BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES COMPANY VOLUNTARY ARRANGEMENT UNDER PART I OF THE INSOLVENCY ACT 1986 (AS AMENDED)

Transcription

1 IN THE HIGH COURT OF JUSTICE Claim No.: CR Dec 2017 BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES INSOLVENCY AND COMPANIES LIST IN THE MATTER OF: TOYS R US LIMITED CR COMPANY VOLUNTARY ARRANGEMENT UNDER PART I OF THE INSOLVENCY ACT 1986 (AS AMENDED) NOMINEES REPORT ON DIRECTORS PROPOSALS PURSUANT TO SECTION 2(2) OF THE INSOLVENCY ACT This Report has been prepared by Richard Dixon Fleming, Mark Granville Firmin and Benjamin Thom Cairns of Alvarez & Marsal Europe LLP, Tower Bridge House, St Katharines Way, London, E1W 1DD, who together are the joint nominees (the Nominees, each a Nominee ) in relation to the proposed company voluntary arrangement under Part I of the Insolvency Act 1986 (the CVA ) of Toys R Us Limited, a private limited company incorporated in England and Wales with registered number and having its registered office at Cannon Place, 78 Cannon Street, London EC4N 6AF (the Company ), following a review of: (a) (b) the proposal for a CVA (the Proposal ) by the directors of the Company (the Directors ) made pursuant to section 1 of the Insolvency Act 1986, a copy of which was received by the Nominees on 4 December 2017; and a prescribed statement of the Company s affairs as at 28 October 2017 in conjunction with the additional information regarding the Company s assets and liabilities since that date contained in Part 1 of the Proposal. 2. On 4 December 2017, the Nominees returned to the Company a signed consent to act pursuant to Rule 2.4(2) of the Insolvency (England & Wales) Rules 2016 (the Rules ). 3. In the opinion of the Nominees: (a) (b) the proposed CVA has a reasonable prospect of being approved and implemented; and the Proposal should be considered by a meeting of the Company (its shareholder) and by its creditors. 4. In accordance with section 246ZE(2) of the Insolvency Act 1986, the decision of the Company s creditors with respect to the CVA may be made by any qualifying decision procedure that the Nominees think fit, but may not be made by a creditors meeting unless section 246ZE(3) of the Insolvency Act 1986 applies. Section 246ZE(3) of the Insolvency Act 1986 provides that, if at least the minimum number (as defined in section 246ZE(7) of the Insolvency Act 1986) of creditors make a written request to the Nominees that the decision be made by a creditor s meeting, the Nominees must summon a creditors meeting. Rule 15.6(1) of the Rules provide that a request for a physical meeting made before or after the notice of the decision procedure has been delivered. KE

2 5. On 1 December 2017, the Nominees received a written request from 10 creditors of the Company that a creditors meeting be summoned for the purposes of the creditors making a decision on the proposed CVA. Accordingly, in accordance with section 246ZE(4) of the Insolvency Act 1986, the Nominees are required to summon a physical meeting of the Company s creditors. 6. The meeting of the Company s creditors should be held at The Montcalm Hotel, 52 Chiswell Street, London EC1Y 4SD at 11:00 a.m. on 21 December The meeting of the Company s shareholders should be held at The Montcalm Hotel, 52 Chiswell Street, London EC1Y 4SD at 2 p.m. on 21 December Pursuant to Rule 2.9(1) of the Rules, enclosed with this report for delivery to the Court are: (a) (b) (c) a copy of this report; a copy of the Proposal; a summary of the Company s statement of affairs (contained at Schedule 22 of the Proposal). 9. In accordance with Rule 2.9(2) of the Rules, the Nominees opinions on the Proposal are annexed to this report. 10. A copy of this report and the Annex has been sent to the Company in accordance with Rule 2.9(4) of the Rules. KE

3 Signed by Richard Dixon Fleming (Nominee) Dated: 4 December 2017 Signed by Mark Granville Firmin (Nominee) Dated: 4 December 2017 Signed by Benjamin Thom Cairns (Nominee) Dated: 4 December 2017 Richard Dixon Fleming is licensed in the United Kingdom to act as an Insolvency Practitioner by the Insolvency Practitioners Association. Mark Granville Firmin and Benjamin Thom Cairns are licensed in the United Kingdom to act as Insolvency Practitioners by the Institute of Chartered Accountants in England and Wales. KE

4 Annex Nominees Opinions on the Proposal 1. These opinions have been prepared pursuant to Rule 2.9(2) of the Insolvency (England & Wales) Rules 2016 (the Rules ) by Richard Dixon Fleming, Mark Granville Firmin and Benjamin Thom Cairns of Alvarez & Marsal Europe LLP, Tower Bridge House, St Katharines Way, London, E1W 1DD, who together are the joint nominees (the Nominees, each a Nominee ) in respect of the proposed company voluntary arrangement under Part I of the Insolvency Act 1986 (the CVA ) of Toys R Us Limited, a private limited company incorporated in England and Wales with registered number and having its registered office at Cannon Place, 78 Cannon Street, London EC4N 6AF (the Company ) following a review of: (a) (b) the proposal for a CVA (the Proposal ) by the directors of the Company (the Directors ) made pursuant to section 1 of the Insolvency Act 1986, a copy of which was received by the Nominees on 4 December 2017; and a prescribed statement of the Company s affairs as at 28 October 2017 in conjunction with the additional information regarding the Company s assets and liabilities since that date contained in Part 1 of the Proposal. 2. On 26 July 2017, Alvarez & Marsal North America LLC was engaged by Toys R Us, Inc. and its subsidiaries to provide group-wide restructuring advice. Under the terms of this engagement, Alvarez & Marsal Europe LLP were asked to consider the restructuring options available to the Company, including the feasibility of a CVA. Following this initial assessment (and under the same engagement), Alvarez & Marsal Europe LLP assisted with detailed CVA planning and the preparation of fall back contingency planning. 3. Details of payments to be made to the Nominees are set out at Schedule 4 to the Proposal and is estimated to be around 0.5 million. 4. An estimate of the total fee to be paid to the CVA supervisors is set out at Schedule 4 of the Proposal and amounts to an estimate of around 0.3 million. That estimate has been produced on the assumption that the CVA supervisors carry out their duties as supervisors in accordance with the terms of the Proposal. 5. The Company has not, within the last twelve months, put forward a company voluntary arrangement proposal that has been rejected. 6. The Nominees have satisfied themselves: (a) (b) (c) (d) that the Company s true position as to assets and liabilities is not materially different from that which is represented to the creditors; that the Proposal has a reasonable prospect of being approved and implemented in the manner represented in the Proposal; that there is no unavoidable prospective unfairness which is already manifest; and accordingly, that the shareholder and the creditors of the Company should be invited to consider the proposal. KE

5 7. The Nominees make the following comments in respect of the Proposal: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) the Nominees have carried out limited investigations into the Company s circumstances to enable them to assist the Directors in their preparation of the Proposal and report to the Court under section 2(2) of the Insolvency Act 1986; the business and assets of the Company as a whole have been professionally valued by an independent, professional valuations service. The realisable asset values contained in the statement of affairs have been estimated based on the management accounts for TRU as at 28 October 2017; the Nominees are not aware of any reason to believe that the information provided by the Directors in relation to the estimate of the liabilities of the Company cannot be relied on by the creditors and shareholder of the Company. On that basis, the Nominees consider that reliance can be placed on such estimate; the Directors have been totally co-operative and have provided the Nominees with all necessary information; details of the security granted by the Company are annexed to the Proposal; the Directors and Nominees have informally approached a number of the Company s creditors to discuss the possibility of proposing a CVA in similar terms to that set out in the Proposal. The discussions with creditors did not cause the Directors and the Nominees to change their opinions that there was a reasonable prospect of the CVA being approved and implemented; so far as the Nominees are aware, there have been no previous failures of the Company; the Directors have prepared estimated outcome statements setting out the estimated returns which creditors may expect (i) if the CVA succeeds and (ii) in an administration of the Company. Those statements are annexed to the Proposal and demonstrate that creditors would receive a greater return under the CVA than if the Company were to enter administration. Therefore, the CVA is more beneficial for creditors of the Company than administration; the Nominees note that the statement of affairs prepared by the Directors has been made up to 28 October 2017, being the nearest practicable date, but which is earlier than the earliest date prescribed under Rule 2.6(2) of the Rules, for the statement of affairs to be made up to. Management accounts for the November 2017 period had not been completed by the time of finalising the proposal for submission to Court and for this reason the Nominees have allowed an extension to the prescribed period under and in accordance with Rule 2.6(3) of the Rules; if the Proposal is rejected by the Company s creditors, the likely effect is that the Company will enter administration; and with the exception of the following, the Nominees are not aware of any claims which might be capable of being pursued by a liquidator or administrator of the Company if one were appointed: (i) on or around 21 November 2017, the Company granted a second-ranking floating charge over its undertaking and property in favour of Wilmington Savings Fund Society, FSB. On or around the 17 November 2017, an amount of US$40,326, was made available to the Company to refinance KE

6 existing indebtedness. If the Company were to go into administration or liquidation on or before 21 November 2018 and if the Company were found to have been unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986 when it granted the floating charge, the charge would be invalid under section 245 of the Insolvency Act 1986 save to the extent of the US$40,326, of monies paid to the Company; and (ii) on 21 November 2017, the Company granted a third-ranking floating charge over its undertaking and property in favour of Wilmington Trust, National Association. If the Company were to go into administration or liquidation on or before 21 November 2018 and if the Company were found to have been unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986 when it granted the floating charge, the charge would be invalid under section 245 of the Insolvency Act KE

7 Enclosure Copy of the Proposal incorporating (at Schedule 22) a summary of the Company s statement of affairs KE

8 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own independent financial advice from a stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act This document does not constitute or form any part of any offer or invitation to sell or issue, or any solicitation of any offer to acquire any Shares or other transferable securities in Toys R Us Limited ( TRU ). Any reproduction of this document, in whole or in part, and any disclosure of its contents, except to the extent such information is otherwise publicly available, or use of any information it contains for any purpose other than considering the resolutions is prohibited. TOYS R US LIMITED and each of its CVA CREDITORS (as defined herein) COMPANY VOLUNTARY ARRANGEMENT (under Part I of the Insolvency Act 1986) This document has been prepared solely to inform creditors and the shareholder of TRU of proposals for a company voluntary arrangement. Nothing in this Proposal should be relied upon for any other purpose. Your attention is drawn to paragraphs 1 (The Company, page vi), 2 (The financial position and trading performance of the Company, page vi) and 3 (Objectives of the CVA Proposal, page vii) of the section titled the Summary of the Proposal on page vi and 7 (Recommendation to creditors and shareholders, page 5) of Part 1 (Introduction) of this document. Such sections describe the background and the desirability of the Proposal for creditors and the shareholder and recommending why creditors and the shareholder should vote in favour of the Proposal. The action required to be taken by you is set out in Part II (Action to be taken by CVA Creditors and Shareholders). Formal notices of the Creditors Meeting and Shareholder's Meeting to approve the company voluntary arrangement and relevant Proxy Form(s) for voting at these meetings, which are to be held at Montcalm Hotel, 52 Chiswell Street, London, EC1Y 4SD at 11:00 a.m. on 21 December 2017 (in respect of the Creditors Meeting) and at Montcalm Hotel, 52 Chiswell Street, London, EC1Y 4SD at 2:00 p.m. on 21 December 2017 (in respect of the Shareholder s Meeting), are included within this Proposal. For creditors, please complete and return the relevant Notice of Claim(s) sent to you with this Proposal in accordance with the instructions set out in it. Save as set out in this Proposal, the CVA will not seek to compromise the rights or claims of any other creditors, including, without limitation, employees, customers, any member under the Pension Scheme, the Pension Scheme Trustees and any other unsecured creditors. Further details are set out in Part II Clause 5 (The Effect Of The CVA on Ordinary Unsecured Creditors, page 12). A creditor who is a Compromised Landlord may not receive any benefit from the TRU Compromised Lease Fund pursuant to Clause 22 (The TRU Compromised Lease Fund, page 40) of this CVA unless it files a Notice of Claim before the Claims Date. The Claims Date is 21 December Unsecured creditors (including Landlords) will receive a greater return on the amount owed to them in the CVA than they would do if TRU were to enter administration (see further page xi). If the CVA is not approved and implemented, TRU is likely to enter into administration. The claim of a CVA Creditor who does not respond will not be taken into account for the purposes of calculating the requisite majorities for the Proposal to be approved (as set out in paragraphs 6.2 (Further points, page x) and 3.1 (What is a CVA, page 2 )). In addition, the Proposal, if approved, is binding on all CVA Creditors, including those CVA Creditors who did not vote or voted against the Proposal. Your vote on the Proposal is therefore very important. Please take the time to consider the documents that have been sent to you and take appropriate action, including the return of the relevant Notice of Claim and Proxy Form. Issue Date: 4 December 2017

9 CONTENTS IMPORTANT NOTICE FROM THE DIRECTORS... iv NOTICE FROM THE NOMINEES... v SUMMARY OF THE PROPOSAL... vi DOCUMENTS RECEIVED... xii NEXT STEPS... xiii SECTION 1 - PROPOSAL... 1 Key Dates and Expected Timetable of Key Events... 1 PART I INTRODUCTION Directors Proposal Definitions and Interpretation What is a CVA? Why is a CVA required? Proposed Duration of the CVA Lease Categorisation Recommendation to creditors and shareholders... 5 PART II ACTION TO BE TAKEN BY CVA CREDITORS AND SHAREHOLDER Arrangements for voting at creditor s meeting Votes in relation to inter-company debts Votes in relation to Landlords Arrangements for voting at Shareholder s Meeting Creditors and shareholders with queries... 8 PART III CORPORATE, STATUTORY AND FINANCIAL INFORMATION Corporate Information Statutory and Financial Information... 9 PART IV TAX INFORMATION AND TAX DISCLAIMER Tax Information and Tax Disclosure SECTION 2 TERMS OF THE PROPOSAL PART V TERMS OF THE COMPANY VOLUNTARY ARRANGEMENT Definitions and Interpretation Effectiveness of the CVA Operation of TRU Moratorium The Effect Of The CVA on Ordinary Unsecured Creditors The Effect of the CVA on Employees The Effect of the CVA on the Pension Scheme The Effect of the CVA on the Guaranteed Lease The Effect of the CVA on Secured Creditors and Preferential Creditors The Effect of the CVA On Category 1 Landlords The Effect of the CVA On Category 2 Landlords... 15

10 12 Category 2 Landlords: Downsizing Agreed Category 2 Landlords: Downsizing Not Agreed The Effect of the CVA On Category 3 Landlords Category 3 Landlords: Downsizing Agreed Category 3 Landlords: Downsizing Not Agreed The Effect of the CVA on Category 4 Landlords Category 4 Landlords: Post-Rent Concession Period Rent The Effect of the CVA on Category 5 Landlords Rent Concession Agreement The Compromised Contingent Property Creditors CVA Claims The TRU Compromised Lease Fund Compromised Landlords: Notice and Acceptance of Claim Disputed Claims Miscellaneous Payment Provisions Assets Full And Final Settlement Currency of Payment Powers And Intentions of the Supervisors The Supervisors Remuneration No Creditors Committee No Warranties or Representation Vacancy In Office of Supervisors Variation Material Variation of the CVA Set-off Assignments Completion or termination of the CVA Notices No Personal Liability Governing Law and Jurisdiction EC Regulation on Insolvency Proceedings Schedule 1 Definitions and Interpretation Schedule 2 Calculation of Landlords Claims Schedule 3 Corporate Information Schedule 4 Statutory and Financial Information Schedule 5 List of Category 1 Leases Schedule 6 List of Category 2 Leases Schedule 7 List of Category 3 Leases Schedule 8 List of Category 4 Leases Schedule 9 List of Category 5 Leases Schedule 10 List of Pop-Up Property Agreements Schedule 11 Estimated Outcome Statement Schedule 12 Supervisors and Legal Advisors Details and Addresses for Notices ii

11 Schedule 13 List of Guarantees Schedule 14 Alvarez & Marsal Europe LLP Charge Out Rates Schedule 15 List of Securities Schedule 16 Notices of Meetings Schedule 17 Forms of Proxy Schedule 18 Notice of Claim Schedule 19 Notice of Effectiveness Schedule 20 Notice of Termination Schedule 21 Notice of Completion Schedule 22 Summary Statement of Affairs as at 28 October Schedule 23 Notice to Vacate Schedule 24 Forms of Surrender Schedule 25 Shareholder Details Schedule 26 List of CVA Creditors iii

12 IMPORTANT NOTICE FROM THE DIRECTORS This Proposal has been prepared by the Directors of TRU pursuant to Part I of the Insolvency Act solely to inform creditors and the shareholder of TRU of proposals for a company voluntary arrangement of TRU. Nothing in this Proposal should be relied upon for any other purpose including in connection with any investment decision in relation to the debt, securities or any other financial interest of any company in the Group, including for the avoidance of doubt, any decision to buy or sell or not to buy or sell any debt, securities or other financial interest. Any parties making such investment decisions should rely on their own enquiries prior to making such decisions. Creditors and the shareholder should review this Proposal in detail. The contents of this document are not to be construed as legal, business or tax advice. If you are in any doubt as to the action you should take in connection with the Proposal, or the tax or other consequences of the proposed CVA for you, you should contact your legal, financial, tax or other professional advisers. Section 1, Parts I to IV of this Proposal set out a general description of the Proposal and provide a brief summary of the terms of this Proposal. The binding terms of the Proposal are set out in Section 2 (Terms of the Proposal, page 11). It is possible that the CVA may not be approved by the requisite majorities of creditors of TRU. The Directors make no representation or warranty and give no undertaking that the CVA in the form described in this Proposal will be implemented within the timescale outlined in this Proposal or at all or that the proposed CVA will not be amended, revoked or suspended. Nothing in this Proposal may be taken as an admission of any fact or matter relating to TRU or relied upon in any litigation involving TRU or constitutes any admission on the part of TRU with respect to any asset to which it may be entitled or with respect to any claim by or against it. This Proposal contains certain statements and statistics that are or may be forward-looking. The accuracy and completeness of such statements is not warranted or guaranteed. These statements typically contain words such as intends, expects, anticipates, estimates and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Although the Directors believe the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove correct. Without limiting the generality of the immediately preceding paragraph, all statements contained in this Proposal in relation to estimated outcomes for creditors, whether as a consequence of the Proposal being approved or otherwise, are illustrative only. As they are based on assumptions that necessarily involve a subjective analysis of the matters referred to in this Proposal, they cannot be relied upon as guidance as to the actual outcomes for creditors. Unless otherwise indicated, the statements contained in this Proposal are made as at 4 December 2017, being the latest practicable time before publication, and reflect the circumstances and the information of which the Directors were aware at that time. Alvarez & Marsal Europe LLP and CBRE have each given and not withdrawn their written consent to the inclusion in this document of references to the advice that they have provided to TRU and references to their names in the form and context in which it appears herein. None of the Directors have authorised any person to make any representations concerning the CVA which are inconsistent with the statements contained herein, and if such representations are made, they may not be relied upon as having been so authorised. iv

13 NOTICE FROM THE NOMINEES The Nominees in relation to the CVA are Richard Dixon Fleming, Mark Granville Firmin and Benjamin Thom Cairns of Alvarez & Marsal Europe LLP, c/o Suite 3, Regency House, 91 Western Rd, Brighton, BN1 2NW. In accordance with section 2 of the Insolvency Act, the Nominees have reviewed the Proposal and reported to the Court that, in their opinion: (a) (b) (c) the Proposal has a reasonable prospect of being approved and implemented; meetings of TRU and of its creditors should be summoned to consider the Proposal; the requirements to call a physical meeting (as opposed to a meeting by other means, e.g. virtual meeting) between TRU and its creditors have been met. In accordance with section 246ZE(3) of the Insolvency Act, a physical meeting of the Company s creditors can only be summoned if requested by 10% (ten per cent) in value of the creditors of the Company, 10% (ten per cent) in number of the creditors of the Company, or 10 creditors; (d) the meeting of the creditors of TRU to consider the Proposal should be held at 11:00 a.m. on 21 December 2017 at Montcalm Hotel, 52 Chiswell Street, London EC1Y 4SD; and (e) the meeting of the shareholder of TRU to consider the Proposal should be held at 2:00 p.m. on 21 December 2017 at Montcalm Hotel, 52 Chiswell Street, London EC1Y 4SD. The Nominees are unable to warrant or represent the accuracy or completeness of any information contained within this document, or any information provided by any third party. The Nominees have not authorised any person to make any representations concerning the CVA, and if such representations are made, they may not be relied upon as having been so authorised. v

14 SUMMARY OF THE PROPOSAL The following summary of the Proposal should be read as an introduction to this document only. Any decision as to how to vote should be based on consideration of this document as a whole and not just this summary. Creditors and the shareholder of TRU have been sent a notice in relation to the proposed CVA for TRU. 1 The Company 1.1 The Group is one of the world s leading toy and children s product retailers, with over 1500 stores worldwide in 33 countries. TRU is the tenant of 105 stores (including 21 short lease popup stores) within their leasehold portfolio across England & Wales, Scotland and Northern Ireland. TRU s ultimate parent company and controlling party is Toys R Us Inc ( Topco ), incorporated in the United States of America. 1.2 On 18 September 2017, Topco and certain other Group Companies (not including TRU) filed voluntary petitions for reorganisation under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court of the Eastern District of Virginia, Richmond Division. Those proceedings are ongoing. In broad terms, their intended purpose is to achieve a financial and operational restructuring of the Group s business in the United States. 2 The financial position and trading performance of the Company 2.1 TRU s business (comprising the Group s business in the United Kingdom) has seen declining sales over the last eight years (save for a very marginal increase between 2015 and 2016) and TRU has posted operating losses in its statutory accounts for each of the last seven years. Over that time, TRU has been reliant on the availability of intercompany funding from TopCo and other group companies. 2.2 The retail trading environment in the United Kingdom is extremely challenging due to a combination of factors, including macro-economic conditions and, for TRU in particular, the lack of historic capital investment. In addition, bricks and mortar retailers like TRU have been experiencing a falling consumer footfall as part of a shift towards internet purchasing. In the current year s trading, sales have fallen 6% (six per cent) year-on-year in the first nine months of the financial year ending 3 February 2018 and is forecast to decline further in the final three months. These factors have had a significant adverse impact on TRU s trading performance and financial position. 2.3 A significant fixed cost of TRU s business is the rent payable to Landlords under the leases of premises from which it operates in the United Kingdom. The Directors have concluded, for a number of reasons, that the Group s current business model, involving the operation of very large warehouse style stores is outdated and no longer viable in most cases. Rental costs associated with such large properties, and a very large distribution centre to maintain requisite stock levels, are unsustainable. Many stores are either loss-making at an operating level or after contribution for central costs is taken into account. Sales per square foot are significantly below other retailers alongside whom TRU trades in their retail park locations. The Directors have noted that consumer preferences are moving towards a smaller, more customer-focused, experiential store and away from warehouse style stores. 2.4 The Directors believe that sales and market share will continue to decline until investment can be made in stores through a down-size (where these stores are seen as too large for current requirements) or through a remodel (where stores are at the target size for the local store catchment). The CVA gives the Company the ability to rationalise the store portfolio by exiting stores that are unprofitable, securing rent reductions where stores are over-rented or can be vi

15 made viable with a rent reduction, facilitating a negotiation with Landlords of stores that have become too large or relocating to stores with a smaller footprint. Whilst the vast majority of stores have had limited capital expenditure over a number of years, where certain opportunities have arisen, the Company has been able to successfully implement a small number of store down-sizes and remodels. It is these examples that the Company wishes to replicate, assisted by the CVA. 2.5 The Directors have developed a new business plan ( Investment Case Plan ), focused on down-sizing many stores from a footprint of over 40,000 square feet to a foot print of circa. 20,000 to 25,000 square feet. As mentioned in paragraph 2.4 above, this is a concept that TRU has already managed to implement successfully to date in relation to a small number of stores. TRU has negotiated a number of arrangements with the relevant Landlords, including: (i) the assignment of the lease of the existing premises to a new tenant and a move to new, smaller premises; or (ii) the division of the existing premises into two or more separate stores through the erection a partition wall; the termination of the existing lease in respect of the entire premises and the grant of a new lease in respect of one of the (partitioned) stores within the overall premises. 2.6 Stores that are of the appropriate size will also be remodelled by adopting a new store experience model, following the same approach taken in recent remodels. Consumer feedback and trading figures in respect of both recently down-sized stores and remodelled stores has been positive. In particular, new stores under the new model have produced significantly superior performance by comparision with the rest of the store chain providing benchmarks for assumed growth in the Directors post-cva business plan. 2.7 It is envisaged that by reducing stock levels through a combination of store closures, store down-sizes and the sale of slow moving stock through stores which are intended for closure, working capital can be released for funding of the capital expenditure required to effect the down-sizes and re-models. Further, the business has benefitted from $40 million of Debtor in Possession ( DIP ) funding provided to the US parent and on-lent to TRU. The DIP funding provides for an additional $10 million that is available to be on-lent to TRU and is expected to be funded after the CVA becomes effective, subject to certain conditions. In addition, the terms of a continuing asset based lending facility have also been agreed with the ABL Lenders to assist in funding working capital requirements for the UK business should the CVA be agreed by creditors. 2.8 The UK business has recently invested in a new internet platform which went live in August 2017 and is already seeing like for like internet-generated sales growth of 13% (thirteen per cent). Internet-generated sales are expected to increase further with additional investment through the Investment Case Plan. 2.9 Falling sales in recent years and the expected reduction of stock as a result of the restructured lease profile post-cva, is likely to leave the UK distribution centre too large for purpose. The Company is reviewing options to reduce its occupancy costs. Similar consideration is being given to the current head office which is likely to become too large for the business post-cva. 3 Objectives of the CVA proposal 3.1 The overall objective of the CVA is to make the store portfolio viable through a combination of: (a) Moving to monthly rents (including turnover rent on a pro rata basis), service charge and insurance (rather than quarterly) across the portfolio, to assist with cashflow; vii

16 (b) (c) (d) Achieving rent reductions across a group of stores that are unviable at current rent levels; Agreeing downsizes with landlords of a group of stores that have become too large for the current market; and Exiting a group of stores that cannot be made viable even with a rent reduction. 4 The key terms of the CVA proposal 4.1 The Directors have carried out an assessment of TRU s store portfolio and identified (i) stores that are not profitable, (ii) stores that are too large and (iii) stores that are both. Where stores are not profitable, they either have a rent reduction applied, or, the relevant lease is terminated after a 4-month wind-down. Where the stores are too large, a 7-month period is prescribed where a negotiation between TRU and the Landlord is expected to agree the terms of the downsize. If an agreement is not reached after the seven-month period a rent reduction (or further reduction) is proposed. 4.2 In all cases, where rents are reduced, both landlords and TRU have the right to early termination with forty-five (45) days notice with the exception of 4.3 below. 4.3 In relation to those leases which will terminate 4 months after the Effective Date, rent will continue to be paid at the reduced rate for the 4-month period, even where TRU decides to serve notice to cease occupation prior to end of the the 4-month period. 4.4 Where downsizes are agreed, they are at mutually agreed terms between the relevant Landlord and TRU. 4.5 This results in 5 categories of Leases whose terms under the CVA proposal are summarised in the table overleaf: viii

17 CVA term Category 1 Category 2 Category 3 Category 4 Category 5 Rent payment cycle Move to monthly Move to monthly Move to monthly Move to monthly Move to monthly Downsize negotiation required Immediate rent reduction No Yes Yes No No No No 35% 35% 50% Rent reduction at 7 months No 15% if downsize not agreed 35% + 15% (Total 50%) if downsize not agreed 35% (Total 35%) n/a Rent level at end of CVA Current passing rent Higher of Market Rent or 85% of contractual rent Higher of Market Rent or 50% of contractual rent Higher of Market Rent or 65% of contractual rent n/a Termination right landlord No Yes 45 days notice after 7 months Yes 45 days notice from Effective Date Yes 45 days notice from Effective Date Yes 45 days notice from Effective Date Termination right company No Yes 45 days notice after 7 months Yes 45 days notice from Effective Date Yes 45 days notice from Effective Date Yes - 45 days notice from Effective Date but 50% compromised rent paid for 4 months 4.6 Beyond the lease treatment set out above, the CVA will not seek to compromise the claims of any other creditors, including, without limitation, employees, customers, the rights of any member under the Pension Scheme, the Pension Scheme Trustees and any other unsecured creditors. The Company intends to make all scheduled payments to the Pension Scheme. 4.7 The Guaranteed Lease (listed in Schedule 13 (List of Guarantees) is categorised as a Categorised 1 Lease and is therefore not a Compromised Lease. In addition, no pop-up lease is affected by the CVA. 4.8 Further details are set out in Clause 5 (The Effect Of The CVA on Ordinary Unsecured Creditors, page 12 of Part V (Terms of the Company Voluntary Arrangement). 5 Compromised Lease Fund 5.1 To allow compromised Landlords to share in the upside of the Company achieving its turnaround, a Compromised Lease Fund mechanism is proposed. The Company will pay a minimum of 2.5 million to the Compromised Lease Fund within one month of Sucessful Completion of the CVA. 5.2 Over the 3 year period of the CVA, cumulative EBITDA will be compared to the Directors Investment Case business plan which targets EBITDA of 22.2 million. To the extent cumulative EBITDA exceeds 22.2 million, half of the excess will be payable to the Compromise Lease Fund subject to a total maximum fund of 5 million. 5.3 Following Successful Completion of the CVA the Supervisors will: ix

18 (a) (b) (c) Determine the cumulative EBITDA in excess of the Company s Investment Case business plan; Agree all Compromised Landlords CVA Claims; and Collect the relevant Compromised Lease Fund payment from the Company. 5.4 By the fourth anniversary of the Effective Date of the CVA, the Supervisors will distribute the Compromised Lease Fund to the relevant Landlords if a Successful Completion of the CVA occurs. 6 Further points 6.1 Throughout the CVA process, TRU shall continue trading under the control of the Directors, operating as a going concern. TRU is not in, and will not be in, administration as a result of commencing the CVA process. 6.2 To become effective, the CVA Proposal must be voted in favour of by 75% (seventy-five per cent) or more (in value) of those creditors responding. However, the CVA Proposal will not be approved if more than 50% (fifty per cent) of the total value of the unconnected creditors vote against it. 6.3 A company voluntary arrangement also requires the approval of more than 50% (fifty per cent) in value of the company's shareholders present in person or by proxy and voting at a meeting on the resolution to approve the company voluntary arrangement. However, in accordance with section 4A(2) of the Insolvency Act, if the outcome of the meeting of shareholders differs from the decision taken by the company's creditors, the decision of the creditors will prevail, subject to the right of any shareholder to apply to the Court to challenge the approval of the company voluntary arrangement. x

19 The CVA, if approved on 21 December 2017 at the Creditors' Meeting and Shareholder's Meeting, will become effective as soon as it is so approved. If the CVA is not approved at the relevant meetings, or is otherwise not implemented, it is likely that TRU will no longer be able to trade as a going concern, which would result in the appointment of administrators. Your attention is drawn to the Estimated Outcome Statement at Schedule 11 (Estimated Outcome Statement) to the CVA, at page 81. In particular, the table below summarises the estimated average return for each category of Compromised Landlords under the terms of the CVA in comparison to an administration scenario: Average return for: CVA Administration Category 2 landlords p/ p/ Category 3 landlords p/ 8.79 p/ Category 4 landlords p/ 6.76 p/ Category 5 landlords 9.36 p/ 3.76 p/ As such, the CVA represents a materially better outcome for TRU s unsecured creditors (including Landlords), than the alternative outcome should TRU go into administration. The claim of a CVA Creditor who does not respond will not be taken into account for the purposes of calculating the requisite majorities for the Proposal to be approved (as set out in paragraphs 6.2 (Further points, page x) and 3.1 (What is a CVA, page 2)). In addition, the Proposal, if approved, is binding on all CVA Creditors, including those CVA Creditors who did not vote or voted against the Proposal. Your vote on the Proposal is therefore very important. Please take the time to consider the documents that have been sent to you and take appropriate action, including the return of the relevant Proxy Form. xi

20 DOCUMENTS RECEIVED You will have received a letter from the Nominees. The following documents have been made available to you on the website indicated in that letter (the Website ): 1. a Notice of Claim; 2. a Proxy Form made for use at the Meeting; 3. this Proposal, including notice of meeting (which appears in Schedule 16 (Notices of Meetings)) and, within its annexes, a Summary Statement of Affairs in respect of TRU; 4. the Nominees' comments on the Proposal; and 5. a Q&A sheet. The Proxy Form for use at the Creditors' Meeting appears in Part 1 of Schedule 17 (Creditors Proxy) and the Proxy Form for use at the Shareholder's Meeting appears in Part 2 of Schedule 17 (Shareholder s Proxy). xii

21 NEXT STEPS If you are a creditor of TRU and plan to attend the Creditors' Meeting, please complete and submit your Notice of Claim and Proxy Form* to Alvarez & Marsal Europe LLP by no later than midday on 19 December This can be done in the following ways in descending order of ease and preference: 1. Via the Website. 2. By printing the forms, completing, scanning and ing to: insolvency-uk@alvarezandmarsal.com - FAO Rachel Sexton. 3. By printing the forms and posting to: C/o Suite 3, Regency House, 91 Western Rd, Brighton, BN1 2NW - FAO Rachel Sexton. 4. By printing the forms and sending by fax to: +44 (0) FAO Rachel Sexton *Persons wishing to vote at the meeting may instead bring their Notice of Claims and Proxy Form with them to the meeting. If you are a creditor of TRU and are unable or do not wish to attend the Creditors Meeting, please complete and submit both your Notice of Claim and your signed Proxy Form(s) to Alvarez & Marsal Europe LLP, via the methods outlined in 1 to 4 above by no later than midday on 19 December You have the option to appoint the Chairman of the Creditors Meeting as the Proxy. If you choose to appoint the Chairman of the meeting to be your proxy, the Proxy Form must specifically direct the chairman to vote either for, or alternatively against, the relevant proposal. Failure to give a specific direction to the Chairman will result in the Proxy Form being invalid and the person claiming to be a CVA Creditor not being entitled to vote at the meeting. WHERE TO FIND HELP Details of how to vote at the meetings and how to make a claim for payments are contained in Part II (Action to be taken by CVA Creditors and Shareholders) and Part V (Terms of the Company Voluntary Arrangement) of this Proposal. In addition, a help line has been set up to assist with guidance on completing the necessary documents for the Meetings. Please contact Alvarez & Marsal on +44 (0) xiii

22 SECTION 1 - PROPOSAL Key Dates and Expected Timetable of Key Events EVENT DATE Launch date 4 December 2017 Dispatch of CVA documents, Proxy Forms and notices of meetings to the CVA Creditors and Shareholder Latest date for return of Proxy Forms and Notice of Claim for the purpose of voting at the Creditors' Meeting and Shareholder Meeting 4 December December 2017 Date of Creditors' Meeting and Shareholder's Meeting 21 December 2017 Anticipated date for chairman of Creditors' Meeting and Shareholder's Meeting to file a report with the Court under section 4(6) of the Insolvency Act 22 December 2017 End of the Challenge Period 19 January 2018 Latest date for submission of a Notice of Claim by a Compromised Landlord in order to benefit from the Compromised Lease Fund Anticipated completion date (this date may be earlier depending on the circumstances at the relevant time) 21 December December 2021 All references in this document are to London times unless otherwise stated. The dates given are based on current expectations and may be subject to change. If any of the expected dates change, TRU will give adequate notice of the change to the CVA Creditors.

23 PART I INTRODUCTION 1 Directors Proposal 1.1 Frank Muzika and Stephen Knights, the directors of TRU (the Directors ), propose that TRU enters into a company voluntary arrangement pursuant to Part I of the Insolvency Act. 1.2 The principal objective of the Proposal is to restore the viability of TRU's business model and to assist in a return to profitability. 1.3 If the CVA is not approved, then TRU is likely to enter into administration or liquidation in which case the returns for creditors will be substantially reduced. 1.4 The main objectives of the proposed CVA are set out in the section headed Summary of the Proposal, which starts at page vi of this Proposal. 1.5 The Nominees in relation to the CVA are Richard Dixon Fleming, Mark Granville Firmin and Benjamin Thom Cairns of Alvarez & Marsal Europe LLP, c/o Suite 3, Regency House, 91 Western Rd, Brighton, BN1 2NW. 1.6 The purpose of this document is to provide you with information about the background to and reasons for TRU's proposed entry into a company voluntary arrangement pursuant to Part I of the Insolvency Act, including information about the terms of the arrangement, and to explain why the Directors consider the arrangement to be desirable for creditors and in the best interests of TRU and its shareholder. 2 Definitions and Interpretation 2.1 Expressions defined in Part 1 of Schedule 1 (Definitions) which are used in the terms of the CVA shall have the meanings specified in Part 1 of Schedule 1 (Definitions) unless the context otherwise requires and the provisions of Part 2 of Schedule 1 (Interpretation) shall apply as if set out in full in this Paragraph Section 1 (Parts I to IV) of this Proposal sets out a general description of the Proposal and provides a brief summary of the binding terms of this Proposal. 2.3 The binding terms of this Proposal are set out in Part V (Terms of the Company Voluntary Arrangement). 2.4 Unless otherwise stated, references to: (a) (b) Paragraphs are references to Paragraphs in Part I (Introduction) to Part IV (Tax Information and Tax Disclosure, page 10) and to Paragraphs in each of the Schedules; and Clause numbers are to Clauses in Part V (Terms of the Company Voluntary Arrangement, page 11). 3 What is a CVA? 3.1 A company voluntary arrangement is a procedure under Part I of the Insolvency Act, which allows a company to come to an arrangement with its creditors over the payment of its debts. To become effective, the CVA Proposal must be voted in favour of by 75% (seventy-five per cent) or more (in value) of those creditors responding. However, the CVA Proposal will not be 2

24 approved if more than 50% (fifty per cent) of the total value of the unconnected creditors vote against it. 3.2 The procedure by which the creditors make their decision on the company voluntary arrangement is prescribed by section 246ZE of the Insolvency Act and Rule 15.3 of the Insolvency Rules (the Decision Procedure ). 3.3 If a company voluntary arrangement is validly approved, it binds all of the company's creditors who were entitled to vote in the qualifying Decision Procedure by which the creditors decision to approve the voluntary arrangement was made (whether or not they so voted) or would have been so entitled had they received notice of it. 3.4 A company voluntary arrangement also requires the approval of more than 50% (fifty per cent) in value of the company's shareholders present in person or by proxy and voting at a meeting on the resolution to approve the company voluntary arrangement. However, in accordance with section 4A(2) of the Insolvency Act, if the outcome of the meeting of shareholders differs from the decision taken by the company's creditors, the decision of the creditors will prevail, subject to the right of any shareholder to apply to the Court to challenge the approval of the company voluntary arrangement. 3.5 Creditors who are based in the European Union (including the U.K.) should note that by virtue of the EC Regulation on Insolvency Proceedings, the courts of the European Union Member States (other than Denmark) are obliged to recognise a company voluntary arrangement for a company which is determined to have its centre of main interests in the U.K. 3.6 Any person entitled to vote at either the meeting of the company or the qualifying Decision Procedure in which the company s creditors decide whether to approve the voluntary arrangement (in this case, the Creditors Meeting) may apply to Court on one or both of the following grounds: (a) (b) that a company voluntary arrangement unfairly prejudices the interests of a creditor, shareholder or contributory; or that there has been some material irregularity at or in relation to the meeting of the company or the qualifying Decision Procedure in which the company s creditors decide whether to approve the voluntary arrangement (in this case, the Creditors Meeting). 3.7 Any such application must be made by a creditor within twenty-eight (28) days of the person who sought the creditors decision reporting the result of the meetings to Court, or, if the creditor was not given notice of the relevant Decision Procedure (in this case, the Creditors Meeting), such application must be made within twenty-eight (28) days of the creditor becoming aware that the relevant Decision Procedure (in this case, the Creditors Meeting) had taken place. 4 Why is a CVA required? 4.1 If the CVA is not approved, then TRU is likely to enter into administration, in which case the returns for creditors will be substantially reduced. 4.2 The Estimated Outcome Statement in respect of TRU can be found at Schedule 11 (Estimated Outcome Statement). This statement indicates that the return to creditors generally would be significantly lower if TRU is placed into administration (or liquidation) than if the CVA is approved. 3

25 5 Proposed Duration of the CVA 5.1 The CVA will continue until the Supervisors have completed the implementation of it in accordance with the terms set out in Part V (Terms of the Company Voluntary Arrangement, page 11). Accordingly, it is not possible to state with any certainty the proposed duration of the CVA. However, it is intended that the CVA will be concluded as soon as reasonably practicable. 5.2 The CVA will come to an end when the Supervisors are satisfied that the terms of the CVA have been fully implemented. At such time, the Supervisors will send to Landlords a Notice of Completion. 5.3 It is expected that the CVA will complete on or before the fourth anniversary of the Effective Date if the Successful Completion of the CVA occurs. 6 Lease Categorisation 6.1 By adopting objective criteria based on the above reviews, the Directors identified the leases of a number of sites as falling into one of five categories: (a) (b) (c) (d) (e) Category 1 Leases; Category 2 Leases; Category 3 Leases; Category 4 Leases; and Category 5 Leases. 6.2 Sites demised under Category 1 Leases are performing adequately or, in a small number of cases, are otherwise valuable to the Group from a strategic perspective. 6.3 Sites demised under Category 2 Leases are sites which are marginally profitable after absorbing their share of overhead costs but are underperforming in terms of sales density and, in order to be viable in the medium to long term, require down-sizing and further capital expenditure. As such, the Directors consider that such sites may not be sustainable unless TRU is able to agree a plan with the relevant Landlords in relation to the sub-division of the stores and related capital expenditure within seven months of the CVA being implemented. If a down-sizing is implemented, rent will be reduced accordingly to reflect the down-sizing. 6.4 Sites demised under Category 3 Leases are sites which are both loss-making after absorbing their share of overhead costs and are also underperforming in terms of sales density. The Directors consider an immediate rent reduction to be necessary to re-align rent payable with the market value and/or to restore profitability. Further, like the sites demised under Category 2 Leases, in order to be viable in the medium to long term, these sites require down-sizing and further capital expenditure. As such, even with a reduction in rent paid under the relevant Leases, these sites may not be sustainable unless TRU is able to agree a plan with the relevant Landlords in relation to the sub-division of the stores and related capital expenditure within seven months of the CVA being implemented. 6.5 Sites demised under Category 4 Leases are sites which are not underperforming in terms of sales density but which are loss-making after absorbing their share of overhead costs. The Directors consider an immediate rent reduction to be necessary to re-align rent payable with the market value and/or to restore profitability. However, no sub-division of the stores and related capital expenditure is considered necessary. 4