<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 29, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-14818
TRANS WORLD ENTERTAINMENT CORPORATION
(Exact name of registrant
as specified in its charter)
New York 14-1541629
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
38 Corporate Circle
Albany, New York 12203
(Address of principal executive offices, including zip code)
(518) 452-1242
(Registrant's telephone number, including area code)
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value,
9,732,814 shares outstanding as of June 9, 1995
==================================================================
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -- April 29, 1995,
January 28, 1995 and April 30, 1994 3
Condensed Consolidated Statements of Income -- Thirteen
Weeks Ended April 29, 1995 and April 30, 1994 4
Condensed Consolidated Statements of Cash Flows
Thirteen Weeks Ended April 29, 1995 and April 30, 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
April 29, January 28, April 30,
ASSETS 1995 1995 1994
- ------ --------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 27,632 $ 90,091 $ 8,061
Merchandise inventory 217,870 222,358 226,828
Other current assets 17,756 16,527 12,167
------- ------- -------
Total current assets 263,258 328,976 247,056
------- ------- -------
VIDEOCASSETTE RENTAL INVENTORY, net 7,695 7,472 6,670
DEFERRED TAX ASSET 505 505 ---
FIXED ASSETS:
Property, plant and equipment 180,297 182,262 171,782
Less: Fixed asset write-off reserve 9,175 10,485 ---
Accumulated depreciation
and amortization 87,842 85,620 76,628
------- ------- -------
83,280 86,157 95,154
------- ------- -------
OTHER ASSETS 3,957 3,829 1,968
------- ------- -------
TOTAL ASSETS $358,695 $426,939 $350,848
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 76,506 $ 135,493 $ 72,603
Notes payable 74,947 74,947 62,995
Store closing reserve 7,244 9,276 ---
Current portion of long-term
debt and capital lease obligations 6,559 6,618 3,501
Other current liabilities 6,202 9,211 10,250
------- ------- -------
Total current liabilities 171,458 235,545 149,349
------- ------- -------
LONG-TERM DEBT, less current portion 59,716 59,770 65,976
CAPITAL LEASE OBLIGATIONS, less
current portion 6,653 6,671 6,952
OTHER LIABILITIES 5,476 5,476 4,379
------- ------- -------
TOTAL LIABILITIES 243,303 307,462 226,656
------- ------- -------
SHAREHOLDERS' EQUITY
Common stock ($.01 par value; 20,000,000
shares authorized; 9,731,208 issued) 97 97 97
Additional paid-in capital 24,236 24,236 24,236
Treasury stock, at cost (48,394, 48,394
& 12,000 shares, respectively) (503) (503) (162)
Retained earnings 91,562 95,647 100,021
------- ------- -------
Total shareholders' equity 115,392 119,477 124,192
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $358,695 $426,939 $350,848
======= ======= =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
April 29, April 30,
1995 1994
--------- ---------
<S> <C> <C>
Sales $111,912 $109,200
Cost of sales 72,258 68,370
------- -------
Gross profit 39,654 40,830
Selling, general and administrative expenses 38,733 37,562
Depreciation and amortization 4,246 4,168
------- -------
Income (Loss) from operations (3,325) (900)
Interest expense 3,474 2,232
------- -------
Loss before income taxes (6,799) (3,312)
Income tax benefit (2,713) (1,250)
------- -------
NET LOSS $ (4,086) $ (1,882)
======= =======
LOSS PER SHARE $ (0.42) $ (0.19)
======= =======
Weighted average number of common
shares outstanding 9,688 9,719
===== =====
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
April 29, April 30,
1995 1994
--------- ---------
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES $(60,521) $(74,547)
------ ------
INVESTING ACTIVITIES:
Acquisition of property and equipment (1,584) (5,565)
Purchases of videocassette rental
inventory, net of amortization (223) (504)
------ ------
Net cash used by investing activities (1,807) (6,069)
------ -----
FINANCING ACTIVITIES:
Payments of long-term debt and
capital lease obligations (131) (364)
Net increase in revolving line of credit --- 62,995
Other --- ---
------ ------
Net cash provided by financing activities (131) 62,631
------ ------
Net decrease in cash and cash equivalents (62,459) (17,985)
Cash and cash equivalents, beginning of period 90,091 26,046
------ ------
Cash and cash equivalents, end of period $27,632 $ 8,061
====== ======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
consist of Trans World Entertainment Corporation and its subsidiaries (the
"Company"), all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated. Joint venture investments and
income, none of which are material, are accounted for using the equity method.
The unaudited interim condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished in these consolidated
financial statements reflects all normal, recurring adjustments which, in the
opinion of management, are necessary for a fair presentation of such financial
statements. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations
applicable to interim financial statements.
These unaudited condensed consolidated financial statements should be
read in conjunction with the audited financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 28,
1995.
Note 2. Restructuring Reserve
During the fourth quarter of 1994 the Company recorded a pre-tax
restructuring charge of $21 million to reflect the anticipated costs
associated with a program to close 143 stores through the first quarter of
1996. The restructuring charge included the write-down of fixed assets,
estimated cash payments to landlords for early termination of operating leases
and the cost of returning product to the Company's distribution center and
vendors. The charge also included estimated legal and consulting fees,
including those that the Company is obligated to pay on behalf of its lenders
while working to renegotiate its credit agreements.
6
<PAGE>
Total costs charged to the restructuring reserves during the first quarter
of 1995 are summarized as follows:
First First First
Quarter Quarter Quarter
Beginning Charges Ending
Reserve Against Reserve
Balance Reserve Balance
-------------------------------
(in thousands)
Non-cash write-offs
- -------------------
Leasehold improvements $ 7,077 $ 393 $ 6,684
Furniture and fixtures 3,408 917 2,491
Excess inventory shrinkage 944 0 944
------------------------------
Total non-cash 11,429 1,310 10,119
------------------------------
Cash outflows
- -------------
Lease obligations 4,250 568 3,682
Return penalties and related costs 2,725 325 2,400
Termination benefits 200 135 65
Consulting and legal fees 1,157 1,004 153
------------------------------
Total cash outflows 8,332 2,032 6,300
------------------------------
Total $19,761 $3,342 $16,419
==============================
Note 3. Seasonality
The Company's business is seasonal in nature, with the highest sales and
earnings occurring in the fourth fiscal quarter. In the past three years, the
fourth fiscal quarter has represented substantially all of the Company's net
income for the year.
Note 4. Earnings (Loss) Per Share
Earnings (Loss) per share is based on the weighted average number of
common shares outstanding during each fiscal period. Common stock
equivalents, relating to stock options, are excluded from the calculations, as
their inclusion would have an anti-dilutive impact on the loss per share.
7
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Thirteen Weeks Ended April 29, 1995 Compared to Thirteen Weeks Ended April 30,
1994
- ------------------------------------------------------------------------------
Sales. The Company's total sales increased 2.5% for the thirteen weeks
ended April 29, 1995 over the thirteen weeks ended April 30, 1994. The $2.7
million sales increase is attributable to the sales generated from new stores
opened by the Company since April 30, 1994. During the past 12 months, the
Company opened 41 stores and closed or relocated 69 stores resulting in a
80,000 net increase in retail square footage. Comparable store sales declined
2% from the prior year. The decrease is due primarily to a weak new release
schedule and lower traffic in the retail malls.
Comparable store sales for mall stores decreased 3.4%, while non-mall
stores increased 1.0%. By product category, comparable store sales in audio
decreased 2.4% while video sell-through increased 2.4%.
Gross Profit. Gross profit, as a percentage of sales, decreased from
37.4% to 35.4% in the thirteen week period ended April 29, 1995, when compared
to 1994. The lower gross margin is primarily due to increased promotional
markdowns in the period. To a lesser extent, the continued shift in sales mix
from prerecorded audio cassettes to compact discs and prerecorded
videocassettes also contributed to the decline. Compact discs and prerecorded
videocassettes carry a lower gross profit than prerecorded audio cassettes.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A"), as a percentage of sales, increased from
34.4% to 34.6% in the thirteen week period ended April 29, 1995 when compared
to 1994. The $1.2 million or 0.2% increase in SG&A, as a percent of sales,
was due primarily to a 3.1% increase in SG&A expenses while total sales
increased 2.5%. The decline in comparable store sales impacted the increase
in SG&A as a percentage of sales.
Interest Expense. The $1.2 million increase in interest expense for the
thirteen week period ended April 29, 1995, compared to 1994, was primarily
attributed to an increase in the Company's weighted average borrowing rate.
8
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity and Sources of Capital. During the first quarter, funds available
under revolving credit facilities have typically been the Company's primary
source of liquidity. Unlike previous years, the Company accumulated cash
balances in December 1994 and January 1995 instead of repaying the balances
under its $75 million revolving credit facilities (the "Revolver"). The
credit facilities did not require the Company to pay down the outstanding
balances under the Revolver at year end. Accordingly, the Company ended
fiscal year 1994 with cash balances of approximately $90.1 million. During
the first quarter of 1995, the Company used the accumulated cash balances to
satisfy the $59.0 million seasonal reduction in accounts payable, its most
significant use of cash in the thirteen week period ended April 29, 1995.
During the first quarter of 1995, the Company was operating under temporary
waivers from its lenders relating to non-compliance with two financial
covenants at January 28, 1995. The aggregate amount of the senior debt,
totaling a maximum available amount of $140 million, including the Revolver
and $65 million in outstanding long-term notes (the"Notes") ranks pari pasu
and is unsecured. The nine lenders (the"Lending Group") that are party to the
applicable credit agreements granted waivers to the Company effective through
March 31, 1995 and subsequently extended through May 15, 1995. During this
waiver period the Company was required to remain fully borrowed on all senior
debt instruments pending negotiation and restructuring of the modified credit
agreements.
On April 28, 1995 the Company entered into an agreement in principle with
the Lending Group to restructure all of the Company's $140 million aggregate
principal amount of senior debt. Under the provisions of the modified credit
agreements, the Company will be required to make principal repayment on the
Notes of $2.3 million on June 30, 1995 and $3.7 on January 31, 1996. The
maximum borrowings available on the Company's Revolver will be reduced to
$72.3 million on June 30, 1995 and to $68.0 million on January 31, 1996.
Final maturity of the Notes and the Revolver is July 31, 1996. Effective
April 28, 1995, interest rates for the Notes and the Revolver were converted
to a floating rate equal to the greater of 10.5% or 1-1/2% over the prime
lending rate.
The modified credit agreements contain restrictive provisions governing
dividends, capital expenditures and acquisitions, and modified covenants as to
working capital, cash flow and consolidated tangible net worth to reflect the
$21 million restructuring charge recorded in 1994 and lower earnings levels
than expected when the credit agreements were amended in January 1994. In the
past, the Company has violated its fixed charge ratio covenant, which requires
a specified pretax earnings coverage of the aggregate of interest expense and
real estate rent. The modified fixed charge ratio covenant now aggregates
depreciation and amortization with pre-tax earnings for the coverage test.
The Company will be in compliance with the modified covenant if it is
profitable for the 1995 fiscal year. The Revolver as modified requires the
Company to pay down the outstanding balances for a 15 day period between
December 25, 1995 and January 31, 1996.
9
<PAGE>
The Company's ability to continue to meet its liquidity requirements on a
long-term basis is dependent on its ability to successfully obtain new
financing to replace the senior debt maturing in July 1996. In the interim
period, cash flow from operations, continued reductions in absolute inventory
levels, and reduced capital expenditures should assure that the Company has
ample liquidity to meet its operating requirements.
Capital Expenditures.
During the first quarter of 1995, the Company had capital expenditures of
$1.6 million of the planned total capital expenditures of approximately $11
million, net of construction allowances, for fiscal 1995. The Company opened
3 of the 14 new stores planned to open in fiscal 1995 and closed 23 of the 80
stores anticipated to close in 1995. On a net basis, retail square footage
was reduced by 40,000 square feet since January 28, 1995. The new stores
averaged 5,800 square feet of retail space. This is larger than the average
store size of the Company.
Capital expenditures and new store growth will continue to be curtailed
throughout 1995 while management's strategy continues to be concentrated on
closing underperforming stores. Some limitations on capital expenditures have
also been imposed by the Company's lending agreements. The Company does not
expect to continue the rapid growth experienced in the past and any excess
cash flow will be used primarily to retire debt.
Provision for Business Restructuring.
During the fourth quarter of 1994 the Company undertook a comprehensive
examination of store profitability and adopted a business restructuring plan
that included the closing of 143 stores out of 712 stores then open and
operating. Management concluded that select retail entertainment markets had
begun to reflect an overcapacity of retail outlets, and large discount-priced
electronics stores and other superstores were having an adverse impact on
certain of the Company's retail stores. As a result of the restructuring
plan, the Company recorded a pre-tax charge of $21 million against earnings,
leading to a loss for the 1994 fiscal year. The components of the
restructuring charge included approximately $8.7 million in reserves for
future cash outlays, and approximately $12.3 million in asset write-offs.
Twenty-three stores were closed in the first quarter of 1995 bringing
total closures to 51 through the end of the first quarter of 1995. Fixed
asset write-offs charged to the reserve account totaled $1.3 million in the
first quarter of 1995 and $2.2 million since the inception of the business
restructuring plan. Cash expenditures for lease obligations, termination
benefits and other expenditures charged to the store closing reserve totaled
$2.0 million in the first quarter of 1995 and $2.4 million since the inception
of the business restructuring plan.
10
<PAGE>
Remaining cash outlays relating to lease obligations, termination benefits
and other expenditures are anticipated to total approximately $3.5 million in
fiscal 1995 and $4.8 million in fiscal 1996. The cash outflows for store
closings in the first quarter and outflows for the remainder of the year have
been financed and will continue to be financed through disposition of
merchandise inventory from the closed stores. The timing of continued store
closures will depend somewhat on the Company's ability to negotiate reasonable
lease termination agreements and continued review of the opportunities to
accelerate the closing of underperforming stores.
Annual sales associated with the stores closed in the first quarter of
1995 totaled $10.2 million in 1994. Because the store closures will be phased
out over 1995 and early 1996, the Company will not receive most of the
earnings or cash flow benefits from the restructuring program until fiscal
1996.
11
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits
Exhibit No. Description Page No.
---------- ----------- --------
10.1 Form of Restricted Stock Agreement 14
dated 2/1/95 between the Company and
Edward W. Marshall, Jr., Executive
Vice President-Operations and 5/1/95
Bruce J. Eisenberg, Senior Vice
President-Real Estate
10.2 Form of Indemnification Agreement 19
dated May 1, 1995 between the
Company and its officers and directors
27 Financial Data Schedule 31
(B) Reports on Form 8-K.
The Company filed a report on form 8-K on announcing a
restructuring charge for closing underperforming stores and debt
restructuring.
- -------------------------------------------------------------------------------
Omitted from this Part II are items which are not applicable or to which the
answer is negative for the periods covered.
12
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANS WORLD ENTERTAINMENT CORPORATION
JUNE 13, 1995 By: /s/ ROBERT J. HIGGINS
---------------------
Robert J. Higgins,
President and Director
(Principal Executive Officer)
JUNE 13, 1995 By: /s/ JOHN J. SULLIVAN
---------------------
John J. Sullivan
Senior Vice President
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
TRANS WORLD ENTERTAINMENT
CORPORATION
FORM OF RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement, dated as of , 1995 (the "Agreement"), is
made by and between Trans World Entertainment Corporation, a New York
corporation (the "Company"), and (the "Employee").
WHEREAS, the Employee has been designated by the Compensation Committee of
the Company's Board of Directors (the "Committee") to participate in the Trans
World Entertainment Corporation 1990 Restricted Stock Plan (the "Plan"), which
the Employee acknowledges receipt of;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows.
Capitalized terms used herein and not defined shall have the meanings set
forth in the Plan.
1. Award of Shares. Pursuant to the provisions of the Plan, the terms of
---------------
which are incorporated herein by reference, the Employee is hereby awarded
shares of Restricted Stock (the "Award"), subject to the terms and
- -----------
conditions herein set forth.
2. Terms and Conditions. It is understood and agreed that the Award
--------------------
evidenced hereby is subject to the following terms and conditions.
(a) Vesting of Award. Subject to the other terms and conditions of this
Agreement and the Plan, this Award shall become vested in one installment
on ,expressly conditioned on complete years of continuous
------------
employment (such yearly periods to be measured beginning , 1995);
provided, however, that in accordance with and subject to the Plan, the
-------- -------
Committee may in its sole discretion accelerate the vesting of the Award
or remove any restrictions relating thereto.
(b) Vesting on Death or Disability. In the event of the termination of
------------------------------
the Employee's employment with the Company for any reason whatsoever, all
shares of Restricted Stock subject to the Award that have not vested in
accordance with Section 2(a) or 2(b) above shall be forfeited by the
Employee and become the property of the Company. If the Restricted Stock
is forfeited, the Company shall be entitled to have the certificates
representing the shares of Restricted Stock redelivered to it out of the
escrow provided for in Section 2(d) hereof.
14
<PAGE>
(c) Forfeiture of Unvested Shares. In the event of the termination of the
-----------------------------
Employee's employment with the Company for any reason whatsoever, all
shares of Restricted Stock subject to the Award which have not vested in
accordance with Section 2(a) above and do not become vested under section
2(a) or 2(b) above shall be forfeited by the Employee and become the
property of the Company. If the Restricted Stock is forfeited, the
Company shall be entitled to have the certificates representing the shares
of Restricted Stock redelivered to it out of the escrow provided in
Section 2(d) hereof.
(d) Certificates. Each certificate issued in respect of Restricted Stock
------------
awarded hereunder shall be deposited in escrow with the Company or its
designee, selected by the Company in the Company's sole discretion,
together with a stock power executed in blank by the Employee, and shall
bear a legend disclosing the restrictions on transferability imposed on
such Restricted Stock by this Agreement. Upon the vesting of Restricted
Stock pursuant to Section 2(a) or 2(b) hereof, and the satisfaction of any
withholding tax liability pursuant to Section 5 hereof, the certificates
evidencing such vested Restricted Stock shall be delivered to the
Employee.
(e) Rights of a Shareholder. Subject to Section 3 hereof, prior to the
-----------------------
time a share of Restricted Stock is fully vested hereunder, the Employee
shall have all the rights of a shareholder of the Company, including the
right to vote such shares of Restricted Stock; provided, however, that
unless and until the vesting restrictions and other terms and conditions
applicable to the Award have lapsed or are otherwise satisfied, the
dividends applicable to such Restricted Stock shall be held by the Company
for the Employee's account, and interest may be paid on any such
dividends, at a rate and subject to such terms as determined by the
Committee in its sole and absolute discretion. If Restricted Stock is
forfeited pursuant to the terms of this Agreement, the related dividends
and interest, if any, shall likewise be forfeited to the Company.
(f) No Right to Continued Employment. Neither the Plan, this Agreement,
---------------------------------
this Award nor any other action taken pursuant to the Plan shall
constitute or be evidence of any agreement or understanding, express or
implied, that the Employee has a right to continue as an employee for any
period of time, or at any rate of compensation, and shall not in any way
interfere with the right of the Company to terminate the Employee's
employment at any time.
15
<PAGE>
3. Restrictions on Transfer of Shares. Neither the shares of Restricted
----------------------------------
Stock delivered hereunder nor any interest in them may be sold, assigned,
disposed of, pledged, hypothecated, encumbered or in any other manner
transferred, in whole or in part, until the vesting provisions herein and in
the Plan have been satisfied, and thereafter only if all of the following
conditions have been satisfied:
(a) The listing, or approval for listing upon notice of issuance, that may
be required of such shares on any securities exchange as may at the time
be the principal market for the shares;
(b) Any registration or other qualification of such shares under any state
or federal law or regulation, or the maintaining in effect of any such
registration or other qualification or an exemption therefrom supported by
an opinion of counsel, which the board of directors shall, in its absolute
discretion upon the advice of counsel, deem necessary or advisable,
including expiration of any requisite holding period under Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"); and
(c) The obtaining of any other consent, approval or permit for any state
or federal governmental agency which the board of directors shall, in its
absolute discretion based upon the advice of counsel, determine to be
necessary or advisable.
4. Legend on Restricted Stock. All certificates representing shares of
Restricted Stock, unless such shares are registered under the Securities Act,
shall bear the following legend or such other legend as the Company deems
appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE
OF SUCH REGISTRATION OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH
REGISTRATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS AND VESTING CONDITIONS SET FORTH IN A
RESTRICTED STOCK AGREEMENT MAINTAINED WITH THE SECRETARY OF THE
COMPANY.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend or such other legend deemed appropriate by the
Company shall also bear such legend unless, in the opinion of counsel for the
Company, the securities represented thereby need no longer be subject to the
restriction contained herein. The provisions of this Section 4 shall be
binding upon all subsequent holders of certificates bearing the above legend.
16
<PAGE>
5. Acquisition for Investment. The Employee represents and warrants that
--------------------------
he is acquiring the shares of Restricted Stock distributed hereby as an
investment and not with a view to distribution thereof. The Company also
reserves the right to place any legend or other symbol on the share
certificates issued or transferred pursuant to this Agreement and the Plan and
to furnish any stop transfer or similar instructions to the transfer agent for
its shares which the Company, in its sole discretion, may deem necessary and
proper to ensure compliance with the above representation and warranty.
6. Adjustment Provisions. If the shares of Common Stock outstanding are
---------------------
changed, such that its effect in any fiscal year is greater than 5% of the
Company's Common Stock capitalization, in number or class, by reason of a
split-up, merger, consolidation, reorganization, reclassification,
recapitalization, or any capital adjustment, including a stock dividend, or if
any distribution is made to the holders of Common Stock other than a cash
dividend, or other similar change is made in the corporate structure,
appropriate adjustments shall be made in the aggregate number and kind of
shares or other securities or property subject to this Agreement and the Plan.
7. Withholding. The Employee agrees that there shall be deducted from
-----------
any distribution of Restricted Stock under this Agreement the amount of any
tax required by any governmental authority to be withheld and paid over by the
Company to such governmental authority for the account of the Employee. With
respect to any distribution of Restricted Stock, the Company shall have the
right to sell without notice, such number of shares of the Restricted Stock
distributable to the Employee as will provide funds for the payment of any tax
so required to be paid by the Company for the Employee's account, unless prior
to such sale, the Employee shall have paid to the Company the amount of such
tax. Any balance of the proceeds of such sale shall be paid to the Employee.
In effecting any such sale, the Company shall be deemed to be acting on
behalf, and for the account of, the Employee.
8. Designation of Beneficiary. The Employee may, with the consent of the
--------------------------
Committee, designate a person or persons to receive, in the event of his
death, any shares of Restricted Stock distributable hereunder. Such
designation shall be made upon forms supplied by and delivered to the Company
and may be revoked in writing. If the Employee fails effectively to designate
a beneficiary, then his estate shall be deemed to be his beneficiary.
9. References. References herein to rights and obligations of the
----------
Employee shall apply, where appropriate, to the Employee's legal
representative, designated beneficiary or estate without regard to whether
specific reference to such legal representative, designated beneficiary or
estate is contained in a particular provision of this Agreement.
17
<PAGE>
10. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or by courier, or sent by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the party
concerned at the address indicated below or to such changed address as such
party may subsequently by similar process give notice of:
If to the Company: If to the Employee:
Trans World Entertainment Corporation
38 Corporate Circle
Albany, New York 12203
Attn.: Secretary
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to
principles regarding conflict of laws.
12. Counterparts. This Agreement may be executed in two counterparts
------------
each of which shall constitute one and the same instrument.
13. Severability. If any provision or any term or condition of this
------------
Agreement or any application thereof to any person or circumstances is
invalid, such provision, term, condition or application shall to that extent
be void (or, in the discretion of the Committee, such provision, term or
condition may be amended to avoid such invalidity), and shall not affect other
provisions, terms or conditions or applications thereof, and to this extent
such provisions, terms and conditions are severable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
Trans World Entertainment -----------------------------
Corporation [Print Name of Employee]
By: /s/Robert J. Higgins
------------------------------ -----------------------------
Robert J. Higgins, Chairman
and Chief Executive Officer
18
Following are the officers and directors of the Company which executed the
indemnification agreement attached herein as exhibit 10.2:
Robert J. Higgins, Chairman of the Board, President, CEO & Director
Matthew H. Mataraso, Secretary and Director
George W. Dougan, Director
Charlotte G. Fischer, Director
Isaac Kaufman, Director
Edward W. Marshall, Jr., Executive Vice President-Operations
John J. Sullivan, Senior Vice President, Chief Financial Officer
Bruce J. Eisenberg, Senior Vice President-Real Estate
Paul A. Cardinal, General Counsel
Scott Schoendorf, Vice President-Management Information Systems
TRANS WORLD ENTERTAINMENT CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of May 1, 1995 (the
"Agreement"), is made by and between Trans World Entertainment Corporation, a
New York corporation (the "Company"), and ______________ (the "Indemnitee").
WHEREAS, the Indemnitee is currently serving as an officer or director of
the Company and the Company wishes the Indemnitee to continue in such
capacity; and
WHEREAS, the Company believes that it is unfair for its directors and
officers to assume the risk of huge judgments and other expenses which may
occur in cases in which the director or officer received no personal profit
and in cases where the director or officer was not culpable; and
WHEREAS, the Company recognizes that the issues in controversy in
litigation against a director or officer of a corporation such as the Company
are often related to the knowledge of the essential facts and exculpating
circumstances regarding such matters, and that the long period of time which
usually elapses before the trial or other disposition of such litigation often
extends beyond the time that the director or officer can reasonably recall
such matters; and may extend beyond the normal time for retirement for such
director or officer with the result that he, after retirement or in the event
of his death, his spouse, heirs, executors or administrators, may be faced
with limited ability and undue hardship in maintaining an adequate defense,
which may discourage such a director or officer from serving in that position;
and
WHEREAS, based upon their experience as business managers, the Board of
Directors of the Company has concluded that, to retain and attract talented
and experienced individuals to take the business risks necessary for the
success of the Company, it is necessary for the Company to contractually
indemnify its directors and officers, and to assume for itself maximum
liability for expenses and damages in connection with claims against such
directors and officers in connection with their service to the Company, and
has further concluded that the failure to provide such contractual
indemnification could result in great harm to the Company and the Company's
shareholders; and
WHEREAS, the Board of Directors of the Company has adopted by-laws (the
"By-Laws") providing for the indemnification of the officers and directors of
the Company to the fullest extent permitted by the Business Corporation Law of
the State of New York, as amended from time to time (the "BCL"); and
WHEREAS, in recognition of the Indemnitee's need for substantial
protection against personal liability and the Indemnitee's reliance on the
aforesaid By-Laws, and in part to provide the Indemnitee with specific
contractual assurance that the protection promised by such By-Laws will be
available to the Indemnitee (regardless of, among other things, any amendment
to or revocation of such By-Laws or any change in the composition of the
Company's Board of Directors of change of control of the Company), the Company
wishes to provide in this Agreement for the indemnification of and the
advancing of expenses to the Indemnitee to the fullest extent (whether partial
or complete) permitted by law and as set forth in this Agreement; and
<PAGE>
WHEREAS, Section 721 of the BCL specifically provides that the
indemnification provisions of the BCL are not exclusive and contemplates that
agreements may be entered into between the Company and its directors or
officers with respect to their indemnification, and this Agreement is entered
into pursuant to such Section 721.
NOW, THEREFORE, in consideration of the Indemnitee's service as an officer
or director of the Company after the date hereof, the parties hereto agree as
follows:
1. Certain Definitions. In this Agreement, the following terms shall
-------------------
have the meaning set forth below:
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean any of the following events as determined
in good faith by the Indemnitee:
(a) the merger or consolidation of the Company with, or the sale of
all or substantially all of the assets of the Company to, any Person
or entity or group of Persons or entities acting in concert; or
(b) the shareholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
(c) a Person or group of Persons acting in concert (other than a
Permitted Holder) becomes the beneficial owner of 35% or more of the
Voting Stock of the Company, unless at such time a Permitted Holder
beneficially owns an amount of Voting Stock of the Company greater
than the amount so held by such Person or group; or
(d) a majority of the Board is replaced within any two-year period,
excluding replacements due to resignations initiated by the incumbent
Board or resignations due to the death or disability of any members of
the incumbent Board.
"Corporate Status" shall mean the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Company or of any other
Enterprise which such person is or was serving at the request of, for the
convenience of, or to represent the interests of the Company or a Subsidiary
of the Company as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise;
or the status of a person who was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
Company or a Subsidiary of the Company, or the status of a person who was a
director, officer, employee or agent of another enterprise at the request of,
for the convenience of, or to represent the interests of such predecessor
corporation.
"Dispute" shall mean any of the following events:
(a) a determination is made pursuant to Section 4 that the Indemnitee
is not entitled to indemnification under this Agreement;
<PAGE>
(b) the determination of entitlement to be made pursuant to Section 4
has not been made within 60 days after receipt by the Company of the
request for indemnification; or
(c) payment of indemnification or advancement of Expenses is not made
pursuant to Section 6 within 20 days after receipt by the Company of a
written request therefor.
"Enterprise" shall mean the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
of which the Indemnitee is or was serving at the request of the Company as a
director, officer, employee, agent or fiduciary.
"Expenses" shall mean all direct and indirect costs of any type or nature
whatsoever actually and reasonably incurred by the Indemnitee including but
not limited to all reasonable attorneys' fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery fees,
costs associated with the procurement of surety bonds or loans or other costs
associated with the stay of a judgment, penalty or fine, and all other
disbursements or expenses of the type customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend, investigating, or
being or preparing to be a witness in a Proceeding.
"Good Faith" shall mean the Indemnitee having acted in good faith for a
purpose which he reasonably believed to be in, or, in the case of service for
any other Enterprise, not opposed to, the best interests of the Company and,
in criminal Proceedings, in addition, having had no reasonable cause to
believe that his conduct was unlawful.
"Indemnified Amounts" shall have the meaning set forth in Section 6.
"Independent Counsel" shall mean a law firm that is experienced in matters
of corporation law and neither presently is, nor in the past five years has
been, retained to represent: (i) the Company or the Indemnitee in any matter
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or the Indemnitee in an action to
determine the Indemnitee's rights under this Agreement.
"Non-Party Director" shall mean a director of the Company who is not and
was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
"Permitted Holder" shall mean collectively Robert J. Higgins and his
estate, spouse, his four children on the date hereof, his heirs, legatees, and
legal representatives, and any bona fide trust of which one or more of the
foregoing are the sole beneficiaries or the grantors thereof and over which
trust one or more of the foregoing acts as trustee and possess the power to
direct the management thereof.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political
subdivision thereof.
<PAGE>
"Proceeding" shall include any action (including an action by or in the
right of the Company), suit, arbitration, alternate dispute resolution
mechanism, investigation, administrative hearing or any other actual,
threatened or completed proceeding whether civil, criminal, administrative or
investigative, other than one initiated by the Indemnitee.
"Subsidiary" shall mean, for the purpose of this Agreement, any
corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries of the Company, or by one or more other subsidiaries of the
Company.
"Voting Stock" shall mean securities or other interests which entitle the
holders thereof ordinarily, in the absence of contingencies, to elect the
directors of the Company (or Persons performing similar functions).
2. Agreement to Serve. The Indemnitee agrees to serve or continue to
------------------
serve as agent of the Company, at its will (or under separate agreement, if
such agreement exists), in the Corporate Status that the Indemnitee currently
serves as an agent of the Company, so long as he is duly appointed or elected
and qualified in or until such time as he tenders his resignation in writing;
provided, however, that nothing contained in this Agreement is intended to
create any right to continued employment by the Indemnitee.
3. Indemnity. (a) General. In connection with any Proceeding, the
--------- -------
Company hereby agrees to indemnify and advance Expenses to the Indemnitee in
accordance with the terms of this Agreement to the fullest extent permitted by
the BCL as in effect on the date hereof and to such greater extent as the BCL
may thereafter from time to time permit. The right to indemnification or
advancement of Expenses under this Agreement is intended to be retroactive and
shall be available with respect to Proceedings which relate to events
occurring prior to the effective date of this Agreement.
(b) Third Party Actions. The Company hereby agrees to indemnify, defend
-------------------
and hold the Indemnitee harmless from and against all Expenses, judgments,
penalties, fines (including excise taxes assessed on the Indemnitee with
respect to an employee benefit plan) and amounts paid in settlement incurred
by, or on behalf of, the Indemnitee if, by reason of the Indemnitee's
Corporate Status, the Indemnitee is, or is threatened to be made, a party to
any Proceeding other than an action by or in the right of the Company, or any
related claim, issue or matter therein, provided that the Indemnitee acted in
Good Faith.
(c) Indemnification of a Party who has a Successful Defense. If the
-----------------------------------------------------------
Indemnitee is, by reason of the Indemnitee's Corporate Status, a party to and
is successful on the merits or otherwise in any Proceeding involving an action
by or in the right of the Company, then the Company shall indemnify the
Indemnitee to the maximum extent permitted by the BCL as in effect on the date
hereof and to such greater extent as the BCL may thereafter from time to time
permit, from and against all Expenses, judgments, penalties, fines, and
amounts paid in settlement actually incurred by or on behalf of the Indemnitee
<PAGE>
in connection therewith. The termination of any claim, issue or matter in
such Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter, provided that there is
a finding (either adjudicated or pursuant to Section 4 or 7) that the
Indemnitee acted in Good Faith and is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as a court of
competent jurisdiction deems proper.
(d) Indemnification of Witnesses. Notwithstanding any other provision of
----------------------------
this Agreement, to the extent that the Indemnitee is by reason of the
Indemnitee's current or former Corporate Status a witness in any Proceeding,
the Indemnitee shall be indemnified to the maximum extent permitted by the BCL
as in effect on the date hereof and to such greater extent as the BCL may
thereafter from time to time permit against all Expenses incurred by or on
behalf of the Indemnitee in connection therewith.
4. Procedures for Determination of Entitlement to Indemnification.
-----------------------------------------------------------------
(a) Initial Request. To obtain indemnification under this Agreement, the
---------------
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary for the purpose of determining whether
and to what extent the Indemnitee is entitled to indemnification.
(b) Method of Determination. A determination with respect to the
-------------------------
Indemnitee's entitlement to indemnification shall be made as follows:
(i) If a Change of Control has occurred, unless the Indemnitee shall,
in the Indemnitee's sole discretion, request in writing that such
determination be made in accordance with clause (ii) of this
Section 4(b), the determination shall be made by Independent Counsel
in a written opinion to the Board, a copy of which shall be delivered
to the Indemnitee;
(ii) If a Change of Control has not occurred, subject to Section 4(d),
the determination shall be made by the Board acting by a majority vote
of a quorum consisting of Non-Party Directors. In the event that a
quorum consisting of Non-Party Directors is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, the
determination shall be made by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to the
Indemnitee.
(c) Selection, Payment, Discharge of Independent Counsel. In the event
-------------------------------------------------------
the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 4(b), the Independent Counsel shall be
selected, paid, and discharged in the following manner:
(i) If a Change of Control has not occurred, the Independent Counsel
shall be selected by the Board, and the Company shall give written
notice to the Indemnitee advising the Indemnitee of the identity of
the Independent Counsel which has been selected.
<PAGE>
(ii) If a Change of Control has occurred, the Independent Counsel
shall be selected by the Indemnitee and the Indemnitee shall give
written notice to the Company advising it of the identity of the
Independent Counsel which has been selected.
(iii) Following the initial selection described above, the Indemnitee
or the Company, as the case may be, may, within seven days after such
written notice of selection has been given, deliver to the other party
a written objection to such selection. Such objection may be asserted
only on the ground that the Independent Counsel selected does not meet
the requirements of "Independent Counsel" (as defined in Section 1),
and the objection shall set forth with particularity the factual basis
of such assertion. Absent a proper and timely objection, the person,
persons or entity selected shall act as Independent Counsel. If such
written objection is made, the Independent Counsel selected may not
serve as Independent Counsel unless and until a court has determined
that such objection is without merit.
(iv) Either the Company or the Indemnitee may petition any court of
competent jurisdiction if the parties have been unable to agree on the
selection of Independent Counsel within 20 days after submission by
the Indemnitee of a written request for indemnification pursuant to
Section 4(a). Such petition may request a determination as to whether
an objection to the party's selection is without merit or seek the
appointment as Independent Counsel of a person selected by the court
or by such other person as the court shall designate. A person so
appointed shall act as Independent Counsel under Section 4(b).
(v) The Company shall pay any and all reasonable fees and expenses of
Independent Counsel incurred by such Independent Counsel in connection
with acting pursuant to this Agreement, and the Company shall pay all
reasonable fees and expenses incident to the procedures of this
Section 4(c), regardless of the manner in which such Independent
Counsel was selected or appointed.
(vi) Upon the due commencement of any judicial proceeding pursuant to
Section 7, Independent Counsel shall be discharged and relieved of any
further responsibility in such capacity (subject to the applicable
standards of professional conduct then prevailing).
(d) Cooperation. The Indemnitee shall cooperate with the person, persons
-----------
or entity making the determination with respect to the Indemnitee's
entitlement to indemnification under this Agreement, including providing to
such person, persons or entity, upon reasonable advance request, any
documentation or information which is not privileged or otherwise protected
from disclosure and which is reasonably available to the Indemnitee and
reasonably necessary to such determination. Any expenses and costs (including
attorney's fees and expenses) incurred by the Indemnitee in so cooperating
with the person, persons or entity making such determination shall be borne by
the Company (irrespective of the determination as to the Indemnitee's
entitlement to indemnification) and the Company hereby indemnifies and agrees
to hold the Indemnitee harmless therefrom.
<PAGE>
(e) Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(i) Claims Initiated by Indemnitee. To indemnify or advance Expenses
----------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense unless: (A) such
indemnification is expressly required to be made by law, (B) the proceeding
was authorized by the Board, (C) such indemnification is provided by the
Company, in its sole discretion, pursuant to the powers vested in the Company
under the BCL or (D) the proceeding is brought to establish or enforce a right
to indemnification under this Agreement, subject to Section 7 hereof, or any
other statute or law or otherwise as required under Section 722 of the BCL; or
(ii) Unauthorized Settlements. To indemnify the Indemnitee under this
-----------------------------
Agreement for any amounts paid in settlement of a Proceeding unless the
Company consents to such settlement, which consent shall not be unreasonably
withheld.
5. Advancement of Expenses. The Company shall advance all Expenses
-------------------------
which by reason of the Indemnitee's Corporate Status were incurred by or on
behalf of the Indemnitee in connection with any Proceeding prior to the final
disposition of such Proceeding, upon the receipt of an undertaking by or on
behalf of the Indemnitee to repay such amount if, or to the extent that, it
shall ultimately be determined (either by adjudication or pursuant to Section
4 or 7) that he is not entitled to be indemnified by the Company pursuant to
this Agreement. Any advance and undertaking to repay pursuant to this Section
5 shall be unsecured and interest-free.
6. Payment of Indemnity Claims. Any amounts which the Indemnitee may
---------------------------
claim hereunder, including Expenses (the "Indemnified Amounts"), shall be paid
promptly and in no event later than 20 days after the receipt by the Company
of a written request therefor by the Indemnitee. In making any written
request for Indemnified Amounts, the Indemnitee shall submit to the Company an
itemized list setting forth in detail the dollar amount expended or incurred
or expected to be expended for each Indemnified Amount. Each such listing of
Indemnified Amounts shall be supported by the bills, agreements or other
documentation relating thereto, each of which shall be appended to the
itemized list as an exhibit. In addition, any request for advancement of
Expenses shall be accompanied by an undertaking of the Indemnitee as provided
in Section 5.
7. Remedies of Indemnitee. (a) Adjudication. In the event of a
---------------------- ------------
Dispute, the Indemnitee shall be entitled to an adjudication in an appropriate
court of competent jurisdiction of the Indemnitee's entitlement to such
indemnification or advancement of Expenses. Alternatively, the Indemnitee, at
the Indemnitee's option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration
Association. The Indemnitee shall commence such proceeding seeking an
adjudication within 180 days following the date on which the Indemnitee first
<PAGE>
had the right to commence such proceeding pursuant to this Section 7. The
Company shall not oppose the Indemnitee's rights to seek any such adjudication
or award in arbitration. In any such proceeding or arbitration, all of the
provisions of Section 8 shall apply.
(b) De Novo Review. In the event that a determination shall have been
--------------
made pursuant to Section 4 that the Indemnitee is not entitled to
indemnification hereunder, any judicial proceeding or arbitration commenced
pursuant to this Section 7 shall be conducted in all respects as a de novo
--------
trial or arbitration on the merits and the Indemnitee shall not be prejudiced
by reason of that adverse determination.
(c) Company Bound. In the event that a determination shall have been made
-------------
that the Indemnitee is entitled to indemnification hereunder, the Company
shall be bound by such determination in any judicial proceeding or arbitration
absent: (i) a misstatement by the Indemnitee of a material fact, or an
omission of a material fact, necessary to make the Indemnitee's statement not
materially misleading, in connection with the request for indemnification, or
(ii) a final decision by a court having jurisdiction in the matter that such
indemnification is unlawful.
(d) Expenses of Adjudication. In the event that the Indemnitee, pursuant
------------------------
to this Section 7, seeks a judicial adjudication to enforce the Indemnitee's
rights under, or to recover damages for breach of, this Agreement, the
Indemnitee shall be entitled to recover from the Company, and shall be
indemnified by the Company against, any and all Expenses incurred by the
Indemnitee in such adjudication or arbitration, but only if the Indemnitee
prevails therein. If it shall be determined in such adjudication that the
Indemnitee is entitled to receive part but not all of the indemnification or
advancement of Expenses sought, the Expenses incurred by the Indemnitee in
connection with such adjudication or arbitration shall be appropriately
pro-rated.
8. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
(a) Burden of Proof. In making a determination with respect to
-----------------
entitlement to indemnification hereunder, the Person or Persons or entity
making such determination shall presume that the Indemnitee is entitled to
indemnification under this Agreement and the Company shall have the burden of
proof to overcome that presumption in connection with the making by any
Person, Persons or entity of any determination contrary to that presumption.
(b) Effect of Other Proceedings. The termination of any Proceeding or of
---------------------------
any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not of
---------------
itself create a presumption that the Indemnitee did not act in Good Faith.
<PAGE>
(c) Reliance as Safe Harbor. For purposes of any determination of Good
-----------------------
Faith, the Indemnitee shall be deemed to have acted in Good Faith if the
Indemnitee's action is based in good faith reliance on the records or books of
account of the Enterprise including financial statements, or on information
supplied to the Indemnitee by the officers of the Enterprise in the course of
their duties or on the advice of legal counsel for the Enterprise or on
information or records given or reports made to the Enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Enterprise. The provisions of this
Section 8(c) shall not be deemed to be exclusive or to limit in any respect
the other circumstances in which the Indemnitee may be deemed to have met the
applicable standard of conduct set forth in this Agreement.
(d) Actions of Others. The knowledge or actions or failure to act of any
-----------------
director, officer, agent, fiduciary or employee of the Enterprise shall not be
imputed to the Indemnitee for purposes of determining the right to
indemnification under this Agreement.
9. Notification and Defense of Claim. The Indemnitee agrees promptly
---------------------------------
to notify the Company upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any
Proceeding or matter in respect of which indemnification or advancement of
Expenses may be sought hereunder, describing in reasonable detail, if known,
the facts pertaining thereto and the amount or an estimate of the amount of
the liability arising therefrom. The Company shall have the right to
participate in, assume any defense of, and control any such Proceeding
relating to an asserted liability at its own expense. If the Company elects
to assume or participate in such defense or to pay or compromise any asserted
liability, it shall promptly notify the Indemnitee of its intent to do so. If
the Company elects to assume such defense, the Company shall not be liable to
the Indemnitee for any legal fees incurred by the Indemnitee after
notification by the Company of such assumption unless: (i) the employment of
counsel by the Indemnitee has been authorized in writing by the Company,
(ii) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
such defense, or (iii) the Company shall not in fact have employed counsel to
assume such defense, in each of which cases the reasonable fees and expenses
of counsel shall be at the expense of the Company. If the Company elects not
to assume or participate in such defense, the Indemnitee may pay, settle, or
assume such defense; provided that the Indemnitee may not pay, settle or
--------
compromise any claim without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing,
the Company may not settle or compromise any claim over the objection of the
Indemnitee if such settlement or compromise would result in the incurrence of
any liability by the Indemnitee for which no indemnification is provided
hereunder. Whether or not the Company chooses to defend any claim, the
parties hereto shall fully cooperate in the defense thereof and shall furnish
such records, information and testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals, as may be reasonably requested in
connection therewith.
<PAGE>
10. Amendments; Waiver. No supplement, modification, amendment,
-------------------
termination or cancellation of this Agreement shall be binding unless executed
in writing by both of the parties hereto. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof nor shall such waiver constitute a continuing waiver.
11. Subrogation; Duplicative Payment. (a) In the event of payment
----------------------------------
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee, who shall execute
all instruments and documents required and shall do everything that may be
necessary to secure such rights, including the execution of such instruments
and documents as may be necessary to enable the Company effectively to bring
suit to enforce such rights.
(b) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
the Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
12. Binding Effect; Survival. (a) This Agreement shall be binding
------------------------
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and assigns, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company, and the heirs,
executors and administrators of the Indemnitee.
(b) All agreements and obligations of the Company contained herein shall
continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible
claim or threatened, pending or completed action, suit or proceeding, whether
civil, criminal, arbitrational, administrative or investigative, by reason of
the fact that indemnitee was serving in the capacity referred to herein.
(c) The Company shall require any successor to the Company (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
13. Non-exclusivity. The provisions for indemnification and
---------------
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any
provision of law (including the BCL), the Company's charter or By-Laws, the
vote of the Company's shareholders or disinterested directors, other
agreements, or otherwise, both as to action in his official capacity and to
action in another capacity while occupying his position as an agent of the
Company, and the Indemnitee's rights hereunder shall continue after the
Indemnitee has ceased acting as an agent of the Company and shall inure to the
benefit of the heirs, executors and administrators of the Indemnitee.
<PAGE
14. Notices. For purposes of this Agreement, notices and all other
-------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company to:
Trans World Entertainment Company
38 Corporate Circle
Albany, New York 12203
Attention: President
with copies to:
Matthew Mataraso, Esq.
111 Washington Avenue
Albany, New York 12210
If to the Indemnitee, to the address shown
under the Indemnitee's signature below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that change of addresses shall be
effective only upon receipt.
15. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original but both of which together
shall constitute one and the same Agreement. Only one such counterpart signed
by the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.
16. Severability. The provisions of this Agreement shall be
------------
severable in the event that any of the provisions hereof (including any
provision within a single Section, paragraph or sentence) are held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law.
17. Liability Insurance. (a) The Company hereby covenants and agrees
-------------------
that, so long as the Indemnitee continues in his Corporate Status with the
Company, the Indemnitee shall be named as an insured on any directors and
officers' liability insurance ("D&O Insurance") then in force and effect. The
Company shall provide the Indemnitee the same rights and benefits accorded to
the most favorably insured of the Company's directors, if the Indemnitee is a
Director; or of the Company's officers if the Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, if the
Indemnitee is not a director or officer but is a key employee.
(b) The Company shall use its best efforts to establish and maintain D&O
Insurance in reasonable amounts from established and reputable insurers, but
the Company's obligation shall not be enforceable against it if the Company
<PAGE>
determines in good faith that such insurance is not reasonably available, that
the premium costs for such insurance are disproportionate to the amount of
coverage provided or to the premiums paid by other corporations similarly
situated, that the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit, or that the Indemnitee is
covered by similar insurance maintained by a subsidiary of the Company or
other party. The Company shall be under no obligation to notify the
Indemnitee that D&O Insurance may not be in force at any particular time.
18. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of New York applicable
to contracts made and to be performed in such State.
19. Entire Agreement. This Agreement constitutes the entire
-----------------
agreement and understanding between the parties hereto in reference to all
matters herein agreed upon. This Agreement replaces in full all prior
indemnification agreements or understandings of the parties hereto, and any
and all such prior agreements or understandings are hereby rescinded by mutual
agreement; provided that nothing in this Section shall be deemed to replace or
--------
limit any rights to which the Indemnitee may be entitled under the Company's
charter or By-Laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Trans World Entertainment Corporation
By: /s/Robert J. Higgins
---------------------------------------
Robert J. Higgins, Chairman of the
Board and Chief Executive Officer
INDEMNITEE
------------------------------------------
Address: ------------------------------------------
------------------------------------------
------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS DATA EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS, AND THE CONSOLIDATED STATEMENTS OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<CIK> 0000795212
<NAME> TRANS WORLD ENTERTAINMENT CORPORATION
<MULTIPLIER> 1,000
<CAPTION>
Amount
Item Description (in thousands, except per share data)
- ----------------- -------------------------------------
<S> <C>
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> APR-29-1995
<PERIOD-TYPE> 3-MOS
<CASH> 27,632
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 217,870
<CURRENT-ASSETS> 263,258
<PP&E> 180,297
<DEPRECIATION> 87,842
<TOTAL-ASSETS> 358,695
<CURRENT-LIABILITIES> 171,458
<BONDS> 66,369
0
0
<COMMON> 97
<OTHER-SE> 115,295
<TOTAL-LIABILITY-AND-EQUITY> 358,695
<SALES> 111,912
<TOTAL-REVENUES> 111,912
<CGS> 72,258
<TOTAL-COSTS> 72,258
<OTHER-EXPENSES> 42,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,474
<INCOME-PRETAX> (6,799)
<INCOME-TAX> (2,713)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,086)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
