RETENTION AGREEMENT

 

                                     BETWEEN

 

                                TOYS "R" US, INC.

 

                                       AND

 

                               JOHN H. EYLER, JR.

 

                                   DATED AS OF

 

                                 January 6, 2000

 

 

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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 John H. Eyler, Jr. (the "Executive"),  dated as

of January 6, 2000.  Capitalized  terms used in this  Agreement and in Exhibit A

hereto that are not defined in the operative  provisions shall have the meanings

ascribed to them on Exhibit B hereto.

 

      1.  Employment  Period.  The Company hereby agrees to employ the Executive

and the Executive  hereby agrees to remain in the employ of the Company  subject

to the terms and conditions of this Agreement,  for the Employment  Period.  The

term  "Employment  Period"  means the period  commencing on January 17, 2000 and

ending on the second  anniversary  of such date as  automatically  extended  for

successive  additional one-year periods unless, at least six months prior to the

scheduled  expiration  of the  Employment  Period,  the  Company,  based  upon a

determination  by the  Board,  shall  give  notice  to the  Executive  that  the

Employment Period shall not be so extended.

 

      2. Terms of Employment.

 

      (a) Position.  (i) Commencing on January 17, 2000 and for the remainder of

the  Employment  Period,  the  Executive  shall  serve as  President  and  Chief

Executive Officer of the Company.  The Executive shall be based in Paramus,  New

Jersey.

 

            (ii) During the  Employment  Period,  and  excluding  any periods of

      vacation and sick leave to which the Executive is entitled,  the Executive

      agrees  to  devote  his full  time  during  normal  business  hours to the

      business and affairs of the Company and to use his best efforts to perform

      faithfully and efficiently such  responsibilities.  The Executive shall be

      entitled to not less than four weeks of paid vacation during each calendar

      year of the Employment Period.

 

            (iii) During the  Employment  Period,  the Executive may, so long as

      such  activities do not materially  interfere with the  performance of his

      responsibilities  to  the  Company  in  accordance  with  this  Agreement,

      continue the corporate  directorships  on which the Executive  serves,  if

      any, as of the date hereof and such other corporate  directorships  as are

      consented to by the Committee.  It is expressly understood and agreed that

      to the  extent  that  any  such  activities  have  been  conducted  by the

      Executive  with the knowledge of the Company prior to a Change of Control,

      the  continued  conduct of such  activities  (or the conduct of activities

      similar in nature  and scope  thereto)  subsequent  to a Change of Control

      shall not thereafter be deemed to violate this Agreement.

 

            (iv) The Board shall appoint or nominate and recommend Executive for

      election,  and shall use its best efforts to cause Executive to be elected

      and  reelected to (1)  membership  on the Board  effective  from and after

      January 17, 2000 through the  remainder of the  Employment  Period and (2)

      the position of Chairman of the Board  effective  from and after not later

      than June 30, 2001,  through the remainder of the

 

 

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      Employment  thereafter.  Executive  shall also be a member of the  Board's

      Executive  Committee  and a member  ex-officio  of the Board's  Nominating

      Committee.

 

      (b)  Compensation.  (i) Base Salary.  During the  Employment  Period,  the

Executive shall receive his Annual Base Salary, which will be paid in accordance

with the Company's regular payroll policies as in effect from time to time.

 

            (ii) Incentive Bonus. The Executive shall also be eligible, for each

      fiscal year ending during the Employment  Period,  to receive an Incentive

      Bonus, in accordance with  guidelines  established by the Committee.  Each

      such  Incentive  Bonus  shall be paid in  accordance  with  the  Company's

      Incentive Bonus plan.

 

            (iii)  Participation  in Plans.  During the Employment  Period,  the

      Executive  shall be  eligible  to  participate  in all  Plans  (including,

      without limitation, stock option and other equity-based award programs) at

      a level  not less  than  that  which is  commensurate  with  other  senior

      executives of the Company.

 

            (iv) Stock Units.  As further  inducement for the Executive to enter

      into this  Agreement  and to  continue in the employ of the  Company,  the

      Company agrees to grant to the Executive 200,000 stock units contingent on

      performance and future service, pursuant to the Stock Unit Agreement to be

      executed  and  delivered  by the  Company in the form  attached as Annex A

      hereto.

 

            (v) Internet  Subsidiary  Stock  Options.  As further  inducement to

      enter into this  Agreement  and to continue in the employ of the  Company,

      the  Company  agrees  to cause  the  Internet  Subsidiary  to grant to the

      Executive  options to acquire 300,000 shares of the Internet  Subsidiary's

      common  stock  pursuant  the Stock  Option  Agreement  to be executed  and

      delivered by the  Internet  Subsidiary  (the  "Internet  Subsidiary  Stock

      Option   Agreement").   Notwithstanding  any  provision  of  the  Internet

      Subsidiary Stock Option Agreement, the options granted to the Executive in

      the Internet Subsidiary shall be governed by this Agreement.

 

            (vi) TRU Stock Options.  As further  inducement for the Executive to

      enter into this  Agreement  and to continue in the employ of the  Company,

      the Company agrees to grant to the Executive  stock options to acquire (A)

      700,000 shares of common stock of the Company, pursuant to the Partnership

      Option  Agreement  to be  executed  and  delivered  by  the  Company  (the

      "Partnership  Option  Agreement")  and  (B)  subject  to  approval  by the

      Company's  stockholders  of a  new  employee  stock  option  plan  at  the

      Company's  next annual meeting of  stockholders,  300,000 shares of common

      stock  of the  Company,  pursuant  to the  Stock  Option  Agreement  to be

      executed and  delivered by the Company (the "Stock Option  Agreement"  and

      together  the  Partnership   Option  Agreement,   the  "TRU  Stock  Option

      Agreements").  As of April 1 of each year  during the  Employment  Period,

      commencing  with April 1, 2001,  the Company  shall grant to the Executive

      additional stock options to acquire shares of common stock of the Company.

      Each such annual  grant shall  consist of options to acquire not less than

      300,000 shares of common stock of the Company.

 

 

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            (vii) Supplemental  Executive Retirement Plans. All contributions to

      the Executive's  Supplemental  Executive  Retirement Plan account shall be

      fully vested immediately upon contribution.

 

            (viii)  Company's  Long-Term   Incentive   Performance  Awards.  The

      Executive  acknowledges  that the Company may issue restricted stock as an

      award to employees in  connection  with the  elimination  of the Company's

      outstanding  long-term incentive performance awards and that the Executive

      will not be  eligible  to receive  any shares of  restricted  stock in the

      Company in  connection  with the  elimination  of such  awards;  provided,

      however,  that Executive shall be eligible to participate in any incentive

      compensation program that replaces or is otherwise  established  following

      elimination of the current long-term incentive award program.

 

      3. Termination of Employment.

 

      (a) Notice of Termination. Any termination by the Company for Cause, or by

the Executive for Good Reason, shall be communicated by Notice of Termination to

the other  party  hereto  given in  accordance  with this  Agreement.  Notice of

Termination  by the Company for Cause shall be subject to, and may be given only

in full compliance with the substantive and procedural requirements set forth in

clauses (a), (b) and (c) of the definition of "Cause"  appearing in Exhibit B to

this  Agreement.

 

      (b)  Termination  for Death,  Disability or  Retirement.  The  Executive's

employment shall terminate upon his death,  Disability or Retirement  during the

Employment Period. In the event of such termination:

 

            (i) the Company  shall make a lump sum cash payment to the Executive

      (or,  in  the  event  that  termination  results  from  the  death  of the

      Executive,  to his estate) within 30 days after the Date of Termination in

      an amount  equal to the sum of:

 

                  (A) the  Executive's  pro  rata  Annual  Base  Salary  payable

            through the Date of Termination to the extent not already paid;

 

                  (B) the targeted  amount of the  Executive's  Incentive  Bonus

            that  would have been  payable  with  respect to the fiscal  year in

            which the Date of Termination occurs,  absent the termination of the

            Executive's employment, prorated for the portion of such fiscal year

            through the Date of  Termination  taking into  account the number of

            complete  months  during  such  fiscal  year  through  the  Date  of

            Termination;

 

                  (C) the  Executive's  actual  earned  Incentive  Bonus for any

            completed fiscal year or period not theretofore paid; and

 

                  (D) the account balances  provided for under the Plans subject

            to the terms and conditions of the Plans;  and

 

            (ii) (1) all unvested  options to acquire stock of the Company or of

      the Internet  Subsidiary  held by the Executive  shall vest on the Date of

      Termination, (2) all unvested

 

 

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      profit shares held by the Executive or for the benefit of the Executive by

      a grantor  trust  established  by the  Company  shall  vest on the Date of

      Termination  and  shall be  promptly  delivered  to the  Executive  or his

      estate, (3) all other unvested  equity-based  awards  (including,  without

      limitation,  restricted  stock and stock units  together with all property

      attributable  thereto)  held by the  Executive  or for the  benefit of the

      Executive by a grantor trust  established by the Company shall vest on the

      Date of Termination and shall be promptly  delivered to the Executive,  or

      in the event of  termination  due to his death,  the  Executive's  estate,

      entirely in the form of Common  Stock,  $.10 par value per share  ("Common

      Stock") of the Company, (4) all options to acquire stock of the Company or

      of the Internet Subsidiary  (including,  without limitation,  options that

      vest  pursuant to this clause  (ii)) held by the  Executive  shall  remain

      exercisable  in whole  or in part at all  times,  and  from  time to time,

      following  the Date of  Termination  through the  expiration  date of such

      options,  and (5) the  Executive  shall not be entitled to any  additional

      grants of any stock options,  restricted  stock, or other  equity-based or

      long-term awards following the Date of Termination; and

 

            (iii) the Executive (and his spouse and dependent  children) will be

      entitled to  continuation  of health  benefits  under the Plans at a level

      commensurate  with the Executive's  current  position and if the Executive

      (or his spouse and  dependent  children  upon his death) elects to receive

      such health  benefits,  the  Executive  shall pay the  premium  charged to

      former  employees  of the Company  pursuant to Section  4980B of the Code;

      provided,  that the  Executive  and his spouse  will only be  entitled  to

      receive such health  benefits until  attaining the age of sixty-five  (65)

      and  dependent  children  will only be  entitled  to receive  such  health

      benefits  as long as such  children  qualify  as  dependent  children  for

      federal income tax purposes.  The Company can amend or otherwise alter the

      Plans to provide  health  benefits to the Executive  that are no less than

      those  commensurate with the Executive's  current position.  To the extent

      such health  benefits  cannot be provided to the Executive under the terms

      of the Plans or the Plans  cannot be so amended in any manner not  adverse

      to the  Company,  the Company  shall pay the  Executive,  on an  after-tax

      basis, an amount necessary for the Executive to acquire such benefits from

      an independent  insurance  carrier.  The  obligations of the Company under

      this clause  (iii) shall be  terminated  if, at any time after the Date of

      Termination,  the Executive is employed by or is otherwise affiliated with

      a party that offers  comparable  health  benefits to the Executive and his

      spouse and dependent children.

 

      (c) Termination by the Company for Cause.  If the  Executive's  employment

shall be terminated for Cause during the  Employment  Period as provided in this

Agreement,  the Employment Period shall terminate without further obligations to

the Executive  other than (i) the obligation to pay him (x) the  Executive's pro

rata Annual Base Salary  payable  through the Date of  Termination to the extent

not theretofore paid, (y) the Executive's  actual earned Incentive Bonus for any

completed  fiscal year or period not theretofore  paid, and (z) all payments and

benefits  due,  in  accordance  with the  Company's  Plans  through  the Date of

Termination  and (ii) the  obligations  of the Company and  Internet  Subsidiary

under all stock  options,  stock  units and other  equity-based  awards that are

vested as of the date of  Termination.

 

 

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      (d)  Termination by the Company Without Cause or By the Executive for Good

Reason. If the Executive's  employment shall be terminated during the Employment

Period by the Company without Cause, or by the Executive for Good Reason, then:

 

            (i) the Company  shall make a lump sum cash payment to the Executive

      within 30 days after the Date of  Termination of (x) the  Executive's  pro

      rata Annual Base Salary  payable  through the Date of  Termination  to the

      extent not  theretofore  paid, (y) the targeted  amount of the Executive's

      Incentive  Bonus that would have been  payable  with respect to the fiscal

      year in which the Date of Termination  occurs,  absent the  termination of

      the Executive's  employment,  prorated for the portion of such fiscal year

      through the Date of Termination taking into account the number of complete

      months during such fiscal year through the Date of Termination and (z) the

      Executive's actual earned Incentive Bonus for any completed fiscal year or

      period not theretofore paid; and

 

            (ii) the Company shall pay to the  Executive in equal  installments,

      made at least monthly,  over the twenty-four  months following the Date of

      Termination,  an aggregate  amount equal to (1) two times the  Executive's

      Annual Base Salary in effect on the Date of Termination  and (2) two times

      the targeted  amount of the  Incentive  Bonus that would have been paid or

      accrued to the  Executive  with  respect to the  Company's  fiscal year in

      which such Date of Termination occurs; and

 

            (iii) the  Company  shall  continue  to  provide,  in the manner and

      timing  provided  for in the Plans (other than as provided in clauses (i),

      (ii), (iv) and (v) of this Section 3(d)), the benefits  provided under the

      Plans  that the  Executive  would  receive if the  Executive's  employment

      continued for two years after the Date of  Termination,  assuming for this

      purpose that the Executive's  compensation  during such two-year period is

      the amount paid pursuant to clause (ii) above,  and the Executive shall be

      fully  vested in any  account  balance  and all other  benefits  under the

      Plans; provided, however, that the benefits provided under the Plans under

      this clause  (iii) shall be limited to the amounts  permitted by law or as

      would otherwise not potentially  adversely impact on the tax qualification

      of any Plans; and provided,  further, that if any such benefits may not be

      continued  under the Plans,  the  Company  shall pay to the  Executive  an

      amount equal to the amount that the Executive would have received had such

      benefits been continued under the Plans; and

 

            (iv) (1) all unvested  options to acquire stock of the Company or of

      the Internet  Subsidiary  held by the Executive  shall vest on the Date of

      Termination,  (2) all unvested  profit shares held by the Executive or for

      the benefit of the Executive by a grantor trust established by the Company

      shall vest on the Date of Termination and 50% of such vested profit shares

      shall  be  delivered  to the  Executive  promptly  following  the  Date of

      Termination and 50% of such vested profit shares shall be delivered to the

      Executive on the first  anniversary  of the Date of  Termination,  (3) all

      other  unvested   equity-based  awards  (including,   without  limitation,

      restricted  stock and stock units together with all property  attributable

      thereto)  held by the  Executive or for the benefit of the  Executive by a

      grantor  trust  established  by the  Company  shall  vest  on the  Date of

      Termination  and 50% of such  vested  awards  shall  be  delivered  to the

      Executive  promptly  following  the  Date of  Termination  and 50% of such

      vested awards shall be delivered to

 

 

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      the Executive on the first anniversary of the Date of Termination, (4) all

      options to acquire  stock of the  Company  or of the  Internet  Subsidiary

      (including,  without limitation, options that vest pursuant to this clause

      (iv)) held by the Executive  shall remain  exercisable in whole or in part

      at all times,  and from time to time,  following  the Date of  Termination

      through the  expiration  date of such options and (5) the Executive  shall

      not be entitled to any additional grants of any stock options,  restricted

      stock,  or other  equity-based or long-term  awards  following the Date of

      Termination; and

 

            (v) the  Executive,  his  spouse  and  dependent  children  shall be

      entitled to the benefits set forth under Section 3(b)(iii).

 

      4. Obligations of the Company Relating to a Change of Control.

 

      (a)  Notwithstanding  any  provision of this  Agreement or any Plan, in no

event shall the compensation or benefits,  individually or in the aggregate,  to

which the Executive  shall be entitled for the three years following a Change of

Control  be less  favorable  than that to which the  Executive  would  have been

entitled based upon the most favorable of the Company's  Plans in effect for the

Executive  at any time  during the 120-day  period  immediately  preceding  such

Change of Control.

 

      (b) If the  Executive's  employment  shall  have  been  terminated  by the

Company  (other than for Cause) or by the  Executive  for Good  Reason  during a

Change of Control Period:

 

            (i) the Company  shall make a lump sum cash payment to the Executive

      within 30 days after the Date of Termination in an amount equal to the sum

      of the  amounts  provided  by  Sections  3(d)(i)  and (ii) except that all

      references  in Section  3(d)(ii)  therein to "two  times"  shall be "three

      times"; and

 

            (ii) the Company shall make a lump sum cash payment to the Executive

      within 30 days  after the Date of  Termination  in an amount  equal to the

      cumulative  amounts that would have been provided by Section  3(d)(iii) if

      the  Executive's  employment  continued  for three years after the Date of

      Termination,  assuming for this purpose that the Executive's  compensation

      during such three-year period is the amount payable pursuant to clause (i)

      above; and

 

            (iii) (1) all unvested options to acquire stock of the Company or of

      the Internet  Subsidiary  held by the Executive  shall vest on the Date of

      Termination,  (2) all unvested  profit shares held by the Executive or for

      his benefit by a grantor  trust  established  by the Company shall vest on

      the Date of Termination and shall be delivered to Executive promptly,  (3)

      all  other  unvested  equity  awards   (including,   without   limitation,

      restricted  stock and stock units together with all property  attributable

      thereto)  held by the  Executive  or for his  benefit  by a grantor  trust

      established  by the Company shall vest on the Date of  Termination  and be

      promptly  delivered to the Executive entirely in the form of Common Stock,

      (4) all  options  to  acquire  stock  of the  Company  or of the  Internet

      Subsidiary (including,  without limitation,  options that vest pursuant to

      this  Section  4(c))  held by the  Executive  may be  exercised  until the

      expiration date of the options, and (5) the Executive

 

 

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      shall not be  entitled  to any  additional  grants  of any stock  options,

      restricted stock, and other equity-based or long term awards following the

      Date of  Termination;  and

 

            (iv) the  Executive,  his spouse  and  dependent  children  shall be

      entitled to the benefits set forth in Section 3(b)(iii).

 

      5. Release  Agreement.  The benefits  pursuant to Section 3 are contingent

upon the  Executive  (i)  executing  a  Separation  and Release  Agreement  (the

"Release  Agreement") upon or after any Date of Termination,  a copy of which is

attached as Exhibit A to this Agreement and (ii) not revoking or challenging the

enforceability of the Release Agreement or this Agreement.

 

      6. Offset. The Company shall have the right to offset the amounts required

to be paid to the Executive under this Agreement against any amounts owed by the

Executive  to the  Company,  and  nothing in this  Agreement  shall  prevent the

Company from pursuing any other available remedies against the Executive.

 

      7.  Nonexclusivity  of Rights.  Nothing in this Agreement shall prevent or

limit the Executive's  continuing or future  participation in any Plan for which

the Executive may qualify nor shall  anything  herein limit or otherwise  affect

such rights as the Executive  may have under any contract or agreement  with the

Company.  Amounts  that are vested  benefits or that the  Executive is otherwise

entitled to receive under any Plan, contract or agreement with the Company at or

subsequent to the Date of Termination  shall be payable in accordance  with such

Plan, or contract or agreement except as explicitly modified by this Agreement.

 

      8.  Full Settlement; Legal Fees.

 

      (a) No  Obligation  to  Mitigate.  In no  event  shall  the  Executive  be

obligated to seek other employment or take any other action by way of mitigation

of the amounts  payable to the  Executive  under any of the  provisions  of this

Agreement,  and, except as specifically provided in this Agreement, such amounts

shall not be reduced whether or not the Executive obtains other employment.

 

      (b)  Expenses  of  Contests.  The  following  shall  apply for any dispute

arising  hereunder,  under the Release  Agreement or under either the Stock Unit

Agreement or the TRU Stock Option Agreements:

 

            (i) Other  than with  respect  to claims  brought  by the  Executive

      against,  or defenses by the  Executive  of any claim of, the Company with

      respect to this  Agreement,  the Release  Agreement or either of the Stock

      Unit Agreement or the TRU Stock Option  Agreements that were determined to

      have been made or asserted by the  Executive in bad faith or  frivolously,

      the Company agrees to pay all reasonable legal and  professional  fees and

      expenses  that the  Executive  may  reasonably  incur  as a result  of any

      contest by the  Executive,  by the  Company or others of the  validity  or

      enforceability  of, or liability  under,  any provision of this Agreement,

      the Release  Agreement or either the Stock Unit Agreement or the TRU Stock

      Option  Agreements  (including as a result of any contest by the Executive

      about the amount of any payment pursuant to this Agreement), plus in each

 

 

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      case  interest  on any  delayed  payment at the  applicable  Federal  rate

      provided for in Section 7872(f)(2)(A) of the Code or any successor Section

      of the Code.

 

            (ii) The Executive  shall  reimburse the Company for its  reasonable

      legal and professional  fees and expenses,  to the extent there is a final

      determination  that such fees or expenses  relate to claims brought by the

      Executive  against,  or  defenses  by the  Executive  of any claim of, the

      Company with respect to this  Agreement,  the Release  Agreement or either

      the Stock Unit  Agreement  or the TRU Stock  Option  Agreements  that were

      determined  to have been made or asserted by the Executive in bad faith or

      frivolously.

 

      9. Certain Additional Payments by the Company.  Anything in this Agreement

to the contrary  notwithstanding,  in the event that any actual or  constructive

payment or  distribution  by the Company to or for the benefit of the  Executive

(whether paid or payable or distributed or  distributable  pursuant to the terms

of this  Agreement,  either the Stock  Unit  Agreement  or the TRU Stock  Option

Agreements or otherwise) is subject to the excise tax imposed by Section 4999 of

the Code or any  successor  provision of the Code (the "Excise  Tax"),  then the

Company shall make the payments described on Exhibit C hereto.

 

      10. Restrictions and Obligations of the Executive.

 

      (a)  Consideration  for  Restrictions  and  Covenants.  The parties hereto

acknowledge and agree that the principal consideration for the agreement to make

the  payments  provided  in  Sections  3 and 4 hereof  from the  Company  to the

Executive and the grant to the Executive of the stock options and stock units of

the Company as set forth in Section 2 hereof is the Executive's  compliance with

the  undertakings  set forth in this  Section 10.  Specifically,  the  Executive

agrees to comply with the provisions of this Section 10  irrespective of whether

the  Executive is entitled to receive any payments  under Section 3 or 4 of this

Agreement.

 

      (b) Confidentiality.  The confidential and proprietary  information and in

any material  respect  trade  secrets of the Company are among its most valuable

assets,  including but not limited to, its customer and vendor lists,  database,

computer  programs,  frameworks,  models,  its  marketing  programs,  its sales,

financial,   marketing,  training  and  technical  information,  and  any  other

information, whether communicated orally, electronically, in writing or in other

tangible  forms  concerning  how the  Company  creates,  develops,  acquires  or

maintains its products and marketing plans,  targets its potential customers and

operates  its  retail  and other  businesses.  The  Company  has  invested,  and

continues to invest,  considerable  amounts of time and money in  obtaining  and

developing the goodwill of its customers, its other external relationships,  its

data  systems  and  data  bases,   and  all  the  information   described  above

(hereinafter  collectively referred to as "Confidential  Information"),  and any

misappropriation or unauthorized  disclosure of Confidential  Information in any

form,  would  irreparably  harm  the  Company.  The  Executive  shall  hold in a

fiduciary  capacity for the benefit of the Company all Confidential  Information

relating to the Company and its business,  which shall have been obtained by the

Executive  during the Executive's  employment by the Company and which shall not

be or  become  public  knowledge  (other  than  by  acts  by  the  Executive  or

representatives  of  the  Executive  in  violation  of  this  Agreement).  After

termination of the Executive's  employment with the Company, the Executive shall

not, without the prior written consent of the Company or

 

 

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as may otherwise be required by law or legal  process,  communicate,  divulge or

use any such information, knowledge or data to anyone other than the Company and

those designated by it.

 

      (c)  Non-Solicitation  or Hire.  During  the  Employment  Period and for a

three-year  period  following the Date of Termination,  the Executive shall not,

directly  or  indirectly  (i)  employ or seek to employ any person who is at the

Date of Termination,  or was at any time within the six-month  period  preceding

the Date of Termination,  an officer,  general manager or director or equivalent

or more  senior  level  employee of the  Company or any of its  subsidiaries  or

otherwise solicit,  encourage,  cause or induce any such employee of the Company

or any of its  subsidiaries  to terminate such  employee's  employment  with the

Company or such subsidiary for the employment of another company  (including for

this purpose the contracting  with any person who was an independent  contractor

(excluding  consultant)  of the  Company  during  such  period) or (ii) take any

action  that  would  interfere  with  the  relationship  of the  Company  or its

subsidiaries with their suppliers and franchisees  without,  in either case, the

prior written  consent of the Company's Board of Directors;  provided,  however,

that if the Executive  terminates the Agreement for "Good Reason" or the Company

terminates the Executive's  employment  hereunder without Cause, the obligations

under this Section 10(c) shall survive for only a two-year period  following the

Date of Termination.

 

      (d) Non-Competition  and Consulting.  (i) During the Employment Period and

for a two-year  period  following the Date of  Termination,  the Executive shall

not, directly or indirectly:

 

            (x) engage in any managerial, administrative,  advisory, consulting,

      operational or sales activities in a Restricted  Business  anywhere in the

      Restricted Area, including,  without limitation,  as a director or partner

      of such Restricted Business, or

 

            (y) organize,  establish,  operate,  own, manage,  control or have a

      direct or  indirect  investment  or  ownership  interest  in a  Restricted

      Business or in any corporation,  partnership (limited or general), limited

      liability  company  enterprise or other business  entity that engages in a

      Restricted Business anywhere in the Restricted Area; and

 

            (z) interfere with,  disrupt or attempt to disrupt the relationship,

      contractual or otherwise,  between the Company and any customer, supplier,

      lessor, lessee, employee, consultant,  research partner or investor of the

      Company.

 

      (e)  Litigation  Assistance.  The Executive  agrees to cooperate  with the

Company  and its  counsel  in  regard to any  litigation  presently  pending  or

subsequently  initiated  involving matters of which the Executive has particular

knowledge  as a result of your  employment  with the Company.  Such  cooperation

shall consist of the Executive making himself  available at reasonable times for

consultation with officers of the Company and its counsel and for depositions or

other similar  activity should the occasion arise.  Reasonable  travel costs and

out-of-pocket  expenses in connection with such cooperation  shall be reimbursed

by the Company. The Executive shall not receive any additional  compensation for

providing  assistance  pursuant  to this  Section  10(e)  following  the Date of

Termination;  provided  that  such  assistance,  together  with  any  assistance

provided by the Executive pursuant to Section 12(e), does not

 

 

                                       9

<PAGE>

 

require an aggregate of more than 10 days during the entire period following the

Date of Termination.  If such  assistance  requires more than 10 days during the

entire period following the Date of Termination,  the Company will pay Executive

an amount per day equal to the  Executive's  Annual  Base  Salary on the Date of

Termination  divided by 250, for each day on which  assistance  is provided that

exceeds the foregoing  limits.  The  obligations  under this Section 10(e) shall

survive for a five-year period following the Date of Termination.

 

      (f) Exceptions. Sections 10(c) and (d) shall not bind the Executive during

any period following the termination of the Executive's  employment if there has

been a Change of Control,  irrespective  of whether the Change of Control occurs

before or after the Date of Termination.

 

      (g)  Permitted  Investments.  Nothing  contained  in Section  10(d)  shall

prohibit or otherwise restrict the Executive from acquiring or owning,  directly

or indirectly,  for passive investment  purposes not intended to circumvent this

Agreement,  securities  of any entity  engaged,  directly  or  indirectly,  in a

Restricted  Business if either (i) such entity is a public  entity and Executive

(A) is not a controlling  person of, or a member of a group that controls,  such

entity and (B) owns,  directly  or  indirectly,  no more than 3% of any class of

equity  securities of such entity or (ii) such entity is not a public entity and

the Executive  (A) is not a  controlling  person of, or a member of a group that

controls, such entity and (B) does not own, directly or indirectly, more than 1%

of any class of equity securities of such entity.

 

      (h) Definitions. For purposes of this Section 10:

 

      (i) "Restricted  Business" means any retail store, mail order,  electronic

commerce or Internet business or any business, in each case if it is involved in

the  manufacture,  sale or marketing of toys,  juvenile or baby products  (other

than children's clothing), juvenile furniture or any other business in which the

Company  may be engaged on the Date of  Termination,  provided  that such entity

derives at least 10% or more of its revenues in the aggregate from such products

and/or business in its most recent fiscal year. Notwithstanding the foregoing, a

Restricted  Business shall not include  non-discount  department stores, such as

Federated Department Stores (whether or not such a non-discount department store

would  otherwise meet the definition set forth in the preceding  sentence),  but

shall include discount stores, such as Wal-Mart, K-Mart and Target to the extent

such a discount department store meets the definition set forth in the preceding

sentence.

 

            (ii) "Restricted Area" means any country in which the Company or its

      subsidiaries  owns or franchises any retail store  operations or otherwise

      has operations on the Date of Termination.

 

            (i)  Relief.   The  parties  hereto  hereby   acknowledge  that  the

      provisions  of  this  Section  10 are  reasonable  and  necessary  for the

      protection of the Company and its subsidiaries. In addition, the Executive

      further  acknowledges  that  the  Company  and  its  subsidiaries  will be

      irrevocably  damaged  if such  covenants  are not  specifically  enforced.

      Accordingly, the Executive agrees that, in addition to any other relief to

      which the Company may be  entitled,  the Company  will be entitled to seek

      and obtain  injunctive relief (without the requirement of any bond) from a

      court of competent jurisdiction for

 

 

                                       10

<PAGE>

 

      the purposes of  restraining  the Executive  from any actual or threatened

      breach of such covenants.

 

      11. Successors.

 

      (a) This  Agreement  is  personal to the  Executive  and without the prior

written  consent  of the  Company  shall  not  be  assignable  by the  Executive

otherwise than by will or the laws of descent and  distribution.  This Agreement

shall  inure to the  benefit  of and be  enforceable  by the  Executive's  legal

representatives.

 

      (b) This  Agreement  shall inure to the benefit of and be binding upon the

Company and its successors and assigns.

 

      (c) The Company will,  within  thirty days after a Change of Control,  and

the Company will require any successor (whether direct or indirect, by purchase,

merger,  consolidation or otherwise) to all or substantially all of the business

and/or  assets  of the  Company  within  thirty  days  after  any such  event of

succession to, assume  expressly and agree to perform this Agreement in the same

manner and to the same extent  that the Company  would be required to perform it

if no such  succession  had taken place.  As used in this  Agreement,  "Company"

shall mean the Company as hereinbefore defined and any successor to its business

and/or assets as aforesaid  that assumes and agrees to perform this Agreement by

operation of law, or otherwise.

 

      12. Miscellaneous.

 

      (a) Governing  Law. This  Agreement  shall be governed by and construed in

accordance  with  the laws of the  State of New  Jersey,  without  reference  to

principles of conflict of laws.

 

      (b)  Captions.  The  captions  of  this  Agreement  are  not  part  of the

provisions  hereof  and  shall  have no force or  effect.

 

      (c)  Amendment.  This  Agreement may not be amended or modified  otherwise

than by a written  agreement  executed by the parties hereto or their respective

successors and legal representatives.

 

      (d) Notices.  All notices and other  communications  hereunder shall be in

writing and shall be given by hand  delivery to the other party or by registered

or certified  mail,  return receipt  requested,  postage  prepaid,  addressed as

follows:

 

            (i) If to the  Executive,  to the address on file with the  Company;

      and

 

            (ii) If to the Company,  to it at Toys "R" Us, Inc.,  461 From Road,

      Paramus,  New Jersey  07652,  Attention:  Senior  Vice  President  - Human

      Resources;

 

or to such other  address as either  party shall have  furnished to the other in

writing in accordance  herewith.  Notice and  communications  shall be effective

when actually received by the addressee.

 

 

                                       11

<PAGE>

 

      (e) Assistance to Company.  At all times during and after the  Employment

Period and at the  Company's  expense for  out-of-pocket  expenses  actually and

reasonably  incurred by the  Executive in  connection  therewith,  the Executive

shall  provide  reasonable  assistance  to  the  Company  in the  collection  of

information and documents and shall make the Executive available when reasonably

requested  by the Company in  connection  with  claims or actions  brought by or

against third parties or  investigations  by  governmental  agencies  based upon

events or circumstances concerning the Executive's duties,  responsibilities and

authority  during the  Employment  Period.  The Executive  shall not receive any

additional  compensation for providing assistance pursuant to this Section 12(e)

following the Date of Termination;  provided that such assistance, together with

any  assistance  provided by the  Executive  pursuant to Section  10(e) does not

require an aggregate of more than 10 days during the entire period following the

Date of Termination.  If such  assistance  requires more than 10 days during the

entire period following the Date of Termination,  the Company will pay Executive

an amount per day equal to the  Executive's  Annual  Base  Salary on the Date of

Termination  divided by 250, for each day on which  assistance  is provided that

exceeds the foregoing limits.

 

      (f) Severability  of Provisions.  Each of the sections  contained in this

Agreement  shall be  enforceable  independently  of every other  section in this

Agreement,  and the  invalidity  or  nonenforceability  of any section shall not

invalidate  or  render   unenforceable  any  other  section  contained  in  this

Agreement.  The Executive  acknowledges that the restrictive covenants contained

in Section 10 are a condition of this  Agreement and are reasonable and valid in

geographical  and  temporal  scope  and in all other  respects.  If any court or

arbitrator  determines  that any of the  covenants in Section 10, or any part of

any of them, is invalid or  unenforceable,  the remainder of such  covenants and

parts  thereof  shall not  thereby be affected  and shall be given full  effect,

without  regard to the invalid  portion.  If any court or arbitrator  determines

that any of such  covenants,  or any part thereof,  is invalid or  unenforceable

because of the  geographic or temporal  scope of such  provision,  such court or

arbitrator  shall reduce such scope to the minimum extent necessary to make such

covenants valid and enforceable.

 

      (g) Withholding.  The Company may withhold from any amounts payable under

this Agreement such Federal,  state, local or foreign taxes as shall be required

to be withheld pursuant to any applicable law or regulation.

 

      (h) Waiver. The Executive's or the Company's failure to insist upon strict

compliance with any provision hereof or any other provision of this Agreement or

the failure to assert any right the Executive or the Company may have  hereunder

shall  not be  deemed  to be a waiver  of such  provision  or right or any other

provision or right of this Agreement.

 

      (i) Arbitration.  Except as otherwise provided for herein, any controversy

arising under, out of, in connection  with, or relating to, this Agreement,  and

any amendment hereof,  or the breach hereof or thereof,  shall be determined and

settled by  arbitration  in New York, New York, by a three person panel mutually

agreed  upon,  or in the  event of a  disagreement  as to the  selection  of the

arbitrators,  in accordance with the Employment  Dispute Resolution Rules of the

American Arbitration  Association.  Any award rendered therein shall specify the

findings of fact of the arbitrator or arbitrators and the reasons of such award,

with the  reference  to and  reliance on relevant  law.  Any such award shall be

final and binding on each and

 

 

                                       12

<PAGE>

 

all of the parties thereto and their personal representatives,  and judgment may

be entered thereon in any court having jurisdiction thereof.

 

      13. Indemnification; Directors and Officers Liability Coverage.

 

      (a) Indemnification.  The Executive shall be indemnified and held harmless

by the Company to the greatest extent permitted under applicable Delaware law as

the same now  exists or may  hereafter  be amended if  Executive  was,  is or is

threatened to be made, a party to any pending,  completed or threatened  action,

suit,  arbitration,  alternate  dispute  resolution  mechanism,   investigation,

administrative   hearing  or  any  other  proceeding  whether  civil,  criminal,

administrative  or investigative,  and whether formal or informal,  by reason of

the fact that Executive is or was, or had agreed to become, a director, officer,

employee,  agent or fiduciary of the Company or any other entity which Executive

is or was  serving at the  request of the  Company  ("Proceeding"),  against all

expenses  (including,   without  limitation,  all  reasonable  attorneys'  fees,

retainers,  court costs,  transcripts,  fees of experts,  witness  fees,  travel

expenses,  duplicating  costs,  printing and binding costs,  telephone  charges,

postage,  delivery  service  fees,  and all other  reasonable  disbursements  or

expenses  customarily required in connection with asserting or defending claims)

("Expenses") and all claim, damages, liabilities and losses (including,  without

limitation,  judgments;  fines;  liabilities  under  the  Code  or the  Employee

Retirement Income Security Act of 1974, as amended, for damages, excise taxes or

penalties;  damages,  fines or  penalties  arising out of  violation  of any law

related to the protection of the public health, welfare or the environment;  and

amounts paid or to be paid in settlement)  incurred or suffered by any person or

to which the Executive may become subject for any reason.

 

      (b)  Advancement  of Expenses and Costs.  All  Expenses  incurred by or on

behalf of the Executive in defending or otherwise being involved in a Proceeding

shall  be  paid  by the  Company  in  advance  of  the  final  disposition  of a

Proceeding,  including  any  appeal  therefrom,  within  ten (10) days after the

receipt  by  the  Company  of a  statement  or  statements  from  the  Executive

requesting  such  advance  or  advances  from time to time.  Such  statement  or

statements shall reasonably  evidence the Expenses  incurred by the Executive in

connection therewith.

 

      (c) Effect of Certain  Proceedings.  The  termination of any Proceeding by

judgment,  order, settlement or conviction,  or upon a plea of nolo contendre or

its  equivalent,  except,  in each case,  to the extent  that the terms  thereof

expressly so provide,  shall not, of itself (1)  adversely  affect the rights of

the Executive to indemnification, or (2) create a presumption that the Executive

did not meet any particular standard of conduct or have any particular belief or

that  a  court  has  determined  that  indemnification  or  contribution  is not

permitted by applicable law.

 

      (d)  Other  Rights  to   Indemnification.   The   Executive's   rights  of

indemnification  and advancement of Expenses  provided by this Section shall not

be deemed exclusive of any other rights to which the Executive may now or in the

future be entitled  under  applicable  law, the  certificate  of  incorporation,

by-laws,  agreement,  vote of  stockholders,  or  resolution of the Board of the

Company,  or other  provisions  of this  Agreement  or any other  agreement,  or

otherwise.

 

 

                                       13

<PAGE>

 

      (e) Expenses Incurred By the Executive to Enforce This Agreement. Expenses

incurred by the Executive in  connection  with the  Executive's  request for, or

efforts to secure, preserve,  establish entitlement to or obtain indemnification

or advances  hereunder  shall be reimbursed by the Company on a current basis in

accordance with the provisions of Section 13(b).

 

      (f) Representations. The Company represents and warrants that this Section

does not conflict with or violate its certificate of  incorporation  or by-laws,

and agrees that it will not amend its certificate of incorporation or by-laws in

a manner that would  limit the rights of the  Executive  hereunder.  The Company

represents that the execution, delivery and performance of this Agreement by the

Company has been duly and validly authorized by its Board.

 

      (g) Survival of Indemnity.  This Section shall survive any  termination of

the  relationship of the Executive with the Company and shall be binding on, and

inure to the  benefit  of the  successors  and  assigns of the  Company  and the

successors, assigns, heirs and personal representatives of the Executive.

 

      (h) Directors and Officers  Liability  Coverage.  The Company shall at all

time  maintain  directors  and  officers  liability  insurance  coverage for the

benefit  of  Executive  in a form  that is no less  broad  than  that  which  is

currently in effect, a copy of which is set forth as Exhibit D hereto.

 

 

                                       14

<PAGE>

 

                  IN  WITNESS  WHEREOF,  the  Executive  has  hereunto  set  the

Executive's hand and the Company has caused these presents to be executed in its

name on its behalf, all as of the day and year first above written.

 

                                                 JOHN H. EYLER, JR.

 

                                                     /s/ John H. Eyler, Jr.

                                                 -------------------------------

 

                                                 TOYS "R" US, INC.

 

                                                 By:    /s/ Michael Goldstein

                                                     ---------------------------

                                                 Name: Michael Goldstein

                                                 Title: Chairman of the Board

 

Accepted and Agreed:

 

TOYRSRUS.COM, INC.

 

By: /s/ Michael Goldstein

   -----------------------------

Name: Michael Goldstein

Title: Chairman of the Board

 

 

<PAGE>

 

                                                                       EXHIBIT A

 

                        SEPARATION AND RELEASE AGREEMENT

 

      This Separation and Release Agreement  ("Agreement") is entered into as of

this __ day of  __________________,  ____,  among TOYS "R" US,  INC., a Delaware

corporation,  and any  successor  thereto  ("TRU"),  TOYSRUS.COM,  INC.  and any

successor  thereto (.COM and  collectively  with TRU, the "Company") and John H.

Eyler, Jr. (the "Executive").

 

      The Executive and the Company agree as follows:

 

      1. The  employment  relationship  between  the  Executive  and the Company

terminated on __________________________________ (the "Termination Date").

 

      2. In accordance with the Executive's  Retention Agreement (the "Retention

Agreement"), the Company has agreed to pay the Executive certain payments and to

make certain  benefits  available  after the Date of Termination as set forth in

Section 3 of the  Retention  Agreement.  No  payments  shall be made  under this

Agreement or the Retention  Agreement until the seven (7) day revocation  period

set forth in Section 12 hereof has expired.

 

      3. In  consideration  of the above, the sufficiency of which the Executive

hereby  acknowledges,  the  Executive,  on  behalf  of  the  Executive  and  the

Executive's heirs, executors and assigns, hereby releases and forever discharges

the Company and its members, parents, affiliates,  subsidiaries,  divisions, any

and  all  current  and  former  directors,   officers,  employees,  agents,  and

contractors  and  their  heirs and  assigns,  and any and all  employee  pension

benefit or welfare  benefit plans of the Company,  including  current and former

trustees and administrators of such employee pension benefit and welfare benefit

plans, from all claims,  charges, or demands, in law or in equity, whether known

or unknown,  which may have existed or which may now exist from the beginning of

time to the date of this letter agreement,  including,  without limitation,  any

claims the  Executive  may have  arising  from or  relating  to the  Executive's

employment or termination from employment with the Company,  including a release

of any rights or claims  the  Executive  may have  under  Title VII of the Civil

Rights Act of 1964, as amended, and the Civil Rights Act of 1991 (which prohibit

discrimination in employment based upon race, color, sex, religion, and national

origin);  the  Americans  with  Disabilities  Act of 1990,  as amended,  and the

Rehabilitation   Act  of  1973  (which   prohibit   discrimination   based  upon

disability);  the  Family  and  Medical  Leave  Act  of  1993  (which  prohibits

discrimination based on requesting or taking a family or medical leave); Section

1981 of the Civil Rights Act of 1866 (which prohibits  discrimination based upon

race);  Section  1985(3)  of the  Civil  Rights  Act of  1871  (which  prohibits

conspiracies to  discriminate);  the Employee  Retirement Income Security Act of

1974, as amended (which prohibits  discrimination with regard to benefits);  any

other federal, state or local laws against discrimination; or any other federal,

state, or local statute, or common law relating to employment,  wages, hours, or

any other terms and  conditions  of  employment.  This includes a release by the

Executive of any claims for wrongful discharge, breach of contract, torts or any

other  claims  in  any  way  related  to  the  Executive's  employment  with  or

resignation  or  termination  from the Company.  This  release  also  includes a

release of any claims for age  discrimination  under the Age  Discrimination  in

Employment Act, as amended

 

 

                                      A-1

<PAGE>

 

("ADEA").  The ADEA  requires  that the  Executive be advised to consult with an

attorney before the Executive waives any claim under ADEA. In addition, the ADEA

provides the Executive  with at least 21 days to decide  whether to waive claims

under ADEA and seven days after the Executive signs the Agreement to revoke that

waiver.  Notwithstanding the foregoing provisions of this Section 3, the release

given by Executive  hereunder shall not apply to, and the Executive shall retain

and shall be entitled  to enforce by  arbitration  as provided in the  Retention

Agreement,  all rights  arising under or with respect to (i) the  obligations of

the Company to indemnify and hold harmless the Executive whether pursuant to the

provisions  of  Section  13 of  the  Retention  Agreement,  the  certificate  of

incorporation  or  by-laws  of the  Company,  or  otherwise;  (ii)  any  and all

directors and officers liability insurance coverage applicable to the Executive,

and (iii) any and all benefits  under the Plans to which the Executive  shall be

entitled in the ordinary course.

 

      Additionally,  the Company  agrees to discharge  and release the Executive

and the  Executive's  heirs from any claims,  demands,  and/or  causes of action

whatsoever,  presently  known or  unknown,  that are based upon facts  occurring

prior to the date of this Agreement,  including,  but not limited to, any claim,

matter or action related to the Executive's  employment and/or affiliation with,

or termination and separation from the Company; provided that such release shall

not release the Executive  from any loan or advance by the Company or any of its

subsidiaries,  any act that  would  constitute  "Cause"  under  the  Executive's

Retention  Agreement  or a  breach  under  Sections  8(b),  10 or  12(e)  of the

Executive's Retention Agreement.

 

      4. This  Agreement  is not an  admission  by either the  Executive  or the

Company of any wrongdoing or liability.

 

      5. The Executive waives any right to  reinstatement  or future  employment

with the Company  following the  Executive's  separation from the Company on the

Termination Date.

 

      6. The  Executive  agrees not to engage in any act after  execution of the

Separation and Release Agreement that is intended, or may reasonably be expected

to harm the reputation,  business,  prospects or operations of the Company,  its

officers, directors,  stockholders or employees. The Company further agrees that

it will engage in no act which is  intended,  or may  reasonably  be expected to

harm the  reputation,  business or  prospects  of the  Executive.  Executive  is

required to request  and  receive  approval of the Company of the content of any

voluntary  statements,  whether oral or written,  to be made by Executive to any

media-third party regarding Executive's employment with the Company, termination

of employment with the Company, or the reputation,  goodwill, business, business

relationships,  prospects or  operations  of the  Company,  its past and present

divisions, affiliates, officers, directors,  stockholders,  employees or agents.

The Company is required to request and receive  approval of the Executive of the

content of any voluntary statements,  whether oral or written, to be made by the

Company  or any  representative  thereof  to  any  media-third  party  regarding

Executive's  employment  with the Company,  termination  of employment  with the

Company,  or the reputation,  business or prospects of the Executive.  Executive

and the  Company  each  hereby  covenants  and  agrees  not to make  any  public

statements to any  media-third  party,  including,  without  limitation,  to any

representative of any news  organization,  which is inconsistent in any material

respect with the

 

 

                                      A-2

<PAGE>

 

agreed upon statements to the public.  "Media-Third  Party" refers to the press,

news organizations,  public relations firms and research analysts for securities

firms.

 

      7. The Executive shall continue to be bound by Sections 8(b), 10 and 12(e)

of the Executive's Retention Agreement.

 

      8. The Executive  shall  promptly  return all the Company  property in the

Executive's possession,  including, but not limited to, the Company keys, credit

cards,  cellular  phones,  computer  equipment,  software  and  peripherals  and

originals or copies of books,  records,  or other information  pertaining to the

Company business. The Executive shall return any leased or Company automobile at

the  expiration  of the  restrictions  under  Section  10(d) of the  Executive's

Retention Agreement.

 

      9. This  Agreement  shall be governed by and construed in accordance  with

the laws of the State of New Jersey,  without  reference  to the  principles  of

conflict of laws.  Exclusive  jurisdiction  with respect to any legal proceeding

brought  concerning  any subject  matter  contained in this  Agreement  shall be

settled by arbitration as provided in the Executive's Retention Agreement.

 

      10. This Agreement represents the complete agreement between the Executive

and the Company  concerning  the subject matter in this Agreement and supersedes

all prior agreements or understandings,  written or oral. This Agreement may not

be amended or modified  otherwise  than by a written  agreement  executed by the

parties hereto or their respective successors and legal representatives.

 

      11. Each of the sections  contained in this Agreement shall be enforceable

independently  of every other section in this  Agreement,  and the invalidity or

nonenforceability  of any section shall not  invalidate or render  unenforceable

any other section contained in this Agreement.

 

      12. It is further  understood  that for a period of 7 days  following  the

execution of this  Agreement in duplicate  originals,  the  Executive may revoke

this  Agreement,  and this Agreement  shall not become  effective or enforceable

until the revocation period has expired.

 

      13. This Agreement has been entered into  voluntarily  and not as a result

of coercion,  duress,  or undue influence.  The Executive  acknowledges that the

Executive  has read and fully  understands  the terms of this  Agreement and has

been  advised to consult  with an  attorney  before  executing  this  Agreement.

Additionally,  the Executive  acknowledges  that the Executive has been afforded

the opportunity of at least 21 days to consider this Agreement.

 

 

                                      A-3

<PAGE>

 

      The parties to this  Agreement  have executed this Agreement as of the day

and year first written above.

 

                                        TOYS "R" US, INC.

 

                                        By:

                                           -------------------------------

                                           Name:

                                           Title:

 

                                        TOYSRUS.COM, INC.

 

                                        By:

                                           -------------------------------

                                           Name:

                                           Title:

 

                   -----------------------------

                        JOHN H. EYLER, JR.