<PAGE>
- - - - - -------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 29, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-14818
TRANS WORLD ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-1541629
(State or otherjurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
38 Corporate Circle
Albany, New York 12203
(Address of principal executive offices, including zip code)
(518) 452-1242
(Registrant's telephone number,including area code)
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value,
9,687,814 shares outstanding as of December 5, 1994
- - - - - ------------------------------------------------------------------------
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -- October 29, 1994,
January 29, 1994 and October 30, 1993 3
Condensed Consolidated Statements of Income -- Thirteen
Weeks and Thirty-Nine Weeks Ended October 29, 1994
and October 30, 1993 4
Condensed Consolidated Statements of Cash Flows --
Thirty-Nine Weeks Ended October 29, 1994 and
October 30, 1993 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
October 29, January 29, October 30,
ASSETS 1994 1994 1993
- - - - - ------ ---------- ---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $7,501 $26,046 $7,029
Merchandise inventory 265,875 238,949 244,457
Other current assets 20,584 12,764 11,596
---------- ---------- ----------
Total current assets 293,960 277,759 263,082
---------- ---------- ----------
VIDEOCASSETTE RENTAL INVENTORY,NET 7,123 6,166 6,362
FIXED ASSETS:
Property, plant and equipment 179,066 167,203 158,753
Less allowances for depreciation
and amortization 83,372 73,157 72,319
---------- ---------- ----------
95,694 94,046 86,434
---------- ---------- ----------
OTHER ASSETS 3,202 2,293 2,467
---------- ---------- ----------
TOTAL ASSETS $399,979 $380,264 $358,345
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - - - - ------------------------------------
CURRENT LIABILITIES:
Accounts payable $130,056 $156,263 $128,696
Notes payable 63,841 --- 26,561
Other current liabilities 21,836 19,958 10,975
---------- ---------- ----------
Total current liabilities 215,733 76,221 166,232
---------- ---------- ----------
LONG-TERM DEBT,less current portion 53,930 66,054 68,982
CAPITAL LEASE OBLIGATIONS, less
current portion 6,808 7,044 7,133
OTHER LIABILITIES 5,179 4,871 3,680
SHAREHOLDERS'EQUITY
Common stock ($.01 par value;
20,000,000 shares authorized;
9,731,208 issued) 97 97 97
Treasury stock, at cost(43,394,12,000
& 12,000 shares,respectively) (503) (162) (162)
Additional paid-in capital 24,236 24,236 24,229
Retained earnings 94,499 101,903 88,154
---------- ---------- ----------
Total shareholders'equity 118,329 126,074 112,318
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $399,979 $380,264 $358,345
========== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------
October 29, October 30,
1994 1993
---------- ----------
<S> <C> <C>
Sales $114,086 $101,784
Cost of sales 71,992 62,313
Gross profit ---------- ----------
42,094 39,471
Selling, general and
administrative expenses 39,889 36,450
Depreciation and amortization 4,279 3,878
---------- ----------
Loss from operations (2,074) (857)
Interest expense 2,447 1,695
---------- ----------
Loss before income tax benefit (4,521) (2,552)
Income tax benefit (1,804) (1,001)
---------- ----------
NET LOSS ($2,717) ($1,551)
========== ==========
LOSS PER SHARE ($0.28) ($0.16)
========== ==========
Weighted average number of common
shares outstanding 9,688 9,722
========== ==========
Thirty-Nine Weeks Ended
------------------------
October 29, October 30,
1994 1993
---------- ----------
<S> <C> <C>
Sales $330,264 $301,651
Cost of sales 207,865 188,123
---------- ----------
Gross profit 122,399 113,528
Selling, general and
administrative expenses 114,780 104,778
Depreciation and amortization 12,593 10,895
---------- ----------
Loss from operations (4,974) (2,145)
Interest expense 7,346 4,281
---------- ----------
Loss before income tax benefit (12,320) (6,426)
Income tax benefit (4,916) (2,500)
---------- ----------
NET LOSS ($7,404) ($3,926)
========== ==========
LOSS PER SHARE ($.76) ($0.40)
========== ==========
Weighted average number of common
shares outstanding 9,707 9,724
========== ==========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
------------------------
October 29, October 30,
1994 1993
---------- ----------
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES ($61,642) ($55,818)
---------- ----------
INVESTING ACTIVITIES:
Acquisition of property and equipment (15,967) (22,510)
Purchases of videocassette rental
inventory, net of amortization (957) (205)
---------- ----------
Net cash used by investing activities (16,924) (22,715)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from the issuance of
long-term debt --- 51,566
Payments of long-term debt and capital
lease obligations (3,479) (673)
Net increase in revolving line of credit 63,841 26,561
Other (341) (85)
---------- ----------
Net cash provided by financing activities 60,021 77,369
---------- ----------
Net decrease in cash and cash equivalents (18,545) (1,164)
Cash and cash equivalents, beginning of period 26,046 8,193
---------- ----------
Cash and cash equivalents, end of period $7,501 $7,029
========== ==========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
consist of Trans World Entertainment Corporation and its subsidiaries
(the "Company"), all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated. Joint
venture investments, none of which were material, are accounted for using
the equity method.
The condensed consolidated financial statements for the interim periods
presented are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The information
furnished in the condensed consolidated financial statements reflects all
normal, recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of such financial statements. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and
regulations applicable to interim financial statements.
These condensed consolidated financial statements should be read in
conjunction with the audited financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 1994.
Note 2. Seasonality
The Company's business is seasonal in nature, with the highest sales
and earnings occurring in the fourth fiscal quarter. In the past three
fiscal years, the fourth quarter has represented substantially all of the
Company's net income for the year.
Note 3. Earnings (Loss) Per Share
Earnings (Loss) per share is based on the weighted average number of
common shares outstanding during each reporting period. Common stock
equivalents, which relate to employee stock options, are excluded from
the calculations, as their inclusion would have an anti-dilutive impact
on the loss per share.
6
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) - Continued
Note 4. Debt
The Company utilizes an aggregate amount of $75 million in revolving
credit facilities from four commercial banks, with a stated maturity date
of July 1996. At October 29, 1994 the Company had outstanding $63.8
million in such revolving credit facilities. In addition, the Company had
outstanding $65 million in senior notes held by five insurance companies.
All of such senior debt facilities contain a fixed charge ratio covenant
that the Company was not in compliance with for the quarter ended October
29, 1994. The Company obtained permanent waivers of the technical
default from all of its lenders and, in addition, the Company entered into
an amendment of the revolving credit agreements with the four commercial
banks party to the revolving credit facilities. Such amendments increased
the contractual interest rate on the revolving credit facilities by 7/8%
to a floating interest rate of 1.75% over the LIBOR and CD-based borrowing
rates.
Note 5. Benefit Plans.
The Company adopted a nonqualified, unfunded 1994 Director Retirement
Plan that provides retirement benefits to Directors over age 62 who have
attained at least 5 years of service with the Company as a Director. The
benefits equal $15,000 per year and are payable for a maximum of ten years.
7
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen Weeks Ended October 29, 1994 Compared to
Thirteen Weeks Ended October 30,1993
- - - - - -------------------------------------------------
Sales. The Company's sales increased 12.1% for the thirteen week period
ended October 29, 1994 over the thirteen week period ended October 30,
1993. The $12.3 million sales increase is primarily due to the sales
generated from new stores opened by the Company since October 30, 1993.
Comparable store sales increased 2.3% in 1994's third quarter, including
1% in the music category and 19% in the video sell-through category. The
Company attributes the strong performance in video sales to the
reassortment of video inventories previously completed in the second
quarter. The reassortment of music inventories at the store level were
substantially completed at the end of the third quarter, and its impact
on music sales has not yet been determined.
One factor that adversely impacted comparable store sales in the third
quarter for the music category was a new release schedule that was
somewhat weaker than last year, as a number of significant releases were
delayed into the fourth quarter. In addition, retail competition
increased in all of the Company's geographic markets due to the openings
of large, freestanding music stores and the expansion of music departments
in national electronics superstores. Compact discs, which have a higher
average retail selling price than audio cassettes, comprised an increasing
portion of the Company's sales, and the share of audio cassettes declined,
continuing trends from earlier years.
Gross Profit. Gross profit as a percentage of sales decreased from
38.8% to 36.9% in the thirteen week period ended October 29, 1994,
compared to 1993. The decrease in the gross profit rate was primarily
due to the implementation of a competitive price program in many of the
Company's markets and an increase in merchandise return penalties
incurred as the Company improves product assortments in its stores.
Competitive pricing is expected to put continued downward pressure on the
gross margin rate for the remainder of the year.
8
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") as a percentage of sales decreased from
35.8% to 35.0% in the thirteen week period ended October 29,1994 compared
to 1993. The decrease in SG&A as a percent of sales was primarily due to
SG&A expenses increasing 9.0% compared to a 12.1% increase in total sales
over the prior year.
Interest Expense. Interest expense increased $0.8 million in the
thirteen week period ended October 29, 1994 compared to 1993. The
increase is due to the increase in the Company's average borrowings and a
higher weighted average borrowing rate.
Net Loss. The $2.7 million net loss for the thirteen week period ended
October 29, 1994 compares to a $1.6 million net loss in 1993. The
increased loss resulted from a combination of the decline in the gross
profit rate due to increased return penalties and the increase in interest
expense in the third quarter. To achieve a profitable fiscal quarter,
comparable store sales growth would have had to improve substantially over
the 2.3% sales growth realized in 1994's third quarter.
Thirty-Nine Weeks Ended October 29, 1994 Compared to
Thirty-Nine Weeks Ended October 30, 1993
- - - - - -----------------------------------------------------
Sales. The Company's sales increased 9.5% for the thirty-nine weeks
ended October 29, 1994 over the thirty-nine weeks ended October 30, 1993.
During the first nine months of the year, comparable store sales were
flat. Comparable store sales decreased 4% in the first quarter and
improved to 1.0% and 2.3% increases in the second and third quarters,
respectively. The Company attributes the improving sales trend during
fiscal 1994 primarily to the substantial effort directed at balancing
the store inventories and improving its merchandise in-stock position at
the distribution center.
Gross Profit. Gross profit as a percentage of sales declined from 37.6%
to 37.1% for the thirty-nine week period ended October 29, 1994, when
compared to 1993. The decrease in the gross profit rate was primarily due
to the implementation of a competitive price program in many of the
Company's markets. The Company expects the competitive price program to
put downward pressure on the gross margin rate for the remainder of
fiscal 1994.
9
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Selling, General and Administrative Expenses. SG&A as a percentage of
sales remained at 34.7% for the thirty-nine week period ended October 29,
1994 when compared to 1993. SG&A as a percent of sales remained unchanged
because both SG&A expenses and sales increased 9.5% over the prior year.
Interest Expense. Interest expense increased $3.1 million in the
thirty-nine week period ended October 29, 1994 compared to 1993. The
increase is attributed to both an increase in the Company's average
borrowings and an increase in the Company's weighted average borrowing
rate. The higher rates are due to increases in variable interest rates
and higher contractual rates on the Company's senior debt instruments
through the amendments entered into at the beginning of the fiscal year.
For the full year 1994, the Company projects that interest expense will
be approximately $3.5 million greater than 1993.
Net Loss. The $7.4 million net loss for the thirty-nine week period
ended October 29, 1994 compares to a $3.9 million net loss in 1993. The
increased loss is due to the flat comparable store sales for the year to
date period, the 58 basis point decline in the gross margin percentage,
combined with the impact of expense growth in the stores, along with the
increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Sources of Capital. Cash used by operating and investing
activities in the first nine months of the fiscal year were financed
through borrowings under the Company's revolving credit facilities, which
permit aggregate borrowings of up to $75 million.
10
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
During the thirty-nine week period ended October 29, 1994 the Company's
cash flow used by operations was $61.6 million, $5.8 million higher than
the corresponding period in 1993 because of the increased pre-tax loss and
the lower proportion of accounts payable to merchandise inventory, or
inventory leverage. The most significant uses of cash in the period were
the $26.9 million seasonal increase in merchandise inventory, $26.2
million and $5.4 million normal reductions in accounts payable and income
taxes payable, respectively, along with $16.0 million in capital
expenditures used primarily in the Company's store expansion program.
Accordingly, the Company's utilization of its revolving credit facilities
increased from $26.6 million at October 30, 1993 to $63.8 million
outstanding at October 29, 1994.
The Company's senior debt facilities, including the $75 million in
revolving credit facilities and $65 million in senior unsecured notes,
contain a similar fixed charge ratio covenant, a specified ratio of pre-tax
income plus fixed charges (interest and rent expense) to fixed charges.
The Company was not in compliance with the targeted fixed charge ratio for
the quarter ended October 29, 1994, and accordingly it sought and obtained
permanent waivers of the technical default from all of its lenders. The
four banks that are party to the revolving credit facilities required an
increase in the applicable floating borrowing rate. The Company entered
into an amendment of each of the revolving credit agreements, increasing
the contractual interest rate by 7/8% to a floating interest rate of 1.75%
over the LIBOR and CD-based borrowing rates.
As disclosed in its Annual Report on Form 10-K for the fiscal year ended
January 29, 1994, the Company's earnings for the full fiscal year 1994
would have to increase at least 20% over 1993 to maintain compliance with
the fixed charge ratio covenant in the Company's senior debt facilities.
The Company does not currently expect to meet the higher fixed charge
ratio for the fourth fiscal quarter, and the Company is negotiating with
its commercial bank lenders to specify a lower target or obtain in advance
a waiver of the covenant. In addition, the Company expects that it will
have to commence discussions in January 1995 to amend all of its senior
debt facilities to reduce the targeted fixed charge ratio covenant for
fiscal 1995, which is likely to result in higher interest rates and new
covenant restrictions. Although the Company considers its relations with
the commercial banks and the senior noteholders to be satisfactory, there
can be no assurance that the Company will be successful in restructuring
the targeted fixed ratio covenant for 1995 and future years. In the
absence of finalizing new arrangements during the fourth quarter, the
Company would likely be in technical default in the first quarter of
fiscal 1995.
11
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The combination of the outstanding balances on the revolving credit
facilities and the strong cash flow in the fourth quarter is considered
adequate to finance working capital activities through the first quarter
of fiscal 1995. Continued progress on inventory reduction and the
corresponding improvement to inventory leverage will be important to
maintain or reduce the absolute level of borrowings on the Company's
revolving credit facilities during fiscal 1995.
CAPITAL EXPENDITURES
The Company opened sixteen new stores and closed eleven stores in the
third quarter of 1994, ending the period with 698 stores in operation and
total retail square footage of 2.5 million. The Company is also a joint
venture partner in 8 stores. Management plans to open approximately 20
stores in the fourth quarter and 50 to 60 stores for the entire fiscal
year, approximately 20 of which are relocations of existing stores. Total
retail square footage is estimated to be approximately 2.6 million at the
end of the 1994 fiscal year. New store openings, combined with the
Company's ongoing store renovation program and other capital improvements,
will require approximately $24 million in capital expenditures in 1994.
In addition, the store expansion program will require an increase in
merchandise inventory of approximately $350,000 per new store, which will
be partially funded by trade payables.
The terms of the Company's revolving credit and long-term debt
agreements require the Company to meet customary financial and operating
ratios, and limit the Company's ability, among other things, to incur
indebtedness, to make certain investments and to pay dividends. The
foregoing restrictions, as well as the possibility that certain of the
financial ratios may not be maintained at agreed upon levels, could limit
the Company's ability to meet its expansion objectives, to obtain future
financing and to engage in certain corporate activities. The Company has
not yet committed to a significant level of capital expenditures for
fiscal 1995.
12
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(A) Exhibits
Exhibit No. Description Page No.
------------ ----------- --------
3.1 Certificate of Amendment
to the Certificate of
Incorporation 15
4.1 Second Amendment to Credit
Agreement, dated as of
December 5, 1994, between
National Westminster Bank USA
the Company 17
10.1 1994 Director Retirement Plan 22
10.2 Severance Agreement, dated as
of October 1, 1994, with Edward
W. Marshall 26
27 Financial Data Schedule 31
(B) Reports on Form 8-K - None.
Omitted from this Part II are items which are not applicable or to
which the answer is negative for the periods covered.
13
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TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TRANS WORLD ENTERTAINMENT
CORPORATION
December 13, 1994 By: /s/ ROBERT A.HELPERT
- - - - - ----------------- ------------------------
DATE Robert A.Helpert
Executive Vice President
and Chief Administrative Officer
(Duly authorized officer)
December 13, 1994 By: /s/ JOHN J. SULLIVAN
- - - - - ----------------- ------------------------
DATE John J.Sullivan
Vice President - Finance
(Chief Accounting Officer)
14
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EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
TRANS WORLD MUSIC CORP.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, being the President and Secretary of Trans World
Music Corp., respectfully do hereby certify and set forth:
(1) The name of the corporation is "Trans World Music Corp."
The name under which the corporation was originally incorporated is Trans
World Music Corp.
(2) The certificate of incorporation of said corporation was
filed by the Department of State on the 7th day of February, 1972. The
Restated Certificate of Incorporation was filed by the Department of State
on June 11, 1986.
(3) The certificate of incorporation is hereby amended to change
the name of the corporationfrom "Trans World Music Corp." to "Trans
World Entertainment Corporation" by amending Article First to read as
follows:
"FIRST": The name of the corporation is Trans World Entertainment
Corporation.
(4) This amendment to the certificate of incorporation of Trans
World Music Corp. was authorized by a majority vote of the board of
directors followed by vote of the holders of a majority of all outstanding
shares of capital stock entitled to vote thereon at a meeting of the
shareholders.
15
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IN WITNESS WHEREOF, the undersigned have executed and signed this
certificate of amendment this 29th day of July, 1994, and we hereby
affirm the statements contained therein as true under penalties of perjury.
/s/ Robert J. Higgins
- - - - - -------------------------------
Robert J. Higgins, President
/s/ Matthew H. Mataraso
- - - - - -------------------------------
Matthew H. Mataraso, Secretary
16
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EXHIBIT 4.1
This SECOND AMENDMENT, dated as of December 5, 1994 (the
"Amendment"), of the Revolving Credit Agreement, dated as of June
11, 1993, as amended by First Amendment dated as of March 17, 1994,
for a commitment of up to $35,000,000 in borrowings (referred to
herein as the "Agreement"), is made by and between TRANS WORLD
ENTERTAINMENT CORPORATION (formerly, Trans World Music Corp.) (the
"Company") and NATIONAL WESTMINSTER BANK USA (the "Bank").
W I T N E S S E T H:
WHEREAS, the Company and the Bank are parties to the Agreement:
and
WHEREAS, the Company and the Bank have agreed to amend the
Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions and Section References. Capitalized terms not
otherwise defined in this Amendment and used herein shall have the
respective meanings assigned to them in the Agreement. References
to Sections shall refer to Sections of the Agreement unless
otherwise indicated.
2. Modification of the Agreement. The parties hereby agree to
amend the Agreement as of the Effective Date, as follows:
(a) Section 2.1 (The Commitment) is hereby amended by the
addition of the following subsection (d) at the end thereof:
"(d) Notwithstanding any prior provision of this Section 2.1
to the contrary, on and after January 16, 1995, the aggregate
unpaid principal amount of loans (the "Loans") made by the
Bank to the Company hereunder together with the aggregate
Letter of Credit Outstandings ("Total NatWest Outstanding
Credits") shall not at any time exceed the Bank's pro rata
share of the aggregate of all loans and Letter of Credit
Outstandings outstanding ("Total Bank Credits Outstanding")
on any day under this Agreement and under the substantially
similar Credit Agreements of even date herewith made by the
Company with each of Chase Manhattan Bank, N.A., Chemical
Bank and NBD Bank, N.A. and referred to in the third "Whereas"
clause on the first page hereof, as such Credit Agreements may
be supplemented or otherwise modified from time to time
(including by increasing the commitment thereunder), or under
any successor or replacement agreements entered into by the
Company, whether or not with the same lender or group of lenders
(the "Other Credit Agreements"). If at any time on or after
January 16, 1995 the Total NatWest Outstanding Credits exceeds
such pro rata share of the Total Bank Credits Outstanding, the
Company shall immediately pay such excess to the Bank to be
applied first to the principal amount of Loans then outstanding
hereunder and then to Letter of Credit Outstandings; provided,
however, that if the Commitment under (and as defined in) any
of the Other Credit Agreements is reduced or terminated without
replacement or substitution therefor, whether pursuant to
Section 2.6 thereof or otherwise, the Commitment of the Bank
hereunder shall be automatically reduced so that the Bank's
Commitment and its pro rata share of Total Bank Credits
Outstanding shall not at any time exceed 46.666% of the
Commitments or the Total Bank Credits Outstanding under this
Agreement and the other Credit Agreements. In furtherance of
the foregoing, the Company shall deliver to the Bank a
certificate setting forth in detail the Total Bank Credits
Outstanding including all such Credits that will be outstanding
at the close of business on the date of certification on, and as
of, each date that a Loan is requested hereunder (and together
with such request) and on, and as of, each date that a payment
of principal is made on account of any Loan hereunder or on
account of any loan outstanding under any other Credit Agreement."
17
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The foregoing requirement of payment of the excess amount, if any,
described in the immediately preceding amendatory paragraph
constitutes a mandatory requirement for prepayment of the
outstanding principal amount of the Note to the extent of any such
excess. Accordingly, any reference in the Note to the Credit
Agreement shall be deemed to refer to the Credit Agreement as
amended hereby and as it has been, and as it may be, from time to
time amended.
(b) Section 2.2 (The Note) of the Credit Agreement is hereby
amended to the extent that the percentage ".875%" which appears in
the third line of each of subsection 2.2(b) and subsection 2.2(c)
is deleted therefrom and the percentage "1.75%" is substituted
therefor. Notwithstanding the Effective Date set forth in
paragraph 4 hereof, the amendment to Section 2.2 set forth in this
paragraph shall be effective commencing with the first Interest
Period elected by the Company for a Eurodollar Loan or a C/D Rate
Loan after receipt by the Bank of the copy of this letter executed
in accordance with the foregoing.
(c) Section 5.1 (Financial Statements) is hereby amended by
the addition of the following subsection (g) at the end thereof:
"(g) as soon as available, but in any event not later than
January 16, 1995,
(i) unaudited condensed balance sheets of the Company
and its Subsidiaries as of the end of the eleven month period
commencing January 29, 1994 and ending December 28, 1994, and
unaudited consolidated statements of income, retained earnings and
cash flow of the Company and its Subsidiaries for such eleven month
period, setting forth in each case in comparative form the
corresponding figures for the same eleven month period during the
immediately preceding fiscal year, all in reasonable detail,
prepared in a manner consistent with the Company's compilation of
quarterly financial statements filed with the Securities Exchange
Commission, and as to the month of December, using the most recent
estimates available for the results of operations, and for the month
of January, using a forecast based upon assumptions that management
believes are reasonable;
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(ii) the projected condensed balance sheets of the
Company and its Subsidiaries as of the end of the fiscal year ending
January 28, 1995, and projected related consolidated statements of
income, retained earnings and cash flow of the Company and its
Subsidiaries for such fiscal year, setting forth in each case in
comparative form the corresponding figures for the immediately
preceding fiscal year, all in reasonable detail, prepared in a manner
consistent with the Company's compilation of quarterly financial
statements filed with the Securities Exchange Commission, and as to
the month of December, using the most recent estimates available for
the results of operations, and for the month of January, using a
forecast based upon assumptions that management believes are
reasonable;
(iii) the projected compliance or noncompliance with the
provisions of Sections 5.9, 6.11, 6.12, 6.13 and 6.14 hereof for the
fiscal year or quarterly period, as the case may be, ending January 28,
1995."
3. Representations and Warranties. To induce the Bank to enter into
this Amendment, the Company hereby represents and warrants that:
(a) The Company has the power, authority and legal right to make
and deliver this Amendment and to perform its obligations under the
Agreement, as amended by the Amendment, without any notice, consent,
approval or authorization not already obtained, and the Company has
taken all necessary action to authorize the same.
(b) The making and delivery of this Amendment and the performance
of the Agreement, as amended by this Amendment, do not violate any
provision of law or any regulation or any provision of the Company's
charter or by-laws or result in the breach of or constitute a default
under or require any consent under any indenture or other agreement or
instrument to which the Company is a party or by which the Company or
any of its property may be bound or affected. The Agreement, as
amended by this Amendment, constitutes the legal, valid and binding
obligations of the Company, enforceable against it in accordance with
its terms, except as the enforceability thereof may be limited by any
applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting creditors' right generally.
(c) The representations and warranties contained in Section 4 of
the Agreement are true and correct on and as of the date of this
Amendment, after giving effect hereto.
(d) No Default or Event of Default has occurred and is continuing
under the Agreement as of the date of this Amendment, after giving
effect hereto.
4. Effective Date. This Amendment shall become effective as of
December 5, 1994 (the "Effective Date"), subject to satisfaction of
all of the following conditions:
(a) The Bank shall have received counterparts of this Amendment,
duly executed by each of the parties hereto.
(b) The Bank shall have received a copy of the resolution of the
Board of Directors of the Company authorizing the execution, delivery
and performance of this Amendment by the appropriate officer of the
Company.
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(c) The Bank shall have received an opinion of Matthew H.
Mataraso, Esq., counsel to the Company, dated the date hereof, to
the effect that this Amendment has been duly authorized, executed
and delivered by duly authorized officer of the Company and that
the Agreement, as amended by this Amendment, constitutes a valid
obligation of the Company, legally binding upon it and enforceable
against it, except as may be limited by any applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws
affecting creditors' rights generally, in accordance with their
terms as so amended.
5. Counterparts. This Amendment may be signed in counterparts,
each of which shall be an original and both of which taken together
shall constitute single instruments with the same effect as if the
signature thereto and hereto were upon the same instrument.
6. Full Force and Effect. Except as expressly modified by this
Amendment, all of the terms and provisions of the Agreement and the
Note shall continue in full force and effect, and all parties hereto
shall be entitled to the benefits thereof.
7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and duly
authorized officers as of the date set forth.
WITNESS TRANS WORLD ENTERTAINMENT
CORPORATION (formerly
Trans World Music Corp.)
By: /s/ JOHN J. SULLIVAN By: /s/ ROBERT J. HIGGINS
-------------------- ----------------------
John J. Sullivan Robert A. Higgins
Vice President - Finance President
WITNESS NATIONAL WESTMINSTER BANK USA
By: /s/ NEIL PLATT By: /s/ STEPHEN R. BUSCHEL
-------------------- -----------------------
Neit Platt Stephen R. Buschel
Vice President Vice President
20
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CONSENT AND AGREEMENT
OF GUARANTOR
For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the undersigned, the Guarantor under
that certain Guarantee, dated as of June 11, 1993, in favor of the
Bank (set forth above), pursuant to that certain Revolving Credit
Agreement, dated as of June 11, 1993, as amended by First Amendment
dated as of March 17, 1994, made by and between Trans World
Entertainment Corporation (formerly, Trans World Music Corp.) and
the Bank, hereby consents and agrees to the above-referenced Second
Amendment, this 5th day of December, 1994.
WITNESS RECORD TOWN, INC.
By: /s/ JOHN J. SULLIVAN By: /s/ ROBERT J. HIGGINS
--------------------- ---------------------
John J. Sullivan, Robert J. Higgins,
Vice President - Finance President
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EXHIBIT 10.1
TRANS WORLD ENTERTAINMENT
CORPORATION
1994 DIRECTOR RETIREMENT PLAN
SECTION 1. PURPOSE
1.01 The Purpose of the 1994 Director Retirement Plan (the "Plan")
is to provide a reward to members of the Board of Directors for
their service to Trans World Entertainment Corporation (which,
together with any successor corporations, is referred to herein as
the "Company"). In addition, the Plan is intended to help the
Company attract and retain the services of qualified directors.
SECTION 2. DEFINITIONS
2.01 "Benefits" shall mean an amount equal to Fifteen Thousand
Dollars ($15,000) annually, payable in monthly installments in
advance, for the period specified in Section 4.
2.02 "Board of Directors" shall mean the Board of Directors of the
Company.
2.03 "Change in Control" is an event that may only be deemed to
occur if and after a date that fewer than twenty percent of the
outstanding shares of Common Stock of the Company in the aggregate
are beneficially owned (as defined in Rule 13d-3 under the Exchange
Act) by Robert J. Higgins, members of his immediate family and one
or more trusts established for the benefit of such individual or
family members for a period of 60 consecutive calendar days. If
such condition has taken place, "Change in Control" shall mean the
occurrence of any one of the following events that occur after such
share ownership reduction, if ever, has occurred: (i) the sale of
the Company substantially as an entirety (whether sale by stock,
sale of assets, merger, consolidation, liquidation, dissolution or
similar occurrence), where the shareholders of the Company,
immediately prior to a consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as
such term is defined under Rule 13d-3 under the Exchange Act),
directly or indirectly, shares representing in the aggregate at least
one-half of the voting stock of the corporation issuing cash
or securities in a consolidation or merger (or its ultimate parent
corporation, if any); (ii) any tender offer or exchange offer
subject to the regulations of the Securities and Exchange
Commission is made by which any person or group, other than Robert
J. Higgins, members of his immediate family and one or more trusts
established for the benefit of such individual or family members,
as "person" or "group" is defined within the meaning of Section
13(d) of the Exchange Act, which becomes the beneficial owner,
directly or indirectly, or more than one-half of the outstanding
shares of Common Stock; or (iii) one-half or more of the directors
elected to the Board of Directors in the most recent proxy
statement of the Company, excluding from such computation the
replacement of any director or directors who resign voluntarily and
not as a result of any disagreement expressed in writing with the
Company's operations, policies or practices.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred for purposes of Section 2.03(i) solely as
the result of such acquisition of securities by the Company which,
by reducing the number of shares of Common Stock outstanding,
increases the proportionate number of shares of Common Stock
beneficially owned by any person to 40% more of the shares of
Common Stock then outstanding; provided, however, that if any
person referred to in this sentence shall thereafter become the
beneficial owner of any additional shares of Common Stock (other
than pursuant to a stock split, stock dividend, or similar
transaction), then a "Change in Control" shall be deemed to have
occurred for purposes hereof.
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2.04 "Committee" shall mean, initially, the Compensation Committee
of the Board of Directors, and shall generally refer to the
applicable committee of the Board of Directors authorized from time
to time to administer the benefit plans of the Company.
2.05 "Company" shall mean the Company and any subsidiary or other
entity at any time at which 50% or more of the voting power or
beneficial interest of such subsidiary or other entity, is owned
directly or indirectly by the Company. References in the Plan to
the Company shall be deemed to include successors to the Company.
2.06 "Director" shall mean any member of the Board of Directors who
does not participate in any defined benefit pension plan of the
Company.
2.07 "Plan" shall mean the 1994 Director Retirement Plan, as
described herein and as amended from time to time.
2.08 "Retiree" shall mean any Director who retires from the Board of
Directors with the written consent of the Committee, or without the
consent of the Committee if the Director is age 62 or older and has
resigned from the Board of Directors or has permitted his last term
on the Board of Directors to expire, on or after the Effective Date
of the Plan; provided, however, that any such Director is not at
the time of retirement or resignation then subject to a proceeding
involving Removal for Cause (as permitted in the Company's
By-Laws), or such Director is not then the subject of specific,
written allegations that would support Removal for Cause (as
permitted in the Company's By-Laws).
2.09 "Surviving Spouse" shall mean a person who is married to a
Director at the date of his death and for at least one year prior
thereto.
2.10 "Years of Service" shall mean the number of continuous 12 month
periods occurring in succession during which a Director serves on
the Board of Directors, beginning on the date that service on the
Board of Directors was commenced. There shall be no proration of
Years of Service. If an individual's service as a Director is
interrupted with the consent of the Committee, but later resumes,
service shall include the period of time before and the period of
time after the interruption of service on the Board of Directors.
SECTION 3. ELIGIBILITY
3.01 All Directors of the Company who, on or after the effective
date of the Plan: (a) become Retirees, (b) are age 62 or older,
and (c) complete at least five Years of Service, are eligible to
receive Benefits under the Plan. A Director who completes fewer
than five complete Years of Service is not eligible for any
Benefits under the Plan without respect to the reason or reasons
that service on the Board of Directors terminated. A Director need
not be an active director of the Company when he becomes age 62 to
be eligible to receive Benefits, provided that he has previously
satisfied the minimum of five Years of Service at the time he
becomes a Retiree, at which point he becomes vested under the Plan.
SECTION 4. PLAN BENEFITS
4.01 Benefits under the Plan shall be payable by the Company only
with respect to Directors who are Retirees or become Retirees.
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4.02 Except as provided in Section 4.04, a Retiree shall be entitled
to begin receiving monthly payments of the Benefits under the Plan
immediately following the effective date of his resignation from or
expiration of his last term on the Board of Directors, or upon
reaching age 62, whichever date occurs later. A Retiree may, upon
written notice to the Committee and at the Retiree's sole
discretion, defer commencement of his Benefits beyond reaching age
62. Payment of the Benefits shall be made monthly in advance.
4.03 Except as provided in Section 4.04, the Benefits shall continue
and be due and payable to the Retiree for a term equal to the
shorter of three periods: (i) ten years; (ii) the number of Years
of Service by the Retiree, or (iii) the life of the Retiree and his
Surviving Spouse. Payment of the Benefits to a Retiree or his
Surviving Spouse for a Retiree with ten or more Years of Service
shall continue up to a maximum of ten years.
4.04 Notwithstanding the provisions of Section 4.02 and Section
4.03, if a Change in Control occurs, each Director with at least
five Years of Service who resigns from the Board of Directors or
permits his term to expire, or is forced to resign from the Board
of Directors, or who otherwise is or becomes a Retiree, whether
before or as a result of such Change of Control, shall be entitled
to receive an immediate lump sum payment in cash equal to the net
present value of the Benefits that would have been payable if the
age of such Director were the greater of: (i) The Director's actual
age at the time of becoming a Retiree or (ii) age 62, less any
Benefits previously paid to the Retiree. In computing such a net
present value the Committee shall utilize an interest rate
assumption equal to the applicable interest rate (expressed as a
percentage) used by the Pension Benefit Guaranty Company for
valuing benefits for single employer plans that terminate on the
date of such calculation, less two (2) percentage points.
4.05 If a Director dies before the commencement of payment of his
Benefits, then his Surviving Spouse, upon reaching age 62, shall
receive the Benefits that would otherwise be payable to the
Director as a Retiree under the Plan. The Company may, in its sole
and absolute discretion, make such payment in a lump sum to the
Surviving Spouse upon the death of the Director, using a current
discount rate of interest or the rate prescribed in Section 4.04.
SECTION 5. ADMINISTRATION
5.01 The administration of the Plan shall be vested in the
Committee. The Committee is authorized: (a) to adopt, alter and
repeal administrative rules, guidelines and regulations for
carrying out the Plan; (b) to determine whether and to what extent
Benefits are payable under the Plan; (c) to determine the other
terms, conditions and provisions of Benefits under the Plan; and
(d) to interpret the Plan, in all cases in the Committee's sole
discretion consistent with the Plan provisions. The interpretation
of and decisions regarding any questions arising under the Plan
made by the Committee shall be final and conclusive and binding
upon all participants under the Plan. All expenses incurred in
connection with administration of the Plan shall be paid for by the
Company.
SECTION 6. EFFECTIVE DATE
6.01 The Effective Date of the Plan Shall be June 1, 1994.
24
<PAGE>
SECTION 7. GENERAL PROVISIONS
7.01 If the Committee shall find that a Retiree is unable to care
for his affairs because of illness or accident, the Committee may
direct that any Benefit payment due him, unless claim shall have
been made therefore by a duly appointed legal representative, be
paid to his Spouse, and any such payment so made shall constitute
a discharge of the liabilities of the Plan therefor.
7.02 Benefits shall continue and be payable to the Retiree's
Surviving Spouse upon the death of the Retiree, up to the maximum
period prescribed.
7.03 Subject to any applicable law, no Benefit under the Plan shall
be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any
attempt to do so shall be void, nor shall any Benefit be in any
manner liable for or subject to the debts, contracts, liabilities,
engagements or torts of the Retiree.
7.04 If a Director shall at any time be convicted of a crime
involving dishonesty or fraud on the part of such Director directly
relating to his relationship with the Company, all Benefits that
would otherwise be payable to him under the Plan shall be
forfeited.
7.05 The rights of any Director to Benefits under the Plan prior to
the actual receipt of such benefits shall be limited to those of a
general unsecured creditor of the Company. The Company is under no
requirement to fund the Plan.
7.06 The Plan shall be construed, regulated and administered under
the laws of the State of New York.
7.07 The masculine pronoun shall mean the feminine wherever
appropriate.
7.08 Each Retiree shall keep the Company informed of his current
address and the current address of his Spouse. The Company shall
not be obligated to search for the whereabouts of any person. If
the location of a Retiree is not made known to the Company within
three years after the date on which the first payment of Benefits
is to be made, and the Company is likewise unable to locate a
Surviving Spouse, then the Company shall have no further obligation
to pay any benefit hereunder to such Retiree or Surviving Spouse or
any other person, and such Benefits shall be irrevocably forfeited.
7.09 Notwithstanding any of the provisions of the Plan, no
individual acting as an employee, Director or an agent of the
Company shall be personally liable to any Retiree, other Director,
Surviving Spouse or any other person for any claim, loss, liability
or expense incurred in connection with the Plan.
SECTION 8. AMENDMENT AND TERMINATION
8.01 The Board of Directors reserves the right to modify or to
amend, in whole or in part, or to terminate, this Plan at any time;
provided, however, that no such modification, amendment or
termination shall adversely affect the right of any retired
Director to receive benefits under the Plan had the Plan not been
modified, amended or terminated, taking into account such
Director's Years of Service and age at the time of such
modification, amendment or termination.
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EXHIBIT 10.2
October 1, 1994
Edward W. Marshall
2301 Berkley Ave.
Niskayuna, New York 12309
re: Severance Agreement
-------------------
Dear Ed:
Trans World Entertainment Corporation, a New York corporation, and
its wholly owned subsidiary, Record Town, Inc. (collectively, the
"Company"), considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best
interests of the Company and its shareholders. In order to induce you
to remain with the Company, and in consideration for your covenants set
forth herein, this Agreement sets forth the severance benefits that the
Company agrees will be provided to you in certain circumstances, as
further described below.
1. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect until January 31, 1996 (the"Term");
provided, however, that commencing on February 1, 1996 and each February
thereafter, the term of this Agreement shall automatically be extended
for one additional year unless at least 90 days prior to such February 1
date, either the Company or you shall have given notice that this
Agreement shall not be extended,at which point, if the Company has given
notice, you may, within 30 days thereafter, elect in writing to treat
such notice as a termination without Cause. Notwithstanding anything in
this Section 1 to the contrary, this Agreement shall terminate if you
voluntarily separate your employment from the Company except as permitted
hereunder.
2. Termination without Cause. (a) You shall be entitled to the
benefits provided in Section 5 if, during the Term of this Agreement,
your employment with the Company is ever terminated for any reason other
than for Cause (defined below) or for Disability (defined below).
(b) Disability. Termination by the Company of your employment based on
"Disability" shall mean termination because of your absence from your
duties with the Company on a full time basis for sixty (60) consecutive
days as a result of your incapacity due to physical or mental illness,
unless within thirty (30) days after notice of termination is given to you
following such absence you shall have returned to the full time
performance of your duties.
(c) Cause. Termination by the Company of your employment for"Cause"
shall mean termination for any one of the following reasons: (i) the
willful or continued failure by you to perform substantially your duties
with the Company (other than any such failure resulting from your
incapacity due to physical or mental illness) after demand for substantial
performance is delivered to you by the Chairman of the Board or the
President of the Company, which demand specifically identifies, in writing,
the manner in which such executive believes that you have not substantially
performed your duties; or (ii) the willful engaging by you in illegal
conduct that materially and demonstrably damages the Company's business or
reputation; or (iii) any conduct in the course of your employment that
constitutes, in the Company's reasonable judgment, gross negligence, fraud,
embezzlement or any acts of moral turpitude that result or are intended to
result, directly or indirectly, to your personal enrichment at the
Company's expense. For
purposes of this Section 2(c), no act or failure to act on your part shall
be considered "willful" unless done, or omitted to be done, by you
in bad faith and without reasonable belief that your action or omission
was in, or not opposed to, the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution duly
adopted by
the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by you in
good faith and in the best interests of the corporation.
26
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(d) Employment at Will. The Company or you may separate your employment
at any time, subject to the Company's covenant to provide the benefits
specified in accordance with the terms of thisAgreement. Your employment,
base of operations or duties may be modified, changed or terminated by the
Company at any time with or without Cause.
3. Severance Agreement. (a) The Company agrees that within two years of a
Change in Control, you may voluntarily separate your employment from the
Company if the Company relocates you during such period, for a
period in excess of 30 consecutive days, from your then-current place of
operation for a distance that is greater than 75 miles, without your prior
written permission. Subject to the other terms and conditions of this
Agreement, you thereafter become entitled to the severance package set
forth in Section 5 below. You agree to extend at least 6 months prior
written notice to the Company before separating from the Company.
Although the Company may in its sole discretion reduce the required 6
month period of notice, your competent, good faith and full-time
performance of your assigned employment responsibilities during the
complete 6 month period is an absolute, express condition to earning the
severance compensation provided; there shall be no proration of severance
benefits.
(b) "Change in Control" is an event that may only be deemed to occur if
and after a date that fewer than twenty percent of the outstanding shares
Common Stock in the aggregate are beneficially owned (as defined in Rule
13d-3 under the Exchange Act) by Robert J. Higgins, members of his
immediate family and one or more trusts established for the benefit of
such individual or family members for a period of 60 calendar consecutive
days. If such condition has taken place, "Change in Control" shall mean the
occurrence of any one of the following events that occur after such share
ownership reduction, if ever, has occurred: (i) the sale of the Company
substantially as an entirety (whether sale by stock, sale of assets,
merger, consolidation, liquidation, dissolution or similar occurrence)
occurs, where the shareholders of the Company, immediately prior to a
consolidation or merger, would not immediately after the consolidation
or merger, beneficially own (as such term is defined under Rule 13d-3
under the Exchange Act), directly or indirectly, shares representing
in the aggregate at least one-half of the voting stock of the corporation
issuing cash or securities in a consolidation or merger (or its ultimate
parent corporation, if any); (ii) any tender offer or exchange offer to
subject to the regulations of the Securities and Exchange Commission is
made by which any person or group, other than Robert J. Higgins, members
his immediate family and one or more trusts established for the benefit
of such individual or family members, as "person" or "group" is defined
within the meaning of Section 13(d) of the Exchange Act, which becomes
the beneficial owner directly or indirectly, or more than one-half of
the outstanding shares of Common Stock; or (iii) fifty percent or more of
the directors elected to the Board of Directors in the most recent proxy
statement of the Company, excluding from such computation the replacement
of any director or directors who resign voluntarily and not as a result
of any disagreement expressed in writing with the Company's operations,
policies or practices.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred for purposes of Section 3 (b)(i) solely as the
result of such acquisition of securities by the Company which, by reducing
the number of shares of Common Stock outstanding,increases the
proportionate number of shares of Common Stock beneficially owned by any
person to 40% more of the shares of Common Stock then outstanding;
provided, however, that if any person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Common
Stock (there than pursuant to a stock split, stock dividend, or similar
transaction), then a "Change in Control" shall be deemed to have occurred
for purposes hereof.
27
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(c) Effective on the execution of this Agreement, your severance
agreement with the Company, dated as April 4, 1989, and any renewals or
extensions of such agreement, are hereby terminated and shall be of
no further force and effect. This Agreement is intended by the parties to
supersede, and it hereby replaces and supersedes, the agreements set forth
under the captions "Severance Agreement", "Promotion" and "Change in
Control", paragraphs 6through 8, contained in that certain Letter
Agreement, dated as ofJuly 20, 1994, between you and the Company.
4. Assurance of Promotion. (a) The Company agrees to assure you of a
promotion to a position of Division President, as "Division"is defined
below, or a reasonably equivalent position or responsibility as designated
by the Company, on or before January 31, 1997. If you do not receive such
position on or before such target date and desire to leave the Company on
the terms hereof, you will be entitled to the severance package set
forth in Section 5 below. You will be required to give a written, six
month notice within 90 days of such date, after which your right to
voluntarily separate employment shall terminate and be of no further force
and effect.
Time shall be of the essence. During such 90 day period the Company may
cure the condition and appoint you to the agreed-upon position or an
equivalent position or responsibility. You agree to make your effective
date of separation at least 6 months after the date of your written notice
to the Company before leaving the Company. Although the Company
may in its sole discretion reduce the required 6 month period of notice,
your competent, good faith and full-time performance of your assigned
employment responsibilities during the complete 6 month period is an
absolute, express condition to earning the severance compensation
provided; there shall be no proration of severance benefits if you perform
for a shorter period unless requested by the Company.
(b) The term "Division" for purposes of this Agreement shall mean a
business operation as designated by the Company, consisting of at least
$100 million in annual sales. The Company's designation of a"Division" is
otherwise subject to its sole discretion. It is understood that many of
the Company's business functions of such a Division, wherever it is
located, will continue to be shared at the corporate level, including but
not limited to accounting, merchandise procurement, maintenance,
distribution, store construction, and information processing.
5. Severance Compensation; Other Agreements. (a) During any period that
you fail to perform your duties as a result of a Disability, you
shall continue to receive your salary at the rate then in effect and any
benefits or awards under any benefit plans shall continue to accrue during
such period, which period shall beat least 90 days, until your employment
is terminated without Cause. Thereafter, your benefits shall be determined
in accordance with any applicable benefit plans of the Company then in
effect.
(b) If your employment shall be terminated for any reason other than
because of death, retirement, Disability or for Cause by the Company, or
you voluntarily elect to separate your employment from the Company if
expressly permitted by the terms and conditions of Sections 3 and
4 of this Agreement, then the Company shall pay you your base salary for
12 months following the effective date of separation at the rate in effect
just prior to the time a notice of termination is given (which amount
shall not be less than the annual rate of $250,000), plus any benefits
(including health, disability and 401(k)). Any awards (including both the
cash, bonus and stock components) which, pursuant to the terms of any
applicable plans, had already been earned or become payable as of the
date of separation, but which had not yet been paid to you, shall be due
and payable within 30 days after the effective date of separation. It
is expressly understood and agreed that no bonuses are deemed earned
unless your employment is continued through the last day of the
applicable fiscal year. Thereafter, the Company shall have no further
obligations to you under this Agreement.
28
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(c) To the extent that you shall receive cash consideration that
is subject to federal income taxation in respect of otheremployment or
a consulting position for another organization, andthat consideration
is payable to you solely in respect of the remainder of the Term of
this Agreement as in effect immediately prior to such termination, or a
portion thereof, the payments to be made by the Company under this Section
5, shall be proportionately reduced. Notwithstanding the foregoing, you
shall not be required to minimize damages or otherwise reduce severance
payments payable under this Agreement by seeking or accepting other
employment or a consulting position.
6. Taxes. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local
income, excise and other employment taxes.
7. Survival. The respective obligations of, and benefits afforded
to, the Company or you as provided in this Agreement shall survive any
expiration or termination of this Agreement unlessprovided to the
contrary.
8. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by
United States registered mail, return receipt requested, postage prepaid
and addressed, in the case of the Company, to the address set forth on the
first page of this Agreement or, in the case of the undersigned employee,
to the address set forth below his signature, provided that all notices to
the Company shall be directed to the attention of the President of the
Company, with a copy to the Secretary of the Company, or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
9. Modification; Waiver; Governing Law. No provision of this Agreement
may be modified, waived or discharged unless suchmodification, waiver or
discharge is agreed to in a writing signed by you and the Chairman of the
Board or President of the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of New York without reference to its
principles of conflicts of laws.
10. Arbitration. Any dispute or controversy arising under or
inconnection with this Agreement shall, at the Company's sole option, be
settled exclusively by arbitration in Albany, New York by three
arbitrators in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrators'
award in any court having jurisdiction.
11. Non-Compete and Confidentiality Covenants. (a) For a period of 12
months after your employment is separated from the Company for whatever
reason, whether or not it is for Cause, you covenant and agree not to
compete with the Company, whether directly or indirectly, alone or
as an employee, independent contractor of any type, partner, substantial
shareholder (5% or greater) or holder of an option or right to become a
substantial shareholder, in any retail music or video business in
any state in the United States in which the Company then conducts its
business. You also agree not to solicit, directly or indirectly, any
then-current employees of the Company during such 12 month period.
(b) In consideration for the Company's agreements hereunder, you
agree that during and subsequent to your period of employment with the
Company, you will not at any time communicate or disclose to any
unauthorized person, without the written consent of the Company, business
information, trade secrets, sales data or any proprietary processes of the
Company or any subsidiary or other confidential information concerning
their business, affairs, products, suppliers, or customers, unless
otherwise required by law. You also acknowledge and agree that the
Company retains all ownership of any inventions, ideas, processes,
drawings, patents,trademarks, copyrights, trade secrets and other
intellectual property that the you create or produce, or of which you
participate in the creation or production. You hereby assign to the
Company the right to obtain, register or enforce any copyrights or patent
registrations on any and all such inventions conceived, developed or
derived during the course of your employment with the Company.
29
<PAGE>
(c)If any of the restrictions on post-employment competitive activity or
the confidentiality covenants contained in this Section 11 are held by
a court of competent jurisdiction to be excessively broad as to duration,
geographical scope, activity or subject, such restrictions shall be
construed to be enforceable to the extent compatible with applicable law
as it shall then exist, it being understood that by the execution of
this Agreement the parties hereto regard such restrictions as reasonable
and compatible with their respective rights and obligations. Therefore,
it is agreed that in the event of a breach or threat of a breach of the
provisions of this Agreement, the Company shall be entitled to
provable damages and reasonable attorney's fees (which attorney's fees
shall be payable by you in the event that the Company's position in any
litigation is sustained), and to an immediate injunction from any court
of competent jurisdiction restraining you from committing or continuing
to commit a breach of such provisions without the showing or proving of
actual damages. You hereby waive any right you may have to require the
Company to post a bond or other security with respect to obtaining or
continuing any such injunction or temporatry restraining order.
(d) During the period of any breach or threatened breach of the
provisions of this Section 11 the Company may cease payment or accrual of
any severance compensation, without limiting any other remedies available
to it at law or in equity.
12. Effective Date. This Agreement shall not take effect unless and
until approval of the Company's Compensation Committee of the Board of
Directors has been received by management.
After reviewing the contents of this letter, if it correctly sets forth
our agreement on the subject matter hereof, and you agree to the terms
and conditions of this Agreement, kindly sign and return it to the
Company, which will then constitute our binding agreement.
Sincerely,
TRANS WORLD ENTERTAINMENT
CORPORATION
RECORD TOWN, INC.
By: /s/ ROBERT J. HIGGINS
----------------------------
Robert J. Higgins, President
ACKNOWLEDGED, ACCEPTED
AND AGREED TO:
By: /s/ EDWARD W. MARSHALL
-------------------------
Edward W. Marshall
October 1, 1994
2301 Berkely Ave.
Niskayuna, New York 12309
30
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<ARTICLE> 5
<LEGEND> THIS SHEDULE CONTAINS DATA EXTRACTED FROM
THE CONDENSED CONSOLIDATED BALANCE SHEETS,
AND THE CONDENSED CONSOLIDATED STATEMENTS
OF INCOME AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<CIK> 0000795212
<NAME> TRANS WORLD ENTERTAINMENT CORPORATION
<MULTIPLIER> 1,000
<CAPTION> Amount
(in thousands, except per
Item Description share data)
- - - - - ------------------- --------------------------
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> OCT-29-1994
<CASH> 7,501
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 265,875
<CURRENT-ASSETS> 293,960
<PP&E> 179,066
<DEPRECIATION> 83,372
<TOTAL-ASSETS> 399,979
<CURRENT-LIABILITIES> 215,733
<BONDS> 60,738
0
0
<COMMON> 97
<OTHER-SE> 118,735
<TOTAL-LIABILITY-AND-EQUITY> 399,979
<SALES> 330,264
<TOTAL-REVENUES> 330,264
<CGS> 207,865
<TOTAL-COSTS> 207,865
<OTHER-EXPENSES> 127,373
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,346
<INCOME-PRETAX> (12,320)
<INCOME-TAX> (4,916)
<INCOME-CONTINUING> (7,404)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,404)
<EPS-PRIMARY> (.76)
<EPS-DILUTED> (.76)
</TABLE>