UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 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 of (I.R.S. Employer Identification
incorporation or organization) 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)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or an
amendment to this Form 10-K. [ ]
As of April 22, 1998, 19,847,112 shares of the Registrant's Common Stock,
excluding 70,788 shares of stock held in Treasury, were issued and
outstanding. The aggregate market value of such shares held by non-affiliates
of the Registrant, based upon the closing sale price of $29.375 on The Nasdaq
Stock Market on April 22, 1998, was approximately $279,723,790. Shares of
Common Stock held by the Company's controlling shareholder, who controls
approximately 52.0% of the outstanding Common Stock, have been excluded for
purposes of this computation. Because of such shareholder's control, shares
owned by other officers, directors, and 5% shareholders have not been excluded
from the computation.
<PAGE>
PART I
Item 10. EXECUTIVE OFFICERS AND DIRECTORS
The term of office of each executive officer and director is one year.
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."
James A. Litwak joined the Company in May 1996 as Executive Vice President
of Merchandising and Marketing. Prior to joining the Company, Mr. Litwak
served as Senior Vice President and General Merchandise Manager of DFS Group
Limited, an international operator of in-airport duty free shops. Prior to
joining DFS Group Limited, Mr. Litwak held several executive positions in his
fourteen year career at R.H. Macy's Company with the most recent being
President of Merchandising for Macy's West responsible for developing
marketing, merchandising and product launch programs to fuel growth for the 50
store division.
Edward W. Marshall, Jr. has been Executive Vice President of the Company
since August 1994. He served as Senior Vice President of Operations of the
Company since January 1991 and was Vice President of Operations upon joining
the Company in May 1989. Prior to joining the Company, Mr. Marshall was Vice
President of Operations for Morse Shoe, a retail store operator.
Bruce J. Eisenberg has been Senior Vice President of Real Estate at the
Company since May of 1995. He joined the Company in August of 1993 as Vice
President of Real Estate. Prior to joining the Company, Mr. Eisenberg was
responsible for leasing, finance and construction of new regional mall
development at The Pyramid Companies.
John J. Sullivan has been Senior Vice President, Treasurer and Chief
Financial Officer of the Company since May 1995. Mr. Sullivan joined the
Company in June 1991 as the Corporate Controller and was named Vice President
of Finance and Treasurer in June of 1994. Prior to joining the Company, Mr.
Sullivan was Vice President and Controller for Ames Department Stores, a
discount department store chain.
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 has been a principal of Lubert/Adler Partners, LP, a limited
partnership investing primarily in under-valued and opportunistic real estate
and real estate-related ventures since March 1997. 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.
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.
Charlotte G. Fischer has been Chairman of the Board, President and Chief
Executive Officer of Paul Harris Stores, Inc., a publicly-held specialty
retailer of women's apparel, since January 28, 1995. Mrs. Fischer was the
Vice Chairman of the Board and Chief Executive Officer-designate from April
29, 1994 through January 28, 1995. Mrs. Fischer has also served as a
consultant to retail organizations, including the Company. Mrs. Fischer was
President and Chief Executive Officer of Claire's Boutiques, Inc. from
September 1989 until October 1991, and was on the Board of Directors of
Claire's Stores Inc., the publicly-held parent company.
Isaac Kaufman has been Executive Vice President and Chief Financial
Officer of Bio Science Contract Production Corporation, a contract
manufacturer of biologics and pharmaceutical products, since February 1998.
From November 1996 to February 1998, he was the Chief Financial Officer of VSI
Group, Inc., a provider of contract staffing and management services. 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.
Dr. Joseph G. Morone has been President of Bentley College since August 1,
1997. Previously, Dr. Morone was Dean of Rensselaer Polytechnic Institute's
Lally School of Management and Technology and held 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 in 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 seven 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.
Item 11. 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 1997, 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 $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------- ----------------------
Restricted Securities
Other Annual Stock Underlying All Other
Name and Principal Salary Bonus Compensation Award(s) Options/ Compensation
Position Year ($) ($) ($) ($) Sars(#) ($)
- ------------------ ---- ------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Higgins 1997 575,000 920,000 37,518(1) --- 600,000 46,489(1)
Chairman, President 1996 575,000 575,000 28,223(1) --- --- 72,590(1)
and Chief Executive 1995 550,000 --- 68,653(1) --- --- 95,161(1)
Officer
James A. Litwak 1997 289,808 228,000 ---(2) --- 30,000 5,109(3)
Executive Vice 1996 190,144 150,000 217,668(5) --- 200,000 ---
President- 1995 --- --- ---(2) --- --- ---
Merchandising &
Marketing
Edward W. Marshall 1997 264,453 200,000 ---(2) --- 20,000 4,859(3)
Executive Vice 1996 262,097 182,559 ---(2) --- 100,000 4,750(3)
President- 1995 263,206 50,000 ---(2) 132,500(4) 30,000 4,423(3)
Operations
Bruce J. Eisenberg 1997 195,154 180,000 ---(2) --- 40,000 4,802(3)
Senior Vice 1996 174,933 127,400 ---(2) --- 100,000 4,037(3)
President- 1995 137,340 100,000 ---(2) 100,000(4) 30,000 2,772(3)
Real Estate
John J. Sullivan 1997 195,154 180,000 ---(2) --- 40,000 4,802(3)
Senior Vice 1996 179,981 127,400 ---(2) 118,750(4) 100,000 4,750(3)
President and Chief 1995 161,009 --- ---(2) --- 30,000 4,903(3)
Financial Officer
</TABLE>
____________________
(1) "Other Annual Compensation" in fiscal 1997, 1996 and 1995 for Mr. Higgins
includes $29,140, $17,400, and $58,335, 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 1997, 1996 and 1995 for Mr. Higgins consists of maximum dollar value
of premiums paid by the Company with respect to split dollar life insurance
policies that the Company owns on the lives of Mr. Higgins and his wife. The
Company will recoup most or all of such premiums upon maturity of the
policies, but the maximum potential value is calculated in 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 executives 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 Corporation Common Stock on the date of grant.
Mr. Marshall received 50,000 shares of restricted stock of which 60% vested 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 50,000 shares of restricted stock of which 60% shall vest on April
30, 1999; an additional 20% shall become vested on April 30, 2000, and the
final 20% shall become vested on April 30, 2001. Mr. Eisenberg received
50,000 shares of restricted stock of which 20% shall become vested on April
30, 1998; an additional 20% shall become vested on April 30, 1999, and the
final 60% shall become vested on April 30, 2000. The aggregate value of the
150,000 shares of restricted stock outstanding on January 31, 1998 was
$4,050,000.
(5) "Other Annual Compensation" for Mr. Litwak consists of reimbursement for
relocation expenses and a tax gross-up on the taxable but non-deductible
component of the reimbursement.
STOCK OPTION GRANTS IN LAST FISCAL YEAR(1)
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended January 31, 1998, to each of
the named officers of the Company.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Number of Percent of Potential Realizable Value
Securities Total Options at Assumed Annual Rate of
Underlying Granted to Stock Price Appreciation
Options Employees Exercise or for Option Term(3)
Granted(#) in Basic Price Expiration ---------------------------
Name (1)(2) Fiscal Year ($/share) Date 5%($) 10%($)
- ------------------ ---------- ------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Higgins....... 600,000 58.9% $16.80 2007 6,339,258 16,064,924
Mr. Marshall...... 20,000 2.0% $5.94 2007 74,688 189,273
Mr. Sullivan...... 40,000 3.9% $5.94 2007 149,375 378,546
Mr. Eisenberg..... 40,000 3.9% $5.94 2007 149,375 378,546
Mr. Litwak........ 30,000 2.9% $5.94 2007 112,031 283,909
</TABLE>
__________________
(1) No SARs were granted
(2) Stock Options are exercisable annually in four 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
exercisability of any options subject to such terms and conditions as the
Committee deems appropriate. The option exercise price was set at the fair
market value (last reported sale price) on the date of grant.
(3) These amounts are based on assumed appreciation rates of 5% and 10% as
prescribed by 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 $27.00 at January 31, 1998, the
fiscal year end.
<PAGE>
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)
The following table sets forth information concerning each exercise of stock
options made during the fiscal year ended January 31, 1998, by each of the
named executive officers of the Company, and the value of unexercised stock
options held by such person as of January 31, 1998.
<TABLE>
<CAPTION>
Shares Value
Acquired Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable(2)
- ------------------ --------------- -------- ---------------------------- -----------------------
Number of Securities Under- Value of Unexercised
lying Unexercised Options at In-the-Money Options at
Fiscal Year End (#) Fiscal Year End ($)
---------------------------- -----------------------
<S> <C> <C> <C> <C>
Mr. Higgins....... --- --- 0/600,000 0/6,120,000
Mr. Marshall...... --- --- 245,000/135,000 4,937,513/3,234,053
Mr. Sullivan...... --- --- 65,000/155,000 1,526,400/3,710,000
Mr. Eisenberg..... --- --- 55,000/155,000 1,182,655/3,682,285
Mr. Litwak........ --- --- 50,000/180,000 1,200,000/4,231,860
</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 January 31, 1998 minus the exercise price.
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 1997 for his services as
Secretary of the Company and as counsel. Messrs. Higgins and Mataraso are
the only directors eligible to participate in the Company's employee stock
option plans.
Director Stock Option Plan. Each outside Director is entitled to
participate in the Company's 1990 Stock Option Plan for Non-Employee Directors
(the "Director Stock Option Plan"). Currently, Mrs. Fischer and Messrs.
Dougan, Kaufman, Adler and Morone participate in the Director Stock Option
Plan. A total of 500,000 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 252,000 shares of Common Stock have
been granted. Stock options issuable under the Director Stock Option Plan are
granted at an exercise price equal to 85% of the fair market value of the
Common Stock on the date of grant.
An initial grant of 10,000 Director Options is made to each new director.
In addition, Director Options to purchase 1,500 shares of the Company's Common
Stock are granted annually on May 1 (or, if May 1 is not a Nasdaq National
Market 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 1997, annual grants to outside Directors of 3,000 Director Options were
made at an exercise price of $5.05 per share, compared to the market value on
the date of grant of $5.94. Accordingly, compensation expense in the
aggregate of $5,340 will be amortized over a 48-month period by the Company
for the 1997 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 ten years depending on the
length of service, or the life of the director and his or her spouse,
whichever period is shorter. To become vested in the retirement plan a
director must reach age 62 and have served on the Board of Directors for a
minimum of five consecutive years.
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 1997
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 January 31, 1998 Mr. Higgins earned $920,000 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.
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 $265,799, 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 $285,000, upon
his termination following severance without cause (as defined). Mr. Litwak's
severance agreement contains an "evergreen" provision for automatic renewal
each year.
Compensation Committee Report on Executive Compensation
Compensation and Purpose of the Compensation Committee. The Company
Compensation Committee (the "Committee") was comprised during fiscal 1997 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, and are incorporated into the peer index used in the
performance graph. See "FIVE YEAR PERFORMANCE GRAPH."
Annual salary recommendations for the Company's executive officers (other
than the Chief Executive) are made to the Committee by the Chief Executive.
The Committee reviews and then approves, with any modifications it deems
appropriate, such recommendations. Factors such as increased management
responsibility and achievement of operational objectives are considered, but
not formally weighted, in determining an increase. The Committee also used a
compensation study prepared by KPMG Peat Marwick LLP, along with the Committee
members' experience in the retail industry, in evaluating the executive salary
levels. The Committee believes that it must keep the base pay component at or
above the median range to remain competitive in attracting competent
management.
Annual Performance Incentives. Key executives, including the named
executive officers, were eligible for annual incentive (bonus) awards based on
the performance of the Company against predetermined targets.
For 1997, 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 25% to a maximum of 100%(160% for
Chief Executive Officer) 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 is determined using a matrix that considers the
executive's position, salary level, and the performance of the executive as
measured by the individual's performance rating.
The Company also has a restricted stock plan which the Committee may use
to grant awards of common stock to officers and other key employees of the
Company. The Committee believes that the Company's long term goals are best
achieved through long-term stock ownership. The level of awards are granted
at the discretion of the Committee.
Chief Executive Officer's Compensation
The Chief Executive was compensated in fiscal 1997 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 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 officer or any of its four other highest paid officers.
Qualifying performance based compensation will not be subject to the deduction
limit if certain requirements are met. 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.
Compensation Committee Interlocks and Insider Participation
There were no Compensation Committee interlocks during fiscal 1997. None
of these members was 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
Dean S. Adler, Chairman
George W. Dougan
Isaac Kaufman
___________
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 10-K/A, in whole or in part, the preceding
report of the Compensation Committee and the performance graph shall not
be incorporated by reference to such filings.
___________
Five-Year Performance Graph
The following line graph reflects a comparison of the cumulative total return
of the Company's Common Stock from January 29, 1993 through January 30, 1998
with the Nasdaq Index (U.S. Stocks) and with the Nasdaq National Market 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
29, 1993, and that all dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Trans World Entertainment Corporation 100 95 39 25 47 379
NASDAQ (U.S.) 100 116 109 154 201 237
NASDAQ Retail Trade Stocks 100 107 95 107 131 154
</TABLE>
<PAGE>
Item 12. 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 22, 1998, the record date, are indicated below:
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership of Class
- ------------------------------------ -------------------- --------
<S> <C> <C>
Robert J. Higgins................... 10,324,600(1) 52.0%
38 Corporate Circle
Albany, New York 12203
Dimensional Fund Advisors Inc....... 1,091,400(2) 5.5%
1299 Ocean Avenue
Santa Monica, California 90401
</TABLE>
____________________
(1) Information is as of April 22, 1998, as provided by the holder. Includes
33,700 shares owned by the wife of Robert J. Higgins and 25,000 owned by a
Foundation controlled by Robert J. Higgins, and excludes 588,934 shares owned
by certain other family members of Robert J. Higgins who do not share his
residence. Mr. Higgins disclaims beneficial ownership with respect to those
shares owned by family members other than his wife.
(2) Information is as of December 31, 1997, 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 743,800 shares and sole dispositive power with respect
to 1,091,400 shares.
<PAGE>
Equity Ownership of Directors and Executive Officers
The following table sets forth the beneficial ownership of Common Stock as of
April 22, 1998, by each director and named executive officer of the Company
and all directors and executive officers as a group. All shares listed in the
table are owned directly by the named individuals unless otherwise indicated
therein. Except as otherwise stated or as to shares owned by spouses, the
Company believes that the beneficial owners have sole voting and investment
power over their shares.
<TABLE>
<CAPTION>
Amount and Nature
Year First of Beneficial
Elected as Ownership of Percent
Positions With the Director/ Common Stock as of
Name Company Age Officer of April 22, 1998 Class
- ---------------------- -------------------------- --- ---------- ----------------- -------
<S> <C> <C> <C> <C> <C>
Robert J. Higgins..... Chairman of the Board, 56 1973 10,324,600(1) 52.0%
President, Chief Executive
Officer and a Director
Matthew H. Mataraso... Secretary and a Director 68 1976 44,868(2) *
Dean S. Adler......... Director 41 1997 5,000(2) *
George W. Dougan...... Director 58 1984 56,500(2) *
Charlotte G. Fischer.. Director 48 1991 28,500(2) *
Isaac Kaufman......... Director 51 1991 38,500(2) *
Dr. Joseph G. Morone.. Director 45 1997 5,000(2) *
James A. Litwak....... Executive Vice President- 44 1996 137,515(2) *
Merchandising and
Marketing
Edward W. Marshall.... Executive Vice President- 52 1989 342,568(2) 1.7%
Operations
Bruce J. Eisenberg.... Senior Vice President- 38 1995 203,188(2) 1.0%
Real Estate
John J. Sullivan...... Senior Vice President- 45 1995 205,304(2) 1.0%
Finance and Chief
Financial Officer
All directors and 11,391,543(1)(2) 57.4%
officers as a group
(11 persons)
</TABLE>
____________________
* Less Than 1%
(1) Includes 33,700 shares owned by the wife of Robert J. Higgins and 25,000
owned by a foundation controlled by Robert J. Higgins, and excludes 588,934
shares owned by certain other family members of Robert J. Higgins who do not
share his residence. Mr. Higgins disclaims beneficial ownership with respect
to those shares owned by family members other than his wife.
(2) Included in 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-Mr. Adler
(5,000), Mr. Dougan (41,500), Mrs. Fischer (28,500), Mr. Kaufman (33,500) and
Dr. Morone (5,000); (b) under employee stock option plans-Mr. Eisenberg
(122,500), Mr. Litwak (107,500), Mr. Marshall (257,500), Mr. Mataraso (35,264)
and Mr. Sullivan (132,500); and (c) under all stock option plans-All directors
and executive officers as a group (768,764).
<PAGE>
Item 13. 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 $1,346,682 in
fiscal 1997. On January 1, 1998, 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 plus property taxes, maintenance and
a contingent rental if a specified sales level is achieved. In fiscal 1997
the Company paid Mr. Higgins $30,000 for a one year lease expiring on October
31, 1997, for certain parking facilities contiguous to the Company's
distribution center/office facility. The lease was renewed through October
31, 1998, 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 1997, 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 1997
were $59,817. The Company also chartered an aircraft from Crystal Jet, a
corporation wholly owned by Mr. Higgins. During fiscal 1997, payments to
Crystal Jet aggregated $199,069. The Company believes that the charter rates
and terms are as favorable to the Company as those generally available to it
from other commercial charters.
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.
<PAGE>
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
April 24, 1998 By: /s/ROBERT J. HIGGINS
--------------------
Robert J. Higgins,
President and Director
(Principal Executive Officer)
April 24, 1998 By: /s/JOHN J. SULLIVAN
--------------------
John J. Sullivan,
Senior Vice President
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
