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Toys R Us Asks For $100M In Incentives For Execs, Workers

Toys R Us Inc. on Wednesday asked a Virginia bankruptcy court for permission to pay its employees up to $100 million in bonuses, saying the incentives are needed to navigate the company through a Chapter 11 holiday season.

The company said it wants to set up an incentive program that could pay up to $32 million to 17 of its top executives and set aside another $69 million for potential incentive pay for about 64,000 lower-ranking employees in order to keep the company on track through what has always been its most lucrative sales period of the year.

“Two weeks into the fourth quarter holiday season, now more than ever the senior management team must be properly motivated and incentivized to handle the panoply of responsibilities attendant to their two full-time jobs of leading the debtors through this restructuring and, at the same time, implementing a worldwide strategy to increase sales following a near shut-down of operations just eight short weeks ago,” it said. “The task at hand cannot be underestimated.”

In September, the New Jersey-based toy chain and owner of Babies R Us filed for Chapter 11 protection with more than $5 billion in funded debt, stemming in large part from money its owners borrowed in 2005 to fund a $6.6 billion leveraged buyout of the company and take it private.

The retailer is looking to dig itself out of a jam just before the holiday season, when consumers spend more on toys and other gifts than any other time of the year and when 40 percent of the merchant’s annual revenue is made. The company has said that its nearly 1,600 Toys R Us and Babies R Us locations will remain open and operate as usual.

The company said the executive incentive program would pay 17 “insider” executives, including CEO David Brandon, $16 million if the company hits an earnings before interest, tax, depreciation and amortization goal of $550 million for the 2017 fiscal year. Those payments could reach $32 million if the company clears $616 million for the year, it said.

The same targets apply to the 64,000 “non-insider” employees, with $58.5 million in bonuses for reaching the lower target and $68.7 million for the greater.

The company said both targets were set at “challenging” levels and would require significant effort to meet.

The motions said both categories of employees have been taking on responsibilities “well above and beyond” their regular duties dealing with the consequences of the bankruptcy while living with uncertainty about the future ownership of the company and their own continued employment.

“As a result, it is critical that these employees be appropriately incentivized to drive performance for all stakeholders,” it said.

The filings said the company has been unable to reach consensus among its major stakeholders about the program, but it needs to file the motion to ensure the plan can be presented by Dec. 5, just three weeks before Christmas.

Counsel for Toys R Us did not immediately respond to requests for comment Thursday.

Toys R Us is represented by Edward O. Sassower, Joshua A. Sussberg, James H.M. Sprayregen, Anup Sathy, Chad J. Husnick, Robert A. Britton and Emily E. Geier of Kirkland & Ellis LLP and Michael A. Condyles, Peter J. Barrett and Jeremy S. Williams of Kutak Rock LLP.

The case is In re: Toys R Us Inc. et al., case number 3:17-bk-34665, in the U.S. Bankruptcy Court for the Eastern District of Virginia.