<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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
</TABLE>
<TABLE>
<S> <C>
- ------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
TRANS WORLD ENTERTAINMENT CORPORATION
- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/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:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<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................................ Friday, June 16, 2000, 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 two Class 1 directors to serve three
year terms until the 2003 annual meeting and until
their successors are chosen and qualified.
(2) To approve an amendment to the 1990 Stock Option
Plan for Non-Employee Directors to permit
discretionary common stock awards to be made to
non-employee members of the Board of Directors. If
approved, the proposed amendment would allow the
Company, in its discretion, to compensate,
non-employee board members for their services with
stock in lieu of cash and to make other discretionary
grants of common stock to non-employee directors from
time to time.
(3) To transact any such other business as may
properly come before the meeting or any adjournment
or adjournments thereof.
Record Date.................................. Shareholders as of May 2, 2000 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,
[SIGNATURE]
Matthew H. Mataraso,
SECRETARY
</TABLE>
May 19, 2000
<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 16, 2000, 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 19, 2000.
VOTING SECURITIES
The Company has only one class of voting securities, its Common Stock, par
value $.01 per share (the "Common Stock"). On May 2, 2000, the record date,
48,356,304 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 who has been 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 and
Item 2. Proposal 2 requires the approval of a majority of the shares represented
at the shareholders' meeting. 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
May 2, 2000, the record date, are indicated below:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP BENEFICIAL OF CLASS
- ------------------------------------ -------------------- --------
<S> <C> <C>
Robert J. Higgins........................................... 12,428,150(1) 25.7%
38 Corporate Circle
Albany, New York 12203
Stephen Feinberg............................................ 5,365,781(2) 11.1%
450 Park Avenue
28(th) Floor
New York, New York 10022
Van Kampen-Merritt Prime Rate Income Trust.................. 3,789,962(3) 7.8%
1 Parkview Plaza
Oakbrook Terrace, Illinois 60180
Merrill Lynch, Pierce, Fenner & Smith, Inc.................. 2,727,985(4) 5.6%
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
Dresdner RCM Global Investors LLC........................... 2,647,300(5) 5.5%
4 Embarcadero Center
San Francisco, CA 94111
Intermarket Corp............................................ 2,444,231(6) 5.1%
667 Madison Ave.
New York, New York 10021
</TABLE>
- ------------------------
(1) Information is as of May 2, 2000, as provided by the holder. 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.
(2) Based on Schedule 13D, Amendment No. 4, filed April 24, 2000, by Stephen
Feinberg in his capacity as the managing member of Cerberus Associates, LLC,
the general partner of Cerberus Partners, LP and as the investment manager
of each of Cerberus Institutional Partners, LP, Cerberus
International, Ltd. and certain private investment funds. Stephen Feinberg
possesses sole power to vote and direct the disposition of the entities with
the following holdings: 871,300 shares beneficially owned by Cerberus
Partners, LP, 666,400 shares beneficially owned by Cerberus Institutional
Partners, LP, 2,274,050 shares beneficially owned by Cerberus
International, Ltd, and 1,554,031 shares held by certain private investment
funds.
(3) Information as of April 28, 2000, as provided by the holder.
(4) Based on Schedule 13G, filed January 13, 2000 by Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
(5) Based on Schedule 13G, filed February 16, 2000 by Dresdner RCM Global
Investors. Dresdner RCM Global Investors reported sole voting power with
respect to 2,185,400 shares and sole dispositive power with respect to
2,056,300 shares.
2
<PAGE>
(6) Based on Schedule 13G, filed March 15, 2000, jointly by the following
entities with the following holdings: 972,144 shares beneficially owned by
Fernwood Associates, LP; 1,401,407 shares beneficially owned by Fernwood
Restructuring, Ltd. and 70,680 shares beneficially owned by Fernwood
Foundation Fund, LP.
Mr. Higgins, who beneficially owns 12,428,150 shares of Common Stock as of
the record date (approximately 25.7% 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).
ITEM 1. ELECTION OF DIRECTORS
The Board of Directors currently intends to present to the meeting the
election of two directors, each to hold office (subject to the Company's
By-Laws) until the 2003 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
DEAN S. ADLER has been a principal of Lubert/Adler Partners, LP, a limited
partnership investing primarily in undervalued 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.
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
3
<PAGE>
Center for Science and Technology Policy. Before joining the School of
Management (1988), Dr. Morone was a senior associate for the Keyworth Company, a
consulting firm specializing in technology management and science policy.
Dr. Morone also spent 7 years at General Electric Company's Corporate Research
and Development. Dr. Morone serves on the Boards of Directors of Albany Medical
Center, Albany International Corp. and NView Corporation.
CONTINUING CLASS I DIRECTORS (TERMS EXPIRING IN 2002)
GEORGE W. DOUGAN has been a member of the Board of Directors of Banknorth
Group, Inc. since January 1, 1999. From January 1999 to May 2000, Mr. Dougan
served as Vice Chairman of Banknorth Group, Inc. 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 Chairman of the Board and Director of The
Sports Authority, Inc. since November 1999 and as its Chief Executive Officer
since September 1998. Mr. Hanaka joined the Sports Authority's Board of
Directors in February 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 & 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).
ISAAC KAUFMAN has been Chief Financial Officer of Advanced Medical
Management 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 was
its Chief Financial Officer, Secretary and Treasurer since 1983.
4
<PAGE>
EQUITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of Common Stock as
of May 2, 2000, 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>
YEAR FIRST SHARES THAT
ELECTED AS MAY BE ACQUIRED TOTAL SHARES
DIRECTOR/ DIRECT WITHIN 60 DAYS BENEFICIALLY
NAME POSITIONS WITH THE COMPANY AGE OFFICER OWNERSHIP OF MAY 2, 2000 OWNED
- ---- ----------------------------- -------- ----------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Higgins..... Chairman of the Board and 59 1973 11,978,150(1) 450,000 12,428,150
Chief Executive Officer
Matthew H. Mataraso... Secretary and a Director 70 1976 13,932 114,542 128,474
Dean S. Adler......... Director 43 1997 -- 24,000 24,000
George W. Dougan...... Director 60 1984 22,500 84,375 106,875
Charlotte G. Director 50 1991 -- 34,875 34,875
Fischer.............
Martin E. Hanaka...... Director 51 1998 1,500 4,125 5,625
Isaac Kaufman......... Director 53 1991 7,500 57,375 64,875
Dr. Joseph G. Morone.. Director 47 1997 7,500 16,500 24,000
Michael B. Solow...... Director 41 1999 1,000 7,250 8,250
Michael J. Madden..... President 51 1999 49,000 -- 49,000
Bruce J. Eisenberg.... Senior Vice President--Real 40 1995 114,651 317,500 432,151
Estate
John J. Sullivan...... Senior Vice 47 1995 119,776 332,500 452,276
President--Finance and Chief
Financial Officer
All directors and
officers as a group
(12 persons)........ 12,315,509 1,443,042 13,758,551
<CAPTION>
PERCENT
OF
NAME CLASS
- ---- --------
<S> <C>
Robert J. Higgins..... 25.7%
Matthew H. Mataraso... *
Dean S. Adler......... *
George W. Dougan...... *
Charlotte G. *
Fischer.............
Martin E. Hanaka...... *
Isaac Kaufman......... *
Dr. Joseph G. Morone.. *
Michael B. Solow...... *
Michael J. Madden..... *
Bruce J. Eisenberg.... *
John J. Sullivan...... *
All directors and
officers as a group
(12 persons)........ 28.5%
</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 1999 fiscal year. All
of the directors except Mr. Adler 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 1999 fiscal year
were: Isaac Kaufman (Chairman), Charlotte G. Fischer and Joseph G. Morone. The
Audit Committee held two meetings during the 1999 fiscal year. The Audit
Committee's responsibilities consist of recommending the selection of
independent auditors, reviewing the scope of the audit conducted by such
auditors, as well as the audit
5
<PAGE>
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 1999 fiscal
year were: Martin E. Hanaka (Chairman), Isaac Kaufman and George W. Dougan. The
Compensation Committee held one meeting during the 1999 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. If the proposed amendment to the Company's
1990 Stock Option Plan for Non-Employee Directors (the "Directors' Stock Option
Plan") is approved, the Company may in the future, in its discretion, determine
to pay all or a portion of any annual retainer in shares of Common Stock, in
lieu of cash and to make other discretionary grants of common stock to
non-employee directors from time to time.
Matthew H. Mataraso received $70,750 in cash compensation from the Company
in fiscal 1999 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, Morone and Solow 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 433,250 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 1999, annual grants to outside Directors of 9,000 Director Options were
made at an exercise price of $12.96 per share, compared to the market value on
the date of grant of $15.25. Accordingly, compensation expense in the aggregate
of $20,600 was recognized by the Company for the 1999 grants. Also, an initial
grant of 10,000 Director Options was made to Mr. Solow at an exercise price of
$12.22 per share, compared to the market value on the day of grant of $14.34.
Accordingly, compensation expense in the aggregate of $21,200 was recognized 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.
6
<PAGE>
RELATED PARTY TRANSACTIONS
The Company leases its 168,400 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 77,100 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 $1.6 million in fiscal 1999. On January 1, 2000, 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, 2002, 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 $1.1 million
annually.
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 1999 for both locations was $92,700,
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 $110,000 for chartered aircraft services in fiscal
1999. The Company also charters an aircraft from Crystal Jet, a corporation
wholly owned by Mr. Higgins. During fiscal 1999, payments to Crystal Jet
aggregated $64,000. The Company also charters an aircraft from Richmor Aviation,
a unaffiliated corporation which leases an aircraft owned by Mr. Higgins.
Payments to Richmor Aviation were $325,000 in 1999. 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.
In September 1999, the Company made a loan in the amount of $200,000 to Mike
Madden, the Company's President and Chief Operating Officer, to purchase shares
of Common Stock. The loan will be forgiven ratably over a three year period
beginning in 2000. The full principal amount of the loan was outstanding on the
date hereof. The loan does not bear interest.
The Company made loans aggregating $333,575 to John J. Sullivan, the
Company's Senior Vice President and Chief Financial Officer, in connection with
income taxes due on restricted stock which vested in May 1999. The full
principal amount of the loan was outstanding on the date hereof. The loan bears
interest at a rate of 5.88% per annum.
The Company made a loan in the amount of $84,525 to Bruce J. Eisenberg, the
Company's Senior Vice President--Real Estate, in connection with income taxes
due on restricted stock which vested in May 1999. The full principal amount of
the loan was outstanding on the date hereof. The loan bears interest at a rate
of 5.88% per annum.
7
<PAGE>
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 1999,
Mr. Higgins was employed as President and Chief Executive Officer of the Company
pursuant to an employment agreement that commenced on May 3, 1998 and continues
until April 30, 2005, unless earlier terminated pursuant to its terms. Pursuant
to its terms, Mr. Higgins earns a minimum annual salary of $750,000, 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 29, 2000, Mr. Higgins earned
$425,000 in incentive compensation under the employment agreement.
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.
Michael J. Madden has a severance agreement that provides, under certain
conditions, payment of severance equal to two years of annual compensation, at a
level not less than his current salary of $550,000, upon his termination
following severance without cause (as defined). Mr. Madden's severance agreement
contains an "evergreen" provision for automatic renewal each year.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION AND PURPOSE OF THE COMPENSATION COMMITTEE. The Company
Compensation Committee (the "Committee") was comprised of three non-employee
directors of the Company during fiscal 1999. It is the Company's policy that the
Committee be comprised of 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 believes that it
must keep the base pay component competitive to continue to attract competent
management.
8
<PAGE>
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 1999, 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 150% of his salary in
incentive payments if the targets were achieved by the Company. 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 450
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.
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 1999 pursuant to an
employment agreement which will be in effect through April 30, 2005 and has been
approved by the Committee. Mr. Higgins' base annual compensation, pursuant to
the agreement, is $750,000 with annual increases based on performance, as
determined by the Committee. The employment agreement provides for participation
in the management bonus plan at a level ranging from 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.
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There were no Compensation Committee interlocks during fiscal 1999. 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
MARTIN E. HANAKA, CHAIRMAN
GEORGE W. DOUGAN
ISAAC KAUFMAN
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 1999, 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.
MIKE MADDEN has been President and Chief Operating Officer of the Company
since September 1999. Prior to joining the Company, Mr. Madden served as
Executive Vice President of Toys "R" Us, Inc. and President of U.S. Toy Stores.
Mr. Madden joined Toys "R" Us in 1987 as Vice President. Prior to joining Toys
"R" Us, Mr. Madden worked for Jewel Food Stores.
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, financing and construction of new regional mall
development at The Pyramid Companies.
JAMES A. LITWAK left the Company in February 2000.
- ------------------------
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.
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 $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------
----------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS (#) ($)
- ------------------ -------- -------- -------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Higgins...................... 1999 712,500 425,000 30,137(1) -- 200,000 66,742(1)
Chairman and Chief 1998 600,000 850,000 39,356(1) -- -- 66,204(1)
Executive Officer 1997 575,000 920,000 37,518(1) -- 900,000 46,489(1)
Michael J. Madden...................... 1999 190,385 350,000 --(2) 335,625(3) 500,000 --
President 1998 -- -- -- -- -- --
1997 -- -- -- -- -- --
James A. Litwak........................ 1999 316,250 65,000 --(2) -- 75,000 11,140(4)
Executive Vice President 1998 291,731 260,000 --(2) -- 22,500 5,017(4)
Merchandising & Marketing 1997 289,808 228,000 --(2) -- 45,000 5,109(4)
Bruce J. Eisenberg..................... 1999 227,500 50,000 --(2) -- 75,000 5,414(4)
Senior Vice President-- 1998 203,750 200,000 --(2) -- 22,500 5,043(4)
Real Estate 1997 195,154 180,000 --(2) -- 60,000 4,802(4)
John J. Sullivan....................... 1999 227,500 41,125 --(2) -- 75,000 9,234(4)
Senior Vice President and 1998 203,750 230,000 --(2) -- 22,500 5,017(4)
Chief Financial Officer 1997 195,154 180,000 --(2) -- 60,000 4,802(4)
</TABLE>
- ------------------------------
(1) "Other Annual Compensation" in fiscal 1999, 1998 and 1997 for Mr. Higgins
includes $21,000, $30,540, and $29,140, 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 1999, 1998 and 1997 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) "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. Madden received 30,000 shares of restricted stock of which 10,000
will vest each September 27 beginning in 2002.
(4) "All Other Compensation" for the named executive consists of employer
matching contributions for the 401(k) Savings Plan.
STOCK OPTION PLANS
The Company has five employee stock option plans with an aggregate of
10,800,000 shares (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
11
<PAGE>
with respect to all options granted or exercised for the fiscal year ended
January 29, 2000, under the Stock Option Plan.
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 29, 2000, to each of the
named officers of the Company.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
PERCENT
OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE
SECURITIES GRANTED AT ASSUMED ANNUAL RATE OF
UNDERLYING TO EXERCISE STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION ----------------------------
NAME (#)(1) YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---- ---------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Higgins........................... 200,000 13.3% $13.06 2009 686,012 2,639,828
Michael J. Madden........................... 500,000 33.3% $11.19 2009 2,652,529 7,537,071
John J. Sullivan............................ 75,000 5.0% $15.25 2009 93,192 825,873
Bruce J. Eisenberg.......................... 75,000 5.0% $15.25 2009 93,192 825,873
James A. Litwak............................. 75,000 5.0% $15.25 2009 93,192 825,873
</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 $10.125 at January 29, 2000, the
fiscal year end.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES(1)
The following table sets forth information concerning each exercise of stock
options made during the fiscal year ended January 29, 2000, by each of the named
executive officers of the Company, and the value of unexercised stock options
held by such person as of January 29, 2000.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END (#) AT FISCAL YEAR END ($)
SHARES VALUE ---------------------- ----------------------
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE ($) UNEXERCISABLE UNEXERCISABLE(2)
- ---- ----------- --------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Robert J. Higgins................. -- -- 450,000/650,000 0/0
Michael J. Madden................. -- -- 0/500,000 0/0
John J. Sullivan.................. -- -- 268,125/159,375 1,940,563/505,313
Bruce J. Eisenberg................ -- -- 253,125/159,375 1,879,688/505,313
James A. Litwak................... 234,200 2,089,783 13,300/195,000 81,995/748,088
</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 29, 2000 minus the exercise price.
12
<PAGE>
FIVE-YEAR PERFORMANCE GRAPH
The following line graph reflects a comparison of the cumulative total
return of the Company's Common Stock from January 31, 1995 through January 31,
2000 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 31, 1995, and that all dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C>
Trans World Entertainment Corporation 100 64 125 982 805 505
NASDAQ (U.S.) 100 141 185 219 342 533
NASDAQ Retail Trade Stocks 100 113 139 162 199 164
</TABLE>
13
<PAGE>
ITEM 2. APPROVAL OF AMENDMENT TO THE 1990 STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE 1990 STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS.
The Board of Directors is seeking shareholder approval to amend the
Directors' Stock Option Plan to authorize the Board to make stock based awards
under the plan. The amended plan is set forth in Annex A.
The purpose of the Directors' Stock Option Plan is to increase the ownership
in the Company of non-employee directors whose services are considered essential
to the Company's continued progress, to provide a further incentive to serve as
a director of the Company, and to aid in attracting and retaining Directors of
outstanding ability. Seven non-employee directors are currently eligible to
participate in the plan. On May 10, 2000, the Board of Directors adopted,
subject to shareholder approval, the amended Directors' Stock Option.
Currently the Directors' Stock Option Plan provides for an initial grant of
options to purchase 10,000 shares of Common Stock to a non-employee director
upon such person first being elected to the Board of Directors. In addition,
options to purchase an additional 1,500 shares of 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 each year to any eligible director. The
exercise price of the foregoing automatic option grants is equal to 85% of the
fair market value of a share of Common Stock on the date of grant. The
Directors' Stock Option Plan also provides for grants of options to purchase
Common Stock at the discretion of the Board, upon such terms as the Board in its
discretion shall determine. The proposed amendment to the Directors' Stock
Option Plan, if approved, would permit discretionary Common Stock awards to
non-employee directors.
The Board feels that the ability to authorize discretionary stock-based
awards will further the Company's objective to retain and attract Directors of
outstanding ability and to align such directors' interests with those of the
Company and its shareholders. The proposed amendment to the Directors' Stock
Option Plan will provide the Company with the flexibility to retain, attract and
motivate directors in this manner.
If shareholders approve the proposal, the Company may make discretionary
grants of shares of Common Stock to non-employee directors in lieu of all or a
portion of cash annual retainer payments as described under "Item 1. ELECTION OF
DIRECTORS--Compensation of Directors--Cash Compensation," as well as other
discretionary grants of common stock to non-employee directors from time to
time.
In the event shareholders do not approve the amended Directors' Stock Option
Plan, the amended Plan will not become effective.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the federal income tax consequences of the
issuance of options under the Director' Stock Option Plan, based upon current
provisions of the Code, the Treasury regulations promulgated thereunder and
administrative and judicial interpretation thereof, and does not address the
consequences under any other applicable tax laws. The provisions of the Code,
regulations thereunder and related interpretations are complicated and their
impact in any one case may depend upon the particular circumstances relating
thereto.
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. All options
granted under the Directors' Stock Option Plan will be non-qualified stock
options.
14
<PAGE>
Upon the 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 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.
To be adopted, this proposal requires the affirmative vote of the majority
of the shares present in person or represented by proxy at the 2000 Annual
Meeting of Shareholders.
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 have been complied with.
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 at their discretion.
PROXY SOLICITATION. The Company will bear the cost of the meeting and the
cost of soliciting proxies, including the cost of mailing the proxy materials.
In addition to solicitation by mail, directors, officers, and regular employees
of the Company (none of whom will be specifically compensated for such services)
may solicit proxies by telephone or otherwise. Arrangements will be made with
brokerage houses and other custodians, nominees, and fiduciaries to forward
proxies and proxy materials to their principals, and the Company will reimburse
them for their ordinary and necessary expenses.
INDEPENDENT AUDITORS. The Board of Directors currently intends to select
KPMG LLP as independent auditors for the Company for the fiscal year ending
February 3, 2001. 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 1999 Annual Report to Shareholders
(which does not form a part of the proxy solicitation material), including
financial statements for the fiscal year ended January 29, 2000 is being sent
concurrently to shareholders. If you have not received or had access to the 1999
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 2001 must
submit the same in writing so as to be received at the executive offices of the
Company on or before April 17, 2001. 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
15
<PAGE>
World Entertainment Corporation, 38 Corporate Circle, Albany, NY 12203. No such
proposals have been received with respect to the annual meeting scheduled for
June 16, 2000.
By Order of the Board of Directors,
[SIGNATURE]
Matthew H. Mataraso,
Secretary
May 19, 2000
16
<PAGE>
ANNEX A
TRANS WORLD ENTERTAINMENT CORPORATION
1990 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(AS AMENDED AND RESTATED)
SECTION 1. PURPOSE. The purpose of the 1990 Stock Option Plan for
Non-Employee Directors of Trans World Entertainment Corporation is to increase
the ownership in the Company of non-employee directors whose services are
considered essential to the Company's continued progress, to provide a further
incentive to serve as a director of the Company, and to aid in attracting and
retaining Directors of outstanding ability. Options granted under the Plan are
intended to be options that do not meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended.
SECTION 2. DEFINITIONS. Unless the context clearly indicates otherwise, the
following terms, when used in this Plan, shall have the meanings set forth in
this Section 2:
a. "Board" shall mean the Board of Directors Trans World Entertainment
Corporation.
b. "Code" shall mean the Internal Revenue code of 1986, as it may be amended
from time to time.
c. "Common Stock" shall mean authorized but unissued shares of Common Stock,
par value $.01 per share, of Trans World Entertainment Corporation, or
reacquired shares of Trans World Entertainment Corporation Common Stock.
d. "Company" shall mean Trans World Entertainment Corporation, a New York
corporation, and its subsidiaries.
e. "Director" shall mean a director who serves on the Board.
f. "Employee" shall mean any common law employee, including officers, of the
Company, as determined in the Code and the Treasury Regulations thereunder.
g. "Fair Market Value" shall mean, for any day, the last reported sale price
of the Common Stock in the over-the-counter market, as reported on the NASDAQ
National Market System or, if the Common Stock is listed or admitted to trading
on any Securities Exchange, the last reported sale price on such exchange of the
applicable day.
h. "Grantee" shall mean a Participant granted an Option
i. "NASDAQ Trading Day" shall mean any day that an active market in the
Common Stock is made and prices are quoted on the NASDAQ National Market System
or, if the Common Stock is then traded on an exchange, that the applicable day
is a business day of such exchange; PROVIDED, HOWEVER, that if less than 100
shares of Common Stock have traded on such NASDAQ Trading Day the next
succeeding trading day shall be used.
j. "Option" shall mean a non-qualified stock option granted pursuant to the
Plan to purchase shares of the Common Stock.
k. "Participant" shall mean any Director who is not also an Employee; a
Director who was formerly an Employee shall become a Participant except that
such former Employee will not be entitled to the automatic Initial Grant
described in Section 5(a).
l. "Plan" shall mean the Trans World Entertainment Corporation 1990 Stock
Option Plan for Non-Employee Directors as set forth herein and as amended from
time to time.
A-1
<PAGE>
SECTION 3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN. Subject to adjustment
as provided in Section 7, the Common Stock which may be issued pursuant to
Options granted under the Plan shall not exceed 250,000 shares in the aggregate.
The shares of Common Stock deliverable upon the exercise of Options may be made
available from authorized but unissued shares or from shares reacquired by the
Company, including shares purchased in the open market or in private
transactions. If any Options granted under the Plan shall expire or terminate
for any reason without having been exercised in full, the shares subject to, but
not delivered under, such Option may again become available for the grant of
other Options under the Plan. No shares deliverable to the Company in full or
partial payment of the purchase price payable pursuant to Section 5(g) shall
become available for the grant of other Options under the Plan.
SECTION 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board. Subject to the provisions of the Plan, the Board shall be authorized to
interpret the Plan, to establish, amend, and rescind any rules and regulations
relating to the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. The determination of the Board in
the administration of the Plan, as described herein, shall be final and
conclusive and binding upon all persons including, without limitation, the
Company, its shareholders and persons granted Options under the Plan. The
validity, construction, and effect of the Plan and any rules and regulations
relating to the Plan shall be determined in accordance with the laws of the
State of New York.
SECTION 5. GRANT OF OPTIONS. Each Option granted under this Plan shall be
evidenced by a written agreement in such form as the Board shall from time to
time approve, which agreements shall comply with and be subject to the following
conditions.
a. INITIAL GRANT OF OPTIONS. Effective upon the initial shareholder
ratification or election of a Non-Employee Director of the Company, such
Participant shall be granted ("Initial Grant") Options to purchase 10,000 shares
of Common Stock (as adjusted pursuant to Section 7) on the first NASDAQ Trading
Day following the applicable meeting of shareholders.
b. ANNUAL GRANT OF OPTIONS. Commencing in May 1991 and annually thereafter
on the first NADAQ Trading in each May, each Participant shall automatically be
granted Options to purchase 1,500 shares of Common Stock (as adjusted pursuant
to Section 7).
c. PURCHASE PRICE. The purchase price of each share of Common Stock subject
to an Option granted pursuant to paragraph (a) or (b) above shall be 85% of the
Fair Market Value (as defined hereunder) of a share of the Common Stock on the
date the Option is granted.
d. DISCRETIONARY OPTION GRANTS. The Board is also authorized, in its
discretion, to grant additional Options to purchase Common Stock to
participants. The date of grant, number of shares of Common Stock which may be
purchased on exercise and the exercise price of the Options shall be determined
by the Board, in its discretion. Grants of Options under this paragraph (d) need
not be uniform to all Participants.
e. EXERCISABILITY AND TERM OF OPTIONS. Unless the Board determines otherwise
at the time of grant or thereafter, each Option granted under the Plan will
become exercisable and vest in four equal installments, commencing on the first
anniversary of the date of grant and annually thereafter. Each Option granted
under the Plan shall expire ten years from the date of the grant, and shall be
subject to earlier termination as hereinafter provided.
f. TERMINATION OF SERVICE. In the event of the expiration (without renewal)
or termination of service on the Board by any Grantee other than by reason of
total and permanent disability or death, as set forth in paragraph (g) hereof,
the then-outstanding Options of such Grantee may be exercised only to the extent
that they are exercisable on the date of such termination and, unless
A-2
<PAGE>
exercised, these Options shall expire one year after such termination, or on
their stated expiration date, whichever occurs first.
g. DISABILITY OR DEATH. In the event of termination of service by reason of
the total and permanent disability of any Grantee, each of the then-outstanding
Options of such Grantee will continue to mature and become exercisable in
accordance with paragraph (e) above and the Grantee may exercise the vested
installments at any such time within five years after such disability, but in no
event after the expiration date of the term of the Option. For purposes of this
Plan, the term "total and permanent disability" shall mean the inability of the
Grantee, by reason of illness and accident, to perform any and every duty of the
occupation at which the Grantee performed as Director on the date that such
disability commenced. In the event of the death of any Grantee, each of the
Grantee's outstanding Options will immediately mature in full and become
exercisable by the Grantee's legal representative at any time within a period of
five years after the death, but in no event after the expiration date of the
term of the Option. However, if the Grantee dies following termination of
service on the Board by reason of total and permanent disability, such Option
shall only be exercisable for two years after the Grantee's death, or until the
stated expiration date of the Option, if earlier.
h. DISCRETIONARY EXTENSION. Notwithstanding any provision of this Plan to
the contrary, the Board shall have the authority (which may be exercised at any
time) to extend the period during which any Option granted under the Plan may be
exercised; PROVIDED, HOWEVER, that no Option may be exercisable for more than
ten years from the date of grant thereof.
i. PAYMENT. Options may be exercised only upon payment to the Company in
full of the purchase price of the shares to be delivered. Such payment shall be
made in cash or in Common Stock, or in a combination of cash and Common Stock.
The sum of the cash and the Fair Market Value of such Common Stock shall be at
least equal to the aggregate purchase price of the shares to be delivered. If
the Grantee intends to obtain a permissible broker loan to exercise any Options,
exercise thereof shall not be deemed to occur until the Company receives the
proceeds of the Grantee's broker loan. In addition to the payment of the Option
price, if required by the Board, the Grantee shall pay the amount of all
Federal, state and local withholding or other employment taxes applicable to the
Grantee at the time the Board determines that the Grantee has recognized gross
income under the Code resulting from exercise of an Option.
SECTION 6. SALE OR REORGANIZATION. In case the Company is merged or
consolidated with another Corporation, or in case the property or Common Stock
of the Company is acquired by another corporation, or in case of a separation,
reorganization, or liquidation of the Company, the Board shall either (i) make
appropriate provisions for the protection of any outstanding options by the
substitution of an equitable basis of cash or appropriate Common Stock of the
Company, or cash or appropriate stock of the merged, consolidated, or otherwise
reorganized corporation, or (ii) give written notice to Grantees that their
Options will become immediately exercisable notwithstanding any waiting period
otherwise prescribed by the Committee, and must be exercised within 90 days of
the date of such notice or they will be terminated.
SECTION 7. ADJUSTMENT PROVISIONS. If the shares of Common Stock outstanding
are changed in number or class by reason of a split-up, merger, consolidation,
reorganization, reclassification, recapitalization, or any capital adjustment,
including a stock dividend, or if any distribution is made to the holders of
Common Stock other than a regular cash dividend, or other similar change is made
in the corporate structure, appropriate adjustments shall be made in the
aggregate number and kind of shares or other securities or property subject to
the Plan, the number and kind of shares or other securities or property subject
to outstanding and to subsequent option grants and in the purchase price of
outstanding options to reflect such changes.
SECTION 8. OPTIONS NON-ASSIGNABLE AND NON-TRANSFERABLE. Except as set forth
below, each Option and all rights thereunder shall be non-assignable and
non-transferable other than
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by will or the laws of descent and distribution and shall be exercisable during
the Grantee's lifetime only by the Grantee or the Grantee's guardian or legal
representative. Notwithstanding the foregoing, if the Board expressly so
provides in the applicable Option agreement (at the time of grant or at any time
thereafter), an Option granted hereunder may be transferred by a Participant to
members of his or her "immediate family", to a trust established for the
exclusive benefit of solely one or more members of the Participant's "immediate
family" or to a partnership all of whose partners are members of the
Participant's "immediate family." Any Option held by the transferee will
continue to be subject to the same terms and conditions that were applicable to
the Option immediately prior to the transfer, except that the Option will be
transferable by the transferee only by will or the laws of descent and
distribution. For purposes hereof, "immediate family" means the Participant's
children, stepchildren, grandchildren, parents, stepparents, grandparents,
spouse, siblings (including half brothers and sisters), in-laws, and
relationships arising because of legal adoption.
SECTION 9. COMMON STOCK AWARDS. The Board is authorized, in its discretion,
to award shares of Common Stock directly to participants. The terms of any such
award, including, but not limited to, the number of shares of Common Stock, the
date of any such award and the vesting of shares of Common Stock pursuant to any
such award, shall be determined by the Board in its discretion.
SECTION 10. LIMITATION OF RIGHTS
a. NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the granting of
an Option nor any other action taken pursuant to the Plan, shall constitute or
be evidence of any agreement or understanding, express or implied, that the
Grantee has a right to continue as a director for any period of time, or at any
particular rate of compensation.
b. NO SHAREHOLDERS' RIGHTS FOR OPTIONS. A Grantee shall have no rights as a
shareholder with respect to the shares covered by the Options granted hereunder
until the date of the issuance of a stock certificate therefor and no adjustment
will be made for dividends or other rights for which the record date is prior to
the date such certificate is issued.
c. SALE OF COMMON STOCK. Notwithstanding any other provision of this Plan or
agreements made pursuant thereto, the Company shall not be required to issue or
deliver any certificate or certificates for shares of Common Stock under this
Plan prior to fulfillment of all of the following conditions:
(1) The listing, or approval for listing upon notice of issuance, as
required of such shares on any securities exchange as may at the time be the
principal market for the Common Stock;
(2) Any registration or other qualification of such shares under any state
or federal law or regulation, or the maintaining in effect of any such
registration or other qualification, or exemption therefrom supported by an
opinion of counsel, which the Board shall, in its absolute discretion upon the
advice of counsel, deem necessary or advisable; and
(3) The obtaining of any other consent, approval or permit for any state or
Federal governmental agency which the Board shall, in its absolute discretion
upon the advice of counsel, determine to be necessary or advisable.
SECTION 11. EFFECTIVE DATE AND DURATION OF PLAN. This amended and restated
Plan shall become effective immediately following approval by the shareholders
at the 1998 Annual Meeting of Shareholders. The period during which Option
grants shall be made shall terminate on the day following the tenth anniversary
of the date of approval by the shareholders at the 1998 Annual Meeting of
Shareholders of this amended and restated Plan, but such termination shall not
affect the terms of any then outstanding Options.
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SECTION 12. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Board may
suspend or terminate the Plan or revise or amend it in any respect whatsoever;
PROVIDED, HOWEVER, that, without the consent of an affected Participant, no
amendment, alternation, suspension, discontinuation, or termination of the Plan
may materially and adversely affect the rights of such Participant under any
Option theretofore granted. The Board may waive any conditions or rights under,
amend any terms of, or amend, alter, suspend, discontinue or terminate, any
Option theretofore granted, prospectively or retrospectively; PROVIDED, HOWEVER,
that, without the consent of a Participant, no amendment, alteration,
suspension, discontinuation or termination of any Option may materially and
adversely affect the rights of such Participant under any Award theretofore
granted.
SECTION 13. NOTICES. Any written notice to the Company required by any of
the provisions of this Plan shall be addressed to the Secretary of the Company
and shall become effective when it is received.
SECTION 14. SEVERABILITY. If any provision of the Plan, or any term or
condition of any Award or Agreement or form executed or to be executed
thereunder, or any application thereof to any person or circumstances is
invalid, such provisions, term, condition or application shall to that extent be
void (or, in the discretion of the Board, such provision, term or condition may
be amended to avoid such invalidity), and shall not affect other provisions,
terms or conditions or applications thereof, and to this extent such provisions,
terms and conditions are severable.
SECTION 15. FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued pursuant to Options granted hereunder, but in lieu thereof, the cash
value of such fraction shall be paid.
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