As filed with the Securities and Exchange Commission on May 6, 1996
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 Rule 14a-11(c) or Rule 14a-12
TRANS WORLD ENTERTAINMENT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
TRANS WORLD ENTERTAINMENT CORPORATION
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(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:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
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
0-11(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:
- --------------------------------------------------------------------------------
(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>
[ LOGO ]
TRANS WORLD ENTERTAINMENT CORPORATION
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 Entertainment Corporation (the "Company"), which will be held at The
Desmond, 660 Albany-Shaker Road, Albany, New York 12211, on Wednesday, June 5,
1996, at 10:00 A.M., New York time, for the following purposes:
1. To elect five directors to serve until the next annual meeting and
until their successors are chosen and qualified; and
2. To transact any such other business as may come properly before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on April 24, 1996, 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 6, 1996
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 ENTERTAINMENT CORPORATION
38 CORPORATE CIRCLE
ALBANY, NEW YORK 12203
-------------------
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of Trans World
Entertainment Corporation, 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 5, 1996 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 6, 1996.
VOTING SECURITIES
The Company has only one class of voting securities, its Common Stock, par
value $.01 per share (the "Common Stock"). On April 24, 1996, the record date,
9,737,814 shares of Common Stock were outstanding. Each shareholder of record at
the close of business on the record date will be entitled to one vote for each
share of Common Stock owned on that date as to each matter presented at 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 an inspector from
Chemical Mellon Shareholder Services 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.
Under New York law, abstentions and broker non-votes will have no effect on
the outcome of the election of Directors 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 proposal set forth herein as Item 1. 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 24, 1996, 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.............................................. 5,329,850(1) 54.7%
38 Corporate Circle
Albany, New York 12203
J.P. Morgan & Co., Incorporated................................ 803,000(2) 8.2%
60 Wall Street
New York, New York 10260
Dimensional Fund Advisors Inc.................................. 510,100(3) 5.2%
1299 Ocean Avenue
Santa Monica, California 90401
</TABLE>
- ------------
(1) Information is as of April 24, 1996, as provided by the holder. Includes
16,850 shares owned by the wife of Robert J. Higgins.
(2) Information is as of March 29, 1996, 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 607,000 shares and sole dispositive power with respect to 803,000
shares.
(3) Information is as of December 31, 1995, as provided by the holder.
Dimensional Fund Advisors Inc., a registered investment advisor, holds
shares in the Company in a fiduciary capacity. Dimensional reported sole
voting power with respect to 370,500 shares and sole dispositive power with
respect to 510,100 shares.
Mr. Higgins, who beneficially owns 5,329,850 shares of Common Stock as of
the record date (approximately 54.7% of all outstanding shares), has advised the
Company that he presently intends to vote all of his shares for the election of
the nominees for director named under "Item 1--ELECTION OF DIRECTORS." If Mr.
Higgins votes his shares for the director nominees, 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 five 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
he 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".
2
<PAGE>
CHARLOTTE G. FISCHER has been Chairman of the Board, President and Chief
Executive Officer of Paul Harris Stores, Inc., a publicly-held specialty
retailer of women's apparel, since January 28, 1995. Mrs. Fischer was the Vice
Chairman of the Board and Chief Executive Officer-designate from April 29, 1994
through January 28, 1995. Mrs. Fischer has also served as a consultant to retail
organizations, including the Company. Mrs. Fischer was President and Chief
Executive Officer of Claire's Boutiques, Inc. from September 1989 until October
1991 , and was on the Board of Directors of Claire's Stores, Inc., the
publicly-held parent company.
GEORGE W. DOUGAN has been Chief Executive Officer and a member of the Board
of Directors of Evergreen Bancorp Inc. since March 7, 1994, and Chairman of the
Board since May 19, 1994. 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.
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 23 years. Merry-Go-
Round filed for protection from its creditors under Chapter 11 of the U.S.
Bankruptcy Code on January 11, 1994 and is currently in a Chapter 7 liquidation.
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 24, 1996 by each director and named executive officer of the Company
and all directors and executive 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.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF BENEFICIAL
YEAR FIRST OWNERSHIP OF
ELECTED AS COMMON STOCK AS
POSITIONS WITH THE DIRECTOR/ OF APRIL 24, PERCENT
NAME COMPANY AGE OFFICER 1996 OF CLASS
- -------------------------- -------------------------- --- ---------- --------------- --------
<S> <C> <C> <C> <C> <C>
Robert J. Higgins......... Chairman of the Board, 54 1973 5,329,850(1) 54.7%
President, Chief
Executive Officer and a
Director
Matthew H. Mataraso....... Secretary and a Director 66 1976 40,752(2) *
Charlotte G. Fischer...... Director 46 1991 13,370(2) *
George W. Dougan.......... Director 56 1984 22,750(2) *
Isaac Kaufman............. Director 49 1991 14,320(2) *
Edward W. Marshall, Jr.... Executive Vice President-- 50 1989 122,684(2) 1.2%
Operations
John J. Sullivan.......... Senior Vice President-- 43 1995 19,784(2) *
Finance and Chief
Financial Officer
Bruce J. Eisenberg........ Senior Vice President-- 36 1995 38,798(2) *
Real Estate
All directors and executive
officers as a group (8 persons).....................
5,602,308(1)(2) 56.4%
</TABLE>
(Footnotes on following page)
3
<PAGE>
(Footnotes for preceding page)
- ------------
* Less than 1%
(1) Includes 16,850 shares owned by the wife of Robert J. Higgins.
(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 (13,750), Mr. Dougan (15,250) and Mr. Kaufman (13,750);
(b) under employee stock option plans--Mr. Mataraso (36,250); Mr. Marshall
(83,750), Mr. Sullivan (17,500) and Mr. Eisenberg (5,000); and (c) under all
stock option plans--All directors and executive officers as a group
(185,250).
BOARD OF DIRECTORS MEETINGS AND ITS COMMITTEES
The Board of Directors held 11 meetings during the 1995 fiscal year, and
also acted on one occasion 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 were during the 1995 fiscal
year: Isaac Kaufman (Chairman), Charlotte G. Fischer and George W. Dougan.
During 1993 and the first two months of 1994, Mrs. Fischer had 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 1995 fiscal year. The Audit
Committee's responsibilities consist of recommending the selection of
independent auditors, 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 members were during the 1995
fiscal year: George W. Dougan (Chairman), Isaac Kaufman and Charlotte G.
Fischer. The Compensation Committee held three meetings during the 1995 fiscal
year. The Compensation Committee formulates and gives effect to policies
concerning salary, compensation, stock options and other matters concerning
employment with the Company.
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. Each director who is not a salaried employee of the
Company receives $15,000 retainer per annum plus a $1,000 attendance fee for
each committee meeting and board meeting attended, except that the compensation
for telephone conference meetings is $500. A Committee chairperson earns an
additional $1,000 retainer per year.
Matthew H. Mataraso received $58,000 in cash compensation and $2,100 in
401(k) contributions from the Company in fiscal 1995 for his services as
Secretary of the Company and as counsel. Messrs. Higgins and Mataraso are the
only directors eligible to participate in the Company's employee stock option
plans.
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 and
Kaufman participate in the Director Stock Option Plan. A total
4
<PAGE>
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 87,000 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 1995, annual grants to outside Directors of 1,500 Director Options were
made at an exercise price of $3.55 per share, compared to the market value on
the date of grant of $4.13. Accordingly, compensation expense in the aggregate
of $2,610 will be amortized over a 48-month period by the Company for the 1995
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 acted on one occasion by unanimous written
consent.
Retirement Plan. The Company provides the Board of Directors with a
noncontributory, unfunded retirement plan that pays a retired director a
retirement benefit of $15,000 per year for up to 10 years, depending on the
length of service, or the life of the director and his or her spouse, whichever
period is shorter. To become vested in the retirement plan a director must reach
age 62 and have served on the Board of Directors for a minimum of five
consecutive years.
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.
Under the two capitalized leases, dated April 1, 1985 and November 1, 1989
(the "Leases"), the Company paid Mr. Higgins an annual rent of $1,174,929 in
fiscal 1995. On January 1, 1996, the aggregate rental increased 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 all 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 real property approximates $70,000
per month. The Company also leased certain personal property from Mr. Higgins
under the lease dated April 1, 1985 for which the Company paid Mr. Higgins rent
of $102,000 in fiscal 1995. The portion of the lease allocable to this personal
property expired in July 1995. The aggregate annual rental paid to Mr. Higgins
under the Original Lease and the Expansion Lease was $1,276,929 in fiscal 1995.
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 1995 the Company paid Mr. Higgins $30,000 for a one year lease, expiring
on October 31, 1995, for certain parking facilities contiguous to the Company's
distribution center/office facility. The lease was renewed through October 31,
1996, after approval by the Audit Committee.
5
<PAGE>
The Company regularly utilizes privately-chartered aircraft for its
executives, primarily those owned or partially owned by Mr. Higgins. During
fiscal 1995, the Company chartered an airplane under an unwritten agreement with
Quail Aero Services of Syracuse, Inc., a corporation in which Mr. Higgins is a
one-third shareholder. Payments made by the Company during fiscal 1995 were
$69,733. The Company also chartered an aircraft from Crystal Jet, a corporation
wholly owned by Mr. Higgins. During fiscal 1995 payments to Crystal Jet
aggregated $166,988. The Company believes that the charter rates 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. During fiscal 1995, Mr.
Higgins was employed as President and Chief Executive Officer of the Company
pursuant to a one year employment agreement. In January 1996, the Compensation
Committee and Mr. Higgins entered into a new employment agreement providing for
the employment of Mr. Higgins as President and Chief Executive Officer for a
three-year term commencing on February 4, 1996 and continuing until January 30,
1999, unless earlier terminated pursuant to its terms. Pursuant to its terms,
Mr. Higgins earns a minimum annual salary of $575,000, is reimbursed for two
club memberships, and is entitled to payment of or reimbursement for life
insurance premiums of up to $150,000 per year on insurance policies for the
benefit of persons designated by Mr. Higgins. In addition, Mr. Higgins is
eligible to participate in the Company's executive bonus plan, health and
accident insurance plans, stock option plans, and in other fringe benefit
programs adopted by the Company for the benefit of its executive employees. For
the fiscal year ended February 3, 1996, 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.
Edward W. Marshall has a severance agreement in effect that provides, under
certain conditions, payment of severance equal to one year of annual
compensation, at a level not less than his current salary of $250,000, upon his
termination following severance without cause (as defined), including
termination following a change in control of the Company. Mr. Marshall's
severance agreement contains an "evergreen" provision for automatic renewal each
year.
6
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Composition and Purpose of the Compensation Committee. The Company's
Compensation Committee (the "Committee") was comprised during fiscal 1995 of
three 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 1994, the Compensation
Committee engaged KPMG Peat Marwick LLP, 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 a
compensation study prepared by KPMG Peat Marwick LLP, along with the Committee
members' experience in the retail industry, in evaluating the executive salary
levels. The Committee believes that it must keep the base pay component at or
above the median range to remain competitive in attracting competent management.
Annual Performance Incentives. Key executives, including the named executive
officers, 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 1995, the Committee established as the principal goal a threshold level
of earnings per share before bonuses would be paid to executive officers.
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. Each named executive officer was eligible to earn from 17.5% to a
maximum of 70% of his salary in incentive payments 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 1995, and the Company's
earnings fell significantly below the lowest target, no annual incentive
payments were awarded to the named executive
7
<PAGE>
officers. However, Mr. Marshall received a guaranteed bonus of $50,000 in
connection with his promotion to Executive Vice President in August 1994 and Mr.
Eisenberg received a $100,000 bonus for his efforts in closing stores under the
Company's restructuring program.
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 level of stock option
grants are 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.
The Company also has a restricted stock plan which the Committee may use to
grant awards of common stock to officers and other key employees of the Company.
The Committee believes that the Company's long-term goals are best achieved
through long-term stock ownership. The level of awards are granted at the
discretion of the Committee.
Chief Executive Officer's Compensation
The Chief Executive was compensated in fiscal 1995 according to a one year
employment agreement, approved by the Committee, that continued in effect
through February 3, 1996. The agreement provided for no salary adjustment over
the salary rate in fiscal 1994. The Committee considered the Chief Executive's
intimate knowledge of the Company's operations and specific skills in the retail
music and video industry in keeping the base compensation at the same level of
fiscal 1993 and fiscal 1994, which factors were necessarily subjective. The
employment agreement provided for participation in the management bonus plan at
a level of 25% of the Chief Executive's salary to a maximum of 150% of his
salary if certain targets were achieved by the Company. Because the threshold
level of earnings per share was not achieved, the Chief Executive earned no
incentive payment for the fiscal year ended February 3, 1996.
In January 1996, the Committee and Mr. Higgins entered into a new employment
agreement providing for the employment of Mr. Higgins as President and Chief
Executive Officer for a three-year term commencing on February 4, 1996 and
continuing until January 30, 1999, unless earlier terminated pursuant to its
terms. Three major changes were made from the previous agreement with Mr.
Higgins: the one year term was increased to three years, base compensation was
increased from $550,000 to $575,000 and the bonus arrangement is based on
achievement of specified pre-tax earnings targets over a two year period. The
employment agreement provides for participation in the management bonus plan at
a level of 25% of salary to a maximum of 160% of his salary if certain targets
are achieved by the Company.
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 1995. The Committee has adopted a new annual incentive plan for
its executives, which generally follows the requirements of the proposed
regulations, and the Committee will review the annual incentive plan from time
to time to determine what changes are necessary or appropriate so that awards
under the plan will be excluded from the deduction limit.
8
<PAGE>
Compensation Committee Interlocks and Insider Participation
There were no Compensation Committee interlocks during fiscal 1995. None of
these members were an officer or employee of the Company, a former officer of
the Company, or a party to any relationship requiring disclosure under Item 404
of Regulation S-K under the Securities Exchange Act of 1934, as amended.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
GEORGE W. DOUGAN, CHAIRMAN
CHARLOTTE G. FISCHER
ISAAC KAUFMAN
- ------------
(1) Notwithstanding anything to the contrary set forth in the Company's previous
filings under the Securities Act of 1933, as amended, or under the
Securities Exchange Act of 1934 Act, as amended, that might incorporate
future filings, including this Proxy Statement, in whole or in part, the
preceding report of the Compensation Committee and the performance graph on
page 12 shall not be incorporated by reference into any such filings.
EXECUTIVE OFFICERS AND COMPENSATION
The Company's executive officers are identified below. At year end, four
officers met the definition of "executive officer" under applicable regulations
for fiscal year 1995, 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 four executive officers of the
Company whose cash compensation for that year exceeded $100,000.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------
---------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS (#) ($)
- ------------------- ---- ------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. 1995 550,000 0 68,653(1) -- 0 95,161(1)
Higgins.......... 1994 550,000 0 79,514(1) -- 0 78,960(1)
Chairman, 1993 550,000 0 91,027(1) -- 0 45,255
President and
Chief Executive
Officer
Edward W. 1995 263,206 50,000 -- (2) 132,500(4) 15,000 4,423(3)
Marshall......... 1994 234,826 50,000 26,875(5) -- 0 4,146(3)
Executive Vice 1993 190,751 0 -- (2) -- 45,000 3,854(3)
President--
Operations
John J. Sullivan... 1995 161,009 0 -- (2) -- 15,000 4,903(3)
Senior Vice 1994 130,096 30,000 -- (2) -- 0 3,822(3)
President and 1993 126,012 32,039 -- (2) -- 13,000 3,919(3)
Chief Financial
Officer
Bruce J. 1995 137,340 100,000 -- (2) 100,000(4) 15,000 2,772(3)
Eisenberg........ 1994 79,327 100,000 -- (2) -- 5,000 0
Senior Vice 1993 37,500 0 -- (2) -- 15,000 0
President--
Real Estate(6)
</TABLE>
- ------------
(1) "Other Annual Compensation" in fiscal 1995, 1994 and 1993 for Mr. Higgins
includes $ 58,335, $71,040, and $82,208, respectively, in payments for or
reimbursement of life insurance premiums made on behalf of Mr. Higgins or
his beneficiaries, pursuant to his employment agreement. "All Other
Compensation" in fiscal 1994 and fiscal 1995 for Mr. Higgins consists of 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 1994 and 1995 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 employer
matching contributions for the 401(k) Savings Plan.
(4) The amount in this column represents the dollar value at the date of award
of restricted stock awards calculated using the closing sale price of Trans
World Entertainment Common Stock on the date of grant. Mr. Marshall received
25,000 shares of restricted stock of which 60% shall vest on January 31,
1998; an additional 20% shall become vested on January 31, 1999, and the
final 20% shall become vested on January 31, 2000. Mr. Eisenberg received
25,000 shares of restricted stock of which 20% shall become vested on April
30, 1998; an additional 20% shall become vested on April 30, 1999, and the
final 60% shall become vested on April 30, 2000.
(5) "Other Annual Compensation" for Mr. Marshall included $25,000 for
forgiveness of a loan.
(6) Mr. Eisenberg has been an employee since August 1993.
STOCK OPTION PLANS
The Company has two employee stock option plans in place, the 1986 Incentive
and Non-Qualified Stock Option Plan, as amended and restated (the "1986 Plan"),
with an aggregate of 1,100,000 shares authorized for issuance, and the 1994
Stock Option Plan (the "1994 Plan"), with an aggregate of 1,000,000 shares (the
1986 Plan and the 1994 Plan are collectively referred to as the "Stock Option
10
<PAGE>
Plan"). The following tables set forth, as to each of the named executive
officers, certain information with respect to all options granted or exercised
for the fiscal year ended February 3, 1996 under the Stock Option Plan.
STOCK OPTION GRANTS IN LAST FISCAL YEAR(1)
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended February 3, 1996, to each of the
named executive officers of the Company.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------- VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR
OPTIONS GRANTED TO OR BASE OPTION TERM (3)
GRANTED (#) EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME (1) (2) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ------------------------- ----------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mr. Higgins.............. 0 N/A -- -- -- --
Mr. Marshall............. 15,000 6.7% $ 3.63 2005 34,243 86,779
Mr. Sullivan............. 15,000 6.7% $ 3.63 2005 34,243 86,779
Mr. Eisenberg............ 15,000 6.7% $ 3.63 2005 34,243 86,779
</TABLE>
- ------------
(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.
All options granted under the Stock Option 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) 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. The Company's stock price was $3.50 at February 3, 1996, the fiscal
year end, which is below the stated exercise price used to calculate the
assumed appreciation value.
AGGREGATED STOCK OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES (1)
The following table sets forth information concerning each exercise of stock
options made during the fiscal year ended February 3, 1996, by each of the named
executive officers of the Company, and the value of unexercised stock options
held by such persons as of February 3, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR-END
SHARES YEAR-END (#) ($)
ACQUIRED ---------------------- --------------------
ON EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(2)
- ----------------------------- ----------- -------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Mr. Higgins.................. -- -- -- --
Mr. Marshall................. -- -- 76,250/53,750 0/0
Mr.Sullivan.................. -- -- 13,000/27,000 0/0
Mr. Eisenberg................ -- -- 1,250/33,750 0/0
</TABLE>
- ------------
(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 February 3, 1996 minus the exercise price.
11
<PAGE>
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, 1991 through January 31,
1996 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, 1991, and
that all dividends were reinvested.
TRANS WORLD ENTERTAINMENT CORPORATION
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
300
[ GRAPH ]
200
100
0
1991 1992 1993 1994 1995 1996
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Trans World Entertainment Corp. ........................ 100 138 82 78 32 20
NASDAQ (U.S.)........................................... 100 153 173 199 190 268
NASDAQ Retail Trade Stocks.............................. 100 175 158 169 149 169
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, generally
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file reports of beneficial ownership and changes in beneficial ownership with
the Securities and Exchange Commission. Based solely upon its review of the
copies of such reports received by it, or upon written representations obtained
from certain reporting persons, the Company believes that all Section 16(a)
filing requirements applicable to its officers, directors, and
greater-than-ten-percent stockholders were complied with, except for as set
forth below.
Mr. Mataraso, a director of the Company, and Mr. Eisenberg, an executive
officer of the Company, each acquired and disposed of shares of common stock
through transactions in the Company's 401(k) Plan that were not reported on a
timely basis. During fiscal 1992 and 1993, Mr. Mataraso purchased, in the
aggregate, 137 shares of common stock and sold, in the aggregate, 150 shares of
common stock. In 1995, Mr. Eisenberg purchased 915 shares of common stock and
sold 157 shares of common stock within a six month period. A Form 4 was filed in
the interim which omitted these transactions. Mr. Marshall, an executive officer
of the Company, inadvertently omitted the purchase of 2,425 shares of common
stock from a subsequent filing on Form 4. All of the transactions noted above
were reported on Form 5 by each person on March 19, 1996.
12
<PAGE>
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. 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
KPMG Peat Marwick LLP as independent auditors for the Company for the fiscal
year ending February 1, 1997. KPMG Peat Marwick LLP has acted as auditors for
the Company since 1994, when they purchased the Albany practice of Ernst &
Young, the Company's auditors since 1985. Representatives of KPMG Peat Marwick
LLP 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 1995 Annual Report to the Shareholders
(which does not form a part of the proxy solicitation material), including
financial statements for the fiscal year ended February 3, 1996, are being sent
concurrently to shareholders. If you have not received or had access to the 1995
Annual Report to Shareholders, please write to the Company to the attention of:
Treasurer, 38 Corporate Circle, Albany, New York 12203, and a copy will be sent
to you free of charge.
13
<PAGE>
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 1997
must submit the same in writing so as to be received at the executive offices of
the Company on or before February 14, 1997. Such proposals must also meet the
other requirements of the rules of the Securities and Exchange Commission
relating to shareholders' proposals. Proposals should be addressed to Matthew H.
Mataraso, Secretary, Trans World Entertainment Corporation, Albany, NY 12203. No
such proposals were received with respect to the annual meeting scheduled for
June 5, 1996.
By Order of the Board of Directors,
/s/ Matthew H. Mataraso
-----------------------
Matthew H. Mataraso,
Secretary
May 6, 1996
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PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TRANS WORLD ENTERTAINMENT CORPORATION
The undersinged hereby appoints Robert J. Higgins and Matthew H. Mataraso
proxies, with power to act without the other and with power of substitution,
and hereby authorizes them to represent and vote, as designated on the other
side, all the shares of stock of Trans World Entertainment Corporation standing
in the name of the undersigned with all powers which the undersigned would
possess if present at the Annual Meeting of Stockholders of the Company to be
held June 5, 1996 or any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
FOLD AND DETACH HERE
<PAGE>
Please mark
your vote as [X]
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2. WITHHELD
FOR FOR ALL
Item 1-ELECTION OF DIRECTORS [ ] [ ]
Item 2-Other matters in their discretion that may come
properly before the meeting.
Nominees:
Robert J. Higgins, Matthew H. Mataraso, George W. Dougan,
Charlotte G. Fischer and Isaac Kaufman
WITHHELD FOR: (Write that nominee's name in the space provided
below).
- -------------------------------------------------------------------
Signature: Signature Date
------------------ ----------------- -------
Note: Please sign as name appears hereon, Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
FOLD AND DETACH HERE
