3/2/2004 Amendment:

 

Amendment to the

Toys “R” Us, Inc. Amended and Restated

1994 Stock Option and Performance Incentive Plan

 

The Toys “R” Us, Inc. Amended and Restated 1994 Stock Option and Performance Incentive Plan (the “Plan”) is hereby amended, effective as of March 2, 2004, as follows.

 

1. The last sentence of Section 2.2 of the Plan, which reads as follows:

 

“Shares of Common Stock (i) withheld by the Company in payment of the exercise price of options or taxes relating to awards, or (ii) surrendered to the Company in payment of the exercise price of options or taxes relating to awards, will be available for awards under the Plan.”

 

shall expire as of June 3, 2007, which is the day prior to the tenth anniversary of the date that the Plan was last approved by the stockholders of the Company, and shall thereafter be replaced with the following sentence:

 

“Shares of Common Stock withheld by the Company in payment of the exercise price of options or in payment of taxes relating to awards (other than Restricted Shares or other awards in which shares of Common Stock have already been issued to the participant) will be available for subsequent awards under the Plan.”

 

2. The following proviso shall be added at the end of the penultimate sentence of Section 2.2 of the Plan:

 

“provided, however, that Restricted Shares or other awards in which shares of Common Stock have already been issued and which are subsequently converted to a cash settlement on or after June 3, 2007 shall not be available for subsequent awards under the Plan.”

 

3. Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this Amendment.

 

The Company has caused this Amendment to be executed as of the day and year first above written.

 

 

3/16/2004 Amendment:

 

Amendment to the

Toys “R” Us, Inc. Amended and Restated

1994 Stock Option and Performance Incentive Plan

 

The Toys “R” Us, Inc. Amended and Restated 1994 Stock Option and Performance Incentive Plan (the “Plan”) is hereby amended, effective as of March 16, 2004, as follows.

 

1. A new Article 19 shall be added to the Plan, which reads as follows:

 

“ARTICLE 19

 

CHANGE OF CONTROL

 

19.1 Acceleration upon a Change of Control. Upon the occurrence of a Change in Control (as defined below), all unvested Options, Stock Appreciation Rights, and other awards in the nature of rights that may be exercised shall vest, all restrictions on Restricted Shares and Restricted Units shall lapse, and any performance-based criteria for Performance Units or other awards shall be deemed to be satisfied at the greater of “target” or actual performance as of the date of the Change in Control, unless, in connection with such transaction, (i) such awards are to remain outstanding, (ii) such awards are assumed by the surviving corporation or its parent, or (iii) the surviving corporation or its parent substitutes awards with substantially the same terms for such awards.

 

A “Change of Control” shall mean: (a) the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, immediately following such Business Combination each of the following would be correct: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company common stock and outstanding Company voting securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the person resulting from such Business Combination (including, without limitation, a person which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding Company common stock and outstanding Company voting securities, as the case may be, and (ii) no person (excluding (A) any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, or such corporation resulting from such Business Combination or any Affiliate of such corporation, or (B) any entity in which such person 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 Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (b) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.”

 

19.2 Officer’s Employment. In the event the employment of an officer of the Company is terminated (other than for cause), within the 12 months following a Change of Control: (a) all unvested Options, Stock Appreciation Rights, and other awards in the nature of rights that may be exercised, shall vest immediately on the date of such termination and all such awards may be exercised until the earlier of (x) the thirty-month anniversary of the date of termination and (y) the expiration date of such awards; (b) all restrictions on Restricted Shares and Restricted Units shall lapse as of the date of such termination, and (c) any performance-based criteria for Performance Units or other awards shall be deemed to be satisfied at the greater of “target” or actual performance as of the date of such termination.”

 

2. Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this Amendment.

 

The Corporation has caused this Amendment to be executed as of the day and year first above written.

 

 

 

    AMENDED AND RESTATED
                               TOYS "R" US, INC.
                1994 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
 
The underlined language reflects the amendments to this Plan discussed elsewhere
in this Proxy Statement and was not part of the Original 1994 Plan.
 
                                   ARTICLE 1
 
                           ESTABLISHMENT AND PURPOSE
 
     1.1 ESTABLISHMENT AND EFFECTIVE DATE. Toys "R" Us, Inc., a Delaware
corporation (the "Corporation"), hereby establishes a stock incentive plan to be
known as the "Toys "R" Us, Inc. 1994 Stock Option and Performance Incentive
Plan" (the "Plan"). The Plan shall become effective as of November 1, 1993,
subject to the approval of the Corporation's stockholders at the 1994 Annual
Meeting of Stockholders. In the event that such stockholder approval is not
obtained, any awards made hereunder shall be canceled and all rights of
employees with respect to such awards shall thereupon cease. Upon approval by
the Board of Directors of the Corporation (the "Board") and the Board's
Management Compensation and Stock Option Committee (the "Committee"), awards may
be made as provided herein.
 
     1.2 PURPOSE. The purpose of the Plan is to encourage and enable all
employees (subject to such requirements as may be prescribed by the Committee)
of the Corporation and its subsidiaries to acquire a proprietary interest in the
Corporation through the ownership of the Corporation's common stock, par value
$.10 per share ("Common Stock"), and other rights with respect to the Common
Stock. Such ownership will provide such employees with a more direct stake in
the future welfare of the Corporation and encourage them to remain with the
Corporation and its subsidiaries. It is also expected that the Plan will
encourage qualified persons to seek and accept employment with the Corporation
and its subsidiaries.
 
                                   ARTICLE 2
 
                                     AWARDS
 
     2.1 FORM OF AWARDS. Awards under the Plan may be granted in any one or all
of the following forms: (i) incentive stock options ("Incentive Stock Options")
meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"); (ii) non-qualified stock options ("Non-qualified Stock
Options") (unless otherwise indicated, references in the Plan to "Options" shall
include both Incentive Stock Options and Non-qualified Stock Options); (iii)
stock appreciation rights ("Stock Appreciation Rights"), as described in Article
6 hereof, which may be awarded either in tandem with Options ("Tandem Stock
Appreciation Rights") or on a stand-alone basis ("Nontandem Stock Appreciation
Rights"); (iv) shares of Common Stock which are restricted as provided in
Article 9 hereof ("Restricted Shares"); (v) units representing shares of Common
Stock, as described in Article 10 hereof ("Restricted Units"); (vi) units which
do not represent shares of Common Stock but which may be paid in the form of
Common Stock, as described in Article 11 hereof ("Performance Units"); (vii)
shares of Common Stock that are not subject to any conditions to vesting
("Unrestricted Shares"); and (viii) tax offset payments ("Tax Offset Payments"),
as described in Article 13 hereof.
 
     2.2 MAXIMUM SHARES AVAILABLE. The maximum aggregate number of shares of
Common Stock available for award under the Plan is 15,000,000 subject to
adjustment pursuant to Article 14 hereof; provided, that the aggregate shares of
Common Stock underlying Restricted Shares, Restricted Units, Performance Units
and Unrestricted Shares awarded under the Plan shall not exceed 3,000,000
subject to adjustment pursuant to Article 14 hereof. In addition, Tax Offset
Payments which may be awarded under the Plan will not exceed the number of
shares available for issuance under the Plan. Shares of Common Stock issued
pursuant to the Plan may be either authorized but unissued shares or issued
shares reacquired by the Corporation. In the event that prior to the end of the
period during which Options may be granted under the Plan, any Option or any
Nontandem Stock Appreciation Rights under the Plan expires unexercised or is
terminated, surrendered or canceled (other than in connection with the exercise
of Stock Appreciation Rights) without being exercised in whole or in part for
any reason, or any
 
Restricted Shares, Restricted Units or Performance Units are forfeited, or if
such awards are settled in cash in lieu of shares of Common Stock, then such
shares or units shall be available for subsequent awards under the Plan, upon
such terms as the Committee may determine. Shares of Common Stock (i) withheld
by the Company in payment of the exercise price of options or taxes relating to
awards, or (ii) surrendered to the Company in payment of the exercise price of
options or taxes relating to awards, will be available for awards under the
Plan.
 
     2.3 RETURN OF PRIOR AWARDS. As a condition to any subsequent award, the
Committee shall have the right, at its discretion, to require employees to
return to the Corporation awards previously granted under the Plan. Subject to
the provisions of the Plan, such new award shall be upon such terms and
conditions as are specified by the Committee at the time the new award is
granted.
 
                                   ARTICLE 3
 
                                 ADMINISTRATION
 
     3.1 COMMITTEE. Awards shall be determined, and the Plan shall be
administered, by the Committee as appointed from time to time by the Board,
which Committee shall consist of not less than two (2) members of the Board.
Except as permitted by Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Act"), and by Section 162(m) of the Code (or Regulations
promulgated thereunder), no member of the Board may serve on the Committee if
such member: (i) is or has been granted or awarded stock, stock options, stock
appreciation rights or any other equity security or derivative security of the
Corporation or any of its affiliates pursuant to the Plan or any other plan of
the Corporation or its affiliates either while serving on the Committee or
during the one year period prior to being appointed to the Committee; (ii) is an
employee or former employee of the Corporation; or (iii) receives remuneration
from the Corporation, either directly or indirectly, in any capacity other than
as a director.
 
     3.2 POWERS OF COMMITTEE. Subject to the express provisions of the Plan, the
Committee shall have the power and authority (i) to grant Options and to
determine the purchase price of the Common Stock covered by each Option, the
term of each Option, the number of shares of Common Stock to be covered by each
Option and any performance objectives or vesting standards applicable to each
Option; (ii) to designate Options as Incentive Stock Options or Non-qualified
Stock Options and to determine which Options, if any, shall be accompanied by
Tandem Stock Appreciation Rights, (iii) to grant Tandem Stock Appreciation
Rights and Nontandem Stock Appreciation Rights and to determine the terms and
conditions of such rights; (iv) to grant Restricted Shares and to determine the
term of the restricted period and other conditions and restrictions applicable
to such shares; (v) to grant Restricted Units and Performance Units and to
determine the performance objectives, performance periods and other conditions
applicable to such shares or units; (vi) to grant Unrestricted Shares; (vii) to
determine the amount of, and to make, Tax Offset Payments; and (viii) to
determine the employees to whom, and the time or times at which, Options, Stock
Appreciation Rights. Restricted Shares, Restricted Units, Performance Units and
Unrestricted Shares shall be granted.
 
     3.3 DELEGATION. The Committee may delegate to one or more of its members or
to any other person or persons such ministerial duties as it may deem advisable;
provided, however, that the Committee may not delegate any of its
responsibilities hereunder if such delegation would cause the Plan to fail to
comply with the "disinterested administration" rules under Section 16 of the
Act. The Committee may also employ attorneys, consultants, accountants, or other
professional advisors and shall be entitled to rely upon the advice, opinions or
valuations of any such advisors.
 
     3.4 INTERPRETATIONS. The Committee shall have sole discretionary authority
to interpret the terms of the Plan, to adopt and revise rules, regulations and
policies to administer the Plan to make any other factual determinations which
it believes to be necessary or advisable for the administration of the Plan. All
actions taken and interpretations and determinations made by the Committee in
good faith shall be final and binding upon the Corporation, all employees who
have received awards under the Plan and all other interested persons.
 
     3.5 LIABILITY; INDEMNIFICATION. No member of the Committee, nor any person
to whom ministerial duties have been delegated, shall be personally liable for
any action, interpretation or determination made with respect to the Plan or
awards made thereunder, and each member of the Committee shall be fully
indemnified and protected by the Corporation with respect to any liability he or
she may incur with respect to any such action,
interpretation or determination, to the extent permitted by applicable law and
to the extent provided in the Corporation's Certificate of Incorporation and
Bylaws, as amended from time to time, or under any agreement between any such
member and the Corporation.
 
                                   ARTICLE 4
 
                                  ELIGIBILITY
 
     Awards may be made to all employees of the Corporation or any of its
subsidiaries (subject to such requirements as may be prescribed by the
Committee); PROVIDED, HOWEVER, that no employee may receive awards of or
relating to more than 35% of the maximum shares of Common Stock available for
award under the Plan as set forth in Section 2.2 hereof in a ten-year period;
provided, further, that any grants to any one employee relating to in excess of
250,000 shares of Common Stock in the aggregate in either fiscal 1996 or 1997
until the Corporation's 1997 Annual Meeting of Stockholders shall not be
exercisable unless and until such excess grants are ratified by the
Corporation's stockholders. Awards may be made to a director of the Corporation
who is not also a member of the Committee, provided that the director is also an
employee. In determining the employees to whom awards shall be granted and the
number of shares to be covered by each award, the Committee shall take into
account the nature of the services rendered by such employees, their present and
potential contributions to the success of the Corporation and its subsidiaries
and such other factors as the Committee in its sole discretion shall deem
relevant.
 
     As used herein the term "subsidiary" shall mean any present or future
corporation, partnership or joint venture in which the Corporation owns,
directly or indirectly, 40% or more of the economic interests. Notwithstanding
the foregoing, only employees of the Corporation and any present or future
corporation which is or may be a "subsidiary corporation" of the Corporation (as
such term is defined in Section 424 (f) of the Code) shall be eligible to
receive Incentive Stock Options.
 
                                   ARTICLE 5
 
                                 STOCK OPTIONS
 
     5.1 GRANT OF OPTIONS. Options may be granted under the Plan for the
purchase of shares of Common Stock. Options shall be granted in such form and
upon such terms and conditions, including the satisfaction of corporate or
individual performance objectives and other vesting standards, as the Committee
shall from time to time determine.
 
     5.2 DESIGNATION AS NON-QUALIFIED STOCK OPTION OR INCENTIVE STOCK OPTION. In
connection with any grant of Options, the Committee shall designate in the
written agreement required pursuant to Article 16 hereof whether the Options
granted shall be Incentive Stock Options or Non-qualified Stock Options, or in
the case both are granted, the number of shares of each.
 
     5.3 OPTION PRICE. The purchase price per share under each Incentive Stock
Option shall be the Market Price (as hereinafter defined) of the Common Stock on
the date the Incentive Stock Option is granted. The purchase price per share
under each Non-qualified Stock Option shall be specified by the Committee, but
in no event shall it be less than 100% of the Market Price on the date the
Non-qualified Stock Option is granted. In no case, however, shall the purchase
price per share of either an Incentive Stock Option or Non-qualified Stock
Option be less than the par value of the Common Stock ($.10). Notwithstanding
the foregoing, to the extent required by the Code, the purchase price per share
under each Non-qualified Stock Option granted to an employee who is treated as a
"covered employee" (as defined in Section 162(m)(3) of the Code) on the date
such Non-Qualified Option is exercised shall not be less than 100% of the Market
Price of the Common Stock on the date of the grant. In the case of an Incentive
Stock Option granted to an employee owning (actually or constructively under
Section 424(d) of the Code), more than 10% of the total combined voting power of
all classes of stock of the Corporation or of a subsidiary (a "10%
Stockholder"), the option price shall not be less than 110% of the Market Price
of the Common Stock on the date of grant.
 
     The "Market Price" of the Common Stock on any day shall be determined as
follows: (i) if the Common Stock is listed on a national securities exchange or
quoted through the NASDAQ National Market System, the Market Price on any day
shall be the average of the high and low reported Consolidated Trading sales
prices, or if
 
no such sale is made on such day, the average of the closing bid and asked
prices reported on the Consolidated Trading listing for such day; (ii) if the
Common Stock is quoted on the NASDAQ inter-dealer quotation system, the Market
Price on any day shall be the average of the representative bid and asked prices
at the close of business for such day; or (iii) if the Common Stock is not
listed on a national stock exchange or quoted on NASDAQ, the Market Price on any
day shall be the average of the high bid and low asked prices reported by the
National Quotation Bureau, Inc. for such day. In no event shall the Market Price
of a share of Common Stock subject to an Incentive Stock Option be less than the
fair market value as determined for purposes of Section 422(b)(4) of the Code.
 
     The Option price so determined shall also be applicable in connection with
the exercise of any Tandem Stock Appreciation Rights granted with respect to
such Option.
 
     5.4 LIMITATION ON AMOUNT OF INCENTIVE STOCK OPTIONS. In the case of
Incentive Stock Options, the aggregate Market Price (determined at the time the
Incentive Stock Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any optionee
during any calendar year (under all plans of the Corporation and any subsidiary)
shall not exceed $100,000.
 
     5.5 LIMITATION ON TIME OF GRANT. No grant of an Incentive Stock Option
shall be made under the Plan more than ten (10) years after the date the Plan is
approved by stockholders of the Corporation.
 
     5.6 EXERCISE AND PAYMENT. Options may be exercised in whole or in part.
Common Stock purchased upon the exercise of Options shall be paid for in full at
the time of purchase. Such payment shall be made in cash or, in the discretion
of the Committee, through delivery of shares of Common Stock or a combination of
cash and Common Stock, in accordance with procedures to be established by the
Committee. Any shares so delivered shall be valued at their Market Price on the
date of exercise. Upon receipt of notice of exercise and payment in accordance
with procedures to be established by the Committee, the Corporation or its agent
shall (except as the Committee may otherwise determine on or prior to the date
of grant of the Options being exercised) deliver to the person exercising such
Options (or his or her designee a certificate for such shares. In the event that
payment for exercised Options is made through the delivery of shares of Common
Stock, the Committee, in accordance with procedures established by the
Committee, may grant Non-qualified Stock Options ("Restoration Options") to the
person exercising the Option for the purchase of a number of share equal to the
number of shares underlying the number of shares of Common Stock delivered to
the Corporation in connection with the payment of the exercise price of the
Option and the payment of or surrender of shares for any withholding taxes due
upon such exercise. The purchase price per share under each Restoration Option
shall be the Market Price of the Common Stock on the date the Restoration Option
is granted.
 
     5.7 TERM. The term of each Option granted hereunder shall be determined by
the Committee; provided, however, that, notwithstanding any other provision of
the Plan, in no event shall an Incentive Stock Option be exercisable after ten
(10) years from the date it is granted, or in the case of an Incentive Stock
Option granted to a 10% Stockholder, five (5) years from the date it is granted.
 
     5.8 RIGHTS AS A STOCKHOLDER. A recipient of Options shall have no rights as
a stockholder with respect to any shares insurable or transferable upon exercise
thereof until the date a stock certificate is issued to such recipient
representing such shares. Except as otherwise expressly provided in the Plan, no
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
 
     5.9 GENERAL RESTRICTIONS. Each Option granted under the Plan shall be
subject to the requirement that, if at any time the Board shall determine, in
its discretion, that the listing, registration or qualification of the shares
issuable or transferable upon exercise thereof upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such Option or the issue, transfer, or purchase of shares
thereunder, such Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent, or approval shall have been
affected or obtained free of any conditions not acceptable to the Board.
 
     The Board or the Committee may, in connection with the granting of any
Option, require the individual to whom the Option is to be granted to enter an
agreement with the Corporation stating that as a condition precedent to each
exercise of the Option, in whole or in part, such individual shall if then
required by the Corporation represent to the Corporation in writing that such
exercise is for investment only and not with a view to distribution, and also
setting forth such other terms and conditions as the Board or the Committee may
prescribe.
 
     5.10 CANCELLATION OF STOCK APPRECIATION RIGHTS. Upon exercise of all or a
portion of an Option, the related Tandem Stock Appreciation Rights shall be
canceled with respect to an equal number of shares of Common Stock.
 
                                   ARTICLE 6
 
                           STOCK APPRECIATION RIGHTS
 
     6.1 GRANTS OF STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation Rights
may be awarded by the Committee in connection with any Option granted under the
Plan, either at the time the Option is granted or thereafter at any time prior
to the exercise, termination or expiration of the Option. Nontandem Stock
Appreciation Rights may also be granted by the Committee at any time. At the
time of grant of Nontandem Stock Appreciation Rights, the Committee shall
specify the number of shares of Common Stock covered by such right and the base
price of shares of Common Stock to be used in connection with the calculation
described in Section 6.4 below. The base price of any Nontandem Stock
Appreciation Rights shall be not less than 100% of the Market Price of a share
of Common Stock on the date of grant. Stock Appreciation Rights shall be subject
to such terms and conditions not inconsistent with the other provisions of the
Plan as the Committee shall determine.
 
     6.2 LIMITATIONS ON EXERCISE. Tandem Stock Appreciation Rights shall be
exercisable only to the extent that the related Option is exercisable and shall
be exercisable only for such period as the Committee may determine (which period
may expire prior to the expiration date of the related Option). Upon the
exercise of all or a portion of Tandem Stock Appreciation Rights, the related
Option shall be canceled with respect to an equal number of shares of Common
Stock. Shares of Common Stock subject to Options, or portions thereof,
surrendered upon exercise of Tandem Stock Appreciation Rights shall not be
available for subsequent awards under the Plan. Nontandem Stock Appreciation
Rights shall be exercisable during such period as the Committee shall determine.
 
     6.3 SURRENDER OR EXCHANGE OF TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights shall entitle the recipient to surrender to the Corporation
unexercised the related Option, or any portion thereof, and to receive from the
Corporation in exchange therefor that number of shares of Common Stock having an
aggregate Market Price equal to (A) the excess of (i) the Market Price of one
(1) share of Common Stock as of the date the Tandem Stock Appreciation Rights
are exercised over (ii) the option price per share specified in such Option,
multiplied by (B) the number of Common Stock subject to the Option, or portion
thereof, which is surrendered. Cash shall be delivered in lieu of any fractional
shares.
 
     6.4 EXERCISE OF NONTANDEM STOCK APPRECIATION RIGHTS. The exercise of
Nontandem Stock Appreciation Rights shall entitle the recipient to receive from
the Corporation that number of shares of Common Stock having an aggregate Market
Price equal to (A) the excess of (i) the Market Price of one (1) share of Common
Stock as of the date on which the Nontandem Stock Appreciation Rights are
exercised over (ii) the base price of the shares covered by the Nontandem Stock
Appreciation Rights, multiplied by (B) the number of shares of Common Stock
covered by the Nontandem Stock Appreciation Rights, or the portion thereof being
exercised. Cash shall be delivered in lieu of any fractional shares.
 
     6.5 SETTLEMENT OF STOCK APPRECIATION RIGHTS. As soon as it reasonably
practicable after the exercise of any Stock Appreciation Rights, the Corporation
shall (i) issue, in the name of the recipient, stock certificates representing
the total number of full shares of Common Stock to which the recipient is
entitled pursuant to Section 6.3 or 6.4 hereof and cash in an amount equal to
the Market Price, as of the date of exercise, of any resulting fractional
shares, and (ii) if the Committee causes the Corporation to elect to settle all
or part of its obligations arising out of the exercise of the Stock Appreciation
Rights in cash pursuant to Section 6.6 hereof, deliver to the recipient an
amount in cash equal to the Market Price, as of the date of exercise, of the
shares of Common Stock it would otherwise be obligated to deliver.
 
     6.6 CASH SETTLEMENT. The Committee, in its discretion, may cause the
Corporation to settle all or any part of its obligation arising out of the
exercise of Stock Appreciation Rights by the payment of cash in lieu of all or
part of the shares of Common Stock it would otherwise be obligated to deliver in
an amount equal to the Market Price of such shares on the date of exercise.
 
                                   ARTICLE 7
 
           NONTRANSFERABLITY OF OPTIONS AND STOCK APPRECIATION RIGHTS
 
     No Option or Stock Appreciation Rights may be transferred, assigned,
pledged or hypothecated (whether by operation of law or otherwise), except as
provided by will or the applicable laws of descent and distribution and no
Option or Stock Appreciation Rights shall be subject to execution, attachment or
similar process. Any attempted assignment, transfer, pledge, hypothecation or
other disposition of an Option or Stock Appreciation Rights not specifically
permitted therein shall be null and void and without effect. An Option or Stock
Appreciation Rights may be exercised by the recipient only during his or her
lifetime, or following his or her death pursuant to Section 8.4 hereof.
 
     Notwithstanding anything to the contrary in the preceding paragraph, the
Committee may, in its sole discretion, cause the written agreement relating to
any Non-qualified Stock Options or Stock Appreciation Rights granted hereunder
to provide that the recipient of such Non-qualified Stock Options or Stock
Appreciation Rights may transfer any of such Non-qualified Stock Options or
Stock Appreciation Rights other than by will or the laws of descent and
distribution in any manner authorized under applicable law; PROVIDED, HOWEVER,
that in no event may the Committee permit any transfers which would cause this
Plan to fail to satisfy the applicable requirements of Rule 16b-3 under the Act,
or would cause any recipient of awards hereunder to fail to be entitled to the
benefits of Rule 16b-3 under the Act, or would cause any recipient of awards
hereunder to fail to be entitled to the benefits of Rule 16b-3 or other
exemptive rules under Section 16 of the Act or be subject to liability
thereunder.
 
                                   ARTICLE 8
 
             EFFECT OF TERMINATION OF EMPLOYMENT, RELOCATION EVENT,
                 DISABILITY, RETIREMENT, DEATH OR SPECIAL EVENT
 
     8.1 GENERAL RULE. Except as expressly determined by the Committee in its
sole discretion, no Option or Stock Appreciation Rights shall be exercisable
after 30 days following the recipient's termination of employment with the
Corporation or a subsidiary, unless such termination of employment occurs by
reason of (i) a Relocation Event (as defined in Section 8.2), (ii) Retirement
(as defined in Section 8.3), (iii) death or (iv) a Special Event (as defined in
Section 8.5), provided that, in the case of a Special Event, the Committee shall
have modified such Option or Stock Appreciation Rights to remain exercisable as
provided in Section 8.5.
 
     Options and Stock Appreciation Rights shall not be affected by any change
of employment so long as the recipient continues to be employed by either the
Corporation or a subsidiary. The Committee may, in its sole discretion, cause
any Option or Stock Appreciation Rights to be forfeited upon an employee's
termination of employment if the employee was terminated for one (or more) of
the following reasons: (i) the employee's conviction, or plea of guilty or NOLO
CONTENDERE to the commission of a felony, (ii) the employee's commission of any
fraud, misappropriation or misconduct which causes demonstrable injury to the
Corporation or a subsidiary, (iii) an act of dishonesty by the employee
resulting or intended to result, directly or indirectly, in gain or personal
enrichment at the expense of the Corporation or a subsidiary, (iv) any breach of
the employee's fiduciary duties to the Corporation as an employee or officer, or
(v) a violation by the employee of the Toys "R" Us Ethics Agreement or any other
serious violation of a Corporation policy. It shall be within the sole
discretion of the Committee to determine whether the employee's termination was
for one of the foregoing reasons, and the decision of the Committee shall be
final and conclusive.
 
     8.2 RELOCATION EVENT. Options and Stock Appreciation Rights granted to an
employee shall remain outstanding after termination of such employee's
employment with the Corporation or a subsidiary, if such termination solely
occurs by reason of a "Relocation Event," which shall be deemed to occur if (i)
husband and wife are both current employees of the Corporation, (ii) the
Corporation transfers one spouse to a new location, (iii) the Corporation is
unable to offer the other spouse a position that is substantially comparable to
his or her current position, and (iv) as a result, the other spouse's employment
with the Corporation is terminated and the other spouse, as recipient, holds
outstanding Options or Stock Appreciation Rights.
 
     In case of a Relocation Event, the Options or Stock Appreciation Rights
held by a terminated employee shall be exercisable for a period equal to the
lesser of (i) the period such Options or Stock Appreciation Rights would
 
be exercisable absent the termination of such employee, and (ii) the period such
Options or Stock Appreciation Rights would be exercisable if granted to the
spouse continuing in the Corporation's employ on the date originally granted to
the terminated spouse.
 
     8.3 DISABILITY OR RETIREMENT. Except as expressly provided otherwise in the
written agreement relating to any Option or Stock Appreciation Rights granted
under the Plan, in the event of the Disability or Retirement of a recipient of
Options or Stock Appreciation Rights, the Options or Stock Appreciation Rights
which are held by such recipient on the date of such Disability or Retirement,
whether or not otherwise exercisable on such date, shall be exercisable at any
time until the expiration date of the Options or Stock Appreciation Rights;
provided, however, that any Incentive Stock Option of such recipient shall no
longer be treated as an Incentive Stock Option unless exercised within three (3)
months of the date of such Disability or Retirement (or within one (1) year in
the case of an employee who is "disabled" within the meaning of Section 22(e)(3)
of the Code).
 
     "Disability" shall mean any termination of employment with the Corporation
or a subsidiary because of a long-term or total disability, as determined by the
Committee in its sole discretion. "Retirement" shall mean a termination of
employment with the Corporation or a subsidiary either (i) on a voluntary basis
by a recipient who is at least 60 years of age and has at least 15 years of
service with the Corporation or a subsidiary or (ii) otherwise with the written
consent of the Committee in its sole discretion. The decision of the Committee
shall be final and conclusive.
 
     8.4 DEATH. In the event of the death of a recipient of Options or Stock
Appreciation Rights while an employee of the Corporation or any subsidiary,
Options or Stock Appreciation Rights which are held by such employee at the date
of death, whether or not otherwise exercisable on the date of death, shall be
exercisable by the beneficiary designated by the employee for such purpose (the
"Designated Beneficiary") or if no Designated Beneficiary shall be appointed or
if the Designated Beneficiary shall predecease the employee, by the employee's
personal representatives, heirs or legatees at any time within three (3) years
from the date of death (subject to the limitation in Section 5.7 hereof), at
which time such Options or Stock Appreciation Rights shall terminate: PROVIDED,
HOWEVER, that any Incentive Stock Option of such recipient shall no longer be
treated as an Incentive Stock Option unless exercised within three (3) months of
the date of the recipient's death.
 
     In the event of the death of a recipient of Options or Stock Appreciation
Rights following a termination of employment due to Retirement, Disability or a
Special Event (as defined in Section 8.5 hereof), if such death occurs before
the Options or Stock Appreciation Rights are exercised, the Options or Stock
Appreciation Rights which are held by such recipient on the date of termination
of employment, whether or not otherwise exercisable on such date, shall be
exercisable by such recipient's Designated Beneficiary, or if no Designated
Beneficiary shall be appointed or if the Designated Beneficiary shall predecease
such recipient, by such recipient's personal representatives, heirs, or legatees
to the same extent such Options or Stock Appreciation Rights were exercisable by
the recipient following such termination of employment.
 
     8.5 SPECIAL EVENT. In the case of a Special Event, the Committee in its
sole discretion may elect to modify all or any lesser number of any Options or
Stock Appreciation Rights held by an employee terminated as a result of a
Special Event which are or are not exercisable on the date of termination, to
provide that any of such Options or Stock Appreciation Rights may continue to be
exercisable for the term and in the manner specified therein or for such other
term and subject to such other provisions and conditions (including, without
limitation, acceleration of the time or times at which any such Options or Stock
Appreciation Rights may be exercised) as the Committee shall specify. The
Committee shall have the sole discretion to determine the employees to whom and
in the manner in which any such modification shall be made. If the Committee
does not elect to modify an Option or Stock Appreciation Rights, then only
Options and Stock Appreciation Rights currently exercisable at the date of
termination shall be exercisable as provided in the first sentence of Section
8.1 hereof.
 
     A "Special Event" shall mean (i) the sale or other disposition of a
subsidiary or division of the Corporation; (ii) the closing or discontinuation
of a specific operation of the Corporation or any subsidiary; (iii) the
elimination of job categories; or (iv) a limited program of terminations in
connection with a personnel reorganization or restructuring of the Corporation
or any subsidiary of the Corporation scheduled to be completed on a date
certain, provided, however, that only those employees who meet the terms and
conditions as established by the Board or the Committee in its discretion shall
be eligible to receive accelerated vesting of Options and Stock Appreciation
Rights.
 
     8.6 LEAVE OF ABSENCE. In the case of an employee on an approved leave of
absence, the Options and Stock Appreciation Rights of such employee shall not be
affected unless such leave is longer than 13 weeks. The date of exercisability
of any Options or Stock Appreciation Rights of an employee which are
unexercisable at the beginning of an approved leave of absence lasting longer
than 13 weeks shall be postponed for a period equal to the length of such leave
of absence. Notwithstanding the foregoing, the Committee may, in its sole
discretion, waive in writing any such postponement of the date of exercisability
of any Options of Stock Appreciation Rights due to a leave of absence.
 
                                   ARTICLE 9
 
                               RESTRICTED SHARES
 
     9.1 GRANT OF RESTRICTED SHARES. The Committee may from time to time cause
the Corporation to grant Restricted Shares under the Plan to employees, subject
to such restrictions, conditions and other terms as the Committee may determine.
 
     9.2 RESTRICTIONS. At the time a grant of Restricted Shares is made, the
Committee shall establish a period of time (the "Restricted Period") applicable
to such Restricted Shares. Each grant of Restricted Shares may be subject to a
different Restricted Period. The Committee may, in its sole discretion, at the
time a grant is made, prescribe restrictions in addition to or other than the
expiration of the Restricted Period, including the satisfaction of corporate or
individual performance objectives, which shall be applicable to all or any
portion of the Restricted Shares. The Committee may also, in its sole
discretion, shorten or terminate the Restricted Period or waive any other
restrictions applicable to all or a portion of such Restricted Shares. None of
the Restricted Shares may be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of during the Restricted Period or prior to the
satisfaction of any other restrictions prescribed by the Committee with respect
to such Restricted Shares.
 
     9.3 RESTRICTED STOCK CERTIFICATES. The Corporation shall issue, in the name
of each employee to whom Restricted Shares have been granted, stock certificates
representing the total number of Restricted Shares granted to the employee, as
soon as reasonably practicable after the grant. The Corporation, at the
direction of the Committee, shall hold such certificates, properly endorsed for
transfer, for the employee's benefit until such time as the Restricted Shares
are forfeited to the Corporation, or the restrictions lapse.
 
     9.4 RIGHTS OF HOLDERS OF RESTRICTED SHARES. Unless the Committee determines
otherwise, holders of Restricted Shares shall have the right to vote such shares
and the right to receive cash dividends with respect to such shares. All
distributions, if any, received by an employee with respect to Restricted Shares
as a result of any stock split, stock distribution, a combination of shares, or
other similar transaction shall be subject to the restrictions of this Article
9.
 
     9.5 FORFEITURE. Any Restricted Shares granted to an employee pursuant to
the Plan shall be forfeited if the employee terminates employment with the
Corporation or its subsidiaries prior to the expiration or termination of the
Restricted Period and the satisfaction of any other conditions applicable to
such Restricted Shares. Upon such forfeiture, the Restricted Shares that are
forfeited shall be retained in the treasury of the Corporation and available for
subsequent awards under the Plan, unless the Committee directs that such
Restricted Shares be canceled upon forfeiture. If the employee's employment
terminates as a result of his or her Disability, Retirement or death, or a
Relocation Event or Special Event, Restricted Shares of such employee shall be
forfeited, unless the Committee, in its sole discretion, shall determine
otherwise.
 
     9.6 DELIVERY OF RESTRICTED SHARES. Upon the expiration or termination of
the Restricted Period and the satisfaction of any other conditions prescribed by
the Committee, the restrictions applicable to the Restricted Shares shall lapse
and a stock certificate for the number of Restricted Shares with respect to
which the restrictions have lapsed shall be delivered, free of all such
restrictions, to the employee or the employee's beneficiary or estate, as the
case may be.
 
                                   ARTICLE 10
 
                                RESTRICTED UNITS
 
     10.1 AWARD OF RESTRICTED UNITS. For each Performance Period (as defined in
Section 10.2), Restricted Units may be granted under the Plan to such employees
of the Corporation and its subsidiaries as the Committee shall determine in its
sole discretion. Each Restricted Unit shall be deemed to be equivalent to one
(1) share of Common Stock. Restricted Units granted to an employee shall be
credited to an account (a "Restricted Unit Account") established and maintained
for such employee.
 
     10.2 PERFORMANCE PERIOD. "Performance Period" shall mean such period of
time as shall be determined by the Committee in its sole discretion. Different
Performance Periods may be established for different employees receiving
Restricted Units. Performance Periods may run consecutively or concurrently.
 
     10.3 RIGHT TO PAYMENT OF RESTRICTED UNITS. With respect to each award of
Restricted Units under the Plan, the Committee shall specify performance
objectives (the "Performance Objectives") which must be satisfied in order for
the employee to vest in the Restricted Units which have been awarded to him or
her for the Performance Period. If the Performance Objectives established for an
employee for the Performance Period are partially but not fully met, the
Committee may, nonetheless, in its sole discretion, determine that all or a
portion of the Restricted Units have vested. If the Performance Objectives for a
Performance Period are exceeded, the Committee may, in its sole discretion,
grant additional, fully vested Restricted Units to the employee. The Committee
may also determine, in its sole discretion, that Restricted Units awarded to an
employee shall become partially or fully vested upon the employee's Disability,
Retirement or death, or upon a Relocation Event or Special Event, or upon the
termination of the employee's employment prior to the end of the Performance
Period.
 
     10.4 PAYMENT FOR RESTRICTED UNITS. As soon as practicable following the end
of a Performance Period, the Committee shall determine whether the Performance
Objectives for this Performance Period have been achieved (or partially achieved
to the extent necessary to permit partial vesting at the discretion of the
Committee pursuant to Section 10.3). If the Performance Objectives for the
Performance Period have been exceeded, the Committee shall determine whether
additional Restricted Units shall be granted to the employee pursuant to Section
10.3. As soon as reasonably practicable after such determinations, or at such
later date as the Committee shall determine at the time of grant, the
Corporation shall pay to the employee an amount with respect to each vested
Restricted Unit equal to the Market Price of a share of Common Stock on such
payment date or, if the Committee shall so specify at the time of grant, an
amount equal to (i) the Market Price of a share of Common Stock on the payment
date less (ii) the Market Price of a share of Common Stock on the date of grant
of the Restricted Unit. Payment shall be made entirely in cash, entirely in
Common Stock (including Restricted Shares) or in such combination of cash and
Common Stock as the Committee shall determine in its sole discretion.
 
     10.5 VOTING AND DIVIDEND RIGHTS. Except as provided in Article 14 hereof,
no employee shall be entitled to any voting rights, to receive any cash
dividends, or to have his or her Restricted Unit Account credited or increased
as a result of any cash dividends or other distribution with respect to Common
Stock. Notwithstanding the foregoing, within sixty (60) days from the date of
payment of a cash dividend by the Corporation on its shares of Common Stock, the
Committee, in its sole discretion, may credit an employee's Restricted Unit
Account with additional Restricted Units having an aggregate Market Price equal
to the cash dividend per share paid on the Common Stock multiplied by the number
of Restricted Units credited to his or her account at the time the cash dividend
was declared.
 
                                   ARTICLE 11
 
                               PERFORMANCE UNITS
 
     11.1 AWARD OF PERFORMANCE UNITS. For each Performance Period (as defined in
Section 10.2). Performance Units may be granted under the Plan to such employees
of the Corporation and its subsidiaries as the Committee shall determine in its
sole discretion. The award agreement covering such Performance Units shall
specify a value for each Performance Unit or shall set forth a formula for
determining the value of each Performance Unit at the time of payment (the
"Ending Value"). If necessary to make the calculation of the amount to be paid
to the employee pursuant to Section 11.3, the Committee shall also state in the
award agreement the initial value of each Performance Unit (the "Initial
Value"). Performance Units granted to an employee shall be credited to an
account (a "Performance Unit Account") established and maintained for such
employee.
 
     11.2 RIGHT TO PAYMENT OF PERFORMANCE UNITS. With respect to each award of
Performance Units under the Plan, the Committee shall specify Performance
Objectives which must be satisfied in order for the employee to vest in the
Performance Units which have been awarded to him or her for the Performance
Period. If the Performance Objectives established for an employee for the
Performance Period are partially but not fully met, the Committee may,
nonetheless, in its sole discretion, determine that all or a portion of the
Performance Units have vested. If the Performance Objectives for a Performance
Period are exceeded, the Committee may, in its sole discretion, grant
additional, fully vested Performance Units to the employee. The Committee may,
in its sole discretion, adjust the Performance Objectives or the Initial Value
or Ending Value of any Performance Units to reflect extraordinary events, such
as stock splits, recapitalizations, mergers, combinations, divestitures,
spin-offs and the like. The Committee may also determine, in its sole
discretion, that Performance Units awarded to an employee shall become partially
or fully vested upon the employee's termination of employment due to Disability,
Retirement, death or otherwise, or upon a Relocation Event or Special Event.
 
     11.3 PAYMENT FOR PERFORMANCE UNITS. As soon as practicable following the
end of a Performance Period, the Committee shall determine whether the
Performance Objectives for the Performance Period have been achieved (or
partially achieved to the extent necessary to permit partial vesting at the
discretion of the Committee pursuant to Section 11.2). If the Performance
Objectives for the Performance Period have been exceeded, the Committee shall
determine whether additional Performance Units shall be granted to the employee
pursuant to Section 11.2. As soon as reasonably practicable after such
determinations, or at such later date as the Committee shall determine at the
time of grant, the Corporation shall pay to the employee an amount with respect
to each vested Performance Unit equal to the Ending Value of the Performance
Unit or, if the Committee shall so specify at the time of grant, an amount equal
to (i) the Ending Value of the Performance Unit less (ii) the Initial Value of
the Performance Unit. Payment shall be made entirely in cash, entirely in Common
Stock (including Restricted Shares) or in such combination of cash and Common
Stock as the Committee shall determine in its sole discretion.
 
                                   ARTICLE 12
 
                              UNRESTRICTED SHARES
 
     12.1 AWARD OF UNRESTRICTED SHARES. The Committee may cause the Corporation
to grant Unrestricted Shares to employees at such time or times, in such amounts
and for such reasons as the Committee, in its sole discretion, shall determine.
No payment shall be required for Unrestricted Shares.
 
     12.2 DELIVERY OF UNRESTRICTED SHARES. The Corporation shall issue, in the
name of each employee to whom Unrestricted Shares have been granted, stock
certificates representing the total number of Unrestricted Shares granted to the
employee, and shall deliver such certificates to the employee as soon as
reasonably practicable after the date of grant or on such later date as the
Committee shall determine at the time of grant.
 
                                   ARTICLE 13
 
                              TAX OFFSET PAYMENTS
 
     The Committee shall have the authority at the time of any award under the
Plan or anytime thereafter to make Tax Offset Payments to assist employees in
paying income taxes incurred as a result of their participation in the Plan. The
Tax Offset Payments shall be determined by multiplying a percentage established
by the Committee times all or a portion (as the Committee shall determine) of
the taxable income recognized by an employee upon (i) the exercise of
Non-qualified Stock Options or Stock Appreciation Rights, (ii) the disposition
of shares received upon exercise of Incentive Stock Options, (iii) the lapse of
restrictions or Restricted Shares, (iv) the award of Unrestricted Shares, or (v)
payments for Restricted Units or Performance Units. The percentage shall be
established from time to time, by the Committee at that rate which the
Committee, in its sole discretion, determines to be appropriate and in the best
interests of the Corporation to assist employees in paying income taxes incurred
as a result of the events described in the preceding sentence. Tax Offset
Payments shall be subject to the restrictions on transferability applicable to
Options and Stock Appreciation Rights under Article 7.
 
                                   ARTICLE 14
 
                   ADJUSTMENT UPON CHANGES IN CAPITALIZATION
 
     Notwithstanding any other provision of the Plan, the Committee may: (i) at
any time, make or provide such adjustments to the Plan or to the number and
class of shares available thereunder or (ii) at the time of grant of any
Options, Stock Appreciation Rights, Restricted Shares or Restricted Units,
provide for such adjustments to such Options, Stock Appreciation Rights,
Restricted Shares or Restricted Units, in each case, as the Committee shall deem
appropriate to prevent dilution or enlargement of rights including, without
limitation, adjustments in the event of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations or exchanges or shares,
separations, spin-offs, reorganizations, liquidations and the like.
 
                                   ARTICLE 15
 
                           AMENDMENT AND TERMINATION
 
     The Board or the Committee may suspend, terminate, modify or amend the
Plan, provided that any amendment that would (i) materially increase the
aggregate number of shares which may be issued under the Plan, (ii) materially
increase the benefits accruing to employees under the Plan, or (iii) materially
modify the requirements as to eligibility for participation in the Plan, shall
be subject to the approval of the Corporation's stockholders, except that any
such increase or modification that may result from adjustments authorized by
Article 14 hereof shall not require such stockholder approval. If the Plan is
terminated, the terms of the Plan shall, notwithstanding such termination,
continue to apply to awards granted prior to such termination. No suspension,
termination, modification or amendment of the plan may, without the consent of
the employee to whom an award shall theretofore have been granted, adversely
affect the rights of such employee under such award.
 
                                   ARTICLE 16
 
                               WRITTEN AGREEMENT
 
     Each award of Options, Stock Appreciation Rights, Restricted Shares,
Restricted Units, Performance Units, Unrestricted Shares and Tax Offset Payments
shall be evidenced by a written agreement containing such restrictions, terms
and conditions, if any, as the Committee may require. In the event of any
conflict between a written agreement and the Plan, the terms of the Plan shall
govern.
 
                                   ARTICLE 17
 
                            MISCELLANEOUS PROVISIONS
 
     17.1 TAX WITHHOLDING. The Corporation shall have the rights to require
employees or their beneficiaries or legal representatives to remit to the
Corporation an amount sufficient to satisfy Federal, state and local withholding
tax requirements, or to deduct from all payments under the Plan, including Tax
Offset Payments, amounts sufficient to satisfy all withholding tax requirements.
Whenever payments under the Plan are to be made to an employee in cash, such
payments shall be net of any amounts sufficient to satisfy all Federal, state
and local withholding tax requirements. The Committee may, in its sole
discretion, permit an employee to satisfy his or her tax withholding obligation
either by (i) surrendering shares owned by the employee or (ii) having the
Corporation withhold from shares otherwise deliverable to the employee. Shares
surrendered or withheld shall be valued at their Market Price as of the date on
which income is required to be recognized for income tax purposes.
 
     17.2 COMPLIANCE WITH SECTION 16(B). In the case of employees who are or may
be subject to Section 16 of the Act, it is the intent of the Corporation that
the Plan and any award granted hereunder satisfy and be interpreted in a manner
that satisfies the applicable requirements of Rule 16b-3, so that such persons
will be entitled to the benefits of Rule 16b-3 or other exemptive rules under
Section 16 of the Act and will not be subjected to liability thereunder. If any
provision of the Plan or any award would otherwise conflict with the intent
expressed herein, that provision, to the extent possible, shall be interpreted
and deemed amended so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, such provision shall be deemed void as
applicable to employees who are or may be subject to Section 16 of the Act.
 
     17.3 SUCCESSORS. The obligations of the Corporation under the Plan shall be
binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Corporation, or any
successor corporation or organization succeeding to all or substantially all of
the assets and business of the Corporation. In the event of any of the
foregoing, the Committee may, at its discretion prior to the consummation of the
transaction and subject to Article 15 hereof, cancel, offer to purchase,
exchange, adjust or modify any outstanding awards, at such time and in such
manner as the Committee deems appropriate and in accordance with applicable law.
 
     17.4 GENERAL CREDITOR STATUS. Employees shall have no right, title, or
interest whatsoever in or to any investments which the Corporation may make in
aid in meeting its obligations under the Plan. Nothing contained in the Plan,
and no action take pursuant to its provisions, shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the Corporation
and any employee or beneficiary or legal representative of such employee. To the
extent that any person acquires a right to receive payments from the Corporation
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Corporation. All payments to be made hereunder shall be
paid from the general funds of the Corporation and no special or separate fund
shall be established and no segregation of assets shall be made to assure
payment of such amounts except as expressly set forth in the Plan.
 
     17.5 NO RIGHT TO EMPLOYMENT. Nothing in the Plan or in any written
agreement entered into pursuant to Article 16 hereof, nor the grant of any
award, shall confer upon any employee any right to continue in the employee of
the Corporation or a subsidiary or to be entitled to any remuneration or
benefits not set forth in the Plan or such written agreement or interfere with
or limit the right of the Corporation or a subsidiary to modify the terms of or
terminate such employee's employment at any time.
 
     17.6 OTHER PLANS. Effective upon the adoption of the Plan by the
stockholders, no further awards shall be made under The Toys "R" Us, Inc. Stock
Option Plan, originally adopted on April 7, 1978 and last amended and restated
as of April 22, 1993 (the "Prior Plan"). Thereafter, all awards made under the
Prior Plan prior to adoption of the Plan by the stockholders shall continue in
accordance with the terms of the Prior Plan.
 
     17.7 NOTICES. Notices required or permitted to be made under the Plan shall
be sufficiently made if personally delivered to the employee or sent by regular
mail addressed (a) to the employee at the employee's address as set forth in the
books and records of the corporation or its subsidiaries, or (b) to the
Corporation or the Committee at the principal office of the Corporation clearly
marked "Attention: Stock Option Committee."
 
     17.8 SEVERABILITY. In the event that any provision of the Plan shall be
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
 
     17.9 GOVERNING LAW. To the extent not preempted by Federal law, the Plan
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the State of New York.
 
                                   ARTICLE 18
 
                              PERFORMANCE TARGETS
 
     The Committee may base any award of Restricted Shares, Restricted Units,
Performance Units or Unrestricted Shares on performance criteria (the
"Performance Targets") which will qualify such award as performance-based
compensation under Section 162(m) of the Code. Such Performance Targets shall be
equal to a desired level or levels for any fiscal year or years of any or a
combination of the following criteria on an absolute or relative basis, and,
where applicable, measured before or after interest, depreciation, amortization,
service fees, extraordinary items and/or special items: (i) pre-tax earnings,
(ii) operating earnings, (iii) after-tax earnings, (iv) return on investment,
(v) earned value added, (vi) earnings per share, (vii) revenues, (viii) cash
flow or cash flow return on investment, (ix) return on assets or return on net
assets, (x) return on capital, (xi) return on equity, (xii) return on sales,
(xiii) operating margin or (xiv) total shareholder return or stock price
appreciation; provided that with respect to certain participants, the
Performance Objectives may be based upon divisional rather than consolidated
results, or a combination of the two. With respect to awards of Restricted Units
or Performance Units, such Performance Targets may be included in the
Performance Objectives for such awards to preserve the treatment of such awards
as performance-based compensation under Section 162(m) of the Code.