<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 MEETINGS OF SHAREHOLDERS
You are cordially invited to attend the Annual Meeting of Shareholders of
Trans World Entertainment Corporation (the "Company"), which will be held at The
Desmond, 660 Albany Shaker Road, Albany, New York 12211, on Wednesday, June 3,
1998, 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;
2. To approve an amendment to the 1990 Stock Option Plan for
Non-Employee Directors to authorize the Board to award discretionary option
grants;
3. To approve the 1998 Stock Option Plan; and
4. To transact any such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on April 22, 1998, 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,
[LOGO]
Matthew H. Mataraso,
SECRETARY
May 7, 1998
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 3, 1998, 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 7, 1998.
VOTING SECURITIES
The Company has only one class of voting securities, its Common Stock, par
value $.01 per share (the "Common Stock"). On April 22, 1998, the record date,
19,847,112 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 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.
Mr. Higgins, who beneficially owns 10,324,600 shares of Common Stock as of
the record date (approximately 52.0% 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" and in
favor of the adoption of proposals (2) and (3). Consequently, if such shares are
so voted, no additional votes will be required for the election of such nominees
or for the adoption of proposals (2) and (3).
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."
2
<PAGE>
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 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.
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.
Mr. Dougan was also 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. Mr. Kaufman was the
Chief Financial Officer of VSI Group, Inc., a provider of contract staffing and
management services, from November 1996 to February 1998. 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 the Dean of Rensselaer Polytechnic Institute's
Lally School of Management and Technology from July 1993 to July 1997. 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
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.
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.
3
<PAGE>
<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%(3)
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 52 1989 342,568(2) 1.7%
President--Operations
Bruce J. Eisenberg........... Senior Vice President-Real 38 1995 203,188(2) 1.0%
Estate
John J. Sullivan............. Senior Vice President-- 45 1995 205,304(2) 1.0%
Finance and Chief Financial
Officer
All directors and executive
officers as a group (11
persons) 11,391,543(1)(2) 57.4%
</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).
(3) On April 27, 1998, Robert J. Higgins entered into an Underwriting Agreement
with the Company and Goldman Sachs & Co., Donaldson, Lufkin & Jenrette
Securities Corporation, NationsBanc Montgomery Securities LLC and Everen
Securities, Inc., pursuant to which Mr. Higgins sold 2,000,000 shares of
Common Stock in a registered public offering on Form S-3 under the Act
(Registration No. 333-48891), thereby reducing his beneficial ownership to
approximately 39.0% of the outstanding shares of Common Stock upon
consummation of the offering on May 1, 1998. This reduction in beneficial
ownership does not reflect the overallotment option granted to the
underwriters by Mr. Higgins for the purchase of an additional 525,000 shares
within 30 days of the date of the Underwriting Agreement.
4
<PAGE>
BOARD OF DIRECTORS MEETINGS AND ITS COMMITTEES
The Board of Directors held six meetings during the 1997 fiscal year. All of
the directors except Mrs. Fischer, Mr. Dougan, and Dr. Morone attended greater
than 75% of the aggregate of: (i) the total number of meetings of the board of
directors, and (ii) the total number of meetings held by all committees of the
board on which such director served.
The Company has an Audit Committee of the Board of Directors, consisting of
a majority of independent directors, whose members during the 1997 fiscal year
were: Isaac Kaufman (Chairman), Charlotte G. Fischer and Joseph G. Morone. The
Audit Committee held two meetings during the 1997 fiscal year. The Audit
Committee's responsibilities consist of recommending the selection of
independent auditors, reviewing the scope of the audit conducted by such
auditors, as well as the audit itself, and reviewing the Company's audit
activities and activities and matters concerning financial reporting, accounting
and audit procedures, related party transactions and policies generally.
The Company has a Compensation Committee of the Board of Directors,
consisting solely of independent directors, whose members during the 1997 fiscal
year were: Dean S. Adler (Chairman), Isaac Kaufman and George W. Dougan. The
Compensation Committee held two meetings during the 1997 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 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
5
<PAGE>
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 Options. 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.
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 charterers.
The transactions that were entered into with an "interested director" were
approved by a majority of disinterested directors of the Board of Directors,
either by the Audit Committee or at a meeting of the Board of Directors. The
Board of Directors believes that the leases and other provisions are at rates
and on terms that are at least as favorable as those that would have been
available to the Company from unaffiliated third parties under the
circumstances.
EMPLOYMENT AGREEMENTS
As founder and Chief Executive Officer of the Company, Robert J. Higgins has
been instrumental in the operations of the Company. During fiscal 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. For the fiscal year ended January 31, 1998, Mr. Higgins earned $920,000 in
incentive compensation under the employment agreement. The agreement was
replaced effective May 1, 1998 by a
6
<PAGE>
new five year employment agreement. Pursuant to its terms, Mr. Higgins earns a
minimum annual salary of $600,000, is reimbursed for two club memberships, is
entitled to payment of or reimbursement for life insurance premium of up to
$150,000 per year on insurance policies for the benefit of persons designated by
Mr. Higgins and is entitled to participate in all incentive, savings retirement,
welfare and other employee benefit plans, practices, policies and other fringe
benefit programs that the Company may provide for the benefit of its executive
employees.
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.
EXECUTIVE COMPENSATION
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
7
<PAGE>
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 Fiscal 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 pursuant to a three year
employment agreement, approved by the Committee, the employment term of which
was set to end on January 30, 1999. Effective May 1, 1998, Mr. Higgins will be
compensated pursuant to a new employment agreement, in which the term of
employment will be five years and the minimum salary will be $600,000. The
employment agreement provides for participation in the Executive Bonus Plan up
to a maximum of 150% 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.
8
<PAGE>
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 Proxy Statement, 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.
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 $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------
----------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS(#) ($)
- ------------------------------ --------- --------- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Higgins 1997 575,000 920,000 37,518(1) -- 600,000 46,489(1)
Chairman, President and 1996 575,000 575,000 28,223(1) -- -- 72,590(1)
Chief Executive Officer 1995 550,000 -- 68,653(1) -- -- 95,161(1)
James A. Litwak 1997 289,808 228,000 -- (2) -- 30,000 5,109(3)
Executive Vice President- 1996 190,144 150,000 217,668(5) -- 200,000 --
Merchandising & Marketing 1995 -- -- -- (2) -- -- --
Edward W. Marshall 1997 264,453 200,000 -- (2) -- 20,000 4,859(3)
Executive Vice President- 1996 262,097 182,559 -- (2) -- 100,000 4,750(3)
Operations 1995 263,206 50,000 -- (2) 132,500(4) 30,000 4,423(3)
Bruce J. Eisenberg 1997 195,154 180,000 -- (2) -- 40,000 4,802(3)
Senior Vice President- 1996 174,933 127,400 -- (2) -- 100,000 4,037(3)
Real Estate 1995 137,340 100,000 -- (2) 100,000(4) 30,000 2,772(3)
John J. Sullivan 1997 195,154 180,000 -- (2) -- 40,000 4,802(3)
Senior Vice President and 1996 179,981 127,400 -- (2) 118,750(4) 100,000 4,750(3)
Chief Financial Officer 1995 161,009 -- -- (2) -- 30,000 4,903(3)
</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
9
<PAGE>
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 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 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% 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
$4,050,000.
(5) "Other Annual Compensation" for Mr. Litwak consists of reimbursement for
relocation expenses and a tax gross-up on the taxable but non-deductible
component of the reimbursement.
STOCK OPTION PLANS
The Company has two employee stock option plans in place, the 1986 Incentive
and Non-Qualified Stock Option Plan, as amended and restated (the "1986 Plan"),
with an aggregate of 2,200,000 shares authorized for issuance, and the 1994
Stock Option Plan (the "1994 Plan"), with an aggregate of 2,000,000 shares (the
1986 plan and the 1994 plan are collectively referred to as the "Stock Option
Plan"). The following tables set forth, as to each of the named executive
officers, certain information with respect to all options granted or exercised
for the fiscal year ended January 31, 1998, under the Stock Option Plan.
10
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR(1)
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended January 31, 1998, to each of the
named officers of the Company.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED ANNUAL
SECURITIES OPTIONS RATE OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR OPTION
OPTIONS EMPLOYEES EXERCISE OR TERM(3)
GRANTED(#) IN FISCAL BASE PRICE EXPIRATION ------------------------
NAME (1)(2) YEAR ($/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 $27.00 at January 31, 1998, the
fiscal year end.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES (1)
The following table sets forth information concerning each exercise of stock
options made during the fiscal year ended January 31, 1998, by each of the named
executive officers of the Company, and the value of unexercised stock options
held by such person as of January 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR AT FISCAL YEAR END
END(#) ($)
-------------------- ---------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(2)
- --------------------------------------------- --------------- ------------- -------------------- ---------------------
<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.
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 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 a $100 investment on January 29,
1993, and that all dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS WORLD ENTERTAINMENT CORPORATION NASDAQ (U.S.) NASDAQ RETAIL TRADE STOCKS
<S> <C> <C> <C>
1993 100 100 100
1994 95 116 107
1995 39 109 95
1996 25 154 107
1997 47 201 131
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
TRANS WORLD ENTERTAINMENT CORPORATION 100 95 39 25
NASDAQ (U.S.) 100 116 109 154
NASDAQ RETAIL TRADE STOCKS 100 107 95 107
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
TRANS WORLD ENTERTAINMENT CORPORATION 47 379
NASDAQ (U.S.) 201 237
NASDAQ RETAIL TRADE STOCKS 131 154
</TABLE>
ITEM 2. APPROVAL OF AMENDMENT TO THE 1990 STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
INTRODUCTION
The Board of Directors is seeking shareholder approval to amend the 1990
Stock Option Plan for Non-Employee Directors of the Company to authorize the
Board to award discretionary option grants. The amended plan is set forth in
Annex A.
The purpose of the 1990 Stock Option Plan for Non-Employee Directors of the
Company is to increase the ownership in the Company of non-employee directors
whose services are considered essential to the Company's continued progress, to
provide a further incentive to serve as a director of the Company, and to aid in
attracting and retaining Directors of outstanding ability. On March 13, 1998,
the Board of Directors adopted, subject to shareholder approval, the amended
1990 Stock Option Plan for Non-Employee Directors.
DISCUSSION
On April 26, 1990, the Board approved the current Non-Employee Director
Stock Option Plan. Upon election of a Non-Employee Director, such participant
shall be granted Options to purchase 10,000 shares of Common Stock. Commencing
in May 1991 and annually thereafter on the first Nasdaq Trading day in May, each
Participant shall automatically be granted options to purchase 1,500 shares of
Common Stock. The proposed amendment would authorize the Board, in its
discretion, to grant additional Options to Participants to purchase Common
Stock. The date of grant, number of shares of Common Stock which
12
<PAGE>
may be purchased on exercise and the exercise price of the Options shall be
determined by the Board, in its discretion.
The Board feels that the ability to authorize discretionary Options will
further the Company's objective to retain and attract Directors of outstanding
ability.
In the event shareholders do not approve the amended 1990 Stock Option Plan
for Non-Employee Directors, the amended Plan will not become effective.
To be adopted, this proposal requires the affirmative vote of the majority
of the shares present in person or represented by proxy at the 1998 Annual
Meeting of Shareholders.
The Board of Directors unanimously recommends that shareholders vote FOR the
approval of the amendment to the 1990 Stock Option Plan for Non-Employee
Directors.
ITEM 3. APPROVAL OF 1998 STOCK OPTION PLAN
INTRODUCTION
The Board of Directors is seeking shareholder approval of the 1998 Stock
Option Plan (the "1998 Plan"), which will succeed the existing stock option
plan. The new plan was drafted to comply with the proposed regulations issued
under Section 162(m) of the Internal Revenue Code of 1986, as amended, to ensure
the tax deductibility of compensation paid. The 1998 Plan is set forth in Annex
B.
The purpose of the Company's stock option programs is to provide a flexible
mechanism to permit key employees to obtain significant equity ownership in the
Company, giving them a permanent stake in the Company's growth and success, and
encouraging the continuation of their involvement with the Company. The
Compensation Committee (the "Committee") has recommended to the Board of
Directors that a stock option program should be continued. On March 13, 1998,
the Board of Directors adopted, subject to shareholder approval, the 1998 Plan.
DISCUSSION
On April 29, 1994, the Company's Board of Directors adopted the existing
stock option program, the 1994 Incentive and Non-Qualified Stock Option Plan, as
amended and restated (the "1994 Plan"). The 1994 Plan expires by its term in
April 2004. Through March 23, 1998, 2,000,000 shares have been authorized by the
shareholders for issuance under the 1994 Plan. As of March 23, 1998, 85,852
stock options have been exercised, 1,608,480 stock options have been granted and
are unexercised, and 391,520 remain available for future grant. The 1994 Plan
terminates on, and no further options or awards will be made or granted
thereunder after, April 29, 2004.
The following summary describes the principal features of the 1998 Plan.
There are no principal differences between the 1998 Plan and the 1994 Plan. This
summary is qualified in its entirety by reference to specific provisions of the
1998 Plan set forth in Annex B.
THE 1998 PLAN
COMMITTEE. The 1998 Plan will be administered by the Compensation Committee
of the Board of Directors (the "Committee") or such other committee appointed by
the Board of Directors, consisting of two or more non-employee directors. Each
member of the Committee will meet the requirements set forth in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the proposed regulations issued under Section 162(m) of the Internal
Revenue Code of 1986, as amended. No member of the Committee will be eligible to
participate in the 1998 Plan.
ELIGIBILITY. Executive, managerial and other employees (including officers
and employees who may be directors) of the Company and of any subsidiary shall
be eligible to participate in the 1998 Plan. Selection
13
<PAGE>
of employees eligible to participate in the 1998 Plan is within the discretion
of the Committee. It is expected that the 1998 Plan will be administered in a
manner similar to the 1994 Plan, in which approximately 150 employees currently
participate.
COMMON STOCK ISSUABLE UPON EXERCISE. Under the 1998 Plan, up to 1,000,000
shares of the Company's Common Stock may be optioned or granted to eligible
employees, and options with respect to no more than 300,000 shares of Common
Stock options may be granted to any one employee in any calendar year during the
term of the 1998 Plan. Shares of the Company's Common Stock that are optioned or
awarded under the 1998 Plan may be either treasury shares or authorized but
unissued shares. Shares reserved for issuance pursuant to expired or terminated
options under the 1998 Plan will be made available for future option grants
under the 1998 Plan.
The 1998 Plan provides for appropriate adjustments in the aggregate number
of shares of Common Stock subject to such plan and in the number of shares and
the price per share, or either, of outstanding options in the case of changes in
the capital stock of the Company resulting from any recapitalization, stock or
unusual cash dividend, stock split or any other increase or decrease effected
without receipt of consideration by the Company, or merger or consolidation in
which the Company is the surviving company. The 1998 Plan also provides that in
any merger or consolidation in which the Company is not the survivor and in
which suitable stock options are not granted in substitution of stock options
outstanding under the 1998 Plan, or the predecessor option plans approved in
1994 and 1986, the Company will deliver to each optionee in cash an amount equal
to the difference between the purchase price of all vested stock options and the
fair market value of the Company's Common Stock at the effective date of such
merger or consolidation.
GRANTS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. Under the 1998 Plan,
the Committee may grant to eligible employees either non-qualified or incentive
stock options, or both, to purchase shares of the Company's Common Stock. The
Committee may also provide that options may not be exercised in whole or in part
for any period or periods of time; provided, however, that no option shall be
exercisable by a participant who is subject to the provisions of Section 16 of
the Exchange Act, until the lapse of at least six months from the date of grant.
The number of shares covered by incentive stock options which may be first
exercised by an optionee in any year cannot have an aggregate fair market value
in excess of $100,000, measured at the date of grant. All options shall expire
not more than ten years from the date of grant. The Committee may provide that
in the event the employment of an employee is terminated, the right to exercise
options held under the 1998 Plan may continue through its original expiration
date or for such shorter period of time after such event as the Committee may
determine appropriate. Options are generally not assignable or transferable
other than by will or the laws of descent and distribution, or by a qualified
domestic relations order and, during the optionee's lifetime, the stock option
may only be exercised by such optionee.
The price at which shares of Common Stock may be purchased pursuant to stock
options granted by Committee will be determined by the Committee, but in no
event will such price be less than the fair market value of the shares at the
time that the option is granted. "Fair market value" is defined as the closing
price of the Common Stock on the Nasdaq National Market or principal stock
exchange that the shares may be traded on as of the date of grant, or if such
day is not a trading day, the next succeeding trading day. Generally, each stock
option will become exercisable in increments of 25% of the total number of
shares subject to option on the one year anniversary of the date of grant and
annually thereafter. The Committee may, in its discretion, provide at the date
of grant for another time or times of exercisability of any such option subject
to the terms and conditions of the 1998 Plan. The Committee may, at any time
prior to the expiration or termination of a stock option previously granted,
extend the term of such option for such additional period (up to a total
exercise period of not more than ten years) as it shall, in its discretion, deem
necessary or appropriate.
14
<PAGE>
The option price must be paid to the Company by the optionee in full prior
to delivery of the Common Stock. If the optionee intends to obtain a permissible
broker loan or simultaneously sell the exercised shares, the exercise shall not
be deemed to have occurred until the Company receives the proceeds. The optionee
may pay the option price in cash or with shares of the Company's Common Stock
owned by him. The optionee has no rights as a shareholder with respect to the
shares subject to option until shares of Common Stock are issued upon exercise
of the option.
The Committee may, in its discretion, grant a stock option together with a
stock appreciation right. In the case of such grant the optionee may either
exercise the option and receive Common Stock, or receive cash or other property
equal to the difference between the exercise price of the underlying option and
the fair market value of the Common Stock at the time of exercise. Upon exercise
of a stock appreciation right the underlying stock option is deemed to have been
exercised, and those shares will no longer be available under the 1998 Plan.
AMENDMENT AND TERMINATION. The 1998 Plan has a term of ten years and no
shares may be optioned and no rights to receive shares may be granted after the
expiration of the plan. The Committee has full and final authority to determine
the employees to be granted stock options, to determine the number of shares
subject to each option (up to a maximum of options with respect to 300,000
shares of Common Stock to any one employee during the term of the 1998 Plan), to
determine the option price within the prescribed limits, to determine the time
or times when each stock option will be issued and exercisable, and to adopt
rules and regulations for carrying out the 1998 Plan. The Board of Directors is
authorized to terminate or amend the 1998 Plan, except that it may not increase
the number of shares available thereunder, decrease the minimum price at which
options may be granted, or extend the term of the Plan, without shareholder
approval. To the extent any provision of the 1998 Plan fails to comply with any
condition of Rule 16b-3 of the Exchange Act, such provision shall be null and
void to the extent permitted by law.
In the event shareholders do not approve the 1998 Plan, the 1998 Plan will
not become effective.
To be adopted, this proposal requires the affirmative vote of the majority
of the shares present in person or represented by proxy at the 1998 Annual
Meeting of Shareholders.
The Board of Directors unanimously recommends that shareholders vote FOR the
approval of the 1998 Stock Option Plan.
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) filings requirements applicable to its officers,
directors, and greater-than-ten-percent stockholders were complied with, except
for as set forth below.
On May 1, 1997, 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 17, 1998. All of the above stock option grants were
reported on Form 5 by each person on March 12, 1998.
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.
15
<PAGE>
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 30, 1999. 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 1997 Annual Report to Shareholders
(which does not form a part of the proxy solicitation material), including
financial statements for the fiscal year ended January 31, 1998 is being sent
concurrently to shareholders. If you have not received or had access to the 1997
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.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders of the Company wishing to include proposals in the proxy
material in relating to the Annual Meeting of the Company to be held in 1999
must submit the same in writing so as to be received at the executive offices of
the Company on or before February 14, 1999. 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, 38 Corporate Circle,
Albany, NY 12203. No such proposals were received with respect to the annual
meeting scheduled for June 3, 1998.
By Order of the Board of Directors,
[LOGO]
Matthew H. Mataraso,
Secretary
May 7, 1998
16
<PAGE>
ANNEX A
TRANS WORLD ENTERTAINMENT CORPORATION
1990 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(AS AMENDED AND RESTATED)
SECTION 1. PURPOSE. The purpose of the 1990 Stock Option Plan for
Non-Employee Directors of Trans World Entertainment Corporation is to increase
the ownership in the Company of non-employee directors whose services are
considered essential to the Company's continued progress, to provide a further
incentive to serve as a director of the Company, and to aid in attracting and
retaining Directors of outstanding ability. Options granted under the Plan are
intended to be options that do not meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended.
SECTION 2. DEFINITIONS. Unless the context clearly indicates otherwise, the
following terms, when used in this Plan, shall have the meanings set forth in
this Section 2:
a. "Board" shall mean the Board of Directors Trans World Entertainment
Corporation.
b. "Code" shall mean the Internal Revenue code of 1986, as it may be
amended from time to time.
c. "Common Stock" shall mean authorized but unissued shares of Common
Stock, par value $.01 per share, of Trans World Entertainment Corporation,
or reacquired shares of Trans World Entertainment Corporation Common Stock.
d. "Company" shall mean Trans World Entertainment Corporation, a New
York corporation, and its subsidiaries.
e. "Director" shall mean a director who serves on the Board.
f. "Employee" shall mean any common law employee, including officers, of
the Company, as determined in the Code and the Treasury Regulations
thereunder.
g. "Fair Market Value" shall mean, for any day, the last reported sale
price of the Common Stock in the over-the-counter market, as reported on the
NASDAQ National Market System or, if the Common Stock is listed or admitted
to trading on any Securities Exchange, the last reported sale price on such
exchange of the applicable day.
h. "Grantee" shall mean a Participant granted an Option
i. "NASDAQ Trading Day" shall mean any day that an active market in the
Common Stock is made and prices are quoted on the NASDAQ National Market
System or, if the Common Stock is then traded on an exchange, that the
applicable day is a business day of such exchange; PROVIDED, HOWEVER, that
if less than 100 shares of Common Stock have traded on such NASDAQ Trading
Day the next succeeding trading day shall be used.
j. "Option" shall mean a non-qualified stock option granted pursuant to
the Plan to purchase shares of the Common Stock.
k. "Participant" shall mean any Director who is not also an Employee; a
Director who was formerly an Employee shall become a Participant except that
such former Employee will not be entitled to the automatic Initial Grant
described in Section 5(a).
l. "Plan" shall mean the Trans World Entertainment Corporation 1990
Stock Option Plan for Non-Employee Directors as set forth herein and as
amended from time to time.
SECTION 3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN. Subject to
adjustment as provided in Section 7, the Common Stock which may be issued
pursuant to Options granted under the Plan shall not exceed 250,000 shares in
the aggregate. The shares of Common Stock deliverable upon the exercise of
Options may be made available from authorized but unissued shares or from shares
reacquired by the
A-1
<PAGE>
Company, including shares purchased in the open market or in private
transactions. If any Options granted under the Plan shall expire or terminate
for any reason without having been exercised in full, the shares subject to, but
not delivered under, such Option may again become available for the grant of
other Options under the Plan. No shares deliverable to the Company in full or
partial payment of the purchase price payable pursuant to Section 5(g) shall
become available for the grant of other Options under the Plan.
SECTION 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Board. Subject to the provisions of the Plan, the Board shall be authorized
to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan, and to make all other determinations necessary
or advisable for the administration of the Plan. The determination of the Board
in the administration of the Plan, as described herein, shall be final and
conclusive and binding upon all persons including, without limitation, the
Company, its shareholders and persons granted Options under the Plan. The
validity, construction, and effect of the Plan and any rules and regulations
relating to the Plan shall be determined in accordance with the laws of the
State of New York.
SECTION 5. GRANT OF OPTIONS. Each Option granted under this Plan shall be
evidenced by a written agreement in such form as the Board shall from time to
time approve, which agreements shall comply with and be subject to the following
conditions.
a. INITIAL GRANT OF OPTIONS. Effective upon the initial shareholder
ratification or election of a Non-Employee Director of the Company, such
Participant shall be granted ("Initial Grant") Options to purchase 10,000 shares
of Common Stock (as adjusted pursuant to Section 7) on the first NASDAQ Trading
Day following the applicable meeting of shareholders.
b. ANNUAL GRANT OF OPTIONS. Commencing in May 1991 and annually thereafter
on the first NADAQ Trading in each May, each Participant shall automatically be
granted Options to purchase 1,500 shares of Common Stock (as adjusted pursuant
to Section 7).
c. PURCHASE PRICE. The purchase price of each share of Common Stock
subject to an Option granted pursuant to paragraph (a) or (b) above shall be 85%
of the Fair Market Value (as defined hereunder) of a share of the Common Stock
on the date the Option is granted.
d. DISCRETIONARY OPTION GRANTS. The Board is also authorized, in its
discretion, to grant additional Options to purchase Common Stock to
participants. The date of grant, number of shares of Common Stock which may be
purchased on exercise and the exercise price of the Options shall be determined
by the Board, in its discretion. Grants of Options under this paragraph (d) need
not be uniform to all Participants.
e. EXERCISABILITY AND TERM OF OPTIONS. Unless the Board determines
otherwise at the time of grant or thereafter, each Option granted under the Plan
will become exercisable and vest in four equal installments, commencing on the
first anniversary of the date of grant and annually thereafter. Each Option
granted under the Plan shall expire ten years from the date of the grant, and
shall be subject to earlier termination as hereinafter provided.
f. TERMINATION OF SERVICE. In the event of the expiration (without
renewal) or termination of service on the Board by any Grantee other than by
reason of total and permanent disability or death, as set forth in paragraph (g)
hereof, the then-outstanding Options of such Grantee may be exercised only to
the extent that they are exercisable on the date of such termination and, unless
exercised, these Options shall expire one year after such termination, or on
their stated expiration date, whichever occurs first.
g. DISABILITY OR DEATH. In the event of termination of service by reason
of the total and permanent disability of any Grantee, each of the
then-outstanding Options of such Grantee will continue to mature and become
exercisable in accordance with paragraph (e) above and the Grantee may exercise
the vested installments at any such time within five years after such
disability, but in no event after the expiration date of the term of the Option.
For purposes of this Plan, the term "total and permanent disability" shall mean
the inability of the Grantee, by reason of illness and accident, to perform any
and every duty of the occupation at which the Grantee performed as Director on
the date that such disability commenced. In the event of the death of any
Grantee, each of the Grantee's outstanding Options will immediately mature in
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full and become exercisable by the Grantee's legal representative at any time
within a period of five years after the death, but in no event after the
expiration date of the term of the Option. However, if the Grantee dies
following termination of service on the Board by reason of total and permanent
disability, such Option shall only be exercisable for two years after the
Grantee's death, or until the stated expiration date of the Option, if earlier.
h. DISCRETIONARY EXTENSION. Notwithstanding any provision of this Plan to
the contrary, the Board shall have the authority (which may be exercised at any
time) to extend the period during which any Option granted under the Plan may be
exercised; PROVIDED, HOWEVER, that no Option may be exercisable for more than
ten years from the date of grant thereof.
i. PAYMENT. Options may be exercised only upon payment to the Company in
full of the purchase price of the shares to be delivered. Such payment shall be
made in cash or in Common Stock, or in a combination of cash and Common Stock.
The sum of the cash and the Fair Market Value of such Common Stock shall be at
least equal to the aggregate purchase price of the shares to be delivered. If
the Grantee intends to obtain a permissible broker loan to exercise any Options,
exercise thereof shall not be deemed to occur until the Company receives the
proceeds of the Grantee's broker loan. In addition to the payment of the Option
price, if required by the Board, the Grantee shall pay the amount of all
Federal, state and local withholding or other employment taxes applicable to the
Grantee at the time the Board determines that the Grantee has recognized gross
income under the Code resulting from exercise of an Option.
SECTION 6. SALE OR REORGANIZATION. In case the Company is merged or
consolidated with another Corporation, or in case the property or Common Stock
of the Company is acquired by another corporation, or in case of a separation,
reorganization, or liquidation of the Company, the Board shall either (i) make
appropriate provisions for the protection of any outstanding options by the
substitution of an equitable basis of cash or appropriate Common Stock of the
Company, or cash or appropriate stock of the merged, consolidated, or otherwise
reorganized corporation, or (ii) give written notice to Grantees that their
Options will become immediately exercisable notwithstanding any waiting period
otherwise prescribed by the Committee, and must be exercised within 90 days of
the date of such notice or they will be terminated.
SECTION 7. ADJUSTMENT PROVISIONS. If the shares of Common Stock outstanding
are changed in number or class by reason of a split-up, merger, consolidation,
reorganization, reclassification, recapitalization, or any capital adjustment,
including a stock dividend, or if any distribution is made to the holders of
Common Stock other than a regular cash dividend, or other similar change is made
in the corporate structure, appropriate adjustments shall be made in the
aggregate number and kind of shares or other securities or property subject to
the Plan, the number and kind of shares or other securities or property subject
to outstanding and to subsequent option grants and in the purchase price of
outstanding options to reflect such changes.
SECTION 8. OPTIONS NON-ASSIGNABLE AND NON-TRANSFERABLE. Except as set forth
below, each Option and all rights thereunder shall be non-assignable and
non-transferable other than by will or the laws of descent and distribution and
shall be exercisable during the Grantee's lifetime only by the Grantee or the
Grantee's guardian or legal representative. Notwithstanding the foregoing, if
the Board expressly so provides in the applicable Option agreement (at the time
of grant or at any time thereafter), an Option granted hereunder may be
transferred by a Participant to members of his or her "immediate family", to a
trust established for the exclusive benefit of solely one or more members of the
Participant's "immediate family" or to a partnership all of whose partners are
members of the Participant's "immediate family." Any Option held by the
transferee will continue to be subject to the same terms and conditions that
were applicable to the Option immediately prior to the transfer, except that the
Option will be transferable by the transferee only by will or the laws of
descent and distribution. For purposes hereof, "immediate family" means the
Participant's children, stepchildren, grandchildren, parents, stepparents,
grandparents, spouse, siblings (including half brothers and sisters), in-laws,
and relationships arising because of legal adoption.
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SECTION 9. LIMITATION OF RIGHTS
a. NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the granting
of an Option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Grantee has a right to continue as a director for any period of time, or at any
particular rate of compensation.
b. NO SHAREHOLDERS' RIGHTS FOR OPTIONS. A Grantee shall have no rights as
a shareholder with respect to the shares covered by the Options granted
hereunder until the date of the issuance of a stock certificate therefor and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such certificate is issued.
c. SALE OF COMMON STOCK. Notwithstanding any other provision of this Plan
or agreements made pursuant thereto, the Company shall not be required to issue
or deliver any certificate or certificates for shares of Common Stock under this
Plan prior to fulfillment of all of the following conditions:
(1) The listing, or approval for listing upon notice of issuance, as
required of such shares on any securities exchange as may at the time be
the principal market for the Common Stock;
(2) Any registration or other qualification of such shares under any state
or federal law or regulation, or the maintaining in effect of any such
registration or other qualification, or exemption therefrom supported by
an opinion of counsel, which the Board shall, in its absolute discretion
upon the advice of counsel, deem necessary or advisable; and
(3) The obtaining of any other consent, approval or permit for any state or
Federal governmental agency which the Board shall, in its absolute
discretion upon the advice of counsel, determine to be necessary or
advisable.
SECTION 10. EFFECTIVE DATE AND DURATION OF PLAN. This amended and restated
Plan shall become effective immediately following approval by the shareholders
at the 1998 Annual Meeting of Shareholders. The period during which Option
grants shall be made shall terminate on the day following the tenth anniversary
of the date of approval by the shareholders at the 1998 Annual Meeting of
Shareholders of this amended and restated Plan, but such termination shall not
affect the terms of any then outstanding Options.
SECTION 11. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Board may
suspend or terminate the Plan or revise or amend it in any respect whatsoever;
PROVIDED, HOWEVER, that, without the consent of an affected Participant, no
amendment, alternation, suspension, discontinuation, or termination of the Plan
may materially and adversely affect the rights of such Participant under any
Option theretofore granted. The Board may waive any conditions or rights under,
amend any terms of, or amend, alter, suspend, discontinue or terminate, any
Option theretofore granted, prospectively or retrospectively; PROVIDED, HOWEVER,
that, without the consent of a Participant, no amendment, alteration,
suspension, discontinuation or termination of any Option may materially and
adversely affect the rights of such Participant under any Award theretofore
granted.
SECTION 12. NOTICES. Any written notice to the Company required by any of
the provisions of this Plan shall be addressed to the Secretary of the Company
and shall become effective when it is received.
SECTION 13. SEVERABILITY. If any provision of the Plan, or any term or
condition of any Award or Agreement or form executed or to be executed
thereunder, or any application thereof to any person or circumstances is
invalid, such provisions, term, condition or application shall to that extent be
void (or, in the discretion of the Board, such provision, term or condition may
be amended to avoid such invalidity), and shall not affect other provisions,
terms or conditions or applications thereof, and to this extent such provisions,
terms and conditions are severable.
SECTION 14. FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued pursuant to Options granted hereunder, but in lieu thereof, the cash
value of such fraction shall be paid.
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ANNEX B
TRANS WORLD ENTERTAINMENT CORPORATION
1998 STOCK OPTION PLAN
1. PURPOSE
(a) The purpose of this 1998 Stock Option Plan (the "Plan"), is to encourage
and enable selected management and other employees of Trans World Entertainment
Corporation (the "Company") or a parent or subsidiary of the Company to acquire
a proprietary interest in the Company through the ownership of stock in the
Company. Pursuant to the Plan, eligible employees will be offered the
opportunity to acquire such common stock through the grant of Incentive Stock
Options and Non-Qualified Stock Options (Incentive Stock Options and
Non-Qualified Stock Options granted under the Plan are collectively referred to
herein as "Options"), with or without tandem Stock Appreciation Rights ("SARs").
(b) As used herein, the term "parent" or "subsidiary" shall mean any present
or future corporation which is or would be a "parent corporation" or "subsidiary
corporation" of the Company as the term is defined in Section 424 of the
Internal Revenue Code of 1986, as amended (the "Code") (determined as if the
Company were the employer corporation).
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee of the Board of
Directors, or such other committee appointed by the Board of Directors (the
"Committee"), consisting of two or more directors. Each member of the Committee
will be a "non-employee director" as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an
"outside director" as defined in regulations issued under Section 162(m) of the
Internal Revenue Code of 1986, as amended. The Committee is authorized: (a) to
adopt, alter and repeal administrative rules, guidelines and regulations for
carrying out the Plan; (b) to select the employees eligible for participation
under the Plan; (c) to determine whether and to what extent Options and SARs are
to be granted under the Plan; (d) to substitute new Options for previously
granted Options, including previously granted Options having higher exercise
prices; (e) to determine the other terms, conditions and provisions of grants
under the Plan; (f) accelerate the vesting or extend the exercise period (up to
a maximum of ten years); and (g) to interpret the Plan, in all cases in the
Committee's sole discretion consistent with the Plan provisions. The
interpretation of and decisions with regard to any questions arising under the
Plan made by the Committee shall be final and conclusive.
3. SHARES OF STOCK SUBJECT TO THE PLAN
(a) SHARES SUBJECT TO ISSUANCE. There shall be 1,000,000 shares of the
Company's common stock, par value $.01 per share (the "Common Stock") authorized
for issuance under the Plan. Such shares may be authorized and unissued shares
or previously issued shares acquired or to be acquired by the Company and held
in the treasury. Any shares subject to an Option which for any reason expires or
is terminated unexercised may again by subject to an Option under the Plan. The
aggregate fair market value (determined at the time the Option is granted) of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by any optionee during any calendar year (under all plans of
the Company and any parent or subsidiary of the Company which plans provide for
granting of Incentive Stock Options within the meaning of Section 422 of the
Code) shall not exceed $100,000.
(b) ANTIDILUTION ADJUSTMENTS. In the event of a reorganization,
recapitalization, stock split, reverse stock split, stock dividend, combination
of shares, merger, consolidation, reclassification or other change in
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corporate structure, there shall be an appropriate adjustment to the number of
shares authorized for issuance under the Plan pursuant to the provision of
Section 8 hereof.
4. ELIGIBILITY
Options may be granted only to executive officers, management and other
employees who are employed by the Company or a parent or subsidiary of the
Company, in each case as designated by the Committee. An Option may be granted
to a director of the Company or a parent or subsidiary of the Company who is not
also a member of the Committee, provided that the director is also an officer or
employee.
5. GRANTING OF INCENTIVES
(a) TERM OF PLAN AND OPTION GRANTS. All Options granted pursuant to this
Plan shall be granted within 10 years from June 3, 1998. The date of the grant
of any Option shall be the effective date on which the Committee authorizes the
grant of such Option. In no event, however, shall any Option be exercisable
beyond 10 years from the date it is granted.
(b) LIMITS APPLICABLE TO ANY ONE EMPLOYEE. The maximum number of shares of
Common Stock with respect to which Options or SARs may be granted to any one
employee from this Plan in any calendar year is 300,000 shares of Common Stock
authorized for issuance under the Plan, subject to adjustment in accordance with
the provision of Section 8 hereof.
(c) STOCK APPRECIATION RIGHTS. The Committee may in its sole discretion
grant an Option together with an SAR. In the case of such a grant the employee
may either (i) exercise the Option and receive Common Stock of the Company or
(ii) receive in cash or other property, in the sole discretion of the Committee,
the difference between the exercise price of the underlying option and the fair
market value of the Common Stock at the time the SAR is exercised. An Incentive
Stock Option granted together with an SAR shall be subject to the limitations of
the Plan and such additional limitations as may be imposed under Section 422 of
the Code which limitations are necessary or appropriate to cause such Incentive
Stock Option or another Incentive Stock Option to qualify as an "incentive stock
option" within the meaning of Section 422 of the Code. Upon exercise of an SAR,
the underlying option shall be deemed to have been exercised to the extent of
the Shares with respect to which the SAR is exercised and such Shares shall no
longer be available for issuance pursuant to the Plan.
(d) LIMITED STOCK APPRECIATION RIGHT. The Committee in its discretion may
include provisions in any Option or SAR granted to an employee that become
effective upon a Change in Control of the Company and that provide for the
acceleration of the exercisability of the Option or SAR. The provisions
authorized by this Section 5(d) may be included in an Option or SAR at the time
of grant or thereafter.
6. TERMS AND CONDITIONS OF OPTIONS
(a) OPTION PRICE. The purchase price under each Option shall be at least
100% of the fair market value of the Common Stock at the time the Option is
granted but not less than the par value of such Common Stock. In the case of an
Incentive Stock Option granted to an employee owning more than 10% of the total
combined voting power of all classes of stock of the Company or of any parent or
subsidiary of the Company, actually or constructively under Section 424(d) of
the Code, the option price shall not be less than 110% of the fair market value
of the Common Stock subject to the Option at the time of its grant. The fair
market value of the Common Stock on such date shall be determined in a manner
consistent with the requirements of the Code.
(b) MEDIUM AND TIME OF PAYMENT. Common Stock purchased pursuant to the
exercise of an Option shall at the time of purchase be paid for in full in cash,
or with shares of Common Stock, or a combination of cash and such Common Stock,
to be valued at the fair market value thereof on the date of such exercise.
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Common stock to be used must have been held by such optionee for a minimum of 6
months. If the optionee intends to obtain a permissible broker loan or a
simultaneous order to sell the shares issuable upon exercise of any Options,
upon the giving of at least 48 hours prior written notice to the Company,
exercise thereof shall not be deemed to occur until the Company receives the
proceeds of the recipient's broker loan or other permitted transaction. Upon
receipt of payment the Company shall, without stock transfer tax to the optionee
or other person entitled to exercise the Option, deliver to the person
exercising the Option a certificate or certificates for such shares. It shall be
a condition to the performance of the Company's obligation to issue or transfer
Common Stock upon exercise of an Option or Options that the optionee pay, or
make provision satisfactory to the Company for the payment of, any withholding
taxes which the Company is obligated to collect with respect to the issuance or
transfer of Common Stock upon such exercise.
(c) VESTING AND EXERCISE PERIOD. The vesting period of time before
exercising an Option shall be prescribed by the Committee in each particular
case, in the Committee's sole discretion. No Option may be exercised more than
10 years from the date it is granted. Unless otherwise specified by the
Committee, Options shall vest and become exercisable with respect to 25% of the
shares subject thereto on each of the first, second, third and fourth
anniversaries of the date of the grant. In the event of the death or permanent
disability of an optionee, all outstanding Options shall immediately vest and
become exercisable. Unless otherwise specified, all Options shall be for a term
of ten years from the date of grant. However, in the case of an Incentive Stock
Option granted to a 10% shareholder (as defined in Section 6(a) hereof), such
option, by its terms, shall be exercisable only within five years from the date
of grant.
(d) NO RIGHTS TO EMPLOYMENT OR AS A SHAREHOLDER. Nothing in the Plan or in
any Option shall confer any right to continue in the employ of the Company or
any parent or subsidiary of the Company or interfere in any way with the right
of the Company or any parent or subsidiary of the Company to terminate the
employment of the optionee at will at any time in accordance with the provisions
of applicable law. An optionee shall have no rights as a shareholder of the
Company with respect to any share issuable or transferrable upon exercise
thereof until the date a stock certificate is issued to him for shares of Common
Stock.
7. EXERCISE AFTER SEPARATION OF EMPLOYMENT OR DEATH
(a) RETIREMENT, DEATH OR DISABILITY. In the event of the retirement with the
consent of the Company, the Options or unexercised portions thereof that were
otherwise exercisable on the date of retirement shall be exercisable during
their specified terms but prior to three years after the date of retirement,
whichever occurs earlier. In the event of the death or permanent disability (as
that term is defined in Section 22(e)(3) of the Code, as now in effect or as
subsequently amended), of the recipient, all Options shall become vested and
immediately exercisable by the optionee, or if he is not living, by his heirs,
legatees or legal representatives (as the case may be), during their specified
terms but prior to the expiration of three years after the date of death or
permanent disability, whichever occurs earlier.
(b) SEPARATION OF EMPLOYMENT. With respect to any separation of employment
from the Company, other than by reason of retirement, death or permanent
disability, Options, if vested on the date of termination, may be exercised
during their specified terms but prior to the expiration of three months after
separation of employment with the Company, whichever occurs earlier, or, for
Non-Qualified Stock Options, such longer period up to the expiration date
originally scheduled for such option, as the Committee may, in its sole and
absolute discretion, determine and provide.
(c) LEAVE OF ABSENCE. If an optionee takes an approved leave of absence, the
Committee may, if it determines that to do so would be in the best interest of
the Company, provide in a specific case for continuation of Options during such
leave of absence, such continuation to be on such terms and conditions as the
Committee determines to be appropriate.
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(d) CERTAIN INVESTMENT RESTRICTIONS. Each Option granted under the Plan
shall be subject to the requirement that, if at any time the Board of Directors
shall determine, in its discretion, that the listing, registration or
qualification of the shares issuable or transferable upon exercise thereof upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the granting of such Option or the issue,
transfer or purchase of shares thereunder, such Option may not be exercised in
whole or in part unless such listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board of Directors. The Company shall not be obligated to sell
or issue any shares of Common Stock in any manner in contravention of the
Securities Act of 1933, as amended, or any state securities law.
8. ADJUSTMENTS
(a) RECAPITALIZATION. The number of shares subject to the Plan shall be
increased or decreased proportionately, as the case may be, in the event that
dividends payable in Common Stock during any fiscal year of the Company or in
the event there is during any fiscal year of the Company one or more splits,
reverse splits, subdivisions, or combinations of shares of Common Stock
resulting in an increase or decrease of the shares outstanding at the beginning
of the year. In the event of any such adjustment the number of underlying shares
and the purchase price per share applicable to options previously granted shall
be proportionately adjusted. All adjustments shall be made as of the date such
action necessitating such adjustment becomes effective.
(b) SALE OR REORGANIZATION. In case the Company is merged or consolidated
with another corporation, or in case substantially all of the property, stock or
assets of the Company is to be acquired by another corporation, or in case of a
separation, reorganization, or liquidation of the Company, the Board of
Directors of the Company, or the board of directors of any corporation assuming
the obligations of the Company hereunder, shall either (i) make appropriate
provisions for the protection of any outstanding Options by the substitution on
an equitable basis of cash or comparable stock or stock options of the Company,
or cash or comparable stock or stock options of the merged, consolidated, or
otherwise reorganized corporation, or (ii) make a cash payment equal to the
difference between the exercise price of all vested Options and the fair market
value of the Common Stock on the date of such transaction, as determined by the
highest sale price of the Common Stock quoted by the market or exchange on which
the security is traded.
(c) CHANGE IN CONTROL. Notwithstanding anything to the contrary in this
Plan, if there should be a "Change in Control" of the Company, all of the
Options granted under the Plan that are not currently exercisable shall become
immediately vested as of the date of such Change in Control. Unless otherwise
determined by the Committee and set forth in a written agreement, "Change in
Control" shall mean:
(A) the beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) by any individual, entity or group (within the meaning
of Section 13 (d)(3) or 14(d)(2) of the Exchange Act) (a "Person"), of 30% or
more of either (1) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (2) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following shall not constitute a Change in Control;
(i) such beneficial ownership by a subsidiary of the Company; (ii) such
beneficial ownership by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any or its subsidiaries; (iii) such beneficial
ownership by any corporation with respect to which, immediately following the
acquisition of such beneficial ownership, more than 50% of, respectively, the
then outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were
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the beneficial owners, respectively, of the outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such acquisition in
substantially the same proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, and no Person (other than Persons
described in clause (iv) below) beneficially owns 30% or more of the voting
securities of such corporation; (iv) such beneficial ownership by Robert J.
Higgins, members of his immediate family or one or more trusts established for
the benefit of such individual or family members; or (v) beneficial ownership by
a Person of a percentage of Outstanding Company Common Stock or Outstanding
Company Voting Securities which is less than the percentage of Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the case may
be, held by Robert J. Higgins, members of his immediate family and one or more
trusts established for the benefit of such individual or family members; or
(B) during any period of two consecutive years, individuals who, as of the
beginning of such period, constitute the Board of Directors of the Company (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the beginning of such period whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or
(C) approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, with respect to which all or substantially all
of the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and outstanding Company Voting Securities
immediately prior to such reorganization, merger or consolidation, do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such reorganization, merger
or consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities as
the case may be; or
(D) approval by the shareholders of the Company or (1) a complete
liquidation or dissolution of the Company or (2) a sale or disposition of all or
substantially all of the assets of the Company, other than to a corporation with
respect to which following such sale or other disposition, more than 50% of,
respectively, the then outstanding shares of common stock of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
9. NON-TRANSFERABILITY OF OPTIONS
Unless otherwise determined for a Non-Qualified Stock Option by the
Committee and set forth in a written option agreement, no Option shall be
assignable or transferable by the optionee except by will or by the laws of
descent and distribution or, and during the lifetime of a recipient, Options
shall be exercisable only by the optionee.
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10. TERMINATION AND AMENDMENT OF THE PLAN
The Board of Directors shall have the right to amend, suspend, or terminate
the Plan; provided, however, that no such action shall affect or in any way
impair the rights of a recipient under any option right theretofore granted
under the Plan.
11. EFFECTIVE DATE OF PLAN
The Plan shall become effective June 3, 1998, the date of its adoption by
the Board of Directors of the Company. The Plan shall, in all events, terminate
on June 3, 2008, or such earlier date as the Board of Directors of the Company
may determine.
12. WRITTEN AGREEMENT
Each Option granted hereunder shall be embodied in a written agreement,
which shall be subject to the terms and conditions prescribed by the Plan, and
shall contain such other provisions as the Committee in its discretion shall
deem necessary or advisable. The agreement, which need not be identical, shall
be signed by the employee participant and by the Chairman of the Board, the Vice
Chairman, the President, the Secretary or any Vice President of the Company for
and in the name and on behalf of the Company.
13. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto shall
be governed by the laws of the State of New York, without reference to its
principles of conflict of laws, and shall be construed accordingly.
May 1, 1998
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TRANS WORLD ENTERTAINMENT CORPORATION
THIS PROXY IS SOLICIATED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert J. Higgins and Matthew H. Mataraso,
and either of them, attorneys proxies, with power of substitution, to vote the
shares of the Company's common stock, of the undersigned at the Annual Meeting
of Shareholders of the Company to be held on June 3, 1998 at The Desmond, 660
Albany-Shaker Road, Albany, New York 12211 at 10:00 a.m. and at any adjournments
thereof, upon the following matters.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES.
(1) ELECTION OF DIRECTORS:
Nominees: Robert J. Higgins, Matthew H. Mataraso, George W. Dougan, Charlotte
G. Fischer, Isaac Kaufman
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below. / /
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VOTE WITHHELD from all nominees. / /
(CONTINUED AND TO BE SIGNED ON OTHER SIDE.)
<PAGE>
(2) Approval of Amendments to Director Stock Option Plan.
/ / For / / Against / / Abstain
(3) Approval of 1998 stock option plan.
/ / For / / Against / / Abstain
(4) Other matters in their discretion that may come properly before the meeting.
/ / For / / Against / / Abstain
PLEASE SIGN EXACTLY AS NAME APPEARS
AT LEFT. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN.
WHEN SIGNING AS AN ATTORNEY,
EXECUTOR, ADMINISTRATOR TRUSTEE, OR
GUARDIAN, PLEASE GIVE FULL TITLE AS
SUCH. IF A CORPORATION, PLEASE SIGN
IN FULL CORPORATE NAME BY PRESIDENT
OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.
Dated: ______________________, 1998
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Signature(s)
