<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / 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 Section240.14a-11(c) or
Section240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
TRANS WORLD ENTERTAINMENT CORPORATION
- --------------------------------------------------------------------------------
(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 Rules 14a-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 Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
TRANS WORLD ENTERTAINMENT CORPORATION
38 CORPORATE CIRCLE
ALBANY, NEW YORK 12203
(518) 452-1242
NOTICE OF ANNUAL MEETINGS OF SHAREHOLDERS
<TABLE>
<S> <C>
Date and Time................ Wednesday, June 9, 1999, at 10:00 A.M., New York time
Place........................ The Desmond
660 Albany Shaker Road
Albany, New York 12211
Items of Business............ (1) To elect three Class 1 directors to serve three-year
terms until the 2002 annual meeting and until their
successors are chosen and qualified.
(2) To approve the 1999 Stock Option Plan.
(3)To approve an amendment to the 1990 Restricted Stock
Option Plan to extend the duration of the plan through 2009.
(4) To transact any such other business as may properly come
before the meeting or any adjournment or adjournments
thereof.
Record Date.................. Shareholders as of April 21, 1999 are eligible to vote.
Proxy Voting................. A Proxy and return envelope are enclosed for your
convenience. Please complete and return your proxy card as
promptly as possible. All shareholders are cordially invited
to attend the Annual Meeting. 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 expense.
By order of the Board of Directors,
/s/ Matthew H. Mataraso,
------------------------------------------------------------
Matthew H. Mataraso,
SECRETARY
</TABLE>
May 17, 1999
<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 9, 1999, 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 17, 1999.
VOTING SECURITIES
The Company has only one class of voting securities, its Common Stock, par
value $.01 per share (the "Common Stock"). On April 21, 1999, the record date,
32,767,443 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 proposals set forth herein as Item 1,
Item 2 and Item 3. 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 21, 1999, 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................................................................. 12,034,400(1) 36.7%
38 Corporate Circle
Albany, New York 12203
</TABLE>
- ------------------------
(1) Information is as of April 21, 1999, as provided by the holder. Includes
50,550 shares owned by the wife of Robert J. Higgins and 37,500 shares owned
by a foundation controlled by Robert J. Higgins, and excludes 769,762 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.
Mr. Higgins, who beneficially owns 12,034,400 shares of Common Stock as of
the record date (approximately 36.7% of all outstanding shares), has advised the
Company that he presently intends to vote all of his shares for the election of
the nominees for director named under "Item 1--ELECTION OF DIRECTORS" and in
favor of the adoption of proposal (2) and proposal (3).
ITEM 1. ELECTION OF DIRECTORS
The Board of Directors currently intends to present to the meeting the
election of three directors, each to hold office (subject to the Company's
By-Laws) until the 2002 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
GEORGE W. DOUGAN has been Vice Chairman and a member of the Board of
Directors of Banknorth Group, Inc. since January 1, 1999. Mr. Dougan was Chief
Executive Officer and member of the Board of Directors of Evergreen Bancorp Inc.
from March 1994 to December 1998, and Chairman of the Board from May 1994 to
December 1998. 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.
MARTIN E. HANAKA has served as a director of The Sports Authority, Inc.
since February 1998 and as its Chief Executive Officer since September 1998.
From August 1994 until October 1997, Mr. Hanaka served as President and Chief
Operating Officer of Staples, Inc. an office supply superstore retailer. Mr.
Hanaka's extensive retail career has included serving as Executive Vice
President of Marketing and as President and Chief Operating Officer of Lechmere,
Inc. from September 1992 through July 1994, and serving in various capacities
for 20 years at Sears Roebuck &
2
<PAGE>
Co., most recently as Vice President in charge of Sears Brand Central. Mr.
Hanaka is also a director of Wil-Mar Industries, Inc. (marketing and
distributing repair and maintenance products) and Nature's Heartland (food
retailing).
ISAAC KAUFMAN has been Chief Financial Officer of Multi-Specialty Healthcare
Group since September 1998. Mr. Kaufman was Executive Vice President and Chief
Financial Officer of Bio Science Contract Production Corporation, a contract
manufacturer of biologics and pharmaceutical products, from February 1998 to
September 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 1991 to February 1996 and had been its Chief
Financial Officer, Secretary and Treasurer since 1983.
CONTINUING CLASS II DIRECTORS (TERMS EXPIRING IN 2000)
DEAN S. ADLER has been a principal of Lubert/Adler Partners, LP, a limited
partnership investing primarily in under-valued and opportunistic real estate
and real estate-related ventures since March 1997. For ten years prior thereto,
Mr. Adler was a principal and co-head of the private equity group of CMS
Companies, which specialized in acquiring operating businesses and real estate
within the private equity market. Mr. Adler was also an instructor at The
Wharton School of the University of Pennsylvania. Mr. Adler serves on the Boards
of Directors of Electronics Boutique, The Lane Company, US Franchise Systems,
Inc. and Developers Diversified Realty Corporation.
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 1995. Mrs. Fischer was the Vice
Chairman of the Board and Chief Executive Officer-designate from April 1994
through January 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.
MICHAEL B. SOLOW has served as a director of the Company since April of
1999. Mr. Solow is currently a partner and Practice Manager for the Financial
Services Practice at Hopkins & Sutter, a Chicago, Illinois law firm where he has
practiced since 1985. Mr. Solow is also a member of the Board of Directors for
Chrisken Residential Trust, Inc. and Edwards Arts Products, and has previously
served on other corporate boards, including Camelot Music, Inc.
CONTINUING CLASS III DIRECTORS (TERMS EXPIRING IN 2001)
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."
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.
DR. JOSEPH G. MORONE has been President of Bentley College since August
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
7 years at General Electric
3
<PAGE>
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 21, 1999, by each director and named executive officer of the Company
and all directors and executive officers as a group. All shares listed in the
table are owned directly by the named individuals unless otherwise indicated
therein. Except as otherwise stated or as to shares owned by spouses, the
Company believes that the beneficial owners have sole voting and investment
power over their shares.
<TABLE>
<CAPTION>
SHARES THAT
YEAR FIRST MAY BE ACQUIRED TOTAL
ELECTED AS WITHIN 60 DAYS SHARES
POSITIONS WITH THE DIRECTOR/ DIRECT OF APRIL 21, BENEFICIALLY
NAME COMPANY AGE OFFICER OWNERSHIP 1999 OWNED
- -------------------------- ----------------------------- --- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Higgins......... Chairman of the Board, 57 1973 11,809,400(1) 225,000 12,034,400
President and Chief Executive
Officer
Matthew H. Mataraso....... Secretary and a Director 69 1976 14,406 90,594 105,000
Dean S. Adler............. Director 42 1997 -- 15,563 15,563
George W. Dougan.......... Director 59 1984 22,500 73,688 96,188
Charlotte G. Fischer...... Director 49 1991 -- 31,688 31,688
Martin E. Hanaka.......... Director 48 1998 1,500 -- 1,500
Isaac Kaufman............. Director 52 1991 7,500 54,188 61,688
Dr. Joseph G. Morone...... Director 46 1997 7,500 8,063 15,563
James A. Litwak........... Executive Vice President-- 45 1996 45,023 253,125 298,148
Merchandising and Marketing
Bruce J. Eisenberg........ Senior Vice President-- 39 1995 115,032 253,125 368,157
Real Estate
John J. Sullivan.......... Senior Vice President-- 46 1995 109,206 268,125 377,331
Finance and Chief Financial
Officer
All directors and officers
as a group (11
persons)................ 12,132,067 1,273,159 13,405,226
<CAPTION>
PERCENT
OF
NAME CLASS
- -------------------------- -----------
<S> <C>
Robert J. Higgins......... 36.7%
Matthew H. Mataraso....... *
Dean S. Adler............. *
George W. Dougan.......... *
Charlotte G. Fischer...... *
Martin E. Hanaka.......... *
Isaac Kaufman............. *
Dr. Joseph G. Morone...... *
James A. Litwak........... *
Bruce J. Eisenberg........ 1.1%
John J. Sullivan.......... 1.2%
All directors and officers
as a group (11
persons)................ 40.9%
</TABLE>
- ------------------------------
* Less Than 1%
(1) Includes 50,550 shares owned by the wife of Robert J. Higgins and 37,500
owned by a foundation controlled by Robert J. Higgins and excludes 769,762
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.
BOARD OF DIRECTORS MEETINGS AND ITS COMMITTEES
The Board of Directors held nine meetings during the 1998 fiscal year. All
of the directors except 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 1998 fiscal year
were: Isaac Kaufman (Chairman), Charlotte G. Fischer and Joseph G. Morone. The
Audit Committee held one meeting during the 1998 fiscal year. The Audit
Committee's responsibilities consist of recommending the selection of
4
<PAGE>
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 1998 fiscal
year were: Dean S. Adler (Chairman), Isaac Kaufman and George W. Dougan. The
Compensation Committee held one meeting during the 1998 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 1998 for his services as
Secretary of the Company and as counsel. Messrs. Higgins and Mataraso are the
only directors eligible to participate in the Company's employee stock option
plans.
DIRECTOR STOCK OPTION PLAN. Each outside Director is entitled to
participate in the Company's 1990 Stock Option Plan for Non-Employee Directors
(the "Directors Stock Option Plan"). Currently, Mrs. Fischer and Messrs. Adler,
Dougan, Hanaka, Kaufman, and Morone participate in the Director Stock Option
Plan. A total of 750,000 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 440,500 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 1998, annual grants to outside Directors of 2,250 Director Options,
adjusted for a three-for-two stock split, were made at an exercise price of
$15.12 per share, compared to the market value on the date of grant of $17.79.
Accordingly, compensation expense in the aggregate of $30,038 will be amortized
over a 48-month period by the Company for the 1998 grants. Also, an initial
grant of 15,000 Director Options, adjusted for a three-for-two stock split, was
made to Mr. Hanaka at an exercise price of $10.20 per share, compared to the
market value on the day of grant of $12.00. Accordingly, compensation expense in
the aggregate of $27,000 will be amortized over a 48-month period by the
Company.
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.
5
<PAGE>
RELATED PARTY TRANSACTIONS
The Company leases its 178,000 square foot distribution center/office
facility in Albany, New York from Robert J. Higgins, its Chairman, Chief
Executive Officer and principal shareholder, under three 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 was
completed in October 1989 on real property adjoining the existing facility. A
19,100 square foot expansion was completed in September 1998 adjoining the
existing facility.
Under the three capitalized leases, dated April 1, 1985, November 1, 1989
and September 1, 1998 (the "Leases"), the Company paid Mr. Higgins an annual
rent of $1,425,360 in fiscal 1998. On January 1, 1998, the aggregate rental
payment increased in accordance with the biennial increase in the Consumer Price
Index, pursuant to the provisions of each lease. Effective January 1, 2000, and
every two years thereafter, the rental payment will increase in accordance with
the biennial increase in the Consumer Price Index, pursuant to the provisions of
the lease. None of the leases contains any real property purchase option at the
expiration of its term. Under the terms of the 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 is approximately $90,000 per month.
The Company leases two of its retail stores from Mr. Higgins under long-term
leases, one location has an annual rental of $40,000 and the other has an annual
rental of $35,000. Under the terms of the leases, the Company pays property
taxes, maintenance and a contingent rental if a specified sales level is
achieved. Total charges during fiscal 1998 for both locations was $92,732,
including rent.
The Company regularly utilizes privately-chartered aircraft owned or
partially owned by Mr. Higgins. Under an unwritten agreement with Quail Aero
Services of Syracuse, Inc., a corporation in which Mr. Higgins is a one-third
shareholder, the Company paid $65,000 for chartered aircraft services in fiscal
1998. The Company also chartered an aircraft from Crystal Jet, a corporation
wholly-owned by Mr. Higgins. During fiscal 1998, payments to Crystal Jet
aggregated $180,000. The Company believes that the charter rates and terms are
as favorable to the Company as those generally available to it from other
commercial charters.
The transactions that were entered 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 1998, Mr.
Higgins was employed as President and Chief Executive Officer of the Company
pursuant to a five-year employment agreement that commenced on May 3, 1998 and
continues until April 30, 2003, unless earlier terminated pursuant to its terms.
Pursuant to its terms, Mr. Higgins earns a minimum annual salary of $600,000, is
reimbursed for two club memberships, and is entitled to payment of or
reimbursement for life insurance premiums of up to $150,000 per year on
insurance policies for the benefit of persons designated by Mr. Higgins. In
addition, Mr. Higgins is eligible to participate in the Company's executive
bonus plan, health and accident insurance plans, stock option plans and in other
fringe benefit programs adopted by the Company for the benefit of its executive
employees. For the fiscal year ended January 30, 1999, Mr. Higgins earned
$600,000 in incentive compensation under the employment agreement.
6
<PAGE>
In the event of a change in control of the Company, Mr. Higgins may elect to
serve as a consultant to the Company at his then current compensation level for
the remainder of the term of the Employment Agreement or elect to receive 2.99
times his annual compensation in the most recently completed fiscal year. The
employment agreement provides for no further compensation to Mr. Higgins if he
is terminated for cause, as defined therein.
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 $290,000, upon his
termination following severance without cause (as defined). Mr. Litwak's
severance agreement contains an "evergreen" provision for automatic renewal each
year.
7
<PAGE>
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 1998 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 Section 162(m) of the Internal Revenue Code.
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. Annual salary
recommendations for the Company's executive officers (other than the Chief
Executive Officer) are made to the Committee by the Chief Executive Officer. 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 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 competitive to
continue to attract 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 1998, the Committee established as the principal goal a targeted level
of operating income before bonuses would be paid to executive officers. Each
named executive officer was eligible to earn from 17.5% to 100% of his salary in
incentive payments if the targets were achieved by the Company, as well as being
eligible for additional discretionary incentive payments. Below a certain target
level no incentives were to be paid. Because the Company's operating income
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 300
participants, as the principal long-term incentive for executives. The stock
option plan is designed to encourage executive officers to become shareholders
and to achieve meaningful increases in shareholder value. The Committee normally
grants stock options to executive officers annually. The level of stock option
grants are determined using a matrix that considers the executive's position,
salary level, and performance as measured by the individual's performance
rating.
8
<PAGE>
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 Officer was compensated in fiscal 1998 pursuant to a
five-year employment agreement, approved by the Committee, which will be in
effect through April 30, 2003. Two major changes were made from the previous
agreement with Mr. Higgins; the three-year term was increased to five years and
base compensation was increased from $575,000 to $600,000. The employment
agreement provides for participation in the management bonus plan at a level of
0% 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 continue 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 1998. None of
these members was an officer or employee of the Company, a former officer of the
Company, or a party to any relationship requiring disclosure under Item 404 of
Regulation S-K under the Securities Exchange Act of 1934, as amended.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
DEAN S. ADLER, CHAIRMAN
GEORGE W. DOUGAN
ISAAC KAUFMAN
- ------------------------
Notwithstanding anything to the contrary set forth in the Company's previous
filings under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this 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.
9
<PAGE>
EXECUTIVE OFFICERS AND COMPENSATION
The Company's executive officers (other than Mr. Higgins whose biographical
information is included under "Election of Directors" herein) are identified
below. At year end, four officers met the definition of "executive officer"
under applicable regulations for the fiscal year 1998, including the Chief
Executive Officer. 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.
JAMES A. LITWAK joined the Company in May 1996 as Executive Vice President
of Merchandising and Marketing. Prior to joining the Company, Mr. Litwak served
as Senior Vice President and General Merchandise Manager of DFS Group Limited,
an international retailer of in-airport duty free shops. Prior to joining DFS
Group Limited, Mr. Litwak held several executive positions in his fourteen year
career at R.H. Macy's Company with the most recent being President of
Merchandising for Macy's West responsible for developing marketing,
merchandising and product launch programs to fuel growth for the 50 store
division.
JOHN J. SULLIVAN has been Senior Vice President, Treasurer and Chief
Financial Officer of the Company since May 1995. Mr. Sullivan joined the Company
in June 1991 as the Corporate Controller and was named Vice President of Finance
and Treasurer in June of 1994. Prior to joining the Company, Mr. Sullivan was
Vice President and Controller for Ames Department Stores, a discount department
store chain.
BRUCE J. EISENBERG has been Senior Vice President of Real Estate at the
Company since May of 1995. He joined the Company in August of 1993 as Vice
President of Real Estate. Prior to joining the Company, Mr. Eisenberg was
responsible for leasing, finance and construction of new regional mall
development at The Pyramid Companies.
10
<PAGE>
The Summary Compensation Table sets forth the compensation paid by the
Company and its subsidiaries for services rendered in all capacities during the
last three fiscal years to each of the four executive officers of the Company
whose cash compensation for that year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------
----------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/
POSITION YEAR ($) ($) ($) ($) SARS(#)
- ----------------------------------------------- --------- --------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Higgins.............................. 1998 600,000 850,000 39,356(1) -- --
Chairman, President and Chief Executive 1997 575,000 920,000 37,518(1) -- 900,000
Officer 1996 575,000 575,000 28,223(1) -- --
James A. Litwak................................ 1998 291,731 260,000 --(2) -- 22,500
Executive Vice President-- 1997 289,808 228,000 --(2) -- 45,000
Merchandising & Marketing 1996 190,144 150,000 217,668(5) -- 300,000
Bruce J. Eisenberg............................. 1998 203,750 200,000 --(2) -- 22,500
Senior Vice President-- 1997 195,154 180,000 --(2) -- 60,000
Real Estate 1996 174,933 127,400 --(2) -- 150,000
John J. Sullivan............................... 1998 203,750 230,000 --(2) -- 22,500
Senior Vice President and Chief Financial 1997 195,154 180,000 --(2) -- 60,000
Officer 1996 179,981 127,400 --(2) 118,750(4) 150,000
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION ($)
- ----------------------------------------------- ---------------
<S> <C>
Robert J. Higgins.............................. 66,204(1)
Chairman, President and Chief Executive 46,489(1)
Officer 72,590(1)
James A. Litwak................................ 5,017(3)
Executive Vice President-- 5,109(3)
Merchandising & Marketing --
Bruce J. Eisenberg............................. 5,043(3)
Senior Vice President-- 4,802(3)
Real Estate 4,037(3)
John J. Sullivan............................... 5,017(3)
Senior Vice President and Chief Financial 4,802(3)
Officer 4,750(3)
</TABLE>
- ------------------------------
(1) "Other Annual Compensation" in fiscal 1998, 1997 and 1996 for Mr. Higgins
includes $30,540, $29,140 and $17,400, respectively, in payments for, or
reimbursement of, life insurance premiums made on behalf of Mr. Higgins or
his beneficiaries, pursuant to his employment agreement. "All Other
Compensation" in fiscal 1998, 1997 and 1996 for Mr. Higgins consists of a
maximum dollar value of premiums paid by the Company with respect to split
dollar life insurance policies that the Company owns on the lives of Mr.
Higgins and his wife. The Company will recoup most or all of such premiums
upon maturity of the policies, but the maximum potential value is calculated
in line with current SEC instructions as if the 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 executive 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. Sullivan received 75,000 shares of restricted stock of which 60%
will vest on April 30, 1999; an additional 20% will vest on April 30, 2000,
and the final 20% will vest on April 30, 2001.
(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 three 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 3,300,000 shares authorized for issuance, the
1994 Stock Option Plan (the "1994 Plan"), with an aggregate of 3,000,000 shares
and the 1998 Stock Option Plan (the "1998 Plan"), with an aggregate of 1,500,000
shares (the 1986 plan, the 1994 plan and the 1998 plan are collectively referred
to as the "Stock Option Plan"). Stock Options are exercisable annually in 4
equal installments, commencing on the first anniversary of the date of the
grant, and vest upon the earlier of 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. 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 30, 1999, under the Stock Option Plan.
11
<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 30, 1999, to each of the
named officers of the Company.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL
INDIVIDUAL GRANTS RATE OF
------------------------------------------------------------ STOCK
PERCENT PRICE
NUMBER OF OF TOTAL APPRECIATION
SECURITIES OPTIONS FOR
UNDERLYING GRANTED EXERCISE OPTION
OPTIONS TO EMPLOYEES OR BASE TERM (2)
GRANTED (#) IN FISCAL PRICE EXPIRATION ---------
NAME (1) YEAR ($/SHARE) DATE 5% ($)
- ------------------------------------------------ ------------- ----------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Robert J. Higgins............................... -- -- -- -- --
John J. Sullivan................................ 22,500 4.3% $ 17.79 2008 140,314
Bruce J. Eisenberg.............................. 22,500 4.3% $ 17.79 2008 140,314
James A. Litwak................................. 22,500 4.3% $ 17.79 2008 140,314
<CAPTION>
NAME 10% ($)
- ------------------------------------------------ -----------
<S> <C>
Robert J. Higgins............................... --
John J. Sullivan................................ 460,523
Bruce J. Eisenberg.............................. 460,523
James A. Litwak................................. 460,523
</TABLE>
(1) No SARs were granted
(2) 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 $14.75 at January 30, 1999, the
fiscal year end.
12
<PAGE>
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES(1)
The following table sets forth information concerning each exercise of stock
options made during the fiscal year ended January 30, 1999, by each of the named
executive officers of the Company, and the value of unexercised stock options
held by such person as of January 30, 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END
SHARES (#) $
ACQUIRED VALUE ------------------- ---------------------
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(2)
- --------------------------------------------- --------------- ----------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Robert J. Higgins............................ -- -- 225,000/675,000 798,750/2,396,250
John J. Sullivan............................. -- -- 198,750/153,750 2,346,825/1,625,625
Bruce J. Eisenberg........................... -- -- 183,750/153,750 2,215,990/1,625,200
James A. Litwak.............................. -- -- 161,250/206,250 2,033,888/2,276,663
</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 30, 1999 minus the exercise price.
FIVE-YEAR PERFORMANCE GRAPH
The following line graph reflects a comparison of the cumulative total
return of the Company's Common Stock from January 30, 1994 through January 29,
1999 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 30,
1994, and that all dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS WORLLD ENTERTAINMENT CORPORATION NASDAQ (U.S.) NASDAQ RETAIL TRADE STOCKS
<S> <C> <C> <C>
1994 100 100 100
1995 41 95 88
1996 26 135 100
1997 51 177 123
1998 400 209 143
1999 328 327 175
</TABLE>
13
<PAGE>
ITEM 2. APPROVAL OF 1999 STOCK OPTION PLAN
INTRODUCTION
The Board of Directors is seeking shareholder approval of the 1999 Stock
Option Plan (the "1999 Plan"), which will succeed the existing stock option
plan. The new plan was drafted to comply with the regulations issued under
Section 162(m) of the Internal Revenue Code of 1986, as amended, to ensure the
tax deductibility of compensation paid.
The purpose of the Company's stock option programs is to provide a flexible
mechanism to permit 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 May 6, 1999, the
Board of Directors adopted, subject to shareholder approval, the 1999 Plan.
DISCUSSION
On April 22, 1999, the Company completed a merger with Camelot Music
Holdings, Inc. Camelot has approximately 6,100 employees, including
approximately 1,050 full-time employees. The addition of the Camelot employees
brings the total number of Company employees to over 12,000. In anticipation of
the addition of the Camelot employees and the continued growth of the Company,
the Board of Directors feels it is appropriate to approve the 1999 Plan to
maintain the Company's ability to retain and attract employees of outstanding
ability. Under the current stock option plans, 1,679,420 options remain
available for future grant
The following summary describes the principal features of the 1999 Plan and
compares the terms of the 1999 Plan to those of the 1998 Plan. This summary is
qualified in its entirety by reference to specific provisions of the 1999 Plan
set forth in Annex A.
THE 1999 PLAN
COMMITTEE. The 1999 Plan will be administered by the Committee or such
other committee appointed by the Board of Directors, 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.
ELIGIBILITY. Executive officers, management 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 1999 Plan. Selection of
employees eligible to participate in the 1999 Plan is within the discretion of
the Committee. It is expected that the 1999 Plan will be administered in a
manner similar to the 1998 Plan, in which approximately 300 employees currently
participate.
COMMON STOCK ISSUABLE UPON EXERCISE. Under the 1999 Plan, up to 3,000,000
shares of the Company's Common Stock may be optioned or granted to eligible
employees, and no more than 750,000 stock options may be granted to any one
employee during any calendar year during the term of the plan. Shares of the
Company's Common Stock that are optioned or awarded under the 1999 Plan may be
either treasury shares or authorized but unissued shares. Shares reserved for
issuance pursuant to expired or terminated options under the 1999 Plan will be
made available for future option grants under the 1999 Plan.
The 1999 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
14
<PAGE>
dividend, stock split reverse split, subdivision or combination of shares
resulting in an increase or decrease of the outstanding shares of Common Stock.
If the Company is merged or consolidated with another corporation, or if
substantially all of the property, stock or assets of the Company are to be
acquired by another corporation, or if a separation, reorganization, or
liquidation of the Company occurs, then the Board of Directors 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
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 sales price of the Common
Stock quoted by the exchange on which it is traded.
GRANTS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. Under the 1999 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. 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 1999 Plan may
continue through its original expiration date or for such shorter period of time
after such event as the Committee may determine appropriate. 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.
The price at which shares of Common Stock may be purchased pursuant to stock
options granted by the 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. 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 1999 Plan. In the event of a Change in Control of the Company
(as defined in the 1999 Plan) all options granted under the 1999 Plan shall
become immediately vested and exercisable as of the date of the Change in
Control. 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.
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 1999 Plan.
AMENDMENT AND TERMINATION. The 1999 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
15
<PAGE>
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 750,000 stock options to any one employee in any calendar year during
the term of the 1999 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 1999 Plan.
The Board of Directors is authorized to terminate or amend the 1999 Plan, except
that it may not increase the number of shares available thereunder.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal federal income tax
consequences of the 1999 Plan. The discussion is based on current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof as in effect on the date hereof. The summary does not
address any foreign, state or local tax consequences of participation in the
1999 Plan.
STOCK OPTIONS. In general, the grant of an option will not be a taxable
event to the recipient and it will not result in a deduction to the Company. The
tax consequences associated with the exercise of an option and the subsequent
disposition of shares of Common Stock acquired on the exercise of such option
depend on whether the option is an incentive stock option or a non-qualified
stock option.
Upon exercise of a non-qualified stock option, the Participant will
recognize ordinary taxable income equal to the excess of the fair market value
of the shares of Common Stock received upon exercise over the exercise price.
The company will generally be able to claim a deduction in an equivalent amount.
Any gain or loss upon a subsequent sale or exchange of the shares of Common
Stock will be capital gain or loss, long-term or short-term, depending on the
holding period for the shares of Common Stock.
Generally, a Participant will not recognize ordinary taxable income at the
time of exercise of an incentive stock option and no deduction will be available
to the Company, provided the option is exercised while the Participant is an
employee or within three months following termination of employment (longer, in
the case of termination of employment by reason of disability or death). If an
incentive stock option granted under the 1999 Plan is exercised after these
periods, the exercise will be treated for federal income tax purposes as the
exercise of a non-qualified stock option. Also, an incentive stock option
granted under the 1999 Plan will be treated as a non-qualified stock option to
the extent it (together with any other incentive stock options granted under
other plans of the Company and its subsidiaries) first becomes exercisable in
any calendar year for shares of Common Stock having a fair market value,
determined as of the date of grant, in excess of $100,000.
If shares of Common Stock acquired upon exercise of an incentive stock
option are sold or exchanged more than one year after the date of exercise and
more than two years after the date of grant of the option, any gain or loss will
be long-term capital gain or loss. If shares of Common Stock acquired upon
exercise of an incentive stock option are disposed of prior to the expiration of
these one-year or two-year holding periods (a "Disqualifying Disposition"), the
Participant will recognize ordinary income at the time of disposition, and the
company will generally be able to claim a deduction, in an amount equal to the
excess of the fair market value of the shares of Common Stock at the date of
exercise over the exercise price. Any additional gain will be treated as capital
gain, long-term or short-term, depending on how long the shares of Common Stock
have been held. Where shares of Common Stock are sold or exchanged in a
Disqualifying Disposition (other than certain related party transactions) for an
amount less than fair market value at the date of exercise, any ordinary income
recognized in connection with the Disqualifying Disposition will be limited to
the amount of gain, if any, recognized in the sale or exchange, and any loss
will be a long-term or short-term capital loss, depending on how long the shares
of Common Stock have been held.
16
<PAGE>
Although the exercise of an incentive stock option as described above would
not produce ordinary taxable income to the Participant, it would result in an
increase in the Participant's alternative minimum taxable income and may result
in an alternative minimum tax liability.
STOCK APPRECIATION RIGHTS. With respect to stock appreciation rights
granted under the Plan, generally, when a Participant receives payment with
respect to a stock appreciation right granted to him or her under the 1999 Plan,
the amount of cash and the fair market value of any property received will be
ordinary income to such Participant and will be allowed as a deduction for
federal income tax purposes to the Company.
PAYMENT OF WITHHOLDING TAXES. The Company may withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy any
federal, state or local withholding tax requirements associated with awards
under the 1999 Plan.
SPECIAL RULES. Special rules may apply to a Participant who is subject to
Section 16(b) of the Securities Exchange Act of 1934 as in effect from time to
time (generally directors, officers and 10% stockholders). Certain additional
special rules apply if the exercise price for an option is paid in shares
previously owned by the optionee rather than in cash.
LIMITATION ON DEDUCTIBILITY. Section 162(m) of the Code generally limits
the deductible amount of annual compensation paid (including, unless an
exception applies, compensation otherwise deductible in connection with awards
granted under the Plan) by a public company to a "covered employee" (the chief
executive officer and four other most highly compensated executive officers of
the Company) to no more than $1 million. The Company currently intends to
structure stock options and stock appreciation rights granted under the 1999
Plan to comply with an exception to nondeductibility under Section 162(m) of the
Code.
In the event shareholders do not approve the 1999 Plan, the 1999 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 1999 Annual
Meeting of Shareholders.
The Board of Directors unanimously recommends that shareholders vote FOR the
approval of the 1999 Stock Option Plan.
ITEM 3. APPROVAL OF AMENDMENT TO THE 1990 RESTRICTED STOCK OPTION PLAN
INTRODUCTION
The Board of Directors is seeking shareholder approval to amend the 1990
Restricted Stock Plan (the "1990 Plan"), to extend the duration of the plan
through June 2009.
The purpose of the 1990 Plan is to retain and offer equity-based incentives
to key executives with outstanding ability and potential and to encourage them
to remain with the Company. On May 6, 1999, the Board of Directors adopted,
subject to shareholder approval, the amended 1990 Restricted Stock Plan.
DISCUSSION
On April 26, 1990, the Board approved the current Restricted Stock Plan.
Under the 1990 Plan, the Compensation Committee of the Board of Directors is
authorized to grant awards for up to 900,000 restricted shares of common stock
to executive officers and other employees of the Company and its subsidiaries.
The shares are issued as restricted stock and are held in the custody of the
Company until all vesting restrictions are satisfied. If conditions or terms
under which an award is granted are not satisfied, the shares are forfeited.
Shares begin to vest under these grants after three years and are fully vested
after five years, with vesting criteria which includes continuous employment
17
<PAGE>
until applicable vesting dates have expired. At April 30, 1999, a total of
225,000 shares had granted. A total of 120,000 of these shares had vested and
30,000 shares had been forfeited. As of April 30, 1999, there were 705,000
shares available for future grant under the 1990 Plan. Unearned compensation is
recorded at the date of award, based on the market value of the shares, and is
included as a separate component of shareholders' equity and is amortized over
the applicable vesting period.
The following summary describes the principal features of the 1990 Plan.
This summary is qualified in its entirety by reference to specific provisions of
the 1990 Plan set forth in Annex B.
THE AMENDED 1990 RESTRICTED STOCK PLAN
GRANT OF AWARDS. Under the amended 1990 Plan, executives and other
employees will be awarded and issued a bonus of Restricted Stock by the
Compensation Committee. Restricted Stock consists of shares of Common Stock of
the Company issued and delivered at the time the award is made as a bonus, but
which will be subject to restrictions on transfer for, and forfeiture in the
event of termination of continuous employment prior to expiration of, a
specified period of time (generally not less than three or in excess of five
years).
The Restricted Stock will vest in full upon death, total disability,
retirement or a Change in Control (as defined in the 1990 Plan). In addition,
the Compensation Committee will have the authority to accelerate vesting at any
time, in its discretion.
SHARES OF COMMON STOCK SUBJECT TO THE PLAN. A total of 900,000 shares of
the Company's Common Stock are reserved for awards under the 1990 Plan. Of these
shares, 705,000 remain for future grant. Restricted Stock awards under the 1990
Plan are not transferable other than by will or the laws of descent and
distribution. 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.
ADMINISTRATION OF THE PLAN. The 1990 Plan will be administered by the
Compensation Committee, which will be authorized to interpret the 1990 Plan,
with discretion with respect to the selection of executives or officers and the
respective awards of Restricted Stock under the plan. The Board may suspend or
terminate the 1990 Plan or revise or amend it.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal federal income tax
consequences of the 1990 Plan. The discussion is based on current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof as in effect on the date hereof. The summary does not
address any foreign, state or local tax consequences of participation in the
1990 Plan.
A participant who receives shares of Restricted Stock will generally
recognize ordinary income at the time the restrictions on transferability lapse.
The amount of ordinary income so recognized will be the fair market value of the
Common Stock at the time the income is recognized, determined without regard to
any restrictions other than restrictions which by their terms will never lapse.
This amount is generally deductible for federal income tax purposes by the
Company. Dividends paid with respect to Common Stock that is nontransferable
will be ordinary compensation income to the participant (and generally
deductible by the Company). Any gain or loss upon a subsequent sale or exchange
of the shares of Common Stock, measured by the difference between the sale price
and the fair market value on the date restrictions lapse, will be capital gain
or loss, long-term or short-term, depending on the
18
<PAGE>
holding period for the shares of Common Stock. The holding period for this
purpose will begin on the date following the date restrictions lapse.
In lieu of the treatment described above, a participant may elect immediate
recognition of income under Section 83(b) of the Code. In such event, the
participant will recognize as income the fair market value of the restricted
stock at the time of grant (determined without regard to any restrictions other
than restrictions which by their terms will never lapse), and the Company will
generally be entitled to a corresponding deduction. Dividends paid with respect
to shares as to which a proper Section 83(b) election has been made will not be
deductible to the Company. If a Section 83(b) election is made and the
restricted stock is subsequently forfeited, the participant will not be entitled
to any offsetting tax deduction.
Special rules may apply to a participant who is subject to Section 16(b) of
the Securities Exchange Act of 1934 as in effect from time to time (generally
directors, officers and 10% stockholders).
Section 162(m) of the Code generally limits the deductible amount of annual
compensation paid (including compensation otherwise deductible in connection
with awards granted under the 1990 Plan) by a public company to a "covered
employee" (the chief executive officer and four other most highly compensated
executive officers of the Company) to no more than $1 million.
The 1990 Plan is set to expire on June 1, 1999. The proposed amendment would
extend the duration of the 1990 Plan until June 1, 2009.
In the event shareholders do not approve the amended 1990 Plan, the amended
1990 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 1999 Annual
Meeting of Shareholders.
The Board to Directors unanimously recommends that shareholders vote FOR the
approval of the amendment to the 1990 Restricted Stock 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, executive officers and persons who own more
than ten percent of the registered class of the Company's equity securities to
file reports of beneficial ownership and changes in beneficial ownership with
the Securities and Exchange Commission. Based solely upon its review of the
copies of such reports received by it, or upon written representations obtained
from certain reporting persons, the Company believes that all Section 16(a)
filing requirements applicable to its officers, directors, and
greater-than-ten-percent stockholders were complied with, except for the
purchase of 1,500 shares by Martin Hanaka, a director, in September 1998, which
was reported in March of 1999.
OTHER MATTERS
OTHER ITEMS. Management knows of no other items or matters that are
expected to be presented for consideration at the meeting. If other matters
properly come before the meeting, however, the persons named in the accompanying
proxy intend to vote thereon in their discretion.
PROXY SOLICITATION. The Company will bear the cost of the meeting and the
cost of soliciting proxies, including the cost of mailing the proxy materials.
In addition to solicitation by mail, directors, officers, and regular employees
of the Company (none of whom will be specifically compensated for such services)
may solicit proxies by telephone or otherwise. Arrangements will be made with
brokerage houses and other custodians, nominees, and fiduciaries to forward
proxies and proxy materials to their principals, and the Company will reimburse
them for their ordinary and necessary expenses.
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INDEPENDENT AUDITORS. The Board of Directors currently intends to select
KPMG LLP as independent auditors for the Company for the fiscal year ending
January 29, 2000. KPMG LLP has acted as auditors for the Company since 1994,
when it purchased the Albany practice of Ernst & Young, the Company's auditors
since 1985. Representatives of KPMG 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 1998 Annual Report to Shareholders
(which does not form a part of the proxy solicitation material), including
financial statements for the fiscal year ended January 30, 1999 is being sent
concurrently to shareholders. If you have not received or had access to the 1998
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 relating to the Annual Meeting of the Company to be held in 2000 must
submit the same in writing so as to be received at the executive offices of the
Company on or before February 11, 2000. 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 9, 1999.
By Order of the Board of
Directors,
/s/ Matthew H. Mataraso
----------------------------------
Matthew H. Mataraso,
Secretary
May 17, 1999
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ANNEX A
TRANS WORLD ENTERTAINMENT CORPORATION
1999 STOCK OPTION PLAN
1. PURPOSE
(a) The purpose of this 1999 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, other statutory 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 3,000,000 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
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other change in 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 9, 1999. 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 750,000 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) ACCELERATED EXERCISABILITY. 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.
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(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. 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,
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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.
(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)
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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; (1) 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 of 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 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, an 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
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(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 or 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.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred for purposes of the foregoing clause solely as the result of an
acquisition of securities by the Company which, by reducing the number of shares
of Common Stock outstanding, increases the proportionate number of shares of
Common Stock beneficially owned by any person to 40% more of the shares of
Common Stock then outstanding; PROVIDED, HOWEVER, that if any person referred to
in this sentence shall thereafter become the beneficial owner of any additional
shares of Common Stock (other than pursuant to a stock split, stock dividend, or
similar transaction), then a "Change in Control" shall be deemed to have
occurred for purposes of the foregoing clause.
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.
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 9, 1999, the date of its adoption by
the Board of Directors of the Company, subject to approval by the shareholders
of the Company within 12 months thereafter. The Plan shall, in all events,
terminate on June 9, 2009, 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.
* * * * * *
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ANNEX B
TRANS WORLD ENTERTAINMENT CORPORATION
AMENDED 1990 RESTRICTED STOCK PLAN
1. PURPOSE OF THE PLAN
The purpose of this Restricted Stock Plan of Trans World Entertainment
Corporation is to compensate for past services and retain and offer incentives
to current executive officers and senior management of Trans World Entertainment
Corporation (the "Company") who will have significant responsibility for the
Company's growth.
2. DEFINITIONS
(a.) "Award" means an award of Restricted Stock granted under the provisions
of the Plan.
(b.) "Board" shall mean the Board of Directors of Trans World Entertainment
Corporation.
(c.) "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
(d.) "Committee" shall mean the Compensation Committee of the Company's
Board of Directors, or such other committee as may be designated by the
Board from time to time, appointed to administer the Plan in accordance
with Section 4.
(e.) "Common Stock" shall mean authorized but unissued shares of Common
Stock, par value $.01 per share, of Trans World Entertainment Corporation
Common Stock.
(f.) "Company" means Trans World Entertainment Corporation, a New York
corporation, and its subsidiaries.
(g.) "Date of Grant" means the actual date on which an Award of Restricted
Stock is made by the Committee.
(h.) "Employee" shall mean any common law employee, including officers and
key executives of the Company, as determined in accordance with the
policies of the Company.
(i.) "Fair Market Value" shall mean, for any day, the last reported sale
price of the Common Stock on the over-the-counter market, as reported on
the Nasdaq National Market System or, if the Stock is listed or admitted
to trading on any securities exchange, the last reported sale price on
such day.
(j.) "Grantee" shall mean an Employee who has been granted an Award.
(k.) "Permanent Disability" means inability of an Employee, by reason of
illness or accident, to perform any and every duty of the occupation at
which the Employee was employed by the Company when such disability
commenced. All determinations as to the date and extent of disability of
any Employee shall be made by the Committee upon the basis of such
evidence as the Committee deems necessary or desirable.
(l.) "Plan" shall mean the Trans World Entertainment Corporation 1990
Restricted stock Plan as set forth herein and as amended from time to
time.
(m.) "Restricted Stock" means the Common Stock awarded upon the terms and
conditions and subject to the restrictions set forth in Section 5, which
restrictions shall lapse at the times set forth in that Section.
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(n.) "Retirement" means a Termination of Employment by reason of an
Employee's retirement (other than by reason of disability) after he has
attained age 65 or pursuant to and in accordance with his employer's
regular retirement policies applicable to him.
(o.) "Termination of Employment" means the time when the employee-employer
relationship between the Employee and the Company is terminated for any
reason, including, but not limited to, a termination by resignation,
discharge, death, Permanent Disability, or Retirement. The receipt by an
Employee of compensation following the cessation of performance of duties
as an employee pursuant to a salary continuation, severance or similar
plan shall not be deemed to continue the employee-employer relationship.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
The number of shares of Common Stock that may be issued under the Plan, in
the form of awards of shares of Restricted Stock, subject to adjustment as
provided in Section 6, shall not exceed 300,000. Any shares of Restricted stock
that have been awarded under the Plan but are later forfeited to the Company may
again be made subject to Awards under the Plan. The Common Stock that may be
issued or transferred under the Plan may be either authorized but unissued
shares or "treasury shares" as defined in the New York Business Corporation Law.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, which shall consist of not
less than two members of the Board of Directors, appointed from time to time by,
and who shall serve at the pleasure of, the Board. Subject to the provisions of
the Plan, the Committee shall have exclusive power to select the Employees who
are to participate in the Plan, to determine the Award to be granted to each
Employee selected, to determine the time or times and the conditions subject to
which any Awards may become payable or any restrictions thereon will lapse. The
determinations of the Committee will be final and binding upon all persons,
including, but not limited to, the Company, shareholders, participants in the
Plan, and other Employees. The Committee shall have the authority to interpret
the Plan, to establish and revise rules and regulations relating to the Plan,
and to make any other determinations that it believes necessary or advisable for
the administration of the Plan.
5. RESTRICTED STOCK AWARDS
Each Award granted under this Plan shall be evidenced by a written agreement
in such form as the Committee shall from time to time approve, which agreement
need not be identical to any other agreement evidencing an award, but shall be
subject to the following terms and conditions and any other conditions that the
Committee may in its discretion prescribe:
(a) GRANT OF AWARDS. The Committee shall from time to time in its absolute
discretion, in accordance with the provisions for the Plan, select from
among the Employees those executive officers and other senior management
personnel who have significant responsibility for the growth of the
Company and to whom Awards shall be granted, and the Committee shall
determine the number of shares of Restricted Stock to be covered by each
Award, the period and terms and conditions of each Award and of the
restrictions applicable thereto, and the form and provisions of each
Agreement. In making such determinations the Committee shall consider the
position and the responsibilities of the Employee, the nature and value
to the Company of his or her services, and such other factors as the
Committee may deem relevant. A Grantee shall not have any rights to an
award unless and until the Grantee shall have executed the agreement
evidencing the Award in a timely fashion.
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(b) ESCROW AGREEMENT. Each written agreement governing an Award, executed by
the Grantee of the Award and the Company, shall contain an escrow
condition, retaining the shares thereunder in escrow with the Company
until all vesting restrictions have been satisfied.
(c) RESTRICTIONS. None of the Restricted Stock may be sold, assigned,
disposed of, pledged, hypothecated, or otherwise transferred until the
vesting provisions hereunder have been satisfied, and thereafter only in
accordance with the sale restrictions of Section 8(c). Each Award shall
specify a length of continuous service with the Company of not less than
three and not more than five years, beginning from the Date of Grant,
that shall constitute the vesting restriction of the Restricted Stock.
All of the Restricted Stock shall be forfeited and shall be returned to
the Company and all rights of the Grantee to such Restricted Stock shall
terminate without any payment of consideration by the Company unless the
Grantee remains in the continuous employment of the Company for the
period of the vesting restriction (from three to five years), measured
from the Date of Grant, in accordance with the stated policies of the
Board generally applicable to Employees, except as provided in paragraphs
(d) and (e) below. In the event of forfeiture of the Restricted Stock,
the Grantee shall forthwith deliver or release to the Company the
certificate or certificates representing such Restricted Stock,
accompanied by executed instruments of transfer, or, if the Restricted
Stock is held in escrow, the Company shall be entitled to have the
certificates representing the Restricted Stock redelivered to it out of
the escrow. Restricted Stock does not and shall not vest pro rata over
the period of the vesting restriction.
(d) VESTING ON DEATH, PERMANENT DISABILITY, OR RETIREMENT. In the event that
the employment of the Grantee of an Award is terminated prior to the
lapse of the restrictions on his Restricted Stock by reason of death,
Total Disability, or Retirement, the retractions shall lapse, except as
provided in Section 8(c), and the Restricted Stock shall vest in the name
of the Grantee as the date of such termination as to the full number of
shares of Restricted Stock.
(e) VESTING AT DISCRETION OF THE COMMITTEE. The Committee shall have the
authority to accelerate the time at which the restrictions will lapse or
to remove any of such restrictions whenever it may decide in its absolute
discretion.
(f) VESTING UPON A CHANGE OF CONTROL. Upon a change of control the
restrictions on all Restricted Stock granted hereunder shall lapse,
except as provided in Section 8(c), and the Restricted Stock shall vest
in the name of the Grantee as of such time as to the full number of
shares of Restricted Stock. For purposes hereof, "Change of Control"
shall mean:
(A) The beneficial ownership (within the meaning of Rule 13(d)(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 of 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 the beneficial owners, respectively, of the
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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 the 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 and 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.
(g.) LEGEND ON RESTRICTED STOCK. All certificates representing Restricted
Stock shall have the imprinted or stamped thereon the following legend:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF SUCH REGISTRATION
OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION.
6. ADJUSTMENT PROVISIONS
If the shares of Common Stock outstanding are changed, 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 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.
7. ACQUISITION FOR INVESTMENT
Each Employee to whom a distribution of Common Stock is made pursuant to the
Plan may be required by the Company to furnish a representation that he is
acquiring the shares so distributed as an investment and not with a view to
distribution thereof if the Committee shall, in its sole discretion, determine
that such representation is required to insure that resale or other disposition
of the shares would not involve a violation of the provisions of the Securities
Act of 1933, as amended, or of applicable state blue sky laws. Any investment
representation so furnished shall no longer apply at any time such
representation is no longer necessary for such purposes. The Company also
reserves the right to place any legend or other symbol on the share certificates
issued or transferred pursuant to the Plan and to furnish any stop transfer or
similar instructions to the transfer agent for its Common Stock or other shares
which the Company, in its sole discretion, may deem necessary and proper to
assure compliance with any such representation.
8. LIMITATION RIGHTS
(a.) NO RIGHT TO CONTINUE AS AN EMPLOYEE. Neither the Plan, nor the granting
of an Award 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 an Employee for any
period of time, or at any particular rate of compensation, and shall not
in any way interfere with the Company's right to terminate the Grantee's
employment at any time.
(b.) SHAREHOLDERS' RIGHTS FOR AWARDS. Except as provided in the Plan or in
the Agreement evidencing the Award, a Grantee shall generally have the
rights and privileges of a shareholder with respect to the shares covered
by Restricted Stock granted hereunder, including the right to vote such
shares. Unless and until the vesting restrictions and other terms and
conditions applicable to an Award have lapsed or are otherwise satisfied,
the dividends applicable to the Restricted Stock shall be withheld by the
Company for the Grantee's account, and interest may be paid on any
dividends at a rate and subject to such terms as determined by the
Committee in its sole and absolute discretion. If Restricted Stock is
forfeited pursuant to its terms then the related dividends and interest
shall likewise be forfeited and reacquired by the Company.
(c.) SALE OF COMMON STOCK. Notwithstanding any other provision of this Plan
or agreements made pursuant thereto, the Company shall not be required to
permit the transfer of shares of Common Stock issued under this Plan, for
which the vesting restrictions have lapsed, prior to fulfillment of all
of the following conditions:
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1) The listing, or approval for listing upon notice of issuance, that
may be 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 an 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, including expiration of any requisite holding period
under Rule 144 under the Securities Act of 1933 as amended; 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.
9. DESIGNATION OF BENEFICIARY; WITHHOLDING
(a.) DESIGNATION OF BENEFICIARY. A Grantee may, with the consent of the
Committee, designate a person or persons to receive, in the event of his
death, any Common Stock. Such designation shall be made upon forms
supplied by and delivered to the Company and may be revoked in writing.
If a Grantee fails effectively to designate a beneficiary, then his
estate shall be deemed to be his beneficiary.
(b.) WITHHOLDING. Subject to the applicable policies of the Committee, there
shall be deducted from each distribution under the Plan the amount of any
tax required by any governmental authority to be withheld and paid over
by the Company to such governmental authority for the account of the
person entitled to such distribution. With respect to any distribution of
Common Stock, the Company shall have the right to sell without notice,
such number of shares of Common Stock distributable to the Grantee
entitled to such distribution as will provide funds for payment of any
tax so required to be paid by the Company for his account, unless, prior
to such sale, he shall have paid to the Company the amount of such tax.
Any balance of the proceeds of such sale shall be paid to the Grantee. In
effecting any such sale, the Company shall be deemed to be acting on
behalf, and for the account, of such person.
10. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any stock option or other
compensation or incentive plans in effect for the Company, and the Plan shall
not preclude the Board of Directors from establishing any other forms of
incentive or compensation for Employees.
11. AMENDMENT OF THE PLAN
(a.) The Board of Directors may at any time and from time to time modify or
amend the plan in any respect. Any modification or amendment of the Plan
shall not, without the consent of a Grantee, affect his rights under an
Award previously granted to him.
(b.) The Plan and each Award under the Plan shall be subject to all
applicable laws, rules, regulations and governmental and shareholder
approvals, and the Committee may make such amendment or modification
thereto as it shall deem necessary to comply with any such laws, rules
and regulations or to obtain any such approvals.
12. EFFECTIVE DATE AND DURATION OF THE PLAN
The right to grant Awards under the Plan shall become effective after
approval by the Company's shareholders at the 1999 Annual Meeting of
Shareholders, and shall terminate automatically at the
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close of business on June 1, 2009, or upon the granting of Awards equaling the
maximum number of shares set forth hereunder, whichever shall first occur, and,
thereafter, the function of the Committee will be limited to the administration
of Awards previously granted, subject to additional shares of Common Stock
becoming available for Award by reason of forfeitures or terminations of earlier
Awards prior to June 1, 2009. In addition, the Board of Directors shall have the
right to suspend or terminate the Plan at any time provided that no such action
shall, without the consent of the Grantee, adversely affect any rights or
obligations under Awards previously granted.
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 provision, term,
condition or application shall to that extent be void for (or, in the discretion
of the Committee, 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.
14. NOTICE
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.
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May 17, 1999
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