Exhibit 10.1

October 13, 2006

Mr. Richard L. Markee

Toys “R” Us, Inc.

One Geoffrey Way

Wayne, New Jersey 07470

Dear Rick:

This will confirm that your last date of employment with Toys “R” Us, Inc. (the
“Company”) will be on November 1, 2006 (the “Termination Date”), and that your
termination will be treated as a voluntary termination by you other than for
Good Reason, Disability or Retirement for the purposes of Section 4(e) of your
Retention Agreement with the Company, dated as of May 1, 1997, as amended (the
“Retention Agreement”). The Company hereby waives the four-month Mandatory
Notice Period for your resignation as defined in the May 6, 1999 amendment to
the Retention Agreement and relieves you of your obligation thereunder not to
disclose your departure.

Within 30 days following the Termination Date, you will be paid any salary
earned and unpaid through the Termination Date, and the Company will pay your
salary for all unused vested vacation through November 1, 2006. We intend and
anticipate that these payments of accrued salary and vacation will be deposited
directly into your account on the next regular payroll date after the
Termination Date.

Section 4(e) of the Retention Agreement provides that upon your voluntary
termination other than for Good Reason, Disability or Retirement, the Company
will have no further obligation to you other than to pay you all payments and
benefits due, in accordance with the Company’s benefits plans through the
Termination Date. Nevertheless, provided that at the time of your termination or
as soon as possible thereafter you sign a Separation and Release Agreement in
the form attached to this letter as Exhibit A and do not challenge or revoke
such release within the 7-day revocation period set forth therein, the Company
will pay you, outside of the Retention Agreement, one or more lump sum payments
not to exceed $1,200,000.00 in the aggregate, representing 75% of the incentive
bonus that you would have earned for fiscal year 2006, (with the individual
objective component of the bonus being paid out at 100% of target, subject to
the pro-ration in accordance herewith, and the financial component of the bonus
being based 75% on

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

Mr. Richard L. Markee

October 13, 2006

 

actual overall consolidated performance of the Company and 25% being based on
the performance of the Babies “R” Us division for such year, also subject to
pro-ration in accordance herewith) had you remained employed through the end of
fiscal year 2006 (as well as up to and including the date such bonus payment
would have been made). The 75% factor represents a pro-ration based on the
number of months that you will have served in fiscal year 2006 (9 of 12 months).
This payment will be made to you as follows:

 

  •   $318,600.00, shall be paid in a lump sum, no later than March 15, 2007.
This amount represents a 100% payment of the target amount of your individual
objectives portion of the incentive bonus for fiscal year 2006, pro rated by the
75% factor.

 

  •   An additional payment, if any, based upon actual financial results of the
Company for fiscal year 2006. This payment will be based 25% upon the actual
financial results of the Babies “R” Us division and 75% upon the actual overall
consolidated performance of the Company. The payment of the financial portion of
the bonus, if any, will also be pro rated by the 75% factor and will be made at
the same time that bonuses for fiscal year 2006 are paid to employees, expected
to be in April 2007 (but in no event later than April 15, 2007).

 

  •   The maximum bonus to be paid to you (covering both individual and
financial performance) shall not exceed $1,200,000.00.

Your outstanding equity awards will continue to be governed by the terms of the
Toys “R” Us Holdings, Inc. 2005 Management Equity Plan (“MEP”) and the
applicable award agreements. In general, that means that, pursuant to
Section 6.2 of the MEP, you will have a period of 30 days after the Termination
Date to exercise your 40,953 vested stock options, and your 245,718 unvested
options will expire and be forfeited as of your Termination Date. Pursuant to
Section 9.6 of the MEP, you are notified that Toys “R” Us Holdings, Inc. intends
to exercise its rights under Section 9.4 of the MEP to repurchase your
outstanding restricted stock awards (20,561 common strips), and any shares you
acquire upon exercise of your vested options, at “Fair Market Value” as of the
date of repurchase. Unless you receive further notice to the contrary, the date
of that repurchase will be 30 days after the Termination Date and you shall be
paid fully in cash for such shares on such repurchase date. Notwithstanding
anything to the contrary in the MEP or any related documentation, such purchase
price shall not be subject to reduction below the Fair Market Value for any
reason.

Additionally, as of the date hereof, the Company shall enter into a Consulting
Agreement with you in the form attached hereto as Exhibit B. Pursuant to that
Consulting Agreement, for one year following the Termination Date (the
“Consulting Period”), the Company will pay you a consulting fee of $600,000.00
for consulting services provided to the Company as requested from time to time
by the Company. Said fee will be paid to you in a lump sum payment on or about
May 1, 2007, but in no event sooner than six months and one day after the
Termination Date. Federal, State and local income tax and payroll tax of any
kind shall not be withheld or paid by the Company. You will not be treated as an
employee with respect to the consulting services performed hereunder for

 

2

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

Mr. Richard L. Markee

October 13, 2006

 

Federal, State or local tax purposes. The Company will report the amounts paid
to you on Form 1099 to the extent required under the Internal Revenue Code. You
agree to be solely responsible for and pay any applicable Federal, State and
local taxes required by law.

As of the Termination Date, you will be entitled to continuation of medical and
dental benefits maintained by the Company at a level commensurate with the level
at which senior executives of the Company participate. If you elect to receive
such health benefits, for the first 18 months of such coverage, you shall pay
the premium charged to former employees of the Company pursuant to Section 4980B
of the Code (“the COBRA rate”). The Company agrees that during the first 12
months of such coverage, it will reimburse you the difference between the COBRA
rate and the rate charged to active senior executives of the Company. At the end
of the 18 month period, should you so elect, you will be eligible to continue to
age 65, to participate in a Company provided health insurance plan that provides
health coverage at a level commensurate with the level at which active senior
executives of the Company participate. Should you elect such coverage, you will
be charged the full amount of said coverage. Following the Termination Date and
during the entire period you are receiving continuation health coverage, you
understand that the Company may amend or otherwise alter your health coverage to
provide coverage (including reduced coverage) that is commensurate with the
coverage provided to active senior executives of the Company.

During the Consulting Period, the Company will continue to maintain the life
insurance coverage currently provided to you under the Toys “R” Us Inc. Split
Dollar Plan.

Section 4 of that certain Special Bonus and Option Agreement, dated as of
July 22, 2005, between you and the Company (the “Special Agreement”) provides
that in any circumstance in which you become entitled to receive severance or
other similar payments from the Company (whether pursuant to an employment
agreement, a retention agreement, or otherwise), such payment shall be reduced
by an aggregate amount of $1,000,000. The Company hereby waives that off-set
provision of the Special Agreement in its entirety.

During the Consulting Period, you understand and agree to be bound by the non-
compete provisions of the Separation and Release Agreement, attached hereto, as
well as Sections 11(a)-(c), Section 11(f) and Section 13(e) of the Retention
Agreement. Notwithstanding the foregoing, if the Company fails to pay the
consulting fee when due hereunder, the non-compete provisions of the Separation
and Release Agreement shall become null and void as of date such payment should
have been made.

The Company agrees to promptly reimburse you the actual legal fees incurred by
you in the negotiation and drafting of this Agreement and the related
documentation in an amount not to exceed $5,000 in the aggregate.

 

3

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

Mr. Richard L. Markee

October 13, 2006

 

You understand and agree that other than the compensation and benefits provided
for in this letter and the Consulting Agreement, all other compensation and
benefits you currently enjoy will cease as of the Termination Date.

In addition, this letter serves as confirmation that, effective on the
Termination Date, you hereby resign as an officer and/or director of any of the
Company’s subsidiaries or affiliates on which you serve as an officer and
director, including Toys “R” Us – Japan, Ltd. You further agree to sign
appropriate letters of resignation, to the extent requested by us.

Rick, if you have questions about this letter, please let me know.

 

Sincerely,

/s/ Dan Caspersen

Dan Caspersen Executive Vice President – Human Resources

 

Accepted and Agreed: By:  

/s/ Richard L. Markee

  Richard L. Markee

 

4

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

EXHIBIT A

SEPARATION AND RELEASE AGREEMENT

This Separation and Release Agreement (this “Agreement”) is entered into as of
this      day of November, 2006, between TOYS “R” US, INC. and any successor
thereto (collectively, the “Company”) and RICHARD L. MARKEE (the “Executive”).

The Executive and the Company agree as follows:

1. The employment relationship between the Executive and the Company and its
subsidiaries and affiliates, as applicable, terminated on November     , 2006
(the “Termination Date”) as a result of the Executive’s voluntary resignation.

2. The Executive is not entitled to any severance payment or benefits under his
Retention Agreement with the Company, dated as of May 1, 1997, as amended (the
“Retention Agreement”) by reason of his voluntary resignation. However, in
accordance with that certain letter agreement dated as of October     , 2006
(the “Letter Agreement”), the Company has agreed to provide certain payments to
the Executive to which he is not otherwise entitled.

3. In consideration of the payments provided in the Letter Agreement, 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 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); the New Jersey Law Against Discrimination, the New Jersey Family
Leave Act, the New Jersey State Wage and Hour Law, the New Jersey Conscientious
Employee Protection Act, the New Jersey Equal Pay Law, the New Jersey
Occupational Safety and Health Law, the New Jersey Smokers’ Rights Law, the New
Jersey Genetic Privacy Act, the New Jersey Fair Credit Reporting Act, the New
Jersey Statutory Provision regarding Retaliation/Discrimination for Filing A
Workers’ Compensation Claim, the New Jersey laws regarding Political activities
of Employees, Lie Detector Tests, Jury Duty,

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

Employment Protection and discrimination, the New Jersey Civil Rights Act, and
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 and its subsidiaries and affiliates,
as applicable. This release also includes a release of any claims for age
discrimination under the Age Discrimination in Employment Act, as amended
(“ADEA”). The ADEA requires that the 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. This release does not release the Company from any obligations
concerning any rights the Executive has pursuant to the Letter Agreement,
Sections 9 and 10 and Exhibit C to the Retention Agreement, Section 7 of the
Special Bonus and Option Agreement between the parties dated as of July 22,
2005, or the Consulting Agreement between the parties dated as of October     ,
2006 (the “Consulting Agreement”), or any rights to indemnification and/or
advancement of expenses by the Company or its affiliates pursuant to the
Company’s (or any affiliate’s) corporate documents or applicable law, coverage
under any applicable directors’ and officers’ liability insurance policies and
any vested rights the Executive has under the Company’s employee pension benefit
and welfare benefit plans.

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 or acts occurring prior to
the date of this Agreement, including, but not limited to, any claim, matter or
action related to the Executive’s employment or affiliation with, or termination
or separation from the Company; provided that such release shall not release the
Executive with respect to any act by the Executive which is proven to be a
felony under U.S. Federal or applicable state law and which relates to the
business of the Company or any of its subsidiaries. As of the date of this
Agreement, the Company represents that it knows of no act by the Executive which
would be deemed to be a felony under U.S. Federal or applicable state law which
relates to the business of the Company.

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 and its subsidiaries and affiliates following the Executive’s separation
from the Company and its subsidiaries and affiliates on the Termination Date.
Nothing herein shall prevent the Executive from providing services as a
consultant to the Company pursuant to the Consulting Agreement.

6. Following the date of this Agreement, the Executive agrees not to
intentionally make any public statement which does, or may reasonably be
expected to, harm the reputation, business, prospects or operations of the
Company, its officers, directors, stockholders or employees. Following the date
of this Agreement, the Company agrees not to intentionally make any public
statement which does, or may reasonably be expected to, harm the reputation,
business or prospects of the Executive.

 

2

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

7. The Executive shall continue to be bound by the terms and conditions of
Sections 11(a)-(c), Section 11(f) and Section 13(e) of the Retention Agreement.
Notwithstanding the foregoing, Section XII(3) in the 2005 Management Equity
Plan, shall, as of the date of this Agreement, no longer apply to the Executive.
The Company shall continue to be bound by the terms and conditions of Sections 9
and 10 and Exhibit C of the Retention Agreement.

In further consideration of the payments provided in the Letter Agreement, the
sufficiency of which Executive hereby acknowledges, Executive hereby agrees that
during the Consulting Period (as defined in the Consulting Agreement), the
Executive will not, whether on the Executive’s own behalf, or for a joint
venture, association, corporation or other business organization, entity or
enterprise whatsoever), directly or indirectly participate in or work for the
following businesses: Wal-Mart, K-Mart/Sears, Target, Amazon.com, Zellers, Right
Start, Zany Brainy, FAO Schwarz, Buy Buy Baby, e-Toys, KB Toys, Burlington Coat
Factory, Tesco or Mothercare (including in stores, or via mail order,
e-commerce, or similar means). Nothing herein shall prevent the Executive from
owning 2% or less of the equity interest (measured by value) in any such entity
or from working for, or providing services to a private equity firm or similar
type of entity with investments in any of the above listed companies provided
Executive’s services or advice do not relate to such companies. Except as
otherwise expressly set forth herein, there are no other post-termination
restrictions on the Executive’s activities following the Termination Date.

8. Subject to his other personal and business commitments, the Executive agrees
to be available to and cooperate with the Company in any Company internal
investigation or administrative, regulatory or judicial proceeding. The
Executive understands and agrees that the Executive’s cooperation would include,
but not be limited to, being available to the Company upon reasonable notice for
interviews and factual investigations; appearing at the Company’s request to
give testimony without requiring service of a subpoena or other legal process;
volunteering to the Company pertinent information; and turning over all relevant
documents which are or may come into the Executive’s possession. The Executive
understands that in the event the Company asks for the Executive’s cooperation
in accordance with this provision, the Company will reimburse him solely for
reasonable expenses upon his submission of appropriate documentation.

9. The Executive shall promptly return all the Company and subsidiary and
affiliate property in the Executive’s possession, including, but not limited to,
the Company and subsidiary and affiliate keys, automobile, credit cards,
cellular phones, computer equipment, software and peripherals and originals or
copies of books, records, or other information pertaining to the Company
business. Notwithstanding the foregoing, the Executive shall be able to retain
his personal papers and personal documents reasonable necessary for his taxes.

10. 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.

 

3

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

11. Notwithstanding any other provision of this Agreement, the Letter Agreement
or the Consulting Agreement, the Company agrees that subject to the expiration
of the revocation period in Section 14 hereof, it shall make the payments and
provide the benefits set forth in the Letter Agreement and the Consulting
Agreement and that it shall have no right of offset against such amounts or
benefits (or any right to claim repayment of any amounts or benefits) absent an
enforceable judgment against the Executive in accordance with Section 13(i) of
the Retention Agreement.

12. This Agreement, together with the Retention Agreement, the Letter Agreement,
the Consulting Agreement and any indemnification agreement between the Company
and the Executive, 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, concerning the subject
matter in this Agreement. 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.

13. Each of the sections contained in this Agreement shall be enforceable
independently of every other section in this Agreement, and the invalidity or
non-enforceability of any section shall not invalidate or render unenforceable
any other section contained in this Agreement.

14. 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. No revocation of this Agreement by the
Executive shall be effective unless the Company has received within the 7-day
revocation period, written notice of any revocation and all originals and copies
of this Agreement.

15. 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.

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:  

 

RICHARD L. MARKEE

 

4