive Vice
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President or any more senior position(s) to which the Officer may be appointed.
Each such incentive bonus shall be paid in accordance with the Company's
incentive Plans.
(iii) Participation in Other Plans. During the Employment Period, the
Officer shall be eligible to participate in all other Plans at a level
commensurate with the Officer's position.
(iv) Stock Units. As further inducement for the Officer to enter into this
Agreement and to continue in the employ of the Company, the Company has granted
to the Officer stock units contingent on performance and future service,
pursuant to the Stock Unit Agreement executed and delivered by the Company on
the date hereof in the form attached as Annex A hereto.
3. Termination of Employment Upon Death, Disability or Retirement. The
Officer's employment shall terminate upon the Officer's death, Disability or
Retirement during the Employment Period and the obligations of the Company upon
such termination shall be limited to those benefits provided by the Plans at the
Date of Termination, except as specifically set forth herein or in the Stock
Unit Agreement.
4. Other Termination of Employment. (a) Company Termination. The Company
may terminate the Officer's employment during the Employment Period with or
without Cause.
(b) Good Reason. The Officer's employment may be terminated during the
Employment Period by the Officer for Good Reason.
(c) Notice of Termination. (i) Any termination by the Company for Cause,
or by the Officer for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with this Agreement.
The failure by the Officer or the Company to set forth in the Notice of
Termination any fact or circumstance that contributes to a showing of Good
Reason or Cause shall not waive any right of the Officer or the Company,
respectively, hereunder or preclude the Officer or the Company, respectively,
from asserting such fact or circumstance in enforcing the Officer's or the
Company's rights hereunder.
(ii) Resignation. Without limiting the obligations of the Officer, or the
rights of the Company, in connection with, or relating to, this Agreement, the
Officer agrees that in order for the Officer to resign his employment without
Good Reason with the Company or any of its Subsidiaries, the Officer shall
provide the Company with six (6) months notice of resignation prior to the
effective date of such resignation.
(d) Obligations of the Company Upon Termination Under Section 4. If the
Officer's employment shall have been terminated under Section 4(a) (other than
for Cause) or 4(b):
(i) the Company shall make a lump sum cash payment to the Officer within
30 days after the Date of Termination in an amount equal to the sum of (1) the
Officer's pro rata Annual Base Salary payable through the Date of Termination to
the extent not theretofore paid, (2) the targeted amount of the Officer's annual
bonus and long-term incentive awards that would have been payable with respect
to the fiscal year in which the Date of Termination occurs in each case
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absent the termination of the Officer's employment prorated for the portion of
such fiscal year through the Date of Termination taking into account the number
of complete months during such fiscal year through the Date of Termination and
(3) the Officer's actual earned annual or long-term incentive awards for any
completed fiscal year or period not theretofore paid or deferred;
(ii) the Company shall pay to the Officer in equal installments, made at
least monthly, over the twenty-four months following the Date of Termination an
aggregate amount equal to (1) two times the Officer's Annual Base Salary in
effect on the Date of Termination, (2) two times the targeted amount of the
annual incentive bonus that would have been paid to the Officer with respect to
the Company's fiscal year in which such Date of Termination occurs and (3) two
times the targeted amount of the long-term incentive award that would have been
paid to the Officer with respect to such fiscal year;
(iii) the Company shall continue to provide, in the manner and timing
provided for in the Plans (other than stock options and except as set forth in
this Section 4(d) and in Section 7(b)), the benefits provided under the Plans
that the Officer would receive on an after-tax basis if the Officer's employment
had continued for two years after the Date of Termination assuming for this
purpose that the Officer's compensation for each such year would have been
one-half of the amount payable pursuant to clause (ii) above, and the Officer
shall be fully vested in any account balance and all other benefits continuation
under such Plans; provided, however that the benefits provided under this clause
(iii) shall be limited to the coverage permitted by law or as would otherwise
not potentially adversely impact on the tax qualification of any Plans;
provided, further, that if such benefits may not be continued under the Plans,
the Company shall pay to the Officer an amount equal to the Company's cost had
such benefits been continued.
(iv) (1) all unvested options held by the Officer shall continue to vest
in accordance with their terms for two years after the Date of Termination, and
all remaining unvested options held by the Officer shall vest on the two year
anniversary date of the Date of Termination, (2) all unvested profit shares held
by the Officer or for the benefit of the Officer by a grantor trust established
by the Company shall continue to vest in accordance with their terms for two
years after the Date of Termination and all remaining profit shares shall vest
on the two year anniversary date of the Date of Termination, provided that, if
permitted by the terms of any such trust, any unvested profit shares shall
continue to be held by such grantor trust until such profit shares vest pursuant
to this clause (iv) and any such unvested profit shares not permitted to be so
held shall vest immediately and be delivered to the Officer, (3) any other
unvested equity based award (including, without limitation, restricted stock and
stock units) held by the Officer shall vest on the two year anniversary date of
the Date of Termination on a pro rata basis determined by a fraction, the
numerator of which is the number of months elapsed from the grant of such equity
award through the Date of Termination plus the twenty-four months after the Date
of Termination and the denominator of which is the total number of months in the
vesting period for such award and shall be promptly delivered to the Officer
entirely in the form of Common Stock, (4) any options held by the Officer that
are vested on the Date of Termination or vest thereafter pursuant to this clause
(iv) may be exercised until the earlier of (x) the thirty month anniversary date
of the Date of Termination and (y) the expiration date of such options and (5)
the Officer shall not be entitled to any additional grants of any stock options,
restricted stock, other equity based or long-term awards; and
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(v) the Officer will be entitled to continuation of health benefits under
the Plans at a level commensurate with the Officer's position or more senior
position(s) to which the Officer may be appointed, and if the Officer elects to
receive such health benefits, the Company shall pay the medical premiums
therefore for the first twenty-four months after the Date of Termination, and
thereafter the Officer shall pay the premium charged to former employees of the
Company pursuant to Section 4980B of the Code until the Officer is sixty-five
years of age; provided, that the Company can amend or otherwise alter the Plans
to provide benefits to the Officer that are no less than those commensurate with
the Officer's current position or more senior position(s) to which the Officer
may be appointed; provided, that to the extent such benefits cannot be provided
to the Officer under the terms of the Plans or the Plans cannot be so amended in
any manner not adverse to the Company, the Company shall pay the Officer, on an
after-tax basis, an amount necessary for the Officer to acquire such benefits
from an independent insurance carrier; and provided, further, that the
obligations of the Company under this clause (v) shall be terminated if, at any
time after the Date of Termination, the Officer is employed by or is otherwise
affiliated with a party that offers comparable health benefits to the Officer.
(e) Cause. If the Officer's employment shall be terminated for Cause
during the Employment Period or if the Officer voluntarily terminates employment
during the Employment Period, excluding a termination for Good Reason, death,
Disability or Retirement, the Employment Period shall terminate without further
obligations to the Officer other than the obligation to pay to the Officer all
payments and benefits due, in accordance with the Company's Plans through the
Date of Termination.
5. Release Agreement. The benefits pursuant to Section 4 are contingent
upon the Officer (i) executing a Separation and Release Agreement (the "Release
Agreement") upon or after any Date of Termination, a copy of which is attached
as Exhibit A to this Agreement and (ii) not revoking or challenging the
enforceability of the Release Agreement or this Agreement.
6. Offset. The Company shall have the right to offset the amounts required
to be paid to the Officer under this Agreement against any amounts owed by the
Officer to the Company, and nothing in this Agreement shall prevent the Company
from pursuing any other available remedies against the Officer.
7. Compensation and Benefits Following Change of Control.
(a) Notwithstanding any provision of this Agreement or any Plan, in no
event shall any compensation or benefits, individually or in the aggregate, to
which the Officer would be entitled be less favorable for the two years
following a Change of Control than the Officer would have been entitled based
upon the most favorable of the Company's Plans in effect for the Officer at any
time during the 120-day period immediately preceding such Change of Control.
(b) In the event of termination of the Officer's employment under Section
4(a) (other than for Cause) or 4(b), whether before or after a Change of
Control, following a Change of Control: (i) any remaining amounts payable under
Sections 4(d)(i), (ii) and (iii) shall be payable in a lump sum within 30 days
after the later of the Date of Termination or the Change of Control and (ii) in
lieu of the Company's obligations under Section 4(d)(iv), all unvested options
and
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equity based awards shall vest immediately on the later of the Date of
Termination or the Change of Control and all such options may be exercised until
the earlier of (x) the thirty-month anniversary date of the Date of Termination
and (y) the expiration date of such options.
8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Officer's continuing or future participation in any Plan for which the
Officer may qualify nor shall anything herein limit or otherwise affect such
rights as the Officer may have under any contract or agreement with the Company.
Amounts that are vested benefits or that the Officer is otherwise entitled to
receive under any Plan, contract or agreement with the Company at or subsequent
to the Date of Termination shall be payable in accordance with such Plan, or
contract or agreement except as explicitly modified by this Agreement.
9. Full Settlement; Legal Fees.
(a) No Obligation to Mitigate. In no event shall the Officer be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Officer under any of the provisions of this Agreement,
and, except as specifically provided in this Agreement, such amounts shall not
be reduced whether or not the Officer obtains other employment.
(b) Expenses of Contests.
(i) The following shall apply for any dispute arising hereunder, under the
Release Agreement or under the Stock Unit Agreement prior to a Change of
Control: In each case solely to the extent that the Officer is successful with
respect thereto, the Company agrees to pay all reasonable legal and professional
fees and expenses that the Officer may reasonably incur as a result of any
contest by the Officer, by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement, the
Release Agreement or the Stock Unit Agreement (including as a result of any
contest by the Officer about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code or any successor
Section of the Code.
(ii) The following shall apply for any dispute arising hereunder, under
the Release Agreement or under the Stock Unit Agreement upon or following a
Change of Control: The Company agrees to advance to the Officer all reasonable
legal and professional fees and expenses that the Officer may reasonably incur
as a result of any contest by the Officer, by the Company or others of the
validity or enforceability of, or liability under, any provision of this
Agreement, the Release Agreement or the Stock Unit Agreement (including as a
result of any contest by the Officer about the amount of any payment pursuant to
this Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code or any
successor Section of the Code.
(iii) The Officer shall reimburse the Company for its reasonable legal and
professional fees and expenses, and in the case of advances made pursuant to
paragraph (ii) above, shall refund the Company the amount of such advances, to
the extent there is a final determination that
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such fees, expenses or advances relate to claims brought by the Officer against,
or defenses by the Officer of any claim of, the Company with respect to this
Agreement, the Release Agreement or the Stock Unit Agreement that were
determined to have been made or asserted by the Officer in bad faith or
frivolously.
10. Certain Additional Payments by the Company. Anything in this Agreement
to the contrary notwithstanding, in the event that any actual or constructive
payment or distribution by the Company to or for the benefit of the Officer
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement, the Stock Unit Agreement or otherwise) is subject to the
excise tax imposed by Section 4999 of the Code or any successor provision of the
Code (the "Excise Tax"), then the Company shall make the payments described on
Exhibit C hereto.
11. Restrictions and Obligations of the Officer.
(a) Consideration for Restrictions and Covenants. The parties hereto
acknowledge and agree that the principal consideration for the agreement to make
the payments provided in Sections 3 and 4 hereof from the Company to the Officer
and the grant to the Officer of the stock units of the Company as set forth in
Section 2 hereof is the Officer's compliance with the undertakings set forth in
this Section 11. Specifically, Officer agrees to comply with the provisions of
this Section 11 irrespective of whether the Officer is entitled to receive any
payments under Section 3 or 4 of this Agreement.
(b) Confidentiality. The confidential and proprietary information and
trade secrets of the Company are among its most valuable assets, including but
not limited to, its customer and vendor lists, database, computer programs,
frameworks, models, its marketing programs, its sales, financial, marketing,
training and technical information, and any other information, whether
communicated orally, electronically, in writing or in other tangible forms
concerning how the Company creates, develops, acquires or maintains its products
and marketing plans, targets its potential customers and operates its retail and
other businesses. The Company has invested, and continues to invest,
considerable amounts of time and money in obtaining and developing the goodwill
of its customers, its other external relationships, its data systems and data
bases, and all the information described above (hereinafter collectively
referred to as "Confidential Information"), and any misappropriation or
unauthorized disclosure of Confidential Information in any form would
irreparably harm the Company. The Officer shall hold in a fiduciary capacity for
the benefit of the Company all Confidential Information relating to the Company
and its business, which shall have been obtained by the Officer during the
Officer's employment by the Company and which shall not be or become public
knowledge (other than by acts by the Officer or representatives of the Officer
in violation of this Agreement). After termination of the Officer's employment
with the Company, the Officer shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process,
communicate, divulge or use any such information, knowledge or data to anyone
other than the Company and those designated by it.
(c) Non-Solicitation or Hire. During the Employment Period and for a
two-year period following the termination of the Officer's employment for any
reason, the Officer shall not,
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directly or indirectly (i) employ or seek to employ any person who is at the
Date of Termination, or was at any time within the six-month period preceding
the Date of Termination, an officer, general manager or director or equivalent
or more senior level employee of the Company or any of its subsidiaries or
otherwise solicit, encourage, cause or induce any such employee of the Company
or any of its subsidiaries to terminate such employee's employment with the
Company or such subsidiary for the employment of another company (including for
this purpose the contracting with any person who was an independent contractor
(excluding consultant) of the Company during such period) or (ii) take any
action that would interfere with the relationship of the Company or its
subsidiaries with their suppliers and franchisees without, in either case, the
prior written consent of the Company's Board of Directors, or engage in any
other action or business that would have a material adverse effect on the
Company.
(d) Non-Competition and Consulting. (i) During the Employment Period and
for a two-year period (the "Consulting Period") following the termination of the
Officer's employment for any reason, the Officer shall not, directly or
indirectly:
(x) engage in any managerial, administrative, advisory, consulting,
operational or sales activities in a Restricted Business anywhere in the
Restricted Area, including, without limitation, as a director or partner
of such Restricted Business, or
(y) organize, establish, operate, own, manage, control or have a
direct or indirect investment or ownership interest in a Restricted
Business or in any corporation, partnership (limited or general), limited
liability company enterprise or other business entity that engages in a
Restricted Business anywhere in the Restricted Area; and
(ii) During the Consulting Period, the Officer shall
(x) be available to render services to the Company as an independent
contractor/consultant but not as an employee of the Company; and
(y) perform such duties as may be reasonably requested in writing
from time to time during the Consulting Period by the Chief Executive
Officer; provided that such duties shall not conflict with the duties of
the Officer for a new employer if such employment does not violate the
terms of Section 11(d)(i) hereof.
(iii) Section 11(d) shall not bind the Officer during any period following
the termination of the Officer's employment if there has been a Change of
Control irrespective of whether the Change of Control occurs before or after the
Date of Termination.
(iv) Nothing contained in this Section 11(d) shall prohibit or otherwise
restrict the Officer from acquiring or owning, directly or indirectly, for
passive investment purposes not intended to circumvent this Agreement,
securities of any entity engaged, directly or indirectly, in a Restricted
Business if either (i) such entity is a public entity and such Officer (A) is
not a controlling Person of, or a member of a group that controls, such entity
and (B) owns, directly or indirectly, no more than 3% of any class of equity
securities of such entity or (ii) such entity is not a public entity and the
Officer (A) is not a controlling Person of, or a member of a group that
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controls, such entity and (B) does not own, directly or indirectly, more than 1%
of any class of equity securities of such entity.
(e) Definitions. For purposes of this Section 11:
(i) "Restricted Business" means the retail store or mail order business or
any business, in each case if it is involved in the manufacture or marketing of
toys, juvenile or baby products, juvenile furniture or children's clothing or
any other business in which the Company may be engaged on the Date of
Termination.
(ii) "Restricted Area" means any country in which the Company or its
subsidiaries owns or franchises any retail store operations or otherwise has
operations on the Date of Termination.
(f) Relief. The parties hereto hereby acknowledge that the provisions of
this Section 11 are reasonable and necessary for the protection of the Company
and its subsidiaries. In addition, the Officer further acknowledges that the
Company and its subsidiaries will be irrevocably damaged if such covenants are
not specifically enforced. Accordingly, the Officer agrees that, in addition to
any other relief to which the Company may be entitled, the Company will be
entitled to seek and obtain injunctive relief (without the requirement of any
bond) from a court of competent jurisdiction for the purposes of restraining the
Officer from any actual or threatened breach of such covenants. In addition,
without limiting the Company's remedies for any breach of any restriction on the
Officer set forth in Section 11, except as required by law, the Officer shall
not be entitled to any payments set forth in Section 3 or 4 hereof if the
Officer breaches any of the covenants applicable to the Officer contained in
this Section 11, the Officer will immediately return to the Company any such
payments previously received upon such a breach, and, in the event of such
breach, the Company will have no obligation to pay any of the amounts that
remain payable by the Company under Section 3 or 4.
12. Successors. (a) This Agreement is personal to the Officer and without
the prior written consent of the Company shall not be assignable by the Officer
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Officer's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will, within thirty days after a Change of Control, and
the Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company within thirty days after any such event of
succession to, assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid that assumes and agrees to perform this Agreement by
operation of law, or otherwise.
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13. Miscellaneous. (a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New Jersey, without
reference to principles of conflict of laws.
(b) Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(c) Amendment. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(d) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to the Officer, to the address on file with the Company; and
(ii) If to the Company, to it at Toys "R" Us, Inc., 461 From Road,
Paramus, New Jersey 07652, Attention: Senior Vice President - Human Resources;
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(e) Assistance to Company. At all times during and after the Employment
Period and at the Company's expense for significant out-of-pocket expenses
actually and reasonably incurred by the Officer in connection therewith, the
Officer shall provide reasonable assistance to the Company in the collection of
information and documents and shall make the Officer available when reasonably
requested by the Company in connection with claims or actions brought by or
against third parties or investigations by governmental agencies based upon
events or circumstances concerning the Officer's duties, responsibilities and
authority during the Employment Period.
(f) Severability of Provisions. Each of the sections contained in this
Agreement shall be enforceable independently of every other section in this
Agreement, and the invalidity or nonenforceability of any section shall not
invalidate or render unenforceable any other section contained in this
Agreement. The Officer acknowledges that the restrictive covenants contained in
Section 11 are a condition of this Agreement and are reasonable and valid in
geographical and temporal scope and in all other respects. If any court or
arbitrator determines that any of the covenants in Section 11, or any part of
any of them, is invalid or unenforceable, the remainder of such covenants and
parts thereof shall not thereby be affected and shall be given full effect,
without regard to the invalid portion. If any court or arbitrator determines
that any of such covenants, or any part thereof, is invalid or unenforceable
because of the geographic or temporal scope of such provision, such court or
arbitrator shall reduce such scope to the minimum extent necessary to make such
covenants valid and enforceable.
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(g) Withholding. The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(h) Waiver. The Officer's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Officer or the Company may have hereunder
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(i) Arbitration. Except as otherwise provided for herein, any controversy
arising under, out of, in connection with, or relating to, this Agreement, and
any amendment hereof, or the breach hereof or thereof, shall be determined and
settled by arbitration in New York, New York, by a three person panel mutually
agreed upon, or in the event of a disagreement as to the selection of the
arbitrators, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Any award rendered therein shall specify the
findings of fact of the arbitrator or arbitrators and the reasons of such award,
with the reference to and reliance on relevant law. Any such award shall be
final and binding on each and all of the parties thereto and their personal
representatives, and judgment may be entered thereon in any court having
jurisdiction thereof.
IN WITNESS WHEREOF, the Officer has hereunto set the Officer's hand and
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
__________________________
Michael Shannon
TOYS "R" US, INC.
By: _____________________
Name:
Title:
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EXHIBIT A
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is entered into as of
this day of , 19 , between TOYS "R" US, INC. and any successor thereto
(collectively, the "Company") and ___________ (the "Officer").
The Officer and the Company agree as follows:
1. The employment relationship between the Officer and the Company
terminated on (the "Termination Date").
2. In accordance with the Officer's Retention Agreement, the Company has
agreed to pay the Officer certain payments and to make certain benefits
available after the Termination Date.
3. In consideration of the above, the sufficiency of which the Officer
hereby acknowledges, the Officer, on behalf of the Officer and the Officer's
heirs, executors and assigns, hereby releases and forever discharges the Company
and its members, parents, affiliates, subsidiaries, divisions, any and all
current and former directors, officers, employees, agents, and contractors and
their heirs and assigns, and any and all employee pension benefit or welfare
benefit plans of the Company, including current and former trustees and
administrators of such employee pension benefit and welfare benefit plans, from
all claims, charges, or demands, in law or in equity, whether known or unknown,
which may have existed or which may now exist from the beginning of time to the
date of this letter agreement, including, without limitation, any claims the
Officer may have arising from or relating to the Officer's employment or
termination from employment with the Company, including a release of any rights
or claims the Officer may have under Title VII of the Civil Rights Act of 1964,
as amended, and the Civil Rights Act of 1991 (which prohibit discrimination in
employment based upon race, color, sex, religion, and national origin); the
Americans with Disabilities Act of 1990, as amended, and the Rehabilitation Act
of 1973 (which prohibit discrimination based upon disability); the Family and
Medical Leave Act of 1993 (which prohibits discrimination based on requesting or
taking a family or medical leave); Section 1981 of the Civil Rights Act of 1866
(which prohibits discrimination based upon race); Section 1985(3) of the Civil
Rights Act of 1871 (which prohibits conspiracies to discriminate); the Employee
Retirement Income Security Act of 1974, as amended (which prohibits
discrimination with regard to benefits); any other federal, state or local laws
against discrimination; or any other federal, state, or local statute, or common
law relating to employment, wages, hours, or any other terms and conditions of
employment. This includes a release by the Officer of any claims for wrongful
discharge, breach of contract, torts or any other claims in any way related to
the Officer's employment with or resignation or termination from the Company.
This release also includes a release of any claims for age discrimination under
the Age Discrimination in Employment Act, as amended ("ADEA"). The ADEA requires
that the Officer be advised to consult with an attorney before the Officer
waives any claim under ADEA. In addition, the ADEA provides the Officer with at
least 21 days to decide whether to waive
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claims under ADEA and seven days after the Officer signs the Agreement to revoke
that waiver. This release does not release the Company from any obligations due
to the Officer under Section 4, 7, 9(b), 10, 11 or 13(e) of the Officer's
Retention Agreement, the Officer's Indemnification Agreement with the Company or
under this Agreement.
Additionally, the Company agrees to discharge and release the Officer and
the Officer's heirs from any claims, demands, and/or causes of action
whatsoever, presently known or unknown, that are based upon facts occurring
prior to the date of this Agreement, including, but not limited to, any claim,
matter or action related to the Officer's employment and/or affiliation with, or
termination and separation from the Company; provided that such release shall
not release the Officer from any loan or advance by the Company or any of its
subsidiaries, any act that would constitute "Cause" under the Officer's
Retention Agreement or a breach under Section 9(b), 11 or 13(e) of the Officer's
Retention Agreement.
4. This Agreement is not an admission by either the Officer or the Company
of any wrongdoing or liability.
5. The Officer waives any right to reinstatement or future employment with
the Company following the Officer's separation from the Company on the
Termination Date.
6. The Officer agrees not to engage in any act after execution of the
Separation and Release Agreement that is intended, or may reasonably be expected
to harm the reputation, business, prospects or operations of the Company, its
officers, directors, stockholders or employees. The Company further agrees that
it will engage in no act which is intended, or may reasonably be expected to
harm the reputation, business or prospects of the Officer. This paragraph shall
not prohibit either party from cooperating with government agencies.
7. The Officer shall continue to be bound by Sections 11 and 13(e) of the
Officer's Retention Agreement.
8. The Officer shall promptly return all the Company property in the
Officer's possession, including, but not limited to, the Company keys, credit
cards, cellular phones, computer equipment, software and peripherals and
originals or copies of books, records, or other information pertaining to the
Company business. The Officer shall return any leased or Company car at the
expiration of the Consulting Period (as defined in the Officer's Retention
Agreement).
9. This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey, without reference to the principles of
conflict of laws. Exclusive jurisdiction with respect to any legal proceeding
brought concerning any subject matter contained in this Agreement shall be
settled by arbitration as provided in the Officer's Retention Agreement.
10. This Agreement represents the complete agreement between the Officer
and the Company concerning the subject matter in this Agreement and supersedes
all prior agreements or understandings, written or oral. This Agreement may not
be amended or modified otherwise
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than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
11. Each of the sections contained in this Agreement shall be enforceable
independently of every other section in this Agreement, and the invalidity or
nonenforceability of any section shall not invalidate or render unenforceable
any other section contained in this Agreement.
12. It is further understood that for a period of 7 days following the
execution of this Agreement in duplicate originals, the Officer may revoke this
Agreement, and this Agreement shall not become effective or enforceable until
the revocation period has expired. No revocation of this Agreement by the
Officer shall be effective unless the Company has received within the 7-day
revocation period, written notice of any revocation, all monies received by the
Officer under this Agreement and all originals and copies of this Agreement.
13. This Agreement has been entered into voluntarily and not as a result
of coercion, duress, or undue influence. The Officer acknowledges that the
Officer has read and fully understands the terms of this Agreement and has been
advised to consult with an attorney before executing this Agreement.
Additionally, the Officer acknowledges that the Officer has been afforded the
opportunity of at least 21 days to consider this Agreement.
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The parties to this Agreement have executed this Agreement as of the day
and year first written above.
TOYS "R" US, INC.
By: ________________________
Name:
Title:
_______________________
Michael Shannon
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EXHIBIT B
Capitalized terms used in the Agreement that are not elsewhere defined in
the Agreement have the definitions set forth below:
"Annual Base Salary" means $555,000 per annum as may be increased from
time to time in the discretion of either the Board, the Committee, or any
appropriate committee of the Board.
"Board" means the Board of Directors of the Company.
"Cause" means: (i) the conviction of, or pleading guilty or nolo
contendere to, a felony involving moral turpitude; (ii) the commission of any
fraud, misappropriation or misconduct which causes demonstrable injury to the
Company or a subsidiary; (iii) an act of dishonesty resulting or intended to
result, directly or indirectly, in material gain or personal enrichment to the
Officer at the expense of the Company or a subsidiary; (iv) any material breach
of the Officer's fiduciary duties to the Company as an employee or officer; (v)
a serious violation of the Toys "R" Us Ethics Agreement or any other serious
violation of a Company policy; (vi) the willful and continued failure of the
Officer to perform substantially the Officer's duties with the Company or one of
its subsidiaries (other than any such failure resulting from incapacity due to
physical or mental illness resulting in a Disability), within a reasonable time
after a written demand for substantial performance is delivered to the Officer
by the Board, which specifically identifies the manner in which the Board
believes that the Officer has not substantially performed the Officer's duties;
(vii) the failure by the Officer to comply, in any material respect, with the
provisions of Section 11 of the Agreement; or (viii) the failure by the Officer
to comply with any other undertaking set forth in the Agreement or any breach by
the Officer hereof that is reasonably likely to result in a material injury to
the Company.
For purposes of this provision, no act or failure to act, on the part of
the Officer, shall be considered "willful" unless it is done, or omitted to be
done, by the Officer in bad faith or without reasonable belief that the
Officer's action or omission was in the best interests of the Company. Any act,
or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of regular outside counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Officer in good faith and in the best interests of the Company. The cessation of
employment of the Officer shall not be deemed to be for Cause unless and until
there shall have been delivered to the Officer a copy of a resolution duly
adopted by the affirmative vote of a majority of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Officer and the Officer is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Officer is guilty of the conduct
described, and specifying the particulars thereof in detail. Notwithstanding the
foregoing, the Company shall have the right to suspend the Officer without
reducing the Officer's compensation and benefits.
"Change of Control" - See Exhibit C.
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"Committee" means the Company's Management Compensation and Stock Option
Committee of the Board of Directors or any successor committee of the Board
performing equivalent functions.
"Date of Termination" means (i) if the Officer's employment is terminated
by the Company for Cause, or by the Officer for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein, as the case
may be (although such Date of Termination shall retroactively cease to apply if
the circumstances providing the basis of termination for Cause or Good Reason
are cured in accordance with the Agreement), (ii) if the Officer's employment is
terminated by the Company other than for Cause, the Date of Termination shall be
the date so designated by the Company in its notification to the Officer of such
termination, (iii) if the Officer's employment is terminated by reason of death
or Disability, the Date of Termination shall be the date of death of the Officer
or the effective date of the Disability, as the case may be, and (iv) the last
day of the Employment Period during which the Company shall have given notice to
the Officer that the Employment Period shall not be extended.
"Disability" means the determination that the Officer is disabled pursuant
to the terms of th TRU Partnership Employees' Savings and Profit Sharing Plan,
as amended and restated as of October 1, 1993, as the same may be amended from
time to time.
"Good Reason" means, without the Officer's prior written consent, the
occurrence of any of the following, provided that the Officer delivers a Notice
of Termination specifying such occurrence within 30 days thereof:
(i) the assignment of the Officer to a position materially inconsistent
with the requirements of Section 2(a) of the Agreement, excluding for this
purpose an action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Officer; provided,
however, that the foregoing shall not constitute "Good Reason" if it is not
attendant to a reduction in the Officer's Annual Base Salary or total target
compensation;
(ii) the relocation or attempted relocation by the Company of the Officer
outside Northeastern New Jersey;
(iii) any failure by the Company to comply in any material respect with
any of the provisions of Section 2(b) of the Agreement, other than failure not
occurring in bad faith and that is remedied by the Company within a reasonable
time after receipt of notice thereof given by the Officer;
(iv) any failure by the Company to comply with and satisfy Section 12(c)
of the Agreement; or
(v) notice by the Company that it is not extending the termination date of
the Employment Period.
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"Notice of Termination" means a written notice that (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Officer's employment under the
provision so indicated and (iii) if the Date of Termination (as defined above)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such notice).
"Plans" means all employee compensation, benefit and welfare plans,
policies and programs of the Company, which may include, without limitation,
incentive, savings, retirement, stock option, restricted stock, supplemental
Officer retirement, pension, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans, vacation practices, fringe benefit practices and policies
relating to the reimbursement of business expenses.
"Retirement" shall have the meaning ascribed to that term in the Plan
under which benefits are being sought by the Officer and pursuant to which the
Officer is first considered retired.
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EXHIBIT C
CHANGE OF CONTROL AND TAX GROSS-UP
I. Certain Definitions
"Change of Control" means, after the date hereof:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition by
the Company or any of its subsidiaries, (ii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
subsidiary of the Company, (iii) any acquisition by any Person pursuant to a
transaction that complies with clauses (i), (ii) and (iii) of subsection (c)
below, or (iv) any acquisition by any entity in which the Officer has a material
direct or indirect equity interest; or
(b) The cessation of the "Incumbent Board" for any reason to constitute at
least a majority of the Board. "Incumbent Board" means the members of the Board
on the date hereof and any member of the Board subsequent to the date hereof
whose election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board, except that the Incumbent Board shall not include any member of
the Board whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board.
(c) The consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, immediately following such
Business Combination each of the following would be correct:
(i) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the Person
resulting from such Business Combination (including, without limitation, a
Person which as a result of such transaction owns the Company
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or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, and
(ii) no Person (excluding (A) any employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary of the Company, or such
corporation resulting from such Business Combination or any Affiliate of such
corporation, or (B) any entity in which the Officer has a material equity
interest, or any "Affiliate" (as defined in Rule 405 under the Securities Act of
1933, as amended) of such entity) beneficially owns, directly or indirectly, 25%
or more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination, or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination, and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
II. Tax Gross-Up
(a) If required by Section 10 of the Agreement, in addition to the
payments described in Sections 4 and 7 of the Agreement and the grants described
in the Stock Unit Agreement, the Company shall pay to the Officer an amount (the
"Gross-up") such that the net amount retained by the Officer, after deduction of
any Excise Tax and any United States Federal, state and local income taxes,
equals the amount of such payments that the Officer would have retained had such
Excise Tax not been imposed. In addition, the Company shall indemnify and hold
the Officer harmless on an after-tax basis from any Excise Tax imposed on or
with respect to any such payment (including, without limitation, any interest,
penalties and additions to tax) payable in connection with any such Excise Tax.
For purposes of determining the amount of any Gross-up or the amount required to
make an indemnity payment on an after-tax basis, it shall be assumed that the
Officer is subject to Federal, state and local income tax at the highest
marginal statutory rates in effect for the relevant period after taking into
account any deduction available in respect of any such tax (e.g., if state and
local taxes are deductible for Federal income tax purposes in the relevant
period, it shall be assumed that such taxes offset income that would otherwise
be subject to Federal income tax at the highest marginal statutory rate in
effect for such period).
(b) Subject to the provisions of paragraph (c) of this Exhibit C , the
determination of (i) whether a Gross-up is required and the amount of such
Gross-up and (ii) the amount necessary to make any payment on an after-tax
basis, shall be made in accordance with the assumptions set forth in paragraph
(a) of this Exhibit C by Ernst & Young LLP or such other "Big Six" accounting
firm designated by the Officer and reasonably acceptable to the Company.
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(c) The Officer shall notify the Company as soon as practicable in writing
of any claim by the Internal Revenue Service that, if successful, would require
any Gross-up or indemnity payment. The Officer shall not pay such claim prior to
the expiration of the 30-day period following the date on which it gives such
notice to the Company. If the Company notifies the Officer in writing prior to
the expiration of such period that it desires to contest such claim, the Officer
shall take all actions necessary to permit the Company to control all
proceedings taken in connection with such contest. In that connection, the
Company may, at its sole option, pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences in respect of such claim and may,
at its sole option, either direct the Officer to pay the tax claimed and sue for
a refund or contest the claim in any permissible manner; provided, however, that
the Company shall pay and indemnify the Officer from and against all costs and
expenses incurred in connection with such contest; provided further, however,
that if the Company directs the Officer to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to the Officer on an
interest-free basis and at no net after-tax cost to the Officer. If the Officer
becomes entitled to receive any refund or credit with respect to such claim (or
would be entitled to a refund or credit but for a counterclaim for taxes not
indemnified hereunder), the Officer shall promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon) plus the
amount of any tax benefit available to the Officer as a result of making such
payment (any such benefit calculated based on the assumption that any deduction
available to the Officer offsets income that would otherwise be taxed at the
highest marginal statutory rates of Federal, state and local income tax for the
relevant periods).
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ANNEX A
STOCK UNIT AGREEMENT
STOCK UNIT AGREEMENT, dated as of November 2, 1998 (the "Unit Agreement"),
between TOYS "R" US, INC., a Delaware corporation (the "Company"), and Michael
Shannon (the "Officer").
W I T N E S S E T H:
WHEREAS, the Company proposed for the approval of the stockholders of the
Company at the 1997 Annual Meeting of Stockholders an Amendment (the
"Amendment") to the Company's 1994 Stock Option and Performance Incentive Plan
(the "Plan") providing for performance criteria that may be utilized by the
Management Compensation and Stock Option Committee (the "Committee") in
connection with the grant of Performance Shares (as defined in the Plan and
referred to herein as "Stock Units"), and the Stockholders approved such
Amendment;
WHEREAS, the Officer and the Company are entering into a Retention
Agreement, dated as of even date herewith (the "Retention Agreement");
WHEREAS, as further inducement for the Officer to execute the Retention
Agreement and continue in the employ of the Company, the Committee has
determined to grant the Officer the Stock Units as described in this Unit
Agreement, and
WHEREAS, the Board and the Committee desire that the compensation arising
from the Stock Units shall qualify as "performance-based compensation" for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the covenants set forth herein and for
other good and valuable consideration, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition shall
have the meanings ascribed to them in the Plan.
2. Stock Unit Grant. Subject to the terms and conditions set forth in this
Unit Agreement and in Section 10 of the Plan, the Officer is hereby granted
fifty thousand (50,000) Stock Units. Each Stock Unit represents the right to
receive one share of Common Stock (collectively, with other shares of Common
Stock relating to the Stock Units and held in the Officer's account in the Trust
(as defined below) in respect of the Stock Units, the "Shares"). The 50,000
Shares shall be promptly deposited after the date hereof in the grantor trust
created pursuant to the Grantor Trust Agreement, dated as of October 1, 1995
between the Company and American Express Trust Company, a Minnesota trust
company (together with any grantor trust subsequently established
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by the Company, the "Trust") and shall be allocated by the Trust to the
Officer's account therein subject to the forfeiture conditions of Section 3
below. Any property attributable to the Shares, including, without limitation,
dividends and distributions thereon, shall be deposited into the Trust, shall as
promptly as practicable be reinvested in shares of Common Stock, and shall be
allocated by the Trust to the Officer's account therein subject to the
forfeiture conditions of Section 3 below.
3. Forfeiture Conditions. The Stock Units granted to the Officer hereunder
shall be forfeited in their entirety, subject to the terms of the Retention
Agreement, if:
(i) the Officer's employment with the Company terminates prior to the
fifth anniversary of the date hereof ; or
(ii) the Performance Objective set forth on Exhibit A hereto is not
achieved.
4. Payment of Stock Units. As soon as practicable but no later than
November 2, 2003, the Committee shall determine whether the Performance
Objective set forth on Exhibit A has been achieved. The Shares, together with
any property attributable thereto (including, without limitation, dividends and
distributions thereon), shall be delivered to the Officer promptly following
November 2, 2003 unless the Officer has elected to defer receipt of such Shares
in accordance with the terms and conditions of any deferred compensation program
maintained by the Company or has failed to satisfy the condition set forth in
Section 3(i) hereof.
5. Investment Representation. The Shares acquired by the Officer under
this Unit Agreement will be acquired for the Officer's account and not with a
view to the distribution thereof, and the Officer will not sell or otherwise
dispose of the Shares unless the Shares are registered under the Securities Act
of 1933, as amended (the "Act"), or the Officer shall furnish the Company with
an opinion of counsel reasonably satisfactory to the Company that such
registration is not required, and a legend to such effect may be placed on the
certificate for the Shares.
6. Liability; Indemnification. No member of the Committee, nor any person
to whom ministerial duties have been delegated, shall be personally liable for
any action, interpretation or determination made with respect to this Unit
Agreement, and each member of the Committee shall be fully indemnified and
protected by the Company with respect to any liability such member may incur
with respect to any such action, interpretation or determination, to the extent
permitted by applicable law and to the extent provided in the Company's
Certificate of Incorporation and Bylaws, as amended from time to time, or under
any agreement between any such member and the Company.
7. Severability. Each of the Sections contained in this Unit Agreement
shall be enforceable independently of every other section in this Unit
Agreement, and the invalidity or nonenforceability of any section shall not
invalidate or render unenforceable any other section contained in this Unit
Agreement
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8. Governing Law. This Unit Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey, without reference to
principles of conflict of laws. Exclusive jurisdiction with respect to any legal
proceeding brought concerning any subject matter contained in this Unit
Agreement shall be settled by arbitration as provided in the Retention
Agreement.
9. Captions. The captions of this Unit Agreement are not part of the
provisions hereof and shall have no force or effect.
10. Amendment. This Unit Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
11. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to the Officer, to the address on file with the Company; and
(ii) If to the Company, to it at Toys "R" Us, Inc., 461 From Road,
Paramus, New Jersey 07652, Attention: Senior Vice President - Human Resources;
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
12. Interpretation. The interpretation and decision with regard to any
question arising under this Unit Agreement or with respect to the Stock Units
made by the Committee shall be final and conclusive on the Officer.
13. Successors. This Unit Agreement shall be binding upon the Company and
its successors and assigns.
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IN WITNESS WHEREOF, this Agreement has been executed by the Company by one
of its duly authorized officers as of the date specified above.
TOYS "R" US, INC.
By: ______________________
Title: ___________________
I hereby acknowledge receipt of the Stock Units and agree to the
provisions set forth in this Agreement.
_____________________________
Michael Shannon
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EXHIBIT A
Performance Objective Under Section 3(ii)
of the Stock Unit Agreement
The consolidated net earnings of the Company in any fiscal year (beginning with
the first fiscal quarter in 1999) of the Company's 1999, 2000, 2001 or 2002
fiscal year is at least equal to the amount of any corresponding quarter in
1998. For these purposes, "consolidated net earnings" shall exclude
extraordinary or unusual items reported by the Company as such.
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