<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Trans World Music Corp.
- - -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Paul A. Cardinal
- - -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11:/1/
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4) Proposed maximum aggregate value of transaction:
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/1/ Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
TRANS WORLD MUSIC CORP.
38 Corporate Circle
Albany, New York 12203
(518) 452-1242
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
You are cordially invited to attend the Annual Meeting of
Shareholders of Trans World Music Corp. (the "Company"), which will be
held at The Desmond, 660 Albany-Shaker Road, Albany, New York 12211, on
Friday, June 10, 1994, at 10:00 A.M., New York time, for the following
purposes:
1. To elect six directors to serve until the next annual meeting
and until their successors are chosen and qualified;
2. To approve an amendment to the Restated Certificate of
Incorporation to change the corporate name to Trans World Entertainment
Corporation;
3. To approve the 1994 Stock Option Plan; and
4. To transact any such other business as may come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on April 29,
1994, as the record date for determining shareholders entitled to notice
of and to vote at the meeting.
Your vote is important. A proxy and return envelope are enclosed
for your convenience. Please complete and return your proxy card as
promptly as possible.
By order of the Board of Directors,
/s/ Matthew H. Mataraso
Matthew H. Mataraso,
Secretary
May 20, 1994
IMPORTANT: Whether or not you plan to attend the meeting, a return
envelope, requiring no postage if mailed in the United States, is enclosed
for your convenience. Prompt return of the proxy will assure a quorum and
save the Company unnecessary expense.
<PAGE>
TRANS WORLD MUSIC CORP.
38 Corporate Circle
Albany, New York 12203
----------------------
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of Trans World
Music Corp., a New York corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors for use at the Annual
Meeting of Shareholders of the Company to be held on June 10, 1994 and any
adjournment or adjournments thereof. A copy of the notice of meeting
accompanies this Proxy Statement. It is anticipated that the mailing of this
Proxy Statement and the form of proxy/voting instruction card will commence on
May 20, 1994.
VOTING SECURITIES
The Company has only one class of voting securities, its Common Stock,
par value $.01 per share (the "Common Stock"). On April 29, 1994, the record
date, 9,719,208 shares of Common Stock were outstanding. Each shareholder of
record at the close of business on April 29, 1994 will be entitled to one vote
for each share of Common Stock owned on that date as to each matter presented
to the meeting.
QUORUM AND TABULATION OF VOTES
The By-Laws of the Company provide that a majority of the shares of
Common Stock issued and outstanding and entitled to vote, present in person or
by proxy, shall constitute a quorum at the annual meeting of shareholders of
the Company. Votes at the Annual Meeting will be tabulated by two inspectors
from Chemical Bank appointed by the Company. Shares of Common Stock represented
by a properly signed and returned proxy are considered as present at the Annual
Meeting for purposes of determining a quorum.
Brokers holding shares for beneficial owners must vote those shares
according to the specific instructions they receive from the owners. If
specific instructions are not received, however, brokers may vote these shares
in their discretion, depending upon the type of proposal involved.
Pursuant to the Company's By-Laws, directors of the Company will be
elected by a favorable vote of a plurality of the shares of Common Stock
present and entitled to vote, in person or by proxy, at the Annual Meeting. The
affirmative vote of a majority of the outstanding shares of Common Stock issued
and outstanding as of the record date is required for the approval of the
amendment to the Restated Certificate of Incorporation. All other matters
require for approval the favorable vote of a majority of shares voted at the
meeting in person or by proxy.
Under New York law, abstentions and broker non-votes, if applicable,
will have the effect of a negative vote on the proposed amendment to the
Restated Certificate of Incorporation, because a favorable vote of a majority
of the outstanding shares entitled to vote is required. Abstentions and broker
non-votes will have no effect on the outcome of the other matters to be voted
on at the annual meeting. Brokers have discretionary authority to vote on the
election of directors. If a properly signed proxy form is returned to the
Company by a shareholder of record and is not marked, it will be voted "FOR"
the proposals set forth herein as Items 1 through 3.
The enclosed proxy may be revoked by a shareholder at any time before
it is voted by the submission of a written revocation to the Company, by the
return of a new proxy to the Company, or by attending and voting in person
at the Annual Meeting.
<PAGE>
PRINCIPAL SHAREHOLDERS
The only persons known by the Board of Directors to be the beneficial
owners of more than five percent of the outstanding shares of the Common Stock
as of April 29, 1994, the record date, are indicated below:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
- - -------------------------------------------------------------------------
<S> <C> <C>
Robert J. Higgins 5,403,713 (1) 55.6%
38 Corporate Circle
Albany, New York 12203
J.P. Morgan & Co., Incorporated 1,466,500 (2) 15.1%
60 Wall Street
New York, New York 10260
- - ---------------
(1) Information is as of April 29, 1994, as provided by the holder.
Includes 16,850 shares owned by the wife of Robert J. Higgins, but
excludes 88,250 shares owned by certain other family members of Robert
J. Higgins, none of whom share his residence. Mr. Higgins disclaims
beneficial ownership with respect to those shares owned by family
members other than his wife.
(2) Information is as of March 31, 1994, as provided by the holder. J.P.
Morgan & Co. Incorporated, a bank holding company, subsidiaries of
which, a national bank and a registered investment advisor, hold shares
in the Company in a fiduciary capacity. J.P. Morgan reported sole
voting power with respect to 1,048,900 shares and sole dispositive power
with respect to 1,466,500 shares.
</TABLE>
Mr. Higgins, who beneficially owns 5,403,713 shares of Common Stock as
of the record date (approximately 55.6% of all outstanding shares), has advised
the Company that he presently intends to vote all of his shares for the
election of nominees for director named under "Item 1 - ELECTION OF DIRECTORS"
and the proposals set forth under Items 2 and 3. If Mr. Higgins votes his
shares for the director nominees, the amendment to the Restated Certificate of
Incorporation and the approval of the 1994 Stock Option Plan, no other votes
will be required to approve or adopt such actions.
Item 1. ELECTION OF DIRECTORS
The Board of Directors currently intends to present to the meeting the
election of six directors, each to hold office (subject to the Company's By-
Laws) until the next Annual Meeting of Shareholders and until his or her
respective successor has been elected and qualified. Directors of the Company
will be elected by a plurality vote of the outstanding shares of Common Stock
present and entitled to vote at the meeting.
If any nominee listed below should become unavailable for any reason,
which management does not anticipate, the proxy will be voted for any
substitute nominee or nominees who may be selected by the Chairman of the Board
prior to or at the meeting or, if no substitute is selected prior to or at the
meeting, for a motion to reduce the membership of the Board to the number of
nominees available. The information concerning the nominees and their security
holdings has been furnished by them to the Company.
Nominees for Election as Directors
Robert J. Higgins, Chairman of the Board, founded the Company in 1972
and has participated in its operations since 1973. Mr. Higgins has served as
President, Chief Executive Officer and a director of the Company for more than
the past five years. He is also the Company's principal shareholder. See
"PRINCIPAL SHAREHOLDERS". Mr. Higgins is Chairman of the Board of the Albany
Medical Center (Albany, New York).
2
<PAGE>
Charlotte G. Fischer is the Vice Chairman of the Board and Chief
Executive Officer-designate of Paul Harris Stores, Inc., a publicly-held
specialty retailer of women's apparel, effective April 29, 1994. Mrs. Fischer
has been, since November 1992, Chairman of C.G.F. Inc., which operates Hearts,
Int., a specialty retailer, and also served as a consultant to retail
organizations, including the Company. Mrs. Fischer was, until October 1991,
President and Chief Executive Officer of Claire's Boutiques, Inc., beginning
in September 1989, and was on the Board of Directors of Claire's Stores, Inc.,
the publicly-held parent company. Mrs. Fischer began with Claire's Boutiques
as Vice President and General Merchandise Manager in April 1986 and was elected
President and Chief Operating Officer in October 1986.
George W. Dougan has been Chief Executive Officer and a member of the
Board of Directors of Evergreen Bancorp Inc. since March 7, 1994. Before
accepting the position at Evergreen Bancorp, Mr. Dougan was the Chairman of the
Board and Chief Executive Officer of the Bank of Boston-Florida from June 1992
to March 1994, was the Senior Vice President and Director of Retail Banking of
The Bank of Boston Massachusetts from February 1990 to June 1992, and a
Regional President of The Bank of Boston from August 1988 to February 1990.
Before that, he was the Country Manager of The Chase Manhattan Bank, N.A.,
Virgin Islands, from March 1985 to August 1988.
Isaac Kaufman has been an Executive Vice President of Merry-Go-Round
Enterprises, Inc. ("Merry-Go-Round"), a publicly-held specialty retailer, and
on its Board of Directors since April 3, 1991, and has been Chief Financial
Officer, Secretary and Treasurer of the Company since 1983. Mr. Kaufman has
held various finance positions with Merry-Go-Round for the past 18 years.
Merry-Go-Round filed for protection from its creditors under Chapter 11 of the
U.S. Bankruptcy Code on January 11, 1994, and continues to operate under such
protection as of the date of this Proxy Statement.
J. Markham Green was elected to the Board of Directors effective July
15, 1993. Mr. Green has been a limited partner of The Goldman Sachs Group,
L.P., an affiliate of Goldman, Sachs & Co., since November 1992, and he was a
General Partner and a Vice President with Goldman, Sachs & Co., the New York
investment firm, for more than five years before becoming a limited partner
in November 1992. Mr. Green serves on the Board of Directors of Park
Communications, Inc., a publicly-held communications company. Mr. Green stands
for election as a director for the first time.
Matthew H. Mataraso has served as Secretary and a director of the
Company for more than the past five years, and has practiced law in Albany, New
York during the same period.
Equity Ownership of Directors and Executive Officers
The following table sets forth the beneficial ownership of Common stock
as of April 29, 1994 by each director and named executive officer of the
Company and all directors and officers as a group. All shares listed in the
table are owned directly by the named individuals unless otherwise indicated
therein. Except as otherwise stated or as to shares owned by spouses, the
Company believes that the beneficial owners have sole voting and investment
power over their shares.
3
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Year First of Beneficial
Elected as Ownership of
Position(s) with the Director/ Common Stock as Percent
Name Company Age Officer of April 29, 1994 of Class
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert J. Higgins Chairman of the Board, 52 1973 5,403,713 (1) 55.6%
President, Chief Executive
Officer and a Director
Matthew H. Mataraso Secretary and a Director 64 1976 28,250 (2) *
Charlotte G. Fischer Director 44 1991 8,625 (2) *
George W. Dougan Director 54 1984 12,250 (2) *
Arnold S. Greenhut Director 65 1976 12,750 (2)
Isaac Kaufman Director 47 1991 9,625 (2) *
J. Markham Green Director 50 1993 0 *
Edward W. Marshall, Jr. Senior Vice President -
Operations 48 1989 22,750 (2) *
- - ----------------------------------------------------------------------------------------------------------------------
All directors and executive officers as a group (8 persons) 5,498,963 (1)(2) 56.6%
* Less than 1%
- - ---------------------------
(1) Includes 16,850 shares owned by the wife of Robert J. Higgins, but
excludes 88,250 shares owned by certain other family members of Robert
J. Higgins, who do not share his residence. Mr. Higgins disclaims
beneficial ownership with respect to those shares owned by family
members other than his wife.
(2) Included in the shares listed as "beneficially owned" are the following
shares which the persons listed have the right to acquire within sixty
days pursuant to stock options: (a) under the 1990 Director Stock
Option Plan - Mrs. Fischer (8,625), Mr. Greenhut (12,250), Mr. Dougan
(12,250) and Mr. Kaufman (8,625); (b) under the 1986 Incentive
and Non-Qualified Stock Option Plan - Mr. Mataraso (23,750); Mr.
Marshall (19,750); and (c) under all stock option plans - All directors
and executive officers as a group (85,250).
</TABLE>
Board of Directors Meetings and Its Committees
The Board of Directors held five meetings during the 1993 fiscal year,
and also acted on three occasions by unanimous written consent. During the last
fiscal year, none of the directors attended fewer than 75% of the aggregate of:
(i) the total number of meetings of the Board of Directors, and (ii) the total
number of meetings held by all committees of the Board on which such director
served.
The Company has an Audit Committee of the Board of Directors, consisting
of a majority of independent directors, whose members are: Isaac Kaufman
(Chairman), Charlotte G. Fischer, J. Markham Green, and George W. Dougan.
During 1993, Mrs. Fischer served as a consultant to the Company, and the Audit
Committee waived its requirement that each member be independent, as provided
under the Audit Committee's charter. The Audit Committee held two meetings
during the 1993 fiscal year. The Audit Committee's responsibilities consist of
recommending the selection of independent accountants, reviewing the scope of
the audit conducted by such auditors, as well as the audit itself, and reviewing
the Company's audit activities and activities and matters concerning financial
reporting, accounting and audit procedures, related party transactions and
policies generally.
The Company has a Compensation Committee of the Board of Directors,
consisting solely of independent directors, whose current members are:
Arnold S. Greenhut (Chairman), George W. Dougan, J. Markham Green and Isaac
Kaufman. The Compensation Committee held six meetings during the 1993 fiscal
year, and acted by unanimous written consent on one occasion. The Compensation
Committee formulates and gives effect to policies concerning salary, compen-
sation, stock options and other matters concerning employment with the Company.
The Compensation Committee is currently comprised of independent directors
only.
4
<PAGE>
The Company has no standing nominating committee. Mr. Higgins, the
Chairman of the Board, Chief Executive Officer and majority shareholder, was
actively involved in the recruitment of all of the current directors.
Compensation of Directors
Cash Compensation. The annual retainer and meeting fees were, prior to
July 1, 1993, $10,000 and $500, respectively. Effective July 1, 1993, each
director who is not a salaried employee of the Company receives $15,000
retainer per annum plus a $1,000 attendance fee each committee meeting and
board meeting attended, except that the compensation for telephone conference
meetings is $500. A Committee chairperson now earns an additional $1,000
retainer per year. Before July 1, 1993, Messrs. Higgins and Mataraso, who are
employee directors of the Company, were also entitled to the annual retainer
and meeting fees.
Matthew Mataraso is the only director who is a participant in the
Company's 1986 Incentive and Non-Qualified Stock Option Plan, as amended and
restated (the "1986 Plan"). Mr. Mataraso received $58,000 in cash compensation
from the Company in fiscal 1993 for his services as Secretary of the Company
and as counsel. Messrs. Higgins and Mataraso are both eligible to participate
in the Company's 1994 Stock Option Plan, being presented to the shareholders
for approval. See "Item 3 - APPROVAL OF 1994 STOCK OPTION PLAN". During 1993,
Charlotte Fischer was engaged as a consultant to the Company, reporting
directly to the Chief Executive Officer, Mr. Higgins. The payments earned by
or paid to Mrs. Fischer as a consultant aggregated $89,850 in fiscal 1993.
Director Stock Option Plan. Each outside Director is entitled to
participate in the Company's 1990 Stock Option Plan for Non-Employee Directors
(the "Director Stock Option Plan"). Currently, Mrs. Fischer and Messrs. Dougan,
Green, Greenhut and Kaufman participate in the Director Stock Option Plan. A
total of 250,000 shares of the Common Stock are reserved for issuance pursuant
to non-qualified stock options (the "Director Options") issued under such plan,
and Director Options covering 71,000 shares of Common Stock have been granted.
Stock options issuable under the Director Stock Option Plan are granted at an
exercise price equal to 85% of the fair market value of the Common Stock on the
date of grant.
An initial grant of 10,000 Director Options is made to each new
director. In addition, Director Options to purchase 1,500 shares of the
Company's Common Stock are granted annually on May 1 (or, if May 1 is not a
NASDAQ National Market System trading day, on the next succeeding trading day)
of any year to any eligible director. All Director Options vest ratably over
four years. During fiscal 1993, an initial grant of 10,000 Director Options was
made to Mr. Green at an exercise price of $12.65 per share, compared to the
market price on the date of grant of $14.88 per share. In addition, annual
grants to other outside Directors of 1,500 Director Options were made at an
exercise price of $13.82 per share, compared to the market value on the
date of grant of $16.25. Accordingly, compensation expense in the aggregate of
$36,880 will be amortized over a 48-month period by the Company for the 1993
grants.
The Director Stock Option Plan is administered by a committee of three
non-participating directors or officers who are authorized to interpret the
Director Stock Option Plan but have no discretion with respect to the selection
of directors who receive Director Options, the number of shares subject to the
Director Stock Option Plan or to each grant thereunder, or the purchase price
for shares subject to Director Option. The committee has no authority to
materially increase the benefits under the Director Stock Option Plan. The
Director Stock Option Committee held one meeting in 1993 and acted on one
occasion by unanimous written consent.
5
<PAGE>
Certain Transactions
The Company leases its 159,000 square foot distribution center/office
facility in Albany, New York from Robert J. Higgins, its Chairman, Chief
Executive Officer and principal shareholder, under two capitalized leases that
expire in the year 2015. The original distribution center/office facility was
constructed in 1985. A 77,135 square foot distribution center expansion (the
"Expansion") was completed in October 1989 on real property adjoining the
existing facility (the real property comprising the entire distribution center
and office facility, including the Expansion, is collectively referred to as
the "Premises").
Under the original lease, dated as of April 1, 1985, as amended (the
"Original Lease"), the Company paid Mr. Higgins in fiscal 1993 an annual
rental of $703,443 (of which $499,443 is allocable to the Premises and $204,000
is allocable to personal property). The portion of the Original Lease allocable
to personal property expires in 1995, when title passes to the Company. In
1989, the Company entered into a new lease, dated as of November 1, 1989 (the
"Expansion Lease"), for the Expansion, at an annual rental rate of $606,948.
The aggregate annual rental paid to Mr. Higgins under the Original Lease and
the Expansion Lease was $1,310,391 in fiscal 1993. On January 1, 1994, the
aggregate rental under the Original Lease and the Expansion Lease increased to
$1,373,787 in accordance with the biennial increase in the Consumer Price
Index, pursuant to the provisions of each lease. Neither lease contains any
real property purchase option at the expiration of its term. Under the terms
of both leases, the Company pays property taxes, insurance and other operating
costs with respect to the Premises. Mr. Higgins' obligation for principal and
interest on his underlying indebtedness relating to the Premises approximates
$70,000 per month.
The Company leases two of its retail stores from Mr. Higgins under
long-term leases, each at an annual rental of $35,000 per year, plus property
taxes, maintenance and a contingent rental if a specified sales level is
achieved. In fiscal 1993 the Company paid Mr. Higgins $30,000 for a 1-year
lease, expiring on October 31, 1993, for certain parking facilities contiguous
to the Premises. The lease was renewed through October 31, 1994, after approval
by the Audit Committee. Although no commitments have been made by the Company,
the contiguous parcel containing such parking facilities is being evaluated by
the Company for a new office building. If approved by the Company's Audit
Committee, such an office building would be constructed by Mr. Higgins and
leased to the Company on terms and conditions believed to be competitive with
those offered in an arms' length transaction.
The Company regularly utilizes privately-chartered aircraft for its
executives, primarily those owned or partially owned by Mr. Higgins. During
fiscal 1993, the Company chartered an airplane from Quail Aero Services of
Syracuse, Inc., in which Mr. Higgins is a one-third shareholder. Payments made
by the Company for the period were $63,000. The Company also chartered an
aircraft from Crystal Jet Aviation, Inc., a corporation wholly owned by Mr.
Higgins. During fiscal 1993 payments to Crystal Jet aggregated $253,189. The
Company believes that the charter rate and terms are as favorable to the
Company as those generally available to it from other commercial charterers.
The transactions that were entered into with an "interested director"
were approved by a majority of disinterested directors of the Board of
Directors, either by the Audit Committee or at a meeting of the Board of
Directors. The Board of Directors believes that the leases and other provisions
are at rates and on terms that are at least as favorable as those that would
have been available to the Company from unaffiliated third parties under the
circumstances.
Employment Agreements
As founder and Chief Executive Officer of the Company, Robert J. Higgins
has been instrumental in the operations of the Company. The Company entered
into an employment agreement (the "Employment Agreement") with Mr. Higgins,
effective February 1, 1989, pursuant to which Mr. Higgins has agreed to serve
as President and Chief Executive Officer of the Company until January 31, 1994
for a minimum annual salary of $550,000. The salary was increased each fiscal
year by the Consumer Price Index-W (New York City) pursuant to the terms of
the Employment Agreement.
6
<PAGE>
The Company has agreed to pay or reimburse Mr. Higgins for the life
insurance premiums (aggregating approximately $100,000 per year) on insurance
policies for the benefit of persons designated by Mr. Higgins. In addition, Mr.
Higgins was eligible to earn incentive compensation for each of the Company's
fiscal years during the term of the Employment Agreement. The amount of such
compensation equaled 2.5% of the Company's Pre-Tax Profits (as defined in the
Employment Agreement) in each fiscal year, provided that the Pre-Tax Profits
exceed $24,000,000 during the fiscal year ended January 29, 1994. For the
fiscal year ended January 29, 1994, Mr. Higgins earned no incentive
compensation under the Employment Agreement.
In the event of a change in control of the Company, Mr. Higgins may
elect to serve as a consultant to the Company at his then current compensation
level for the remainder of the term of the Employment Agreement or elect to
receive two and one-half times his annual compensation in the most recently
completed fiscal year. The Employment Agreement provides for no further
compensation to Mr. Higgins if he is terminated for cause, as defined therein.
Subsequent to year end the Compensation Committee extended the
Employment Agreement between the Company and Mr. Higgins for one year, except
for the bonus provisions, which were eliminated. See "EXECUTIVE COMPENSATION
- - - Compensation Committee Report on Executive Compensation".
Edward W. Marshall has a severance agreement in effect that provides,
under certain conditions, payment of one and one-half years of his annual
compensation upon his termination following severance without cause (as
defined) after a change in control of the Company.
7
<PAGE>
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
Composition and Purpose of the Compensation Committee. The Company's
Compensation Committee (the "Committee") is currently comprised of four non-
employee directors of the Company. It is the Company's policy to constitute
the Committee with directors that qualify as outside directors under the 1993
amendments to the federal income tax law.
The Committee's purpose is to hire, develop and retain the highest
quality of managers possible. It is principally responsible for establishing
and administering the executive compensation program of the Company. These
duties include approving salary increases for the Company's key executives and
administering both the annual incentive plan and the stock option plans.
Compensation Philosophy and Overall Objectives. The components of the
executive compensation program are salary, annual incentive awards and stock
options. The program is designed to: (1) attract and retain competent people
with competitive salaries; (2) provide incentives for increased profitability;
and (3) align the long-term interests of management with the interests of
shareholders by encouraging executive ownership of common stock of the Company.
Salary and Annual Incentive Compensation
Salaries. The Committee believes that it is necessary to pay salaries
that are competitive within the industry and geographic region in order to
attract the types of executives needed to manage the business. In 1993, the
Compensation Committee engaged KPMG Peat Marwick, a nationally known
compensation consulting firm, to assist the Committee in evaluating and
modifying its executive compensation program and in developing a peer group
of specialty retailers that are comparable to the Company in terms of annual
revenues. A majority of the 14 companies in such peer group are traded on the
NASDAQ National Market System, and are incorporated into the peer index used
in the performance graph. See "FIVE YEAR PERFORMANCE GRAPH".
Annual salary recommendations for the Company's executive officers
(other than the Chief Executive) are made to the Committee by the Chief
Executive. The Committee reviews and then approves, with any modifications it
deems appropriate, such recommendations. Factors such as increased management
responsibility and achievement of operational objectives are considered, but
not formally weighted, in determining an increase. The Committee also used the
compensation study prepared by KPMG Peat Marwick and the Committee members'
experience in the retail industry, in evaluating the executive salary levels.
The compensation study indicated that 1993 salaries for the named executive
officers, other than the Chief Executive, were at or above the median range of
base salaries paid to comparable executives of the peer group. The Committee
believes that it must keep the base pay component at or above the median range
to remain competitive in attracting competent management.
The Committee has held salary increases in the past three fiscal years
below 4% annually. The Company's earnings and stock performance was the most
significant factor leading to the restraint on salary increases for the named
executive officers. The Committee reviews the salaries of newly hired or
promoted executives based upon the executive's prior compensation, the
Committee's understanding of competitive salary rates in the retail industry,
and the relative responsibilities and internal relationships of the positions
within the Company.
Annual Performance Incentives. Key executives, including the named
executive officers other than the Chief Executive, were eligible for annual
incentive (bonus) awards based on the performance of the Company against
predetermined targets. The annual incentive program provides for payment
shortly after the fiscal year being measured.
For 1993, the Committee established as the principal goal a threshold
level of earnings per share before bonuses would be paid to the named executive
officers.
8
<PAGE>
Earnings per share was used as the primary corporate performance measure
for bonuses because it is a key measure of success for the Company and its
shareholders. The earnings per share target represented a meaningful increase
over 1992's earnings per share, and was considered by the Committee to be
acceptable considering the costs and efforts in implementing a new merchandise
replenishment system while attempting to improve the Company's short-term
earnings performance. Each named executive officer was eligible to earn from
10% to a maximum of 30% of their salary if the target of earnings per share was
achieved by the Company. If the targets were not achieved then the incentives
would be reduced to lower levels. Below a certain earnings per share level no
incentives were to be paid.
Because the threshold was not achieved in fiscal 1993, and the Company's
earnings fell significantly below the lowest target, no annual incentive
payments were awarded to the named executive officers.
Long Term Incentives
The Committee uses a broad-based stock option plan, with over 150
participants, as the principal long term incentive for executives. The stock
option plan is designed to encourage executive officers to become shareholders
and to achieve meaningful increases in shareholder value. The Committee
normally grants stock options to executive officers annually.
The size of option grants in 1993 was determined using a matrix that
considers the executive's position, salary level, and the performance of the
executive as measured by the individual's performance rating. Factors
considered in the performance rating include, but are not limited to, the
achievement of operating objectives, expense control, and Company profits. In
determining an individual executive's performance rating, a formal weighing
system was not used. In March 1993, the Committee granted a total of 30,000
stock options to the named executive officers out of a total grant of 136,500
stock options. The exercise price of all options was set at 100% of fair market
value on the date the option was granted, with a term of ten years, and vesting
over a four year period. Since the value of the stock options depends on the
future market price of the Company's stock, the option grants were intended to
promote identification with shareholder interests.
In October 1993, the Committee granted the named executive officers,
other than the Chief Executive, a special stock option award, ranging in size
from 10,000 to 30,000, out of a total grant of 238,000 stock options. This
special grant to the named executives and other participants vests in a single
installment four years from the date of grant. It was designed to provide a
significant incentive to improve the earnings performance and equity value of
the Company, as well as aid in the retention of senior executives and
strengthen their long-term commitment to the Company. The total number of
stock options granted in 1993 to plan participants, including the special
grant, was 354,500, which would comprise approximately 3.5% of the outstanding
shares of Common Stock if all such options became vested and were exercised. In
setting this amount, the Committee primarily considered that vesting periods
are relatively long, and that the grants would provide additional incentives to
increase shareholder value and improve the retention of senior executives.
The Committee proposes to continue its use of a stock option program to
align the interests of management with those of shareholders. Therefore, the
Committee recommends the adoption of the 1994 Stock Option Plan, which the
Board of Directors has submitted for shareholder approval at this meeting.
See "Item 3 - APPROVAL OF 1994 STOCK OPTION PLAN".
The Committee has never made any grants of restricted stock under the
Company's 1990 Restricted Stock Plan.
Chief Executive Officer's Compensation
The Chief Executive was compensated in 1993 according to a five year
employment agreement approved by the Board of Directors in January 1989 that
continued in effect through January 31, 1994. The agreement provided for
annual salary adjustments according to the Consumer Price Index. Accordingly,
in February 1993, the Chief Executive received an increase in annual salary
from $530,882 to $550,000.
9
<PAGE>
The Chief Executive's employment agreement also provided for an
incentive payment for each fiscal year of the term of the employment agreement.
The incentive was based upon the Company's pre-tax profit before the accrual
for the cost of the incentive. The amount of incentive is equal to 2.5% of the
Company's pre-tax profit in any fiscal year, provided that the pre-tax profit
exceeds a specified threshold level. The threshold increased each year by
$2,000,000, to $24,000,000 in 1993. The $24,000,000 threshold was not achieved
in 1993 and, accordingly, the Chief Executive earned no incentive payment for
the fiscal year ended January 29, 1994.
The Chief Executive Officer waived his eligibility to participate in the
1986 Incentive and Non-Qualified Stock Option Plan, as amended and restated,
from its inception through the expiration of his contract, January 31, 1994.
In January 1994, the Committee extended the Chief Executive's employment
agreement for one year, except for the bonus provisions. Beginning in 1994, the
Chief Executive will earn annual incentive awards as a participant in a bonus
plan with the Company's other executives, and he will participate in the 1994
Stock Option Plan being submitted for shareholder approval.
Deductibility of Compensation Expenses
Regulations under Section 162(m) of the Internal Revenue Code, proposed
in December 1993, generally disallow a tax deduction to a public corporation
for tax years after 1993 for compensation over $1 million for its chief
executive officer or any of its four other highest-paid officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. No named executive of the Company earned more
than $1 million in 1993. However, Mr. Higgins has earned in excess of $1
million in the past and may do so in the future.
The Committee intends to structure the performance-based portion of the
compensation paid to executives in a manner that complies with the proposed
regulations. The 1994 Stock Option Plan being presented for shareholder
approval has been designed to meet the proposed regulations so that stock
options granted under such plans will be excluded from the deduction limit. The
Committee has adopted a new annual incentive plan for its executives, including
the Chief Executive and the other named executive officers. The Committee
believes that the annual incentive plan adopted generally follows the
requirements of the proposed regulations. However, because final regulations
have not been issued and because management believes that the likelihood is
small that any of the named executive officers will earn over $1 million in
cash compensation during 1994 under the new annual incentive plan, the
Committee will review the annual incentive plan during 1994 to determine what
changes are necessary or appropriate so that awards under the plan will be
excluded from the deduction limit.
Compensation Committee Interlocks and Insider Participation
During fiscal 1993, for the period up to January 1, 1994, Charlotte G.
Fischer served on the Committee while she served as a consultant to the
Company. Mrs. Fischer was engaged by the Company as a consultant in fiscal
1993, for which she received an aggregate of $89,850 in compensation. Before
her resignation from the Committee on January 1, 1994, Mrs. Fischer did not
vote on any action that: (a) established the financial hurdles for annual
incentive compensation for the named executives, or (b) established a new
employment agreement for the Chief Executive.
The foregoing report on executive compensation is provided by the
following Directors who comprised the Compensation Committee of the Board of
Directors during fiscal 1993: Messrs. Greenhut (Chairman), Dougan, Green and
Kaufman and Mrs. Fischer (until January 1, 1994).
Compensation Committee
of the Board of Directors
Arnold S. Greenhut, Chairman
George W. Dougan, Charlotte G. Fischer,
J. Markham Green and Isaac Kaufman
10
<PAGE>
Executive Officers And Compensation
The Company's executive officers are identified below. At year end,
only two officers met the definition of "executive officer" under applicable
regulations for fiscal year 1993, including the Chief Executive. Executive
officers of the Company currently hold the same respective positions with
Record Town, Inc., the Company's wholly-owned subsidiary through which all
retail operations are conducted. The Summary Compensation Table sets forth the
compensation paid by the Company and its subsidiaries for services rendered in
all capacities during the last three fiscal years to each of the most highly
compensated executive officers of the Company whose cash compensation for that
year exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compen-
sation
-----------
Annual Compensation Awards
--------------------------------------------------------
Securities
Other Annual Underlying All Other
Salary Bonus Compensation Options/ Compensation
Name and Principal Position Year ($) ($) ($) SARs (#) ($)
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ROBERT J. HIGGINS 1993 550,000 0 91,027 (1) 0 45,255 (1)
Chairman, President and Chief 1992 530,882 553,462 83,424 (1) 0 65,631 (1)
Executive Officer 1991 515,922 500,000 98,992 0 63,000 (1)
EDWARD W. MARSHALL, JR. 1993 190,751 0 -- (2) 45,000 3,854 (3)
Senior Vice President - 1992 183,806 55,200 -- (2) 5,000 3,850 (3)
Operations 1991 176,211 20,000 -- 60,000 0
JEFFREY A. JONES (4) 1993 125,833 0 -- (2) 5,000 108,891 (4)
Former Senior Vice President - 1992 182,695 55,600 -- (2) 5,000 3,777 (3)
Finance & Chief Financial Officer 1991 77,667 (6) 40,000 -- 60,000 0
EDWARD E. SZYDLIK (5) 1993 190,000 0 -- (2) 0 49,560 (5)
Former Senior Vice President - 1992 193,798 57,000 -- (2) 0 1,740 (3)
Merchandising 1991 37,981 (6) 9,500 -- 60,000 0
- - ---------------------------
(1) "Other Annual Compensation" in fiscal 1993 for Mr. Higgins consists in
part of $82,208 in payments for or reimbursement of life insurance
premiums made on behalf of Mr. Higgins or his beneficiaries, pursuant to
his employment agreement. Substantially all of the "Other Annual
Compensation" in 1992 and 1991 was for similar life insurance payments.
"All Other Compensation" in fiscal 1993 for Mr. Higgins consists of $6,500
for director's fees, and the balance is equal to the maximum dollar value
of premiums paid by the Company with respect to split dollar life
insurance policies that the Company owns on the lives of Mr. Higgins and
his wife. The Company will recoup most or all of such premiums upon
maturity of the policies, but the maximum potential value is calculated in
line with current SEC instructions as if the 1993 premiums were advanced
without interest until the time that the Company expects to recover the
premium.
(2) "Other Annual Compensation" for the named executive was less than $50,000
and also less than 10% of the total of annual salary and bonus reported.
(3) "All Other Compensation" for the named executive consists of matching
contributions for the 401(k) Savings Plan.
(4) Mr. Jones separated from the Company effective August 27, 1993. Included
in "All Other Compensation" for 1993 is severance compensation of
$101,158, moving expenses of $4,208 and the Company's 401(k) contribution
of $3,525.
11
<PAGE>
Mr. Jones was originally awarded options execisable into 15,000
shares. As part of Mr. Jones' severance package, the vesting of 5,000
shares of the 15,000 share grant was accelerated; the remaining 10,000
options were canceled. The Company also extended the exercise period for
his vested stock options for an additional 18 months.
(5) Mr. Szydlik separated from the Company effective January 29, 1994.
Included in "All Other Compensation" for 1993 is severance compensation
equal to $47,500, and the Company's 401(k) contribution of $2,060. The
Compensation Committee extended the exercise period for stock options
exercisable into 5,000 shares of Common Stock under the 1986 Stock Option
Plan.
(6) Cash compensation under "Salary" was for partial year employment.
</TABLE>
Stock Option Plans
The Trans World Music Corp. 1986 Incentive and Non-Qualified Stock
Option Plan, as amended and restated (the "1986 Plan"), has an aggregate of
1,100,000 shares authorized for issuance. On April 29, 1994, the Board of
Directors adopted the 1994 Stock Option Plan (the "1994 Plan"), which
authorizes the issuance of up to an additional 1,000,000 shares, subject to
approval by the Company's shareholders. See "Item 3 - APPROVAL OF 1994 STOCK
OPTION PLAN". The following tables set forth, as to each of the named executive
officers, certain information with respect to all options granted or exercised
for the fiscal year ended January 29, 1994 under the 1986 Plan.
STOCK OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term (4)
-------------------------------------------------------------------------------------------
Number of
Securities Percent of
Underlying Total Options Exercise
Options Granted to or Base
Granted (#) Employees in Price Expiration
Name (1)(2) Fiscal Year ($/share) Date 5% ($) 10% ($)
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Higgins 0 N/A -- -- -- --
Mr. Marshall 15,000 4.2% 15.00 3/19/03 141,750 357,750
30,000 8.5% 13.75 10/4/03 259,875 655,875
Mr. Jones (3) (5) 5,000 (4) 4.2% 15.00 3/19/03 47,250 119,250
Mr. Szydlik (5) 0 N/A -- -- -- --
- - --------------------------------
(1) No SARs were granted.
(2) Stock Options are exercisable annually in 4 equal installments, commencing
on the first anniversary of the date of grant, and vest earlier upon the
officer's death or disability. The stock options have a term of ten years.
The grant to Mr. Marshall of options exercisable into 30,000 shares on
October 4, 1993 vests in one installment on the fourth anniversary of the
date of grant. All options granted under the 1986 Plan may become
immediately exercisable upon the occurrence of certain business
combinations. The Compensation Committee of the Board of Directors may
accelerate or extend the exercisability of any options subject to such
terms and conditions as the Committee deems appropriate. The option
exercise price was set at the fair market value (last reported sale
price) on the date of grant.
(3) Mr. Jones was originally awarded options exercisable into 15,000 shares.
As part of Mr. Jones' severance package, the vesting of 5,000 shares of
the 15,000 share grant was accelerated; the remaining 10,000 options were
canceled.
(4) These amounts are based on assumed appreciation rates of 5% and 10% as
prescribed by Securities and Exchange Commission rules, and are not
intended to forecast possible future appreciation, if any, of the
Company's stock price.
(5) Former executive officer of the Company.
</TABLE>
12
<PAGE>
AGGREGATED STOCK OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End (#) at Fiscal Year-End ($)
Shares ----------------------------------------------------
Acquired
on Exercise Value Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable (2)
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mr. Higgins --- --- --- --
Mr. Marshall --- --- 19,750/95,250 0/0
Mr. Jones (3) --- --- 31,250/0 0/0
Mr. Szydlik (3) --- --- 5,000/0 0/0
- - ----------------------------------
(1) There have been no SARs issued and there are no SARs outstanding.
(2) Calculated on the basis of the fair market value of the underlying
securities as of January 29, 1994 minus the exercise price.
(3) Former executive officer of the Company.
</TABLE>
FIVE-YEAR PERFORMANCE GRAPH
The following line graph reflects a comparison of the cumulative total
return of the Company's Common Stock from January 31, 1989 through January 31,
1994 with the NASDAQ Index (U.S. Stocks) and with a NASDAQ Retail Trade Stocks
index. Because only one of the Company's leading competitors has been an
independent publicly traded company over the period, the Company has elected
to compare shareholder returns with the published index of retail companies
compiled by NASDAQ. All values assume $100 invested on January 31, 1989, and
that all dividends were reinvested.
Trans World Music Corp.
Comparison of Five Year Cumulative Total Return
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
- - ----------------------------------------------------
<S>
Trans World <C> <C> <C> <C> <C> <C>
Music Corp. 100 88 64 88 55 51
- - ----------------------------------------------------
NASDAQ (U.S.) 100 105 108 166 187 208
- - ----------------------------------------------------
NASDAQ Retail
Trade Stocks 100 103 124 216 195 210
- - ----------------------------------------------------
</TABLE>
13
<PAGE>
Item 2. APPROVAL OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors proposes to change the Company's name to "Trans
World Entertainment Corporation". The change of the Corporate name from Trans
World Music Corp. to Trans World Entertainment Corporation was adopted by the
Board of Directors to reflect the changing nature of the Company's business.
Prerecorded video, books, electronic and other entertainment games now
represent, together, nearly 15% of the Company's revenues and business, and
that share is expected to grow in the future. In addition, the Board believes
that the broader image portrayed by the name may make it more attractive to a
broader spectrum of investors.
If the proposed amendment is approved by shareholders, it is expected
that the name of the Company will officially become "Trans World Entertainment
Corporation" effective July 1, 1994. There will be no change to the ticker
symbol for the Company's Common Stock, "TWMC", on the NASDAQ National
Market System. If the proposed amendment is approved, stock certificates
representing the Company's Common Stock issued prior to the effective date of
the change of corporate name will continue to represent the same number of
shares, will remain authentic, and will not be required to be returned to the
Company for reissuance. Delivery of existing stock certificates will continue
to be accepted in a sale transaction made by a shareholder after the corporate
name is changed.
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock is required for approval of the proposed amendment.
Your Board of Directors requests your vote for the following proposal:
RESOLVED, that the Company's Article First of the Restated Certificate
of Incorporation be amended to change the name of the corporation from
"Trans World Music Corp." to "Trans World Entertainment Corporation".
The Board of Directors unanimously recommends that shareholders vote FOR
the amendment to the Restated Certificate of Incorporation.
Item 3. APPROVAL OF
1994 STOCK OPTION PLAN
Introduction
The Board of Directors is seeking shareholder approval of the 1994 Stock
Option Plan (the "1994 Plan"), which will succeed the existing stock option
plan. The new plan was drafted to comply with the proposed regulations issued
under Section 162(m) of the Internal Revenue Code of 1986, as amended, to
ensure the tax deductibility of compensation paid. The 1994 Plan is set forth
as Annex A.
The purpose of the Company's stock option programs is to provide a
flexible mechanism to permit key employees to obtain significant equity
ownership in the Company, giving them a permanent stake in the Company's growth
and success, and encouraging the continuation of their involvement with the
Company. The Compensation Committee (the "Committee") has recommended to the
Board of Directors that a stock option program should be continued. On April
29, 1994, the Board of Directors adopted, subject to shareholder approval, the
1994 Plan.
Discussion
On May 5, 1986, the Company's Board of Directors adopted the existing
stock option program, the 1986 Incentive and Non-Qualified Stock Option Plan,
as amended and restated (the "1986 Plan"). The 1986 Plan expires by its term
in May 1996. Through April 29, 1994, 1,100,000 shares have been authorized by
the shareholders for issuance under the 1986 Plan.
14
<PAGE>
As of April 29, 1994, 131,297 stock options have been exercised, 953,831
stock options have been granted and are unexercised, and 14,872 remain
available for future grant. The 1986 Plan terminates on, and no further
options or awards will be made or granted thereunder after, May 4, 1996.
The following summary describes the principal features of the 1994 Plan.
The principal differences between the 1994 Plan and the 1986 Plan are discussed
at the end of this summary under the heading "Principal Differences." This
summary is qualified in its entirety by reference to specific provisions of the
1994 Plan set forth as Annex A.
The 1994 Plan
Committee. The 1994 Plan will be administered by the Committee or such
other committee appointed by the Board of Directors, consisting of three or
more outside, independent directors. Each member of the Committee will meet the
requirements set forth in Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the proposed regulations
issued under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "code"). No member of the Committee will be eligible to participate in the
1994 Plan or shall have been eligible to participate in the 1994 Plan or shall
have been eligible to participate in the 1994 Plan or the 1986 Plan during a
one-year period prior to appointment.
Eligibility. Key executive and managerial employees (including officers
and employees who may be directors) of the Company and of any subsidiary shall
be eligible to participate in the 1994 Plan. Selection of employees eligible to
participate in the 1994 Plan is within the discretion of the Committee. It is
expected that the 1994 Plan will be administered in a manner similar to the
1986 Plan, under which approximately 150 employees currently participate.
Common Stock Issuable upon Exercise. Under the 1994 Plan, up to
1,000,000 shares of the Company's Common Stock may be optioned or granted to
eligible employees, and no more than 300,000 stock options may be granted to
any one employee during the term of the plan. Shares of the Company's Common
Stock that are optioned or awarded under the 1994 Plan may be either treasury
shares or authorized but unissued shares. Shares reserved for issuance pursuant
to expired or terminated options under the 1994 Plan will be made available for
future option grants under the 1994 Plan.
The 1994 Plan provides for appropriate adjustments in the aggregate
number of shares of Common Stock subject to such plan and in the number of
shares and the price per share, or either, of outstanding options in the case
of changes in the capital stock of the Company resulting from any
recapitalization, stock or unusual cash dividend, stock split or any other
increase or decrease effected without receipt of consideration by the Company,
or merger or consolidation in which the Company is the surviving company. The
1994 Plan also provides that in any merger or consolidation in which the
Company is not the survivor and in which suitable stock options are not granted
in substitution of stock options outstanding under the 1994 Plan, or the
predecessor option plan approved in 1986, the Company will deliver to each
optionee in cash an amount equal to the difference between the purchase price
of stock options then outstanding and the fair market value of the Company's
Stock at the effective date of such merger or consolidation.
Grants of Stock Options and Stock Appreciation Rights. Under the 1994
Plan, the Committee may grant to eligible employees either non-qualified or
incentive stock options, or both, to purchase shares of the Company's Common
Stock. The Committee may also provide that options may not be exercised in
whole or in part for any period or periods of time; provided, however, that
no option shall be exercisable by a participant who is subject to the
provisions of Section 16 of the Exchange Act, until the lapse of at least six
months from the date of grant. The number of shares covered by incentive stock
options which may be first exercised by an optionee in any year cannot have an
aggregate fair market value in excess of $100,000, measured at the date of
grant. All options shall expire not more than ten years from the date of grant.
15
<PAGE>
The Committee may provide that in the event the employment of an
employee is terminated, the right to exercise options held under the 1994 Plan
may continue through its original expiration date or for such shorter period of
time after such event as the Committee may determine appropriate. Options are
generally not assignable or transferable other than by will or the laws of
descent and distribution, or by a qualified domestic relations order and,
during the optionee's lifetime, the stock option may only be exercised by such
optionee.
The price at which shares of Common Stock may be purchased pursuant to
stock options granted by the Committee will be determined by the Committee, but
in no event will such price be less than the fair market value of the shares at
the time that the option is granted. "Fair market value" is defined as the
closing price of the Common Stock on the NASDAQ National Market System or
principal stock exchange that the shares may be traded on as of the date of
grant, or if such day is not a trading day, the next succeeding trading day.
Generally, each stock option will become exercisable in increments of 25% of
the total number of shares subject to option on the one year anniversary of
the date of grant and annually thereafter. The Committee may, in its
discretion, provide at the date of grant for another time or times of
exercisability of any such option subject to the terms and conditions of the
1994 Plan. The Committee may, at any time prior to the expiration or
termination of a stock option previously granted, extend the term of such
option for such additional period (up to a total exercise period of not more
than ten years) as it shall, in its discretion, deem necessary or appropriate.
The option price must be paid to the Company by the optionee in full
prior to delivery of the Common Stock. If the optionee intends to obtain a
permissible broker loan or simultaneously sell the exercised shares, the
exercise shall not be deemed to have occurred until the Company receives the
proceeds. The optionee may pay the option price in cash or with shares of the
Company's Common Stock owned by him. The optionee has no rights as a
shareholder with respect to the shares subject to option until shares of Common
Stock are issued upon exercise of the option.
The Committee may, in its discretion, grant a stock option together with
a stock appreciation right. In the case of such grant the optionee may either
exercise the option and receive Common Stock, or receive cash or other property
equal to the difference between the exercise price of the underlying option and
the fair market value of the Common Stock at the time of exercise. Upon
exercise of a stock appreciation right the underlying stock option is deemed to
have been exercised, and those shares will no longer be available under the
1994 Plan.
Federal Income Tax Consequences. The following is a summary of the
principal federal income tax consequences associated with the grants of options
and SARs under the Plan. This summary is based on the provisions of the Code,
the Treasury regulations promulgated thereunder, and administrative and
judicial interpretations thereof, all as in effect as of the date hereof. It
does not describe all federal income tax consequences under the plan, nor does
it describe foreign, state or local tax consequences.
In general, a grant of a stock option will not be a taxable event to a
recipient and it will not result in a deduction to the Company. The tax
consequences associated with excercise of a stock option granted under the
Plan, and with the subsequent disposition of Common Stock acquired on exercise
of such an option will depend in part on whether the option is an incentive
stock option (within the meaning of Section 422 of the Code) or a non-qualified
stock option.
Upon the exercise of a non-qualified stock option, the optionee will
recognize ordinary taxable income equal to the excess of fair market value of
the Common Stock received upon exercise over the exercise price. The Company
will generally be able to claim a deduction in an equivalent amount. Any
gain or loss upon a subsequent sale or exchange of the Common Stock will be
capital gain or loss for the recipient.
Generally, the optionee will not recognize ordinary taxable income at
the time of exercise of an incentive stock option and no deduction will be
available to the Company. If Common Stock acquired upon exercise of an
incentive stock option is sold or exchanged more than one year after the date
of exercise and more than two years from the date of grant of the option, any
gain or loss will be a capital gain or loss.
16
<PAGE>
If Common Stock acquired upon exercise of an incentive stock option is
disposed of prior to the expiration of these one-year or two-year holding
periods, the optionee will recognize ordinary income at the time of
disposition, and the Company will generally be able to claim a deduction,in
an amount equal to the excess of the fair market value of the Common Stock at
the date of exercise over the exercise price.
Generally, when the optionee receives payment with respect to an SAR
granted under the Plan, the amount of cash and the fair market value of the
Common Stock or other property received will be ordinary income to such
optionee and will be allowed as a deduction for federal income tax purposes
to the company.
The Company may withhold, or require the optionee to remit to the
Company, an amount sufficient to satisfy any federal, state or local with-
holding tax requirements associated with awards under the Plan.
Section 162(m) of the Code, effective for tax years beginning after
1993, generally limits the deductable amount of annual compensation paid
(including, unless an exception applies, compensation otherwise deductable on
exercise of stock options and SARs) by a public company to a "covered employee"
(the chief executive officer and four other most highly compensated executive
officers of the Company) to no more than $1 million. Qualifying performance-
based compensation will be excluded from the computaion and will not be subject
to the deduction limit. The Plan is designed and intended to qualify under the
performance-based compensation exception.
Amendment and Termination. The 1994 Plan has a term of ten years and
no shares may be optioned and no rights to receive shares may be granted after
the expiration of the plan. The Committee has full and final authority to
determine the employees to be granted stock options, to determine the number of
shares subject to each option (up to a maximum of 300,000 stock options to any
one employee during the term of the 1994 Plan), to determine the option price
within the prescribed limits, to determine the time or times when each stock
option will be issued and exercisable, and to adopt rules and regulations for
carrying out the 1994 Plan. The Board of Directors is authorized to terminate
or amend the 1994 Plan, except that it may not increase the number of shares
available thereunder, decrease the minimum price at which options may be
granted, or extend the term of the Plan, without shareholder approval.
Change in Control. If the Company's current principal shareholder,
Robert J. Higgins, or members of his immediate family or one or more trusts
established for the benefit of such individuals, owns beneficially less than
20% of the outstanding shares of the Company's Common Stock for a period of 60
consecutive calendar days, then the outstanding Options will vest immediately
and become exercisable upon a Change in Control. "Change in Control" for the
purposes of the 1994 Plan shall mean any of the following events:(i)the sale of
the Company, whether by sale of substantially all of the Company's assets or a
merger or consolidation in which the shareholders of the Company, immediately
prior to the to a consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is defined in 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) a tender offer that is subject to the regulations
of the Securities and Exchange Commision is commenced by any person or group
other than Robert J. Higgins, or members of hs immediate family or one or more
trusts established for the benefit of such individuals, the completion of which
results in such persons or group owning more than one-half of the outstanding
shares of the Company's Common Stock, or (iii) 50% or more of the directors of
the Company are persons who were not nominated by either management or the Board
of Directors in the most recent proxy statement of the Company. These change
in control provisions are intended to protect option holders in the event of a
change in control, but could tend to inhibit an acquisition due to the in-
creased acquisition costs resulting from additional outstanding shares.
In the event shareholders do not approve the 1994 Plan, the 1994 Plan
will not become effective.
17
<PAGE>
On April 29, 1994, 195,000 stock options were granted as part of the
Committee's annual review program, subject to approval of the 1994 Plan by the
Company's shareholders. Included in such grant were 65,000 stock options
granted to the named executive officers.
Principal Differences. The 1994 Plan is basically a continuation of the
1986 Plan. However, it does differ from the 1986 Plan in the following
principal respects: (i) Under the 1994 Plan a total of 1,000,000 shares of
Common Stock may be optioned to eligible employees, while the 1986 Plan covered
1,100,000 shares authorized for issuance thereunder; (ii) under the 1994 Plan
no options may be granted with an exercise price below the fair market value of
the Company's Common Stock on the date of grant, while under the 1986 Plan
stock options could be granted at any exercise price that was greater than
the par value of the Common Stock; (iii) under the 1994 Plan, the vesting of
outstanding stock options is accelerated automatically upon a "Change in
Control" (as defined) of the Company; and (iv) under the 1994 Plan, no more
than 300,000 stock options can be granted to any one participant during the
term of the plan, while under the 1986 Plan there was no such limitation.
The following table sets forth certain information with respect to stock
options granted under the 1994 Plan as of April 29, 1994:
<TABLE>
<CAPTION>
EXERCISE NUMBER OF SECURITIES
NAME AND POSITION PRICE UNDERLYING OPTIONS GRANTED
- - -----------------------------------------------------------------------------------
<S> <C>
Robert J. Higgins <C>
Chairman, President and Chief $13.00 50,000
Executive Officer
Edward W. Marshall, Jr.
Senior Vice President - Operations $13.00 15,000
All executive officers as a group,
including persons named above $13.00 65,000
All other employees, as a group $13.00 130,000
</TABLE>
To be adopted, this proposal requires the affirmative vote of the
majority of the shares present in person or represented by proxy at the 1994
Annual Meeting of Shareholders.
The Board of Directors unanimously recommends that shareholders vote FOR
the approval of the 1994 Stock Option Plan.
SECTION 16(a) REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company, and copies of all
Section 16(a) reports they file are required to be furnished to the Company.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the two-year period ended January 29, 1994,
there were no violations of Section 16(a) filing requirements applicable to
directors, executive officers and greater than ten percent beneficial owners.
OTHER MATTERS
Other Items. Management knows of no other items or matters that are
expected to be presented for consideration at the meeting. If other matters
properly come before the meeting, however, the persons named in the
accompanying proxy intend to vote thereon in their discretion.
Proxy Solicitation. The Company will bear the cost of the meeting and
the cost of soliciting proxies, including the cost of mailing the proxy
materials. In addition to solicitation by mail, directors, officers, and
regular employees of the Company (none of whom will be specifically compensated
for such services) may solicit proxies by telephone or otherwise.
18
<PAGE>
Arrangements will be made with brokerage houses and other custodians,
nominees, and fiduciaries to forward proxies and proxy material to their
principals, and the Company will reimburse them for their ordinary and
necessary expenses.
Independent Auditors. The Board of Directors currently intends to
select Ernst & Young as independent auditors for the Company for the fiscal
year ending January 28, 1995. Ernst & Young has acted as auditors for the
Company since 1985. Representatives of Ernst & Young will be present at the
Annual Meeting of Shareholders and available to make statements to and
respond to appropriate questions of shareholders.
Financial Statements. The Company's 1993 Annual Report to the
Shareholders (which does not form a part of the proxy solicitation material),
including financial statements for the fiscal year ended January 29, 1994, are
being sent concurrently to shareholders. If you have not received or had access
to the 1993 Annual Report to Shareholders, or you would like to receive
quarterly shareholder reports from the Company, please write to the Company to
the attention of: Treasurer, 38 Corporate Circle, Albany, New York 12203, and a
copy or copies will be sent to you free of charge.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders of the Company wishing to include proposals in the proxy
material in relation to the annual meeting of the Company to be held in 1995
must submit the same in writing so as to be received at the executive offices
of the Company on or before January 17, 1995. Such proposals must also meet the
other requirements of the rules of the Securities and Exchange Commission
relating to shareholders' proposals. No such proposals were received with
respect to the annual meeting scheduled for June 10, 1994.
By Order of the Board of Directors,
/s/ Matthew H. Mataraso
Matthew H. Mataraso,
Secretary
May 20, 1994
19
<PAGE>
ANNEX A
TRANS WORLD ENTERTAINMENT CORPORATION
1994 STOCK OPTION PLAN
1. PURPOSE
(a) The purpose of this 1994 Stock Option Plan (the "Plan"), is to
encourage and enable selected management and other key employees of Trans World
Entertainment Corporation (the "Company") or a parent or subsidiary of the
Company to acquire a proprietary interest in the Company through the ownership
of stock in the Company. Pursuant to the Plan, eligible employees will be
offered the opportunity to acquire such common stock through the grant of
Incentive Stock Options, other statutory options and Non-Qualified Stock Options
(Incentive Stock Options and Non-Qualified Stock Options granted under the Plan
are collectively referred to herein as "Options"), with or without tandem
Stock Appreciation Rights ("SARs").
(b) As used herein, the term "parent" or "subsidiary" shall mean any
present or future corporation which is or would be a "parent corporation" or
"subsidiary corporation" of the Company as the term is defined in Section 424
of the Internal Revenue Code of 1986, as amended (the "Code") (determined as if
the Company were the employer corporation). "Incentive Stock Options" shall
have the meaning ascribed to them in Section 422 of the Code.
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee of the Board
of Directors, or such other committee appointed by the Board of Directors (the
"Committee"), consisting of three or more disinterested, independent directors.
Each member of the Committee will meet the requirements set forth in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the proposed regulations issued under Section 162(m) of
the Internal Revenue Code of 1986, as amended. No member of the Committee
will be eligible to participate in the Plan or shall have been eligible to
participate in the Plan during a one-year period prior to appointment. The
Committee is authorized: (a) to adopt, alter and repeal administrative rules,
guidelines and regulations for carrying out the Plan; (b) to select the
employees eligible for participation under the Plan; (c) to determine whether
and to what extent Options and SARs are to be granted under the Plan; (d) to
substitute new Options for previously granted Options, including previously
granted Options having higher exercise prices; (e) to determine the other
terms, conditions and provisions of grants under the Plan; (f) to accelerate
the vesting or extend the exercise period (up to a maximum of ten years); and
(g) to interpret the Plan, in all cases in the Committee's sole discretion
consistent with the Plan provisions. The interpretation of and decisions with
regard to any questions arising under the Plan made by the Committee shall be
final and conclusive.
3. SHARES OF STOCK SUBJECT TO THE PLAN
(a) Shares Subject to Issuance. There shall be 1,000,000 shares of the
Company's common stock, par value $.01 per share (the "Common Stock")
authorized for issuance under the Plan. Such shares may be authorized and
unissued shares or previously issued shares acquired or to be acquired by the
Company and held in the treasury. Any shares subject to an Option which for
any reason expires or is terminated unexercised may again be subject to an
Option under the Plan. The aggregate fair market value (determined at the
time the Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any optionee
during any calendar year (under all plans of the Company and any parent or
subsidiary of the Company which plans provide for granting of Incentive Stock
Options within the meaning of Section 422 of the Code) shall not exceed
$100,000.
A-1
<PAGE>
(b) Antidilution Adjustments. In the event of a reorganization,
recapitalization, stock split, reverse stock split, stock dividend, combination
of shares, merger, consolidation, reclassification or other change in corporate
structure, there shall be an appropriate adjustment to the number of shares
authorized for issuance under the Plan pursuant to the provisions of Section 8
hereof.
4. ELIGIBILITY
Options may be granted only to executive officers, management and other
key employees who are employed by the Company or a parent of subsidiary of the
Company, in each case as designated by the Committee. An Option may be granted
to a director of the Company or a parent or subsidiary of the Company who is
not also a member of the Committee, provided that the director is also an
officer or key employee.
5. GRANTING OF INCENTIVES
(a) Term of Plan and Option Grants. All Options granted pursuant to this
Plan shall be granted within 10 years from April 29, 1994. The date of the
grant of any Option shall be the effective date on which the Committee
authorizes the grant of such Option. In no event, however, shall any Option
be exercisable beyond 10 years from the date it is granted.
(b) Limits Applicable to any one Employee. The maximum number of shares
of Common Stock with respect to which Options or SARs that may be granted to
any one employee from this Plan is 300,000, subject to adjustment in accordance
with the provisions of Section 8 hereof.
(c) Executive Officers. Options granted to any executive officer or
employee governed by the provisions of Section 16 under the Exchange Act,
shall not be exercisable earlier than six months from the date of grant.
(d) Stock Appreciation Rights. The Committee may in its sole discretion
grant an Option together with an SAR. In the case of such a grant the employee
may either (i) exercise the Option and receive Common Stock of the Company or
(ii) receive in cash or other property, in the sole discretion of the
Committee, the difference between the exercise price of the underlying option
and the fair market value of the Common Stock at the time the SAR is exercised.
An Incentive Stock Option granted together with an SAR shall be subject to the
limitations of the Plan and such additional limitations as may be imposed under
Section 422 of the Code, which limitations are necessary or appropriate to cause
such Incentive Stock Option or another Incentive Stock Option to qualify as an
"incentive stock option" within the meaning of Section 422 of the Code. Upon
exercise of an SAR, the underlying option shall be deemed to have been
exercised to the extent of the shares with respect to which the SAR is
exercised and such shares shall no longer be available for issuance pursuant to
the Plan.
(e) Limited Stock Appreciation Right. The Committee in its discretion
may include provisions in any Option or SAR granted to an employee that become
effective upon a Change in Control (as defined in Section 8 of the Plan) of the
Company and that provide for the acceleration of the exercisability of the
Option or SAR. Such provisions may also include the right, in lieu of
exercising the Option or SAR, to elect to surrender all or part of such option
or SAR to the Company and to receive cash in an amount equal to the excess of
(i) the higher of (x) the Fair Market Value of share of Common stock on the
date of such right is exercised and (y) the highest price paid for Common Stock
or, in the case of securities convertible into common Stock or carrying a right
to acquire Common Stock, the highest effective price (based on the prices paid
for such securities) at which such securities are convertible into Common Stock
or at which Common Stock may be acquired, by any person or group whose
acquisition of voting securities has resulted in a Change in Control of the
Company over (ii) the exercise price per share under the Option or SAR,
multiplied by the number of shares of Common Stock with respect to which such
right is exercised.
The provisions authorized by this Section 5(e) may be included in an Option or
SAR at the time of grant or thereafter.
A-2
<PAGE>
6. TERMS AND CONDITIONS OF OPTIONS
(a) Option Price. The purchase price under each Option shall be at least
100% of the Fair Market Value of the Common Stock at the time the Option is
granted but not less than the par value of such Common Stock. In the case of
an Incentive Stock Option granted to an employee owning more than 10% of the
total combined voting power of all classes of stock of the Company or of any
parent or subsidiary of the Company, actually or constructively under Section
424(d) of the Code, the option price shall not be less than 110% of the Fair
Market Value of the Common Stock subject to the Option at the time of its
grant. The "Fair Market Value" of the Common Stock shall mean the closing
price of the Common Stock on the NASDAQ National Market System or principal
stock exchange that the shares may be traded on as of the date of grant, or if
such day is not a trading day, the next succeeding trading day.
(b) Medium and Time of Payment. Common Stock purchased pursuant to the
exercise of an Option shall at the time of purchase be paid for in full in
cash, or with shares of Common Stock, or a combination of cash and such Common
Stock, to be valued at the fair market value thereof on the date of such
exercise. Common Stock to be used by executive officers and other employees
subject to the reporting provisions of Section 16 of the Exchange Act must have
been held by such optionee for a minimum of 6 months. If the optionee intends
to obtain a permissible broker loan or a simultaneous order to sell the shares
issuable upon exercise of any Options, upon the giving of at least 48 hours
prior written notice to the Company, exercise thereof shall not be deemed to
occur until the Company receives the proceeds of the recipient's broker loan or
other permitted transaction. Upon receipt of payment the Company shall,
without stock transfer tax to the optionee or other person entitled to exercise
the Option, deliver to the person exercising the Option a certificate or
certificates for such shares. It shall be a condition to the performance of
the Company's obligation to issue or transfer Common Stock upon exercise of an
Option or Options that the optionee pay, or make provision satisfactory to the
Company for the payment of, any withholding taxes which the Company is
obligated to collect with respect to the issuance or transfer of Common Stock
upon such exercise.
(c) Vesting and Exercise Period. The vesting period of time before
exercising an Option shall be prescribed by the Committee in each particular
case, in the Committee's sole discretion except that the vesting period shall
be at least 6 months from the date of grant for executive officers and other
employees subject to the reporting provisions of Section 16 of the Exchange
Act. No Option may be exercised more than 10 years from the date it is
granted. Unless otherwise specified by the Committee, Options shall vest and
become exercisable with respect to 25% of the shares subject thereto on each
of the first, second, third and fourth anniversaries of the date of the grant.
In the event of the death or permanent disability of an optionee, all
outstanding Options shall immediately vest and become exercisable, except for
those Options granted within six months of such date. Unless otherwise
specified, all Options shall be for a term of ten years from the date of grant.
However, in the case of an Incentive Stock Option granted to a 10% shareholder
(as defined in Section 6(a) hereof), such option, by its terms, shall be
exercisable only within five years from the date of grant.
(d) No Rights to Employment or as a Shareholder. Nothing in the Plan or
in any Option shall confer any right to continue in the employ of the Company
or any parent or subsidiary of the Company or interfere in any way with the
right of the Company or any parent or subsidiary of the Company to terminate
the employment of the optionee at will at any time, in accordance with the
provisions of applicable law. An optionee shall have no rights as a
shareholder of the Company with respect to any shares issuable or transferable
upon exercise thereof until the date a stock certificate is issued to him for
shares of Common Stock.
A-3
<PAGE>
7. EXERCISE AFTER SEPARATION OF EMPLOYMENT OR DEATH
(a) Retirement, Death or Disability. In the event of the retirement with
the consent of the Company, the Options or unexercised portions thereof that
were otherwise exercisable on the date of retirement shall be exercisable
during their specified terms but prior to three years after the date of
retirement, whichever occurs earlier. In the event of the death or permanent
disability (as that term is defined in Section 22(e)(3) of the Code, as now in
effect or as subsequently amended), of the recipient, all Options other than
those granted within six months of such date shall become vested and
immediately exercisable by the optionee, or if he is not living, by his heirs,
legatees or legal representatives (as the case may be), during their specified
terms but prior to the expiration of three years after the date of death or
permanent disability, whichever occurs earlier.
(b) Separation of Employment. With respect to any separation of
employment from the Company, other than by reason of retirement, death or
permanent disability, as provided in Section 7(a), Options, if vested on the
date of termination, may be exercised during their specified terms but prior
to the expiration of three months after separation of employment with the
Company, whichever occurs earlier, or, for Non-Qualified Stock Options, such
period in excess of three months but prior to the expiration date originally
scheduled for such Option as the Committee may, in its sole and absolute
discretion, determine and provide.
(c) Leave of Absence. If an optionee takes an approved leave of absence,
the Committee may, if it determines that to do so would be in the best
interest of the Company, provide in a specific case for continuation of Options
during such leave of absence, such continuation to be on such terms and
conditions as the Committee determines to be appropriate.
(d) Certain Investment Restrictions. Each Option granted under the Plan
shall be subject to the requirement that, if at any time the Board of Directors
shall determine, in its discretion, that the listing, registration or
qualification of the shares issuable or transferable upon exercise thereof upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the granting of such Option or the issue,
transfer or purchase of shares thereunder, such Option may not be exercised in
whole or in part unless such listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board of Directors. The Company shall not be obligated to
sell or issue any shares of Common Stock in any manner in contravention of the
Securities Act of 1933, as amended, or any state securities law.
8. ADJUSTMENTS
(a) Recapitalization. The number of shares subject to the Plan shall be
increased or decreased proportionately, as the case may be, in the event that
dividends payable in Common Stock during any fiscal year of the Company exceed
in the aggregate five percent of the Common Stock issued and outstanding at the
beginning of the fiscal year, or in the event there is during any fiscal year
of the Company one or more splits, reverse splits, subdivisions, or
combinations of shares of Common Stock resulting in an increase or decrease by
more than five percent of the shares outstanding at the beginning of the year.
Common Stock dividends, splits, reverse splits, subdivisions, or combinations
during any fiscal year that are equal or are less than, in the aggregate, five
percent of the Common Stock issued and outstanding at the beginning of such
fiscal year, shall be ignored for purposes of the Plan. In the event of any
such adjustment the number of underlying shares and the purchase price per
share applicable to options previously granted shall be proportionately
adjusted. All adjustments shall be made as of the date such action
necessitating such adjustment becomes effective.
A-4
<PAGE>
(b) Sale or Reorganization. In case the Company is merged or
consolidated with another corporation, or in case substantially all of the
property, stock or assets of the Company is to be acquired by another
corporation, or in case of a separation, reorganization, or liquidation of the
Company, the Board of Directors of the Company, or the board of directors of
any corporation assuming the obligations of the Company hereunder, shall
either: (i) make appropriate provisions for the protection of any outstanding
Options by the substitution on an equitable basis of cash or comparable stock
or stock options of the Company, or cash or comparable stock or stock options
of the merged, consolidated, or otherwise reorganized corporation, or (ii)
make a cash payment equal to the difference between the exercise price of all
vested Options and the fair market value of the Common Stock on the date of
such transaction, as determined by the highest sale price of the Common Stock
quoted by the market or exchange on which the security is traded.
(c) Change in Control. Notwithstanding anything to the contrary in this
Plan, if there should be a "Change in Control" of the Company, all of the
Options granted under the Plan that are not currently exercisable shall become
immediately vested as of the date of such Change in Control. "Change in
Control" shall mean the occurrence of any one of the following events that occur
after the date, if ever, that fewer than twenty percent of the outstanding
shares of 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 extablished for the benefit of such
individual or family members for a period of 60 consecutive calendar days: (i)
the sale of the Company substantially as an entirety (whether by sale of stock,
sale of assets, merger, consolidation, liquidation, dissolution or similar
occurrence) occurs, where the shareholders of the Company, immediately prior to
consolidation or merger, would not, immediately after the consolidation or
merger, beneficially own (as such term is defined in 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 off 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, menbers 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, of 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 are persons who were not
nominated by management or 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 8(c) solely as the result of an
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 addional shares of Common Stock (other than pursuant to stock
split, stock dividend, or similar transaction), then a "Change in Control"
shall be deemed to have occurred for purposes hereof.
9. NON-TRANSFERABILITY OF OPTIONS
No Option shall be assignable or transferable by the optionee except by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code. During the lifetime of a
recipient, Options shall be exercisable only by the optionee.
A-5
<PAGE>
10. TERMINATION AND AMENDMENT OF THE PLAN
The Board of Directors shall have the right to amend, suspend, or
terminate the Plan; provided, however, that no such action shall affect or in
any way impair the rights of a recipient under any option right theretofore
granted under the Plan, and no amendment may be made increasing the number of
shares authorized for issuance under the Plan, except as provided in Section 8
hereof, without obtaining shareholder approval.
11. EFFECTIVE DATE OF PLAN
The Plan shall become effective April 29, 1994, the date of its adoption
by the Board of Directors of the Company, subject to approval by the
shareholders of the Company within 12 months thereafter. The Plan shall, in
all events, terminate on April 29, 2004, or such earlier date as the Board of
Directors of the Company may determine.
12. WRITTEN AGREEMENT
Each Option granted hereunder shall be embodied in a written agreement,
which shall be subject to the terms and conditions prescribed by the Plan, and
shall contain such other provisions as the Committee in its discretion shall
deem necessary or advisable. The agreements, which need not be identical,
shall be signed by the employee participant and by the Chairman of the Board,
the Vice Chairman, the President, the Secretary or any Vice President of the
Company for and in the name and on behalf of the Company.
13. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of New York, without reference to
its principles of conflict of laws, and shall be construed accordingly.
A-6
>
[FORM OF PROXY]
PRELIMINARY COPY
TRANS WORLD MUSIC CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby appoints Robert J. Higgins and Matthew H. Mataraso, and
either of them, attorneys and proxies, with power of substitution, to vote the
shares of the Company's common stock of the undersigned at the Annual Meeting
of Shareholders of the Company to be held on June 10, 1994 at The Desmond, 660
Albany-Shaker Road, Albany, New York 12211 at 10:00 a.m., and at any
adjournments thereof, upon the following matters:
The Board of Directors recommends a vote FOR the Nominees.
Item 1. ELECTION OF DIRECTORS ROBERT J. HIGGINS, MATTHEW H. MATARASO,
GEORGE W. DOUGAN, CHARLOTTE G. FISCHER, J. MARKHAM
GREEN, ISAAC KAUFMAN
FOR all nominees WITHHOLD AUTHORITY (INSTRUCTION: to withhold
authority (except as to vote for all authority to vote for any
marked to the contrary) nominees listed above individual nominee listed
above, write that nominee's
name in space provided
below.)
[__] [__] ___________________________
___________________________
(Continued and to be signed on reverse side)
<PAGE>
Item 2. APPROVAL OF AMENDMENT TO CERTIFICATE OF
INCORPORATION FOR NAME CHANGE
[__] For [__] Against [__] Abstain
ITEM 3. APPROVAL OF 1994 STOCK OPTION PLAN
[__] For [__] Against [__] Abstain
ITEM 4. Other matters that in their discretion that may come properly before
the meeting.
[__] For [__] Against [__] Abstain
Dated:______________________________, 1994
Signature:________________________________
__________________________________________
Signature if held jointly
Please sign exactly as name appears at
left. When shares are held by joint tenants,
both should sign. When signing as an
attorney, executor, administrator, trustee,
or guardian, please give full title as such.
If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
<PAGE>
Differences between the Proxy Materials
Proposed for Circulation
and the Materials in Electronic Format
A. Proxy Statement
All headings in the Proxy Statement, including Annex A thereto, that are
centered are in boldface in large and small caps and are represented in
the EDGAR document by all caps.
All subheadings in the Proxy Statement, including Annex A thereto, on
the left margin are in boldface in the circulated document except for the
subheadings on pages 8 through 10 beginning after "Compensation
Committee Report on Executive Compensation", which are in italics.
The Notice of Annual Meeting, the cover page of the Proxy Statement
in the circulated document, and the form of the proxy are not numbered.
On the top of the Notice of Annual Meeting preceding the Proxy
Statement is the "Trans World Music Corp." logo.
On the bottom of the Notice of Annual Meeting preceding the Proxy
Statement the message marked "Important" is in boldface and bordered
by a box.
On the Notice of Annual Meeting preceding the Proxy Statement the sentence
"Your vote is important." is in boldface in the circulated document.
On pages 2 and 3 the names of the nominees for director are in boldface.
On page 5 the paragraph captions "Cash Compensation" and "Director
Stock Option Plan" are in italics in the circulated document.
On pages 8 through 10, the following subheadings and paragraph captions
are in italics in the circulated document: "Composition and Purpose of the
Compensation Committee", "Compensation Philosophy and Overall
Objectives", "Salary and Annual Incentive Compensation", "Salaries", "Annual
Performance Incentives", "Long Term Incentives", "Chief Executive
Officer's Compensation", "Deductibility of Compensation Expenses" and
"Compensation Committee Interlocks and Insider Participation".
On page 10 the phrase "Compensation Committee of the Board of
Directors" and the names " Arnold S. Greenhut, Chairman, George W.Dougan,
Charlotte G. Fischer, J. Markham Green and Isaac Kaufman "are in boldface in
the circulated document.
On page 13 the data points are used to create line graphs in the circulated
document.
On page 14 the sentence "The Board of Directors unanimously
recommends that shareholders vote FOR the amendment to the Restated
Certificate of Incorporation" is in bold face in the circulated document.
On pages 15 through 18 the paragraph captions "Committee", "Eligibility",
"Common Stock Issuable upon Exercise", "Grants of Stock Options and
Stock Appreciation Rights", "Federal Income Tax Consequences","Amendment and
Termination", "Change in Control" and "Principal Differences" are in italics in
the circulated document.
On Page 18 the sentence "The Board of Directors unanimously
recommends that shareholders vote FOR the approval of the 1994 Stock
Option Plan" is in boldface in the circulated document.
On pages 18 and 19 the paragraph captions "Other Items", "Proxy Solicitation",
"Independent Auditors" and "Financial Statements" are in italics in the
circulated document.
On Annex A to the Proxy Statement the paragraph captions in Sections
3, 5, 6, 7 and 8 are in italics in the circulated document.
B. PROXY CARD
The language comprising the form of proxy is printed on reverse sides of
a white card with dimensions of approximately 7 3/4" x 5 1/4 ". The
language is printed so that it reads with the card's longest dimension held
horizontally.
