First Quarter Filing on Form 10-Q
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MAY 2, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT FOR THE TRANSITION PERIOD FROM
............ TO ............
COMMISSION FILE NUMBER: 0-14818
TRANS WORLD ENTERTAINMENT CORPORATION
-------------------------------------
(Exact name of registrant as specified in its charter)
New York 14-1541629
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
38 Corporate Circle
Albany, New York 12203
----------------------
(Address of principal executive offices, including zip code)
(518) 452-1242
(Registrant's telephone number, including area code)
Indicate by a check mark whether the Registrant (1) has filed all
reports required to be filed by Sections 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value,
21,674,012 shares outstanding as of May 30, 1998
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Form 10-Q
Page No.
PART 1. FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at May 2, 1998,
January 31, 1998 and May 3, 1997 3
Condensed Consolidated Statements of Income - Thirteen Weeks
Ended May 2, 1998 and May 3, 1997 5
Condensed Consolidated Statements of Cash Flows - Thirteen
Weeks Ended ended May 2, 1998 and May 3, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 4 - Submission of Matters of Vote of Security Holders 11
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 12
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART 1. FINANACIAL INFORMATION
Item 1 - Financial Statements (unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
May 2, January 31, May 3,
1998 1998 1997
--------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $20,275 $94,732 $10,303
Merchandise inventory 189,902 189,394 159,699
Other current assets 6,099 6,224 9,691
---------------------------------
Total current assets 216,276 290,350 179,693
---------------------------------
VIDEOCASSETTE RENTAL INVENTORY, net 4,022 4,099 4,626
DEFERRED TAX ASSET 5,429 4,726 3,455
FIXED ASSETS:
Property, plant and equipment 179,379 175,506 169,906
Less: Fixed asset write-off reserve 4,223 4,279 7,303
Allowances for depreciation
and amortization 103,902 101,595 99,645
---------------------------------
71,254 69,632 62,958
---------------------------------
OTHER ASSETS 2,814 2,776 3,363
---------------------------------
TOTAL ASSETS $299,795 $371,583 $254,095
=================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
May 2, January 31, May 3,
1998 1998 1997
--------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $100,243 $162,981 $75,124
Income taxes payable 1,969 11,155 ---
Accrued expenses and other 12,218 17,347 7,729
Store closing reserve 8,220 8,691 11,259
Current deferred taxes 604 224 ---
Current portion of long-term debt
and capital lease obligations 96 99 4,733
---------------------------------
Total current liabilities 123,350 200,497 98,845
---------------------------------
LONG-TERM DEBT, less current portion --- 35,000 41,691
CAPITAL LEASE OBLIGATIONS,
less current portion 6,389 6,409 6,484
OTHER LIABILITIES 7,142 6,712 6,537
---------------------------------
TOTAL LIABILITIES 136,881 248,618 153,557
---------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock ($.01 par value;
5,000,000 shares authorized;
none issued) --- --- ---
Common stock ($.01 par value;
50,000,000 shares authorized;
21,423,150, 19,815,357 and
19,630,162 shares issued,
respectively) 214 198 196
Additional paid-in capital 62,686 25,386 24,463
Treasury stock, at cost (70,288,
70,788 and 72,788 shares
respectively) (390) (394) (407)
Unearned compensation -
restricted stock (158) (175) (228)
Retained earnings 100,562 97,950 76,514
----------------------------------
TOTAL SHAREHOLDERS' EQUITY 162,914 122,965 100,538
----------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $299,795 $371,583 $254,095
==================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 2, May 3,
1998 1997
------------------------
<S> <C> <C>
Sales $145,062 $109,512
Cost of sales 92,605 70,248
------------------------
Gross profit 52,457 39,264
------------------------
Selling, general and administrative expenses 43,291 35,349
Depreciation and amortization 4,043 3,586
------------------------
Income from operations 5,123 329
Interest expense 841 1,742
------------------------
Income (loss) before income taxes 4,282 (1,413)
Income tax expense (benefit) 1,670 (551)
------------------------
NET INCOME (LOSS) 2,612 ($862)
========================
BASIC EARNINGS (LOSS) PER SHARE $0.13 ($0.04)
========================
Weighted average number of
common shares outstanding 19,827 19,540
========================
DILUTED EARNINGS (LOSS) PER SHARE $0.12 ($0.04)
========================
Adjusted weighted average number of
common shares outstanding 21,334 19,540
========================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
TRANS WORLD ENTERTAINMENT AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 2, May 3,
1998 1997
-----------------------
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES ($70,882) ($35,695)
-----------------------
INVESTING ACTIVITIES:
Acquisition of property and equipment (5,965) (1,830)
Disposals of rental inventory, net 77 158
-----------------------
Net cash used by investing activities (5,888) (1,672)
-----------------------
FINANCING ACTIVITIES:
Payments of long-term debt and
capital lease obligations (35,024) (7,139)
Proceeds from issuance of common stock 36,772 ---
Exercise of stock options 544 21
Decrease in treasury stock due
to reissuance of shares 4 ---
Unearned compensation from issuance of shares of
restricted stock 17 17
-----------------------
Net cash provided (used) by financing activities 2,313 (7,101)
-----------------------
Net decrease in cash and cash equivalents (74,457) (44,468)
Cash and cash equivalents, beginning of period 94,732 54,771
-----------------------
Cash and cash equivalents, end of period $20,275 $10,303
=======================
</TABLE>
<PAGE>
See Notes to Condensed Consolidated Financial Statements.
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements consist of Trans
World Entertainment Corporation and its subsidiaries, (the
"Company"), all of which are wholly owned. All significant
inter-company accounts and transactions have been eliminated.
Joint venture investments, none of which are material, are
accounted for using the equity method.
The interim condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished in these
condensed consolidated financial statements reflect all normal,
recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of such financial statements.
Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to rules and regulations applicable to interim financial
statements.
These unaudited condensed consolidated financial statements
should be read in conjunction with the audited financial
statements included in the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1998.
Note 2. Restructuring Charge
In order to streamline operations and close unprofitable store
locations, the Company recorded pre-tax restructuring charges of
$35 million in 1995 and $21 million 1994. An analysis of the
amounts comprising the restructuring reserve and the charges
against the reserve for the period from January 31, 1998 through
May 2, 1998 are outlined below (in thousands):
<TABLE>
<CAPTION>
Balance Charges Balance
as of against as of
1/31/98 the Reserve 5/2/98
-----------------------------------------
<S> <C> <C> <C>
Total non cash
write-offs $4,126 $56 $4,070
Cash outflows 8,844 471 8,373
-----------------------------------------
$12,970 $527 $12,443
=========================================
</TABLE>
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 3. Seasonality
The Company's business is seasonal in nature, with the highest
sales and earnings occurring in the fourth fiscal quarter.
Note 4. Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share," which was effective for the Company for
fiscal year 1997. This standard requires the Company to disclose
basic earnings per share and diluted earnings per share. Basic
earnings per share is calculated by dividing net income by the
weighted average common shares outstanding. Diluted earnings per
share is calculated by dividing net income by the sum of the
weighted average shares and additional common shares that would
have been outstanding if the dilutive potential common shares had
been issued for the Company's common stock options from the
Company's Stock Option Plans. As required by SFAS No. 128, all
outstanding common stock options were included even though their
exercise may be contingent upon vesting.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following is an analysis of the Company's results of
operations, liquidity and capital resources. To the extent that
such analysis contains statements which are not of a historical
nature, such statements are forward-looking statements, which
involve risks and uncertainties. These risks include, but are
not limited to, changes in the competitive environment for the
Company's products, including the entry or exit of non-
traditional retailers of the Company's products to or from its
markets; the release by the music industry of an increased or
decreased number of "hit releases", general economic factors in
markets where the Company's products are sold; and other factors
discussed in the Company's filings with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
- ---------------------
Thirteen Weeks Ended May 2, 1998
Compared to the Thirteen Weeks Ended May 3, 1997
Sales. The Company's total sales increased 32.5% to $145.1
million for the thirteen weeks ended May 2, 1998 compared to
$109.5 million for the same period last year. The increase was
primarily attributable to a comparable store sales increase of
10.3%, the acquisition of 88 Strawberries' stores in October
1997, and the opening of 16 stores partially offset by the
closing of 25 stores. Management attributes the comparable store
sales increase, its ninth consecutive quarter of such increases,
primarily to its strategic decision to eliminate unprofitable
stores and focus on customer service, superior retail locations,
inventory management and merchandise presentation.
Comparable store sales in the Company's music stores increased
12.6% while comparable sales in the video stores increased 3.6%.
Gross Profit Gross profit as a percentage of sales improved to
36.2% from 35.9% in the thirteen week period ended May 2, 1998
compared to the same period in 1997. The increase is primarily
due to the leveraging of expenses in the Company's distribution
center.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses ("S,G&A"), as a percentage of sales,
decreased from 32.3% to 29.8% in the thirteen week period ended
May 2, 1998 compared to the same period in 1997. The improvement
is primarily due to a reduction of store occupancy costs as a
percentage of sales. The Company continues to leverage its
operating expenses against sales.
Interest Expense. Net interest expense was reduced from $1.7
million in the thirteen week period ended May 3, 1997 to $841
thousand for the thirteen week period ending May 2, 1998. The
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
decrease is due to a reduction in long-term debt and lower
interest rates as a result of the refinancing completed in fiscal
1997.
Net Income. The Company increased its net income to $2.6 million
in the thirteen weeks ended May 2, 1998 from a net loss of $862
thousand during the same period last year. The improved bottom
line performance can be attributed to the comparable store sales
increase, improved gross margin rates, leverage of S,G&A expenses
and lower interest expense.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity and Sources of Capital. At the end of the first
quarter of 1998 the Company sold an additional 1.5 million shares
of its Common Stock in a public offering for approximately $37
million net of issuance costs. A portion of the proceeds was
used to repay long-term debt and the balance of the proceeds,
which is reflected in the $20.3 million of cash and cash
equivalents at May 2, 1998, will be used for general corporate
purposes including investments in additional stores, fixtures and
inventory and future acquisition and investment opportunities.
The impact of this issuance of Common Stock had an immaterial
effect on earnings per share in the first quarter.
On July 9, 1997 the Company entered into a $100 million secured
revolving credit facility with Congress Financial Corporation.
The Revolving Credit Facility combined the Company's long-term
debt with its revolving credit line to create a $100 million
credit facility with a three year term at interest rates below
the prime rate. The Revolving Credit Facility contains certain
restrictive provisions, including provisions governing cash
dividends and acquisitions, is secured by merchandise inventory
and has a minimum net worth convenant. At quarter end, the
Company had unused lines of credit aggregating $100 million.
The Company's working capital at May 2, 1998 was $92.9 million
and its ratio of current assets to current liabilities was 1.8 to
1. During the first three months of 1998, the Company's net cash
used by operations was $70.9 million, compared to $35.7 million
used in the first three months of 1997. The most significant
operating use of cash during the period was $62.7 million in
seasonal reductions of accounts payable. The Company used an
additional $35 million for the reduction of long-term debt.
CAPITAL EXPENDITURES
- --------------------
During the first quarter of 1998, the Company had capital
expenditures of $6 million out of a total of $47 million, net of
construction allowances, planned for the year. Included in the
total for the year is $17 million for a new Point of Sale
register system. Also during the quarter, the Company opened or
relocated 16 new stores and closed 25 stores while total retail
selling space increased slightly. The Company plans on opening
approximately the same number of stores in Fiscal 1998 as it
closes but anticipates that total retail footage will increase as
the average size of new stores continues to increase.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II-OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
A) An Annual Meeting of Shareholders of Trans World
Entertainment Corporation was held on Wednesday, June
3, 1998.
B) In the case of each individual nominee named below,
authority to vote was withheld with respect to the
number of shares shown opposite their name in Column 1,
and each nominee received the number of votes set
opposite their name in Column 2 for election as director
of the Corporation.
<TABLE>
<CAPTION>
------------------------------
Column 1 Column 2
Name of Nominee Withheld Votes for
---------------- ------------------------------
<S> <C> <C>
Robert J. Higgins 100,726 18,750,148
Dean S. Adler 100,560 18,750,314
George W. Dougan 2,822,671 16,028,203
Charlotte G. Fischer 2,822,671 16,028,203
Isaac Kaufman 101,100 18,749,774
Matthew H. Mataraso 100,560 18,750,314
Dr. Joseph G. Morone 2,822,671 16,028,203
</TABLE>
C) A proposal to amend Trans World Entertainment
Corporation's 1990 Stock Option Plan for Non-Employee
Directors to authorize the Board to award discretionary
option grants, was approved as follows:
FOR 17,734,130
AGAINST 1,109,746
ABSTAIN 6,998
D) A proposal to institute Trans World Entertainment
Corporation's 1998 Employee Stock Option Plan, was
approved as follows:
FOR 12,928,411
AGAINST 3,832,986
ABSTAIN 5,469
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II-OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(A) Exhibits No Description Page No
10.4 Trans World Entertainment
Corporation Employment
Agreement with Robert J.
Higgins
27 Financial Data Schedule
(electronic filing only)
(B) Reports on Form 8-K - None
Omitted from this part II are items which are not applicable or
to which the answer is negative to the periods covered.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
TRANS WORLD ENTERTAINMENT CORPORATION
June 15, 1998 By /s/ ROBERT J. HIGGINS
-------------------------
Robert J. Higgins
Chairman, President and Chief Executive
Officer
(Principal Executive Officer)
June 15, 1998 By: /s/ JOHN J. SULLIVAN
------------------------
John J. Sullivan
Senior Vice President-Finance
and Chief Financial Officer
(Chief Financial and Accounting Officer)
TRANS WORLD ENTERTAINMENT CORPORATION EMPLOYMENT
AGREEMENT WITH ROBERT J. HIGGINS
THIS EMPLOYMENT AGREEMENT is effective as of the 1st day of
May, 1998, by and between Trans World Entertainment Corporation,
a New York corporation (the "Company"),and Robert J. Higgins
("Higgins").
Background
WHEREAS, Higgins has served as the President and Chief
Executive Officer of the Company and as the Chairman of its Board
of Directors since 1973; and WHEREAS, Higgins and the Company
executed an employment agreement effective as of February 1,
1996, which will end on January 30, 1999 (the "1996 Employment
Agreement"); and
WHEREAS, the Company recognizes that Higgins' contribution
to the growth and success of the Company has continued to be
substantial throughout the term of the 1996 Employment Agreement
and that without his continued leadership and vision the Company
would not have achieved and maintained its current status in the
industry; and
WHEREAS, the Company desires to renegotiate and extend the
terms of the 1996 Employment Agreement to assure the Company of
Higgins' continued services in a leadership capacity and to
compensate him therefor; and
WHEREAS, Higgins is willing to commit to continue serving
the Company on the terms and conditions provided in this
Agreement.
NOW THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and intending to
be legally bound hereby, the parties agree as follows:
SECTION 1. CAPACITY AND DUTIES
1.1 Employment. The Company hereby employs Higgins and
Higgins hereby accepts employment by the Company upon the terms
and conditions hereinafter set forth for a term commencing on the
date hereof and expiring on April 30, 2003 (unless Higgins'
service is sooner terminated as set forth below) (the "Contract
Period").
1.2 Capacity and Duties.
1.2.1 Higgins shall be employed by the Company
generally as its President and Chief Executive Officer and shall
have the executive authority, consistent with these positions, as
may from time to time be specified by the Board of Directors of
the Company or any duly authorized committee thereof (the
"Board").
1.2.2 Higgins shall devote his full working time,
energy, skill and best efforts to the performance of his duties
hereunder, in a manner that will faithfully and diligently serve
the business and interests of the Company and its affiliates (as
defined below), provided that Higgins may devote such time as is
reasonably required for charitable and other personal activities
in accordance with the Company's practices and policies.
1.2.3 For the purposes of this Agreement, an
"affiliate" of the Company means any person or entity that
controls the Company, is controlled by the Company, or which is
under common control with the Company. For the purposes of this
definition of "affiliate," "control" means the power to direct
the management and policies of a person or entity, directly or
indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and
"controlled" shall have correlative meanings; provided that any
person or entity who owns beneficially, either directly or
through one or more intermediaries, more than 20% of the
ownership interests in a specified entity shall be presumed to
control such entity for the purposes of this Agreement.
SECTION 2. COMPENSATION
2.1 Base Compensation. As compensation for Higgins'
services hereunder, the Company shall pay Higgins a salary at the
annual rate of $600,000. This salary shall be payable in
installments in accordance with the Company's regular payroll
practices in effect from time to time. This salary shall be
subject to increase based on normal periodic merit review by the
Compensation Committee of the Board (the "Compensation
Committee") in accordance with the corporate policies of the
Company (such salary, including the foregoing adjustments, if
any, is hereinafter referred to as "base salary"); provided,
however, that the amount of such increase shall not be less than
the percentage amount, if any, by which the CPI (as defined
below) for the calendar month immediately preceding such
anniversary date exceeds the CPI for same month of the
immediately preceding year. For the purposes of this Section
2.1, the term "CPI" shall mean the Consumer Price Index for All
Urban Consumers for all items for New York, New York, as
published by the Bureau of Labor Statistics of the United States
Department of Labor, or of any revised or successor index
hereafter published by the Bureau of Labor Statistics or other
agency of the United States government succeeding to its
functions. The annual base salary of Higgins shall not be
decreased at any time during the Contract Period from the amount
then in effect, unless Higgins otherwise agrees in writing.
Participation in deferred compensation, discretionary bonus,
retirement and other employee benefit plans and in fringe
benefits shall not reduce the annual base salary payable to
Higgins under this Section 2.1.
2.2 Benefits.
2.2.1 During the Contract Period, Higgins (and his
family, if applicable) shall be entitled to participate in all
incentive, savings, retirement, welfare and other employee
benefit plans, practices, policies and programs that the Company
may provide for the benefit of its executive employees generally
(together with the fringe benefits described below, "Employee
Benefits"). Higgins shall also be entitled to participate in any
other fringe benefits which may be or become applicable to the
Company's executive employees, including the payment of
reasonable expenses for attending annual and periodic meetings of
trade associations and any other benefits that are commensurate
with the duties and responsibilities to be performed by Higgins
under this Agreement. In no event shall the Employee Benefits
provided to Higgins be less favorable, in the aggregate, than the
employee benefits plans, practices, policies and programs
provided to Higgins immediately preceding the effective date of
this Agreement.
2.2.2 If Higgins becomes a participant in any employee
benefit plan, practice or policy of the Company or its
affiliates, Higgins shall be given credit under such plan for all
service in the employ of the Company and any predecessors thereto
or affiliates thereof prior to the date hereof, for purposes of
eligibility and vesting, benefit accrual and for all other
purposes for which such service is either taken into account or
recognized under the terms of such plan, practice or policy.
2.2.3 During the Contract Period, Higgins shall be
entitled to a private office, and such secretarial services as
have been previously provided to Higgins, and such other
assistance and accommodations as shall be suitable to the
character of Higgins' position with the Company and adequate for
the performance of Higgins' duties hereunder.
2.2.4 The Company shall pay or reimburse Higgins for
all reasonable expenses (including expenses of travel and
accommodations) incurred or paid by Higgins in connection with
the performance of Higgins' duties hereunder upon receipt of
itemized vouchers therefor and such other supporting information
as the Company shall reasonably require.
2.2.5 During the Contract Period, the Company shall
continue to provide Higgins with an automobile for use by Higgins
consistent with past practices and shall continue to pay or
reimburse Higgins for expenses he reasonably incurs for the
maintenance and operation of such automobile upon receipt of
itemized vouchers therefor and such other supporting information
as the Company shall reasonably require.
2.2.6 During the Contract Period, Higgins shall be
entitled to paid vacations in a manner commensurate with Higgins'
status as the President and Chief Executive Officer of the
Company, which shall not be less than the annual vacation period
to which Higgins is presently entitled.
2.3 Executive Bonus Plan. The Company maintains the
Executive Bonus Plan (the "EBP") to provide performance-based
incentive compensation to Higgins and certain other executives of
the Company. During the Contract Period, Higgins shall be
eligible to earn an annual performance bonus of 0 to 150% of his
annual base salary in effect for that year ("incentive
compensation"), calculated in such fashion and based on the
achievement of certain performance criteria as are approved by
the Board or the Compensation Committee prior to the beginning of
such year under the EBP.
2.4 Insurance. Under the 1996 Employment Agreement the
Company assisted in providing life insurance protection for
Higgins' family at an annual cost to the Company of $150,000.
During the Contract Period, the Company shall continue to assist
Higgins by paying or advancing each year under an arrangement
selected by Higgins an amount which has an annual net after tax
cost to the Company of $150,000.
2.5 Additional Compensation. The Board, although under no
obligation to do so, may determine from time to time to pay to
Higgins compensation in addition to the annual base salary and
incentive compensation required to be paid above. The Board may
grant Higgins options to purchase shares of common stock of the
Company ("Common Stock"), may issue him restricted Common Stock
or may award him stock appreciation rights.
SECTION 3. TERMINATION OF EMPLOYMENT
3.1 Death or Disability of Higgins.
3.1.1 Higgins' employment hereunder shall immediately
terminate upon his death, upon which the Company shall pay the
amounts due under Section 2 (including base salary, Employee
Benefits, expense reimbursements and compensation for unused
vacation time) accrued as of the date of Higgins' death in
accordance with generally accepted accounting principles
("GAAP").
3.1.2 If Higgins, in the reasonable opinion of the
Company, is Disabled (as defined below), the Company shall have
the right to terminate Higgins' employment upon 30 days prior
written notice to Higgins at any time after the expiration of the
180 day period referred to below, in which event the Company
shall pay the amounts due under Section 2 (including base salary,
Employee Benefits, expense reimbursements and compensation for
unused vacation time) accrued in accordance with GAAP as of the
date of Higgins' termination because of Disability. As used in
this Agreement, the term "Disabled" or "Disability" shall mean
the inability of Higgins to perform substantially Higgins' duties
and responsibilities to the Company by reason of a physical or
mental disability or infirmity for a continuous period of at
least 180 days. The date of Disability shall be on the last day
of such 180 day period. The determination of whether the
Disability has occurred shall be made by a licensed physician
chosen by the Board. The benefits payable under Sections 3.1,
3.2 or otherwise under this Agreement shall be reduced by the
amount of any benefits to which Higgins may be entitled under the
benefit plans and programs of the Company, including any
disability plan, supplementary retirement plan or agreement or
insurance policies maintained by the Company for the benefit of
Higgins.
3.2 Continuing Benefits Following Death or Disability. In
addition to any payments or benefits contemplated by Section 3.1,
if Higgins' employment is terminated for death or Disability,
Higgins (and, as applicable, his family and estate) shall
continue to receive all base salary, incentive compensation and
all Employee Benefits Higgins (and, as applicable, his family)
would have received for the balance of the Contract Period had
his employment not been so terminated; provided, however, that if
Higgins' employment is terminated for death the total amount
payable under this Section 3 shall in no event be less than be
less than 2.99 times the average of the aggregate base salary and
incentive compensation paid to Higgins over the preceding five
years.
3.3 Date of Termination.
3.3.1 Except as otherwise provided in this Agreement,
the employment of Higgins hereunder shall terminate upon the
earliest to occur of the dates specified below:
3.3.1.1 the end of the Contract Period;
3.3.1.2 the close of business on the date of
Higgins' death;
3.3.1.3 the close of business on the date which is
30 days after the date on which the Company delivers to Higgins a
written notice of the Company's election to terminate Higgins'
employment for "Cause" (as defined below);
3.3.1.4 the close of business on the date which is
30 days after the date on which the Company delivers to Higgins a
written notice of the Company's election to terminate Higgins'
employment because of Disability;
3.3.1.5 the close of business on the date which is
30 days after the date on which Higgins delivers to the Company a
notice of Higgins' election to terminate Higgins' employment for
"Good Reason" (as defined below);
3.3.1.6 the close of business on the date which is
30 days after the date on which Higgins delivers to the Company a
notice of Higgins' election to terminate Higgins' employment in
accordance with Section 3.5.2 following a change in the present
control of the Company (as defined below); provided, however,
Higgins shall not have the right to terminate this agreement
pursuant to this Section 3.3.1.6 to the extent a change in the
present control of the Company resulted solely from the sale or
other transfer of ownership interests by Higgins to a person or
entity; or
3.3.1.7 the close of business on the date which is
60 days after the date on which the Company delivers to Higgins a
written notice that the Board has adopted a resolution
terminating the Higgins' employment and such termination is not
for death, Cause or Disability.
3.3.2 Any purported termination by the Company or by
Higgins shall be communicated by written Notice of Termination to
the other. For the purposes of this Agreement, a "Notice of
Termination" shall mean a notice which indicates the specific
termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Higgins' employment under the
provision so indicated. No such purported termination shall be
effective without delivery of such Notice of Termination.
Termination of employment will not cause a termination of this
Agreement, the terms of which shall survive any termination of
employment in accordance with the express terms hereof.
3.4 Termination for Cause.
3.4.1 In the event Higgins' employment is terminated
(i) by the Company for Cause, or (ii) by Higgins for any reason
other than Good Reason or in accordance with Section 3.5.2
following a change in the present control of the Company (as
defined below), the Company's remaining obligations under this
Agreement shall terminate as of the date provided in Section 3.3.
3.4.2 For the purposes of this Agreement, the term
"Cause" shall mean:
3.4.2.1 fraud, theft, misappropriation or
embezzlement of the Company's funds;
3.4.2.2 conviction of any felony, crime involving
fraud or misrepresentation, or of any other crime (whether or not
connected with his employment) the effect of which is likely to
adversely affect the Company, except if Higgins' actions which
result in such a conviction were taken in good faith and in a
manner Higgins reasonably believed not to be adverse to the
interests of the Company;
3.4.2.3 after a written demand for substantial
performance to Higgins from the Board (the mailing of such
written demand having been authorized by at least 60% of the
directors then in office) which specifically identifies the
manner in which the Board believes that Higgins has intentionally
materially breached Higgins' duties and provides Higgins with a
30 day period in which to cure such breach, the willful and
continuing intentional material breach by Higgins substantially
to perform Higgins' duties with the Company (other than any such
failure resulting from Disability); or
3.4.2.4 abuse of alcohol or other drugs which
interferes with the performance by Higgins of his duties,
provided that Higgins has been given 30 days notice by the
Company of its intent to terminate Higgins pursuant to this
provision during which time Higgins has not demonstrated the
cessation of such abuse to the reasonable satisfaction of the
Board.
Notwithstanding the foregoing or any other provision hereof,
Higgins shall not be deemed to have been terminated for Cause
unless there shall have been delivered to Higgins a copy of a
resolution duly adopted by the affirmative vote of not less than
60% of the entire membership of the Board at a meeting of the
Board called and held for that purpose (after at least 15 days
prior written notice to Higgins and an opportunity for Higgins,
together with Higgins' counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, Higgins was
guilty of conduct set forth above and specifying the particulars
thereof in reasonable detail.
3.4.3 For the purposes of this Agreement, the term
"Good Reason" shall mean the occurrence of any of the events or
conditions described in the following subparagraphs without
Higgins' express written consent:
3.4.3.1 a material diminution of Higgins' status,
title, position, scope of authority or responsibilities
(including reporting responsibilities), the assignment to Higgins
of any duties or responsibilities which, in Higgins' reasonable
judgment, are inconsistent with such status, title, position,
authorities or responsibilities, Higgins ceasing to be Chairman
of the Board of Directors, or any removal of Higgins from or
failure to reappoint or reelect Higgins to any of such positions,
except in connection with the termination of Higgins' employment
for Disability, Cause, as a result of Higgins' death or by
Higgins other than for Good Reason;
3.4.3.2 a reduction by the Company in Higgins'
compensation or benefits as in effect on the date hereof or as
the same may be increased from time to time;
3.4.3.3 the relocation of the Company's principal
executive offices to a location outside a 25-mile radius of
Albany, New York or the Company's requiring Higgins to be based
at any place other than Albany, New York, except for reasonably
required travel on the Company's business;
3.4.3.4 the materially adverse and substantial
alteration in the nature and quality of the office space within
which Higgins performs Higgins' duties, including the size and
location thereof, as well as the secretarial and administrative
support provided to Higgins;
3.4.3.5 any material breach by the Company of any
material provision of this Agreement; and
3.4.3.6 the failure of the Company to obtain a
satisfactory agreement from any purchaser of the Company or
successor or permitted assignee of the Company to assume and
agree to perform this Agreement.
Provided, however, that a termination by Higgins in accordance
with Section 3.5.2 following a change in the present control of
the Company (as defined below) shall not constitute a termination
by Higgins for Good Reason under this Agreement.
3.5 Termination Without Cause.
3.5.1 In the event Higgins' employment is terminated
(i) by the Company for any reason other than Cause, or the death
or Disability of Higgins, or (ii) by Higgins for Good Reason, the
Company shall immediately pay Higgins the amounts due under
Section 2 (including base salary, Employee Benefits, expense
reimbursements and compensation for unused vacation time) accrued
as of the date of such termination in accordance with GAAP. In
such event, Higgins (and, as applicable, his family) shall also
continue to receive from the Company until two years after the
end of the Contract Period then in effect, all base salary,
incentive compensation and Employee Benefits that Higgins (and,
as applicable, his family) would have received had he continued
employment and such event had not occurred.
3.5.2 In the event Higgins elects to terminate his
employment by written notice to the Company within the 90 day
period immediately following a change in the present control of
the Company, the Company shall immediately pay Higgins the
amounts due under Section 2 (including base salary, Employee
Benefits, expense reimbursements and compensation for unused
vacation time) accrued as of the date of such termination in
accordance with GAAP. In such event, the Company shall also pay
Higgins within 60 days thereafter a single sum amount equal to
2.99 his "base amount" (within the meaning of Section 2806(b)(3)
of the Internal Revenue Code of 1986, as amended).
3.5.3 There shall be no requirement on the part of
Higgins to seek other employment or otherwise mitigate damages in
order to be entitled to the full amount of any payments or
benefits to be made pursuant to this Agreement or any other
agreement between Higgins and the Company or any of its
affiliates; provided, however, if Higgins' employment is
terminated by the Company other than for Cause or the death or
Disability of Higgins, or by Higgins for Good Reason, Higgins
shall, for so long as he is being paid amounts in respect of base
salary hereunder, use reasonable efforts following 12 months
after his employment has been so terminated, to find alternative
employment; provided, however, such reasonable efforts shall not
require Higgins to move, commute more than 20 miles to his office
or accept employment of a stature materially less than the
position Higgins had with the Company. No payment or benefit
under any portion of this Agreement shall be subject to offset.
SECTION 4. RESTRICTIVE COVENANTS
4.1 Confidentiality. Higgins acknowledges a duty of
confidentiality owed to the Company and shall not, directly or
indirectly, at any time during or after his employment by the
Company, divulge, furnish, or make accessible to anyone, without
the express authorization of the Board, any trade secret, private
or confidential or proprietary information or know-how of the
Company or any of its affiliates obtained or acquired by him
while so employed. All computer software and books paid for by
the Company, and all records and files generated or acquired
while an employee of the Company are acknowledged to be the
property of and shall not be removed from the Company's
possession or made use of other than in pursuit of the Company's
business and, upon termination of employment for any reason,
Higgins shall deliver to the Company, without further demand, all
copies thereof which are then in his possession or under his
control. The provisions of this Section 4.1 shall not apply to
information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Higgins, (ii)
was available to Higgins on a non-confidential basis prior to its
disclosure to Higgins, (iii) becomes available to Higgins on a
non-confidential basis from a source other than the Company, (iv)
must be disclosed by law or by order of a court or governmental
authority, or (v) is used to enforce Higgins' rights with the
Company. This Section 4.1 shall terminate on the date that a
sale or other transfer of the Company is completed.
4.2 Noncompetition.
4.2.1 At any time while employed hereunder and, except
as provided in the last sentence of this Section 4.2.1, for a
period of one year following termination of Higgins' employment
for any reason, Higgins shall not, directly or indirectly: (i)
engage, anywhere in the Territory (as defined in Section 4.2.2
below), in the retail sale of music, video or related products;
(ii) be or become a stockholder, partner, owner, officer,
director or employee or agent of, or a consultant to or give
financial or other assistance to, any person or entity engaging
in any such activities; (iii) seek in competition with the
business of the Company to procure orders from or do business
with any customer of the Company; or (iv) solicit or contact with
a view to the engagement or employment by any person or entity of
any person who is an employee of the Company as of the date of
this Agreement, provided this will not preclude hiring any person
who contacts Higgins for employment and who has not been employed
by the Company at any time during the preceding 6 months.
Nothing herein shall prohibit Higgins without the written consent
of the Board from owning, as a passive investor, in the aggregate
not more than 5% of the outstanding publicly traded stock of any
corporation so engaged. The duration of Higgins' covenants set
forth in this Section shall be extended by a period of time equal
to the number of days, if any, during which Higgins is in
violation of the provisions hereof. Higgins shall not be bound
by this Section 4.2.1 following the termination of his employment
(a) by the Company without Cause, or (b) by Higgins for Good
Reason.
4.2.2 For the purposes of this Agreement, "Territory"
means the United States.
4.2.3 If either party hereto learns of any breach or
potential breach of this Agreement such party shall immediately
notify the other party hereto of such event, specifying the basis
therefor in reasonable detail. The Company may, in its sole
discretion, afford Higgins an opportunity to remedy or otherwise
cure such breach or potential breach before seeking legal
redress, provided that Higgins is actively seeking to cure or
remedy such breach or potential breach; but such opportunity to
remedy shall be without prejudice to the right of the Company to
seek and obtain injunctive or other relief.
4.3 Injunctive and Other Relief. Higgins acknowledges and
agrees that the covenants contained in Section 4.1 and 4.2 above
are fair and reasonable in light of the consideration paid
hereunder, and that damages alone shall not be an adequate remedy
for any breach by Higgins of his covenants contained herein and
accordingly expressly agrees that, in addition to any other
remedies which the Company may have, the Company shall be
entitled to injunctive relief in any court of competent
jurisdiction for any breach or threatened breach of any such
covenants by Higgins. Nothing contained herein shall prevent or
delay the Company from seeking, in any court of competent
jurisdiction, specific performance or other equitable remedies in
the event of any breach or intended breach by Higgins of any of
his obligations hereunder. In the event the Company prevails in
an action to enforce its rights under Sections 4.1 and 4.2, it
shall be entitled to be reimbursed for its costs and reasonable
attorneys' fees associated with so enforcing its rights.
SECTION 5. MISCELLANEOUS
5.1 Reimbursement of Counsel Fees; Arbitration. The Company
shall pay all reasonable legal fees, accounting fees and related
expenses incurred by Higgins in connection with the preparation,
negotiation and execution of this Agreement. Any dispute or
controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration in New York, New York
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having
jurisdiction. The prevailing party, shall be entitled to recover
from the other party all of its legal fees, accounting fees and
related expenses incurred in any such arbitration including
without limitation, all expenses of arbitration, court costs,
transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees and all other disbursements or
expenditures of the types customarily incurred in connection with
prosecuting, defending or investigating any arbitration, action
or suit.
5.2 Severability. The invalidity or unenforceability of any
particular provision or part of any provision of this Agreement
shall not affect the other provisions or parts hereof. If any
provision hereof is determined to be invalid or unenforceable by
a court of competent jurisdiction, Higgins shall negotiate in
good faith to provide the Company with protection as nearly
equivalent to that found to be invalid or unenforceable and if
any such provision shall be so determined to be invalid or
unenforceable by reason of the duration or geographical scope of
the covenants contained therein, such duration or geographical
scope, or both, shall be considered to be reduced to a duration
or geographical scope to the extent necessary to cure such
invalidity.
5.3 Assignment. Neither this Agreement nor any right or
interest hereunder shall be assignable by Higgins, Higgins'
beneficiaries, or legal representatives without the Company's
prior written consent; provided, however, that nothing herein
shall preclude (i) Higgins from designating a beneficiary to
receive any benefit payable hereunder upon Higgins' death, or
(ii) the executors, administrators, or other legal
representatives of Higgins or Higgins' estate from assigning any
rights hereunder to devisees, legatees, beneficiaries,
testamentary trustees or other legal heirs of Higgins (each a
"Distributee"). If Higgins should die while any amounts would
still be payable to Higgins if Higgins had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Higgins'
Distributee or, if there is no such Distributee, to Higgins'
estate.
5.4 Notices. All notices hereunder shall be in writing and
shall be sufficiently given if hand-delivered, sent by documented
overnight delivery service or registered or certified mail,
postage prepaid, return receipt requested or by telegram, fax or
telecopy (confirmed by U.S. mail), receipt acknowledged,
addressed as set forth below or to such other person and/or at
such other address as may be furnished in writing by either party
hereto to the other. Any such notice shall be deemed to have
been given as of the date received, in the case of personal
delivery, or on the date shown on the receipt or confirmation
therefor, in all other cases. Any and all service of process and
any other notice in any such action, suit or proceeding shall be
effective against a party if given as provided in this Agreement;
provided that nothing herein shall be deemed to affect the right
of a party to serve process in any other manner permitted by law.
If to the Company:
Chief Financial Officer
Trans World Entertainment Corporation
38 Corporate Circle
Albany, NY 12203
Tel: (518) 452-1242 Fax: (518) 869-4819
If to Higgins:
Mr. Robert J. Higgins
6 Sage Estates
Menands, NY 12204
5.5 Entire Agreement and Modification. This Agreement (and
any Employee Benefit plan or agreement contemplated hereby)
constitutes the entire agreement between the parties hereto with
respect to the matters contemplated herein and supersedes all
prior agreements and understandings with respect thereto. Any
amendment, modification, or waiver of this Agreement shall not be
effective unless in writing. Neither the failure nor any delay
on the part of any party to exercise any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same or
of any other right, remedy, power, or privilege with respect to
any occurrence be construed as a waiver of any right, remedy,
power, or privilege with respect to any other occurrence.
5.6 Governing Law. This Agreement is made pursuant to, and
shall be construed and enforced in accordance with, the internal
laws of the State of New York (and United States federal law, to
the extent applicable), without giving effect to otherwise
applicable principles of conflicts of law.
5.7 Headings; Counterparts. The headings of sections in
this Agreement are for convenience only and shall not affect its
interpretation. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and
all of which, when taken together, shall be deemed to constitute
but one and the same Agreement.
5.8 Further Assurances. Each of the parties hereto shall
execute such further instruments and take such other actions as
any other party shall reasonably request in order to effectuate
the purposes of this Agreement.
5.9 Indemnification. The Company shall pay, as additional
compensation under this Agreement, an amount equal to Higgins'
liability (including all taxes on such amount), if any, under
Internal Revenue Code Section 4999 (or any successor provision)
by reason of payments under any provision of this Agreement or
otherwise. Throughout the Contract Period and for a period of
five years thereafter, the Company shall indemnify and defend
Higgins against all claims arising out of Higgins' activities as
an officer, director or employee of the Company to the fullest
extent permitted under the law of the applicable state of
incorporation. In addition to the foregoing, Higgins shall, upon
reasonable notice, furnish such information and proper assistance
to the Company in connection with any litigation in which it is,
or may become, a party.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the dates set forth below.
TRANS WORLD ENTERTAINMENT CORPORATION
May 7, 1998 By: /s/ JOHN J. SULLIVAN
------------------------
John J. Sullivan
Senior Vice President-Finance
and Chief Financial Officer
(Chief Financial and Accounting Officer)
May 7, 1998 By: /s/ ROBERT J. HIGGINS
-------------------------
Robert J. Higgins
Chairman, President and Chief Executive
Officer
(Principal Executive Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS DATA EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, AND THE
CONSOLIDATED STATEMENTS ON INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<CIK> 0000795212
<NAME> TRANS WORLD ENTERTAINMENT CORPORATION
<MULTIPLIER> 1,000
<CAPTION>
AMOUNT
ITEM DESCRIPTION (IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------- -------------------------------------
<S> <C>
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<PERIOD-TYPE> 3-MOS
<CASH> 20,275
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 189,902
<CURRENT-ASSETS> 216,276
<PP&E> 179,379
<DEPRECIATION> 103,902
<TOTAL-ASSETS> 299,795
<CURRENT-LIABILITIES> 123,350
<BONDS> 0
0
0
<COMMON> 214
<OTHER-SE> 162,700
<TOTAL-LIABILITY-AND-EQUITY>299,795
<SALES> 145,062
<TOTAL-REVENUES> 145,062
<CGS> 92,605
<TOTAL-COSTS> 92,605
<OTHER-EXPENSES> 47,334
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 841
<INCOME-PRETAX> 4,282
<INCOME-TAX> 1,670
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,612
<EPS-PRIMARY> .13
<EPS-DILUTED> .12
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