<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section14(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
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
TRANS WORLD ENTERTAINMENT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule0-11(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.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<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 Thursday, June 5,
1997, at 10:00 A.M., New York time, for the following purposes:
1. To elect seven 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 23, 1997, 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 5, 1997
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
(518) 452-1242
------------------------
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, 1997, 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 5, 1997.
VOTING SECURITIES
The Company has only one class of voting securities, its Common Stock, par
value $.01 per share (the "Common Stock"). On April 23, 1997, the record date,
9,747,849 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
ChaseMellon 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 to 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 23, 1997, 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
Dimensional Fund Advisors Inc................................................... 538,100(2) 5.5%
1299 Ocean Avenue
Santa Monica, California 90401
</TABLE>
- ------------------------
(1) Information is as of April 23, 1997, as provided by the holder. Includes
16,850 shares owned by the wife of Robert J. Higgins.
(2) Information is as of December 31, 1996, 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 370,300 shares and sole dispositive power with
respect to 538,100 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 seven 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".
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,
2
<PAGE>
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 Chief Financial Officer of VSI Group, Inc., a
provider of contract staffing and management services, since November 1996. Mr.
Kaufman was an Executive Vice President of Merry-Go-Round Enterprises, Inc.
("Merry-Go-Round"), a publicly held specialty retailer, and on its Board of
Directors from April 3, 1991 to February 2, 1996 and had been its Chief
Financial Officer, Secretary and Treasurer since 1983. 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.
DEAN S. ADLER was elected to the Board of Directors effective March 5,
1997. During March 1997, Mr. Adler formed Lubert/Adler Partners, LP, a limited
partnership investing primarily in under-valued and opportunistic real estate
and real estate-related ventures. For ten years prior thereto, Mr. Adler was a
principal and co-head of the private equity group of CMS Companies, which
specialized in acquiring operating businesses and real estate within the private
equity market. Mr. Adler was also an instructor at The Wharton School of the
University of Pennsylvania. Mr. Adler serves on the Boards of Directors of The
Lane Company, US Franchise Systems, Inc. and Developers Diversified Realty
Corporation.
DR. JOSEPH G. MORONE was elected to the Board of Directors effective
January 10, 1997. Dr. Morone has been named President of Bentley College,
effective August 1, 1997. Currently, Dr. Morone is the Dean of Rensselaer
Polytechnic Institute's Lally School of Management and Technology and has served
in that position since July 1993. Prior to his appointment as dean, Dr. Morone
held the Andersen Consulting Professorship of Management and was Director of the
School of Management's Center for Science and Technology Policy. Before joining
the School of Management (1988), Dr. Morone was a senior associate for the
Keyworth Company, a consulting firm specializing in technology management and
science policy. Dr. Morone also spent 7 years at General Electric Company's
Corporate Research and Development. Dr. Morone serves on the Boards of Directors
of Albany Medical Center, Albany International Corp. and NView Corporation.
EQUITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of Common stock as
of April 23, 1997, 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
3
<PAGE>
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
YEAR FIRST OF BENEFICIAL
ELECTED AS OWNERSHIP OF PERCENT
POSITIONS WITH THE DIRECTOR/ COMMON STOCK AS OF
NAME COMPANY AGE OFFICER OF APRIL 23, 1997 CLASS
- -------------------------------- -------------------------------- --- ----------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
Robert J. Higgins............... Chairman of the Board, 55 1973 5,329,850(1) 54.7%
President, Chief Executive
Officer and a Director
Matthew H. Mataraso............. Secretary and a Director 67 1976 15,193(2) *
Charlotte G. Fischer............ Director 47 1991 15,250(2) *
George W. Dougan................ Director 57 1984 24,250(2) *
Isaac Kaufman................... Director 50 1991 17,750(2) *
Dr. Joseph G. Morone............ Director 44 1997 0 *
Dean Adler...................... Director 40 1997 0 *
Edward W. Marshall.............. Executive Vice President-- 51 1989 140,434(2) 1.4%
Operations
James A. Litwak................. Executive Vice President-- 43 1996 39,525(2) *
Merchandising and Marketing
John J. Sullivan................ Senior Vice President-- Finance 44 1995 58,152(2) *
and Chief Financial Officer
Bruce J. Eisenberg.............. Senior Vice President--Real 37 1995 50,798(2) *
Estate
All directors and officers as a 5,691,202(1)(2) 57.2%
group (11 persons)............
</TABLE>
- ------------------------
* Less Than 1%
(1) Includes 16,850 shares owned by the wife of Robert J. Higgins
(2) Included in 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 (15,250), Mr. Dougan (16,750) and Mr. Kaufman (15,250);
(b) under employee stock option plans--Mr. Mataraso (10,691), Mr. Marshall
(92,500), Mr. Litwak (25,000), Mr. Sullivan (21,750), and Mr. Eisenberg
(11,250); and (c) under all stock option plans--All directors and executive
officers as a group (208,441).
BOARD OF DIRECTORS MEETINGS AND ITS COMMITTEES
The Board of Directors held 5 meetings during the 1996 fiscal year. With the
exception of Dr. Morone and Mr. Adler, who are newly elected, 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
independent directors, whose members were during the 1996 fiscal year: Isaac
Kaufman (Chairman), Charlotte G. Fischer and George W. Dougan. The Audit
Committee held two meetings during the 1996 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
4
<PAGE>
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 of independent directors, whose members were during the 1996 fiscal
year: George W. Dougan (Chairman), Isaac Kaufman and Charlotte G. Fischer. The
Compensation Committee held two meetings during the 1996 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 principal 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 a $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 $1,740 in
401(k) contributions from the Company in fiscal 1996 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 "Directors Stock Option Plan"). Currently, Mrs. Fischer and Messrs. Dougan,
Kaufman, Adler and Morone participate in the Director Stock Option Plan. A total
of 250,000 shares of the Common Stock are reserved for issuance pursuant to
non-qualified stock options (the "Director Options") issued under such plan, and
Director Options covering 111,500 shares of Common Stock have been granted.
Stock options issuable under the Director Stock Option Plan are granted at an a
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 1996, annual grants to outside Directors of 1,500 Director Options were
made at an exercise price of $4.04 per share, compared to the market value on
the date of grant of $4.75. Accordingly, compensation expense in the aggregate
of $3,195 will be amortized over a 48-month period by the Company for the 1996
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.
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 much reach
age 62 and have served on the Board of Directors for a minimum of five
consecutive years.
5
<PAGE>
CERTAIN TRANSACTIONS
The Company leases its 159,000 square foot distribution center/office
facility in Albany, New York from Robert J. Higgins, its Chairman, Chief
Executive Officer and principal shareholder, under two capitalized leases that
expire in the year 2015. The original distribution center/office facility was
constructed in 1985. A 77,135 square foot distribution center expansion (the
"Expansion") was completed in October 1989 on real property adjoining the
existing facility.
Under the two capitalized leases, dated April 1, 1985 and November 1, 1989
(the "Leases"), the Company paid Mr. Higgins an annual rent of $1,221,238 in
fiscal 1996. 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 leases two of its retail stores from Mr. Higgins under long-term
leases, each at annual rental of $35,000 per year plus property taxes,
maintenance and a contingent rental if a specified sales level is achieved. In
fiscal 1996 the Company paid Mr. Higgins $30,000 for a one year lease expiring
on October 31, 1996, for certain parking facilities contiguous to the Company's
distribution center/office facility. The lease was renewed through October 31,
1997, after approval by the Audit Committee.
The Company regularly utilizes privately-chartered aircraft for its
executives, primarily those owned or partially owned by Mr. Higgins. During
fiscal 1996, 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 1996 were
$76,178. The Company also chartered an aircraft from Crystal Jet, a corporation
wholly owned by Mr. Higgins. During fiscal 1996 payments to Crystal Jet
aggregated $226,566. 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 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 1996 Mr.
Higgins was employed as President and Chief Executive Officer of the Company
pursuant to a three year Employment Agreement that commenced on February 4, 1996
and continues 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 1, 1997, Mr. Higgins earned
$575,000 in incentive compensation under the Employment Agreement.
In 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.
6
<PAGE>
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 $260,799, 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.
James A. Litwak 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 $275,000, upon his
termination following severance without cause (as defined). Mr. Litwak's
severance agreement contains an "evergreen" provision for automatic renewal each
year.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION AND PURPOSE OF THE COMPENSATION COMMITTEE. The Company's
Compensation Committee (the "Committee") was comprised during fiscal 1996 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
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 stock option plans.
COMPENSATION PHILOSOPHY AND OVERALL OBJECTIVES. The components of the
executive compensation program are salary, annual incentive awards and stock
options. This 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 than 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.
7
<PAGE>
For 1996, the Committee established as the principal goal a targeted level
of pre-tax earnings before bonuses would be paid to executive officers. Each
named executive officer was eligible to earn 17.5% to a maximum of 70% of his
salary in incentive payments if the targets were achieved by the Company. If the
targets were not achieved then the incentives would be reduced to lower levels.
Below a certain target level no incentives were to be paid. Because the
Company's pre-tax earnings exceeded predetermined targets each of the named
executives received annual incentive payments as outlined in the "SUMMARY
COMPENSATION TABLE".
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 granted is at the
discretion of the Committee.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
The Chief Executive was compensated in fiscal 1996 according to a three year
employment agreement, approved by the Committee, that will be in effect through
January 30, 1999. Three major changes were made from the previous agreement with
Mr. Higgins; the one year term was increased to three years, base compensation
increased from $550,000 to $575,000 and the bonus arrangement is based upon the
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 his salary to a maximum of 160% of his salary if certain
targets are achieved by the Company.
DEDUCTIBILITY OF COMPENSATION EXPENSES
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a public corporation for compensation over $1 million for its chief
executive 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. 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. Executive
compensation is structured to avoid limitations on deductibility where this
result can be achieved consistent with the Company's compensation goals.
8
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There were no Compensation Committee interlocks during the fiscal 1996. 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, 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 13
shall not be incorporated by reference to such filings.
EXECUTIVE OFFICERS AND COMPENSATION
The Company's executive officers are identified below. At year end, five
officers met the definition of "executive officer" under applicable regulations
for the fiscal year 1996, 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 five executive officers of the
Company whose cash compensation for that year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------
----------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS (#) ($)
- ------------------------------------ --------- --------- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Higgins................... 1996 575,000 575,000 28,223(1) -- 0 72,590(1)
Chairman, President and Chief 1995 550,000 0 68,653(1) -- 0 95,161(1)
Executive Officer 1994 550,000 0 79,514(1) -- 0 78,960(1)
Edward W. Marshall.................. 1996 262,097 182,559 -- (2) -- 50,000 4,750(3)
Executive Vice President-- 1995 263,206 50,000 -- (2) 132,500(4) 15,000 4,423(3)
Operations 1994 234,826 50,000 26,875(5) -- 0 4,146(3)
James A. Litwak..................... 1996 190,144 150,000 217,668(6) -- 100,000 --
Executive Vice President-- 1995 -- -- -- -- -- --
Merchandising & Marketing 1994 -- -- -- -- -- --
John J. Sullivan.................... 1996 179,981 127,400 -- (2) 118,750(4) 50,000 4,750(3)
Senior Vice President and Chief 1995 161,009 0 -- (2) -- 15,000 4,903(3)
Finacial Officer 1994 130,096 30,000 -- (2) -- 0 3,822(3)
Bruce J. Eisenburg.................. 1996 174,933 127,400 -- (2) -- 50,000 4,037(3)
Senior Vice President--Real Estate 1995 137,340 100,000 -- (2) 100,000(4) 15,000 2,772(3)
1994 79,327 100,000 -- (2) -- 5,000 0
</TABLE>
9
<PAGE>
- ------------------------
(1) "Other Annual Compensation" in fiscal 1996, 1995 and 1994 for Mr. Higgins
includes $17,400, $58,335 and $71,040, 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 1996, 1995 and 1994 for Mr. Higgins consists of the
maximum potential 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 accordance with current SEC instructions as if the 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 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) "Restricted Stock Award(s)" for the named executives represents the dollar
value at the date of the award and is 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% will 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.
Sullivan received 25,000 shares of restricted stock of which 20% shall vest
on April 30, 1999: an additional 20% shall become vested on April 30, 2000,
and the final 60% shall become vested on April 30, 2001. Mr. Eisenberg
received 25,000 shares of restricted stock of which 20% will vest on January
31, 1998; an additional 20% shall become vested on January 31, 1999, and the
final 60% shall become vested on January 31, 2000.
(5) "Other Annual Compensation" for Mr. Marshall included $25,000 for
forgiveness of a loan.
(6) Mr. Litwak began his employment in 1996. "Other Annual Compensation" for Mr.
Litwak consists of reimbursement for relocation expenses and a tax gross-up
on the taxable but non-deductible component of the reimbursement.
STOCK OPTION PLANS
The Company has two employee stock option plans in place, the 1986 Incentive
and Non-Qualified Stock Option Plan, as amended and restated (the "1986 Plan"),
with an aggregate of 1,100,000 shares authorized for issuance, and the 1994
Stock Option Plan (the "1994 Plan"), with an aggregate of 1,000,000 shares
authorized for issuance (the 1986 and the 1994 Plans are collectively referred
to as the "Stock Option Plan"). The following tables set forth, as to each of
the named executive officers, certain information with respect to all options
granted or exercised for the fiscal year ended February 1, 1997, under the Stock
Option Plan.
10
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR(1)
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended February 1, 1997, to each of the
named officers of the Company.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
-------------------------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF
SECURITIES TOTAL STOCK PRICE
UNDERLYING OPTIONS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE OPTION TERM (3)
GRANTED (#) EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (1)(2) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- -------------------------------- ----------- --------------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mr. Higgins..................... 0 N/A -- -- -- --
Mr. Marshall.................... 50,000 7.5% $ 4.75 2006 149,362 378,514
Mr. Sullivan.................... 50,000 7.5% $ 4.75 2006 149,362 378,514
Mr. Eisenberg................... 50,000 7.5% $ 4.75 2006 149,362 378,514
Mr. Litwak...................... 100,000 14.5% $ 6.00 2006 377,337 956,245
</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 the 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 excercisability 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 the 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 $6.88 at February 1, 1997, the
fiscal year end.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES (1)
The following table sets forth information concerning each exercise of stock
options made during the fiscal year ended February 1, 1997, by each of the named
executive officers of the Company, and the value of unexercised stock options
held by such person as of February 1, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR END
SHARES YEAR END (#) ($)
ACQUIRED --------------------- --------------------
ON EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(2)
- --------------------------------------- --------------- ----------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Mr. Higgins............................ -- -- -- --
Mr. Marshall........................... -- -- 85,000/95,000 12,188/142,813
Mr. Sullivan........................... -- -- 18,000/72,000 12,188/142,813
Mr. Eisenberg.......................... -- -- 6,250/78,750 12,188/142,813
Mr. Litwak............................. -- -- 0/100,000 0/87,500
</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 1, 1997 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, 1992 through January 31,
1997 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 investment on January 31, 1992, and
that all dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Trans World Entertainment Corp. 100 59 56 23 15 28
NASDAQ (U.S.) 100 113 130 124 175 230
NASDAQ Retail Trade Stocks 100 90 97 85 96 119
</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 the 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
as set forth below.
On May 1, 1996 Mrs. Fischer, Mr. Dougan, Mr. Kaufman and Mr. Mataraso, each
of whom is a director of the Company, each received an annual stock option
grant. Each of the above stated stock option grants should have been reported on
Form 5 no later than March 18, 1997. All of the above stock option grants were
reported on Form 5 by each person on April 14, 1997.
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 materials 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 January 31, 1998. 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 1996 Annual Report to Shareholders
(which does not form a part of the proxy solicitation material), including
financial statements for the fiscal year ended February 1, 1997, are being sent
concurrently to shareholders. If you have not received or had access to the 1996
Annual Report to Shareholders, please write the Company to attention of:
Treasurer, 38 Corporate Circle, Albany, New York 12203, and a copy will be sent
to you free of charge.
13
<PAGE>
SUMBISSION 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 1998
must submit the same in writing so as to be received at the executive offices of
the Company on or before February 14, 1998. 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, 1997.
By Order of the Board of Directors,
/s/ MATTHEW H. MATARASO
Matthew H. Mataraso,
SECRETARY
May 5, 1997
14
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TRANS WORLD ENTERTAINMENT CORPORATION
The undersigned 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, 1997 or any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Please mark
your votes as
indicated in
this example /X/
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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.
</TABLE>
Nominees:
Robert J. Higgins, Matthew H. Mataraso, George W. Dougan,
Charlotte G. Fischer, Isaac Kaufman, Dean S. Adler and
Dr. Joseph G. Morone
WITHHELD FOR: (Write that nominee's name in the space provided
below).
- --------------------------------------------------------------
<TABLE>
<S> <C> <C>
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
</TABLE>
