-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, AY4H0KEzc0gKehuWgNPToFePvynA7vWE+jBzP+TS1nw+PmM0LY4ahyYKeIFquxWT 2NkE8Gd2QYB3Iml5QCd+sw== 0000795212-94-000026.txt : 19950518 0000795212-94-000026.hdr.sgml : 19950518 ACCESSION NUMBER: 0000795212-94-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19941029 FILED AS OF DATE: 19941213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS WORLD ENTERTAINMENT CORP CENTRAL INDEX KEY: 0000795212 STANDARD INDUSTRIAL CLASSIFICATION: 5735 IRS NUMBER: 141541629 STATE OF INCORPORATION: NY FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14818 FILM NUMBER: 94564595 BUSINESS ADDRESS: STREET 1: 38 CORPORATE CIRCLE CITY: ALBANY STATE: NY ZIP: 12203 BUSINESS PHONE: 5184521242 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD MUSIC CORP DATE OF NAME CHANGE: 19920703 10-Q 1 - - - - - ------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 29, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-14818 TRANS WORLD ENTERTAINMENT CORPORATION (Exact name of registrant as specified in its charter) New York 14-1541629 (State or otherjurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 38 Corporate Circle Albany, New York 12203 (Address of principal executive offices, including zip code) (518) 452-1242 (Registrant's telephone number,including area code) Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value, 9,687,814 shares outstanding as of December 5, 1994 - - - - - ------------------------------------------------------------------------ TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed Consolidated Balance Sheets -- October 29, 1994, January 29, 1994 and October 30, 1993 3 Condensed Consolidated Statements of Income -- Thirteen Weeks and Thirty-Nine Weeks Ended October 29, 1994 and October 30, 1993 4 Condensed Consolidated Statements of Cash Flows -- Thirty-Nine Weeks Ended October 29, 1994 and October 30, 1993 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14 2 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (unaudited)
October 29, January 29, October 30, ASSETS 1994 1994 1993 - - - - - ------ ---------- ---------- ---------- CURRENT ASSETS: Cash and cash equivalents $7,501 $26,046 $7,029 Merchandise inventory 265,875 238,949 244,457 Other current assets 20,584 12,764 11,596 ---------- ---------- ---------- Total current assets 293,960 277,759 263,082 ---------- ---------- ---------- VIDEOCASSETTE RENTAL INVENTORY,NET 7,123 6,166 6,362 FIXED ASSETS: Property, plant and equipment 179,066 167,203 158,753 Less allowances for depreciation and amortization 83,372 73,157 72,319 ---------- ---------- ---------- 95,694 94,046 86,434 ---------- ---------- ---------- OTHER ASSETS 3,202 2,293 2,467 ---------- ---------- ---------- TOTAL ASSETS $399,979 $380,264 $358,345 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY - - - - - ------------------------------------ CURRENT LIABILITIES: Accounts payable $130,056 $156,263 $128,696 Notes payable 63,841 --- 26,561 Other current liabilities 21,836 19,958 10,975 ---------- ---------- ---------- Total current liabilities 215,733 76,221 166,232 ---------- ---------- ---------- LONG-TERM DEBT,less current portion 53,930 66,054 68,982 CAPITAL LEASE OBLIGATIONS, less current portion 6,808 7,044 7,133 OTHER LIABILITIES 5,179 4,871 3,680 SHAREHOLDERS'EQUITY Common stock ($.01 par value; 20,000,000 shares authorized; 9,731,208 issued) 97 97 97 Treasury stock, at cost(43,394,12,000 & 12,000 shares,respectively) (503) (162) (162) Additional paid-in capital 24,236 24,236 24,229 Retained earnings 94,499 101,903 88,154 ---------- ---------- ---------- Total shareholders'equity 118,329 126,074 112,318 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $399,979 $380,264 $358,345 ========== ========== ========== See Notes to Condensed Consolidated Financial Statements.
3 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (unaudited)
Thirteen Weeks Ended ------------------------ October 29, October 30, 1994 1993 ---------- ---------- Sales $114,086 $101,784 Cost of sales 71,992 62,313 Gross profit ---------- ---------- 42,094 39,471 Selling, general and administrative expenses 39,889 36,450 Depreciation and amortization 4,279 3,878 ---------- ---------- Loss from operations (2,074) (857) Interest expense 2,447 1,695 ---------- ---------- Loss before income tax benefit (4,521) (2,552) Income tax benefit (1,804) (1,001) ---------- ---------- NET LOSS ($2,717) ($1,551) ========== ========== LOSS PER SHARE ($0.28) ($0.16) ========== ========== Weighted average number of common shares outstanding 9,688 9,722 ========== ========== Thirty-Nine Weeks Ended ------------------------ October 29, October 30, 1994 1993 ---------- ---------- Sales $330,264 $301,651 Cost of sales 207,865 188,123 ---------- ---------- Gross profit 122,399 113,528 Selling, general and administrative expenses 114,780 104,778 Depreciation and amortization 12,593 10,895 ---------- ---------- Loss from operations (4,974) (2,145) Interest expense 7,346 4,281 ---------- ---------- Loss before income tax benefit (12,320) (6,426) Income tax benefit (4,916) (2,500) ---------- ---------- NET LOSS ($7,404) ($3,926) ========== ========== LOSS PER SHARE ($.76) ($0.40) ========== ========== Weighted average number of common shares outstanding 9,707 9,724 ========== ========== See Notes to Condensed Consolidated Financial Statements.
4 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Thirty-Nine Weeks Ended ------------------------ October 29, October 30, 1994 1993 ---------- ---------- NET CASH USED BY OPERATING ACTIVITIES ($61,642) ($55,818) ---------- ---------- INVESTING ACTIVITIES: Acquisition of property and equipment (15,967) (22,510) Purchases of videocassette rental inventory, net of amortization (957) (205) ---------- ---------- Net cash used by investing activities (16,924) (22,715) ---------- ---------- FINANCING ACTIVITIES: Proceeds from the issuance of long-term debt --- 51,566 Payments of long-term debt and capital lease obligations (3,479) (673) Net increase in revolving line of credit 63,841 26,561 Other (341) (85) ---------- ---------- Net cash provided by financing activities 60,021 77,369 ---------- ---------- Net decrease in cash and cash equivalents (18,545) (1,164) Cash and cash equivalents, beginning of period 26,046 8,193 ---------- ---------- Cash and cash equivalents, end of period $7,501 $7,029 ========== ========== See Notes to Condensed Consolidated Financial Statements.
5 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements consist of Trans World Entertainment Corporation and its subsidiaries (the "Company"), all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated. Joint venture investments, none of which were material, are accounted for using the equity method. The condensed consolidated financial statements for the interim periods presented are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the condensed consolidated financial statements reflects all normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to rules and regulations applicable to interim financial statements. These condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 1994. Note 2. Seasonality The Company's business is seasonal in nature, with the highest sales and earnings occurring in the fourth fiscal quarter. In the past three fiscal years, the fourth quarter has represented substantially all of the Company's net income for the year. Note 3. Earnings (Loss) Per Share Earnings (Loss) per share is based on the weighted average number of common shares outstanding during each reporting period. Common stock equivalents, which relate to employee stock options, are excluded from the calculations, as their inclusion would have an anti-dilutive impact on the loss per share. 6 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - Continued Note 4. Debt The Company utilizes an aggregate amount of $75 million in revolving credit facilities from four commercial banks, with a stated maturity date of July 1996. At October 29, 1994 the Company had outstanding $63.8 million in such revolving credit facilities. In addition, the Company had outstanding $65 million in senior notes held by five insurance companies. All of such senior debt facilities contain a fixed charge ratio covenant that the Company was not in compliance with for the quarter ended October 29, 1994. The Company obtained permanent waivers of the technical default from all of its lenders and, in addition, the Company entered into an amendment of the revolving credit agreements with the four commercial banks party to the revolving credit facilities. Such amendments increased the contractual interest rate on the revolving credit facilities by 7/8% to a floating interest rate of 1.75% over the LIBOR and CD-based borrowing rates. Note 5. Benefit Plans. The Company adopted a nonqualified, unfunded 1994 Director Retirement Plan that provides retirement benefits to Directors over age 62 who have attained at least 5 years of service with the Company as a Director. The benefits equal $15,000 per year and are payable for a maximum of ten years. 7 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Thirteen Weeks Ended October 29, 1994 Compared to Thirteen Weeks Ended October 30,1993 - - - - - ------------------------------------------------- Sales. The Company's sales increased 12.1% for the thirteen week period ended October 29, 1994 over the thirteen week period ended October 30, 1993. The $12.3 million sales increase is primarily due to the sales generated from new stores opened by the Company since October 30, 1993. Comparable store sales increased 2.3% in 1994's third quarter, including 1% in the music category and 19% in the video sell-through category. The Company attributes the strong performance in video sales to the reassortment of video inventories previously completed in the second quarter. The reassortment of music inventories at the store level were substantially completed at the end of the third quarter, and its impact on music sales has not yet been determined. One factor that adversely impacted comparable store sales in the third quarter for the music category was a new release schedule that was somewhat weaker than last year, as a number of significant releases were delayed into the fourth quarter. In addition, retail competition increased in all of the Company's geographic markets due to the openings of large, freestanding music stores and the expansion of music departments in national electronics superstores. Compact discs, which have a higher average retail selling price than audio cassettes, comprised an increasing portion of the Company's sales, and the share of audio cassettes declined, continuing trends from earlier years. Gross Profit. Gross profit as a percentage of sales decreased from 38.8% to 36.9% in the thirteen week period ended October 29, 1994, compared to 1993. The decrease in the gross profit rate was primarily due to the implementation of a competitive price program in many of the Company's markets and an increase in merchandise return penalties incurred as the Company improves product assortments in its stores. Competitive pricing is expected to put continued downward pressure on the gross margin rate for the remainder of the year. 8 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") as a percentage of sales decreased from 35.8% to 35.0% in the thirteen week period ended October 29,1994 compared to 1993. The decrease in SG&A as a percent of sales was primarily due to SG&A expenses increasing 9.0% compared to a 12.1% increase in total sales over the prior year. Interest Expense. Interest expense increased $0.8 million in the thirteen week period ended October 29, 1994 compared to 1993. The increase is due to the increase in the Company's average borrowings and a higher weighted average borrowing rate. Net Loss. The $2.7 million net loss for the thirteen week period ended October 29, 1994 compares to a $1.6 million net loss in 1993. The increased loss resulted from a combination of the decline in the gross profit rate due to increased return penalties and the increase in interest expense in the third quarter. To achieve a profitable fiscal quarter, comparable store sales growth would have had to improve substantially over the 2.3% sales growth realized in 1994's third quarter. Thirty-Nine Weeks Ended October 29, 1994 Compared to Thirty-Nine Weeks Ended October 30, 1993 - - - - - ----------------------------------------------------- Sales. The Company's sales increased 9.5% for the thirty-nine weeks ended October 29, 1994 over the thirty-nine weeks ended October 30, 1993. During the first nine months of the year, comparable store sales were flat. Comparable store sales decreased 4% in the first quarter and improved to 1.0% and 2.3% increases in the second and third quarters, respectively. The Company attributes the improving sales trend during fiscal 1994 primarily to the substantial effort directed at balancing the store inventories and improving its merchandise in-stock position at the distribution center. Gross Profit. Gross profit as a percentage of sales declined from 37.6% to 37.1% for the thirty-nine week period ended October 29, 1994, when compared to 1993. The decrease in the gross profit rate was primarily due to the implementation of a competitive price program in many of the Company's markets. The Company expects the competitive price program to put downward pressure on the gross margin rate for the remainder of fiscal 1994. 9 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Selling, General and Administrative Expenses. SG&A as a percentage of sales remained at 34.7% for the thirty-nine week period ended October 29, 1994 when compared to 1993. SG&A as a percent of sales remained unchanged because both SG&A expenses and sales increased 9.5% over the prior year. Interest Expense. Interest expense increased $3.1 million in the thirty-nine week period ended October 29, 1994 compared to 1993. The increase is attributed to both an increase in the Company's average borrowings and an increase in the Company's weighted average borrowing rate. The higher rates are due to increases in variable interest rates and higher contractual rates on the Company's senior debt instruments through the amendments entered into at the beginning of the fiscal year. For the full year 1994, the Company projects that interest expense will be approximately $3.5 million greater than 1993. Net Loss. The $7.4 million net loss for the thirty-nine week period ended October 29, 1994 compares to a $3.9 million net loss in 1993. The increased loss is due to the flat comparable store sales for the year to date period, the 58 basis point decline in the gross margin percentage, combined with the impact of expense growth in the stores, along with the increase in interest expense. LIQUIDITY AND CAPITAL RESOURCES Liquidity and Sources of Capital. Cash used by operating and investing activities in the first nine months of the fiscal year were financed through borrowings under the Company's revolving credit facilities, which permit aggregate borrowings of up to $75 million. 10 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) During the thirty-nine week period ended October 29, 1994 the Company's cash flow used by operations was $61.6 million, $5.8 million higher than the corresponding period in 1993 because of the increased pre-tax loss and the lower proportion of accounts payable to merchandise inventory, or inventory leverage. The most significant uses of cash in the period were the $26.9 million seasonal increase in merchandise inventory, $26.2 million and $5.4 million normal reductions in accounts payable and income taxes payable, respectively, along with $16.0 million in capital expenditures used primarily in the Company's store expansion program. Accordingly, the Company's utilization of its revolving credit facilities increased from $26.6 million at October 30, 1993 to $63.8 million outstanding at October 29, 1994. The Company's senior debt facilities, including the $75 million in revolving credit facilities and $65 million in senior unsecured notes, contain a similar fixed charge ratio covenant, a specified ratio of pre-tax income plus fixed charges (interest and rent expense) to fixed charges. The Company was not in compliance with the targeted fixed charge ratio for the quarter ended October 29, 1994, and accordingly it sought and obtained permanent waivers of the technical default from all of its lenders. The four banks that are party to the revolving credit facilities required an increase in the applicable floating borrowing rate. The Company entered into an amendment of each of the revolving credit agreements, increasing the contractual interest rate by 7/8% to a floating interest rate of 1.75% over the LIBOR and CD-based borrowing rates. As disclosed in its Annual Report on Form 10-K for the fiscal year ended January 29, 1994, the Company's earnings for the full fiscal year 1994 would have to increase at least 20% over 1993 to maintain compliance with the fixed charge ratio covenant in the Company's senior debt facilities. The Company does not currently expect to meet the higher fixed charge ratio for the fourth fiscal quarter, and the Company is negotiating with its commercial bank lenders to specify a lower target or obtain in advance a waiver of the covenant. In addition, the Company expects that it will have to commence discussions in January 1995 to amend all of its senior debt facilities to reduce the targeted fixed charge ratio covenant for fiscal 1995, which is likely to result in higher interest rates and new covenant restrictions. Although the Company considers its relations with the commercial banks and the senior noteholders to be satisfactory, there can be no assurance that the Company will be successful in restructuring the targeted fixed ratio covenant for 1995 and future years. In the absence of finalizing new arrangements during the fourth quarter, the Company would likely be in technical default in the first quarter of fiscal 1995. 11 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The combination of the outstanding balances on the revolving credit facilities and the strong cash flow in the fourth quarter is considered adequate to finance working capital activities through the first quarter of fiscal 1995. Continued progress on inventory reduction and the corresponding improvement to inventory leverage will be important to maintain or reduce the absolute level of borrowings on the Company's revolving credit facilities during fiscal 1995. CAPITAL EXPENDITURES The Company opened sixteen new stores and closed eleven stores in the third quarter of 1994, ending the period with 698 stores in operation and total retail square footage of 2.5 million. The Company is also a joint venture partner in 8 stores. Management plans to open approximately 20 stores in the fourth quarter and 50 to 60 stores for the entire fiscal year, approximately 20 of which are relocations of existing stores. Total retail square footage is estimated to be approximately 2.6 million at the end of the 1994 fiscal year. New store openings, combined with the Company's ongoing store renovation program and other capital improvements, will require approximately $24 million in capital expenditures in 1994. In addition, the store expansion program will require an increase in merchandise inventory of approximately $350,000 per new store, which will be partially funded by trade payables. The terms of the Company's revolving credit and long-term debt agreements require the Company to meet customary financial and operating ratios, and limit the Company's ability, among other things, to incur indebtedness, to make certain investments and to pay dividends. The foregoing restrictions, as well as the possibility that certain of the financial ratios may not be maintained at agreed upon levels, could limit the Company's ability to meet its expansion objectives, to obtain future financing and to engage in certain corporate activities. The Company has not yet committed to a significant level of capital expenditures for fiscal 1995. 12 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES PART II: OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. --------------------------------- (A) Exhibits Exhibit No. Description Page No. ------------ ----------- -------- 3.1 Certificate of Amendment to the Certificate of Incorporation 15 4.1 Second Amendment to Credit Agreement, dated as of December 5, 1994, between National Westminster Bank USA the Company 17 10.1 1994 Director Retirement Plan 22 10.2 Severance Agreement, dated as of October 1, 1994, with Edward W. Marshall 26 27 Financial Data Schedule 31 (B) Reports on Form 8-K - None. Omitted from this Part II are items which are not applicable or to which the answer is negative for the periods covered. 13 TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANS WORLD ENTERTAINMENT CORPORATION December 13, 1994 By: /s/ ROBERT A.HELPERT - - - - - ----------------- ------------------------ DATE Robert A.Helpert Executive Vice President and Chief Administrative Officer (Duly authorized officer) December 13, 1994 By: /s/ JOHN J. SULLIVAN - - - - - ----------------- ------------------------ DATE John J.Sullivan Vice President - Finance (Chief Accounting Officer) 14 EX-3.(I) 2 AMENDMENT TO CERTIFICATE OF INCORPORATION EXHIBIT 3.1 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF TRANS WORLD MUSIC CORP. UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW The undersigned, being the President and Secretary of Trans World Music Corp., respectfully do hereby certify and set forth: (1) The name of the corporation is "Trans World Music Corp." The name under which the corporation was originally incorporated is Trans World Music Corp. (2) The certificate of incorporation of said corporation was filed by the Department of State on the 7th day of February, 1972. The Restated Certificate of Incorporation was filed by the Department of State on June 11, 1986. (3) The certificate of incorporation is hereby amended to change the name of the corporationfrom "Trans World Music Corp." to "Trans World Entertainment Corporation" by amending Article First to read as follows: "FIRST": The name of the corporation is Trans World Entertainment Corporation. (4) This amendment to the certificate of incorporation of Trans World Music Corp. was authorized by a majority vote of the board of directors followed by vote of the holders of a majority of all outstanding shares of capital stock entitled to vote thereon at a meeting of the shareholders. 15 IN WITNESS WHEREOF, the undersigned have executed and signed this certificate of amendment this 29th day of July, 1994, and we hereby affirm the statements contained therein as true under penalties of perjury. /s/ Robert J. Higgins - - - - - ------------------------------- Robert J. Higgins, President /s/ Matthew H. Mataraso - - - - - ------------------------------- Matthew H. Mataraso, Secretary 16 EX-4.1 3 SECOND AMENDMENT TO CREDIT AGREEMENT EXHIBIT 4.1 This SECOND AMENDMENT, dated as of December 5, 1994 (the "Amendment"), of the Revolving Credit Agreement, dated as of June 11, 1993, as amended by First Amendment dated as of March 17, 1994, for a commitment of up to $35,000,000 in borrowings (referred to herein as the "Agreement"), is made by and between TRANS WORLD ENTERTAINMENT CORPORATION (formerly, Trans World Music Corp.) (the "Company") and NATIONAL WESTMINSTER BANK USA (the "Bank"). W I T N E S S E T H: WHEREAS, the Company and the Bank are parties to the Agreement: and WHEREAS, the Company and the Bank have agreed to amend the Agreement as provided herein. NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions and Section References. Capitalized terms not otherwise defined in this Amendment and used herein shall have the respective meanings assigned to them in the Agreement. References to Sections shall refer to Sections of the Agreement unless otherwise indicated. 2. Modification of the Agreement. The parties hereby agree to amend the Agreement as of the Effective Date, as follows: (a) Section 2.1 (The Commitment) is hereby amended by the addition of the following subsection (d) at the end thereof: "(d) Notwithstanding any prior provision of this Section 2.1 to the contrary, on and after January 16, 1995, the aggregate unpaid principal amount of loans (the "Loans") made by the Bank to the Company hereunder together with the aggregate Letter of Credit Outstandings ("Total NatWest Outstanding Credits") shall not at any time exceed the Bank's pro rata share of the aggregate of all loans and Letter of Credit Outstandings outstanding ("Total Bank Credits Outstanding") on any day under this Agreement and under the substantially similar Credit Agreements of even date herewith made by the Company with each of Chase Manhattan Bank, N.A., Chemical Bank and NBD Bank, N.A. and referred to in the third "Whereas" clause on the first page hereof, as such Credit Agreements may be supplemented or otherwise modified from time to time (including by increasing the commitment thereunder), or under any successor or replacement agreements entered into by the Company, whether or not with the same lender or group of lenders (the "Other Credit Agreements"). If at any time on or after January 16, 1995 the Total NatWest Outstanding Credits exceeds such pro rata share of the Total Bank Credits Outstanding, the Company shall immediately pay such excess to the Bank to be applied first to the principal amount of Loans then outstanding hereunder and then to Letter of Credit Outstandings; provided, however, that if the Commitment under (and as defined in) any of the Other Credit Agreements is reduced or terminated without replacement or substitution therefor, whether pursuant to Section 2.6 thereof or otherwise, the Commitment of the Bank hereunder shall be automatically reduced so that the Bank's Commitment and its pro rata share of Total Bank Credits Outstanding shall not at any time exceed 46.666% of the Commitments or the Total Bank Credits Outstanding under this Agreement and the other Credit Agreements. In furtherance of the foregoing, the Company shall deliver to the Bank a certificate setting forth in detail the Total Bank Credits Outstanding including all such Credits that will be outstanding at the close of business on the date of certification on, and as of, each date that a Loan is requested hereunder (and together with such request) and on, and as of, each date that a payment of principal is made on account of any Loan hereunder or on account of any loan outstanding under any other Credit Agreement." 17 The foregoing requirement of payment of the excess amount, if any, described in the immediately preceding amendatory paragraph constitutes a mandatory requirement for prepayment of the outstanding principal amount of the Note to the extent of any such excess. Accordingly, any reference in the Note to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby and as it has been, and as it may be, from time to time amended. (b) Section 2.2 (The Note) of the Credit Agreement is hereby amended to the extent that the percentage ".875%" which appears in the third line of each of subsection 2.2(b) and subsection 2.2(c) is deleted therefrom and the percentage "1.75%" is substituted therefor. Notwithstanding the Effective Date set forth in paragraph 4 hereof, the amendment to Section 2.2 set forth in this paragraph shall be effective commencing with the first Interest Period elected by the Company for a Eurodollar Loan or a C/D Rate Loan after receipt by the Bank of the copy of this letter executed in accordance with the foregoing. (c) Section 5.1 (Financial Statements) is hereby amended by the addition of the following subsection (g) at the end thereof: "(g) as soon as available, but in any event not later than January 16, 1995, (i) unaudited condensed balance sheets of the Company and its Subsidiaries as of the end of the eleven month period commencing January 29, 1994 and ending December 28, 1994, and unaudited consolidated statements of income, retained earnings and cash flow of the Company and its Subsidiaries for such eleven month period, setting forth in each case in comparative form the corresponding figures for the same eleven month period during the immediately preceding fiscal year, all in reasonable detail, prepared in a manner consistent with the Company's compilation of quarterly financial statements filed with the Securities Exchange Commission, and as to the month of December, using the most recent estimates available for the results of operations, and for the month of January, using a forecast based upon assumptions that management believes are reasonable; 18 (ii) the projected condensed balance sheets of the Company and its Subsidiaries as of the end of the fiscal year ending January 28, 1995, and projected related consolidated statements of income, retained earnings and cash flow of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the corresponding figures for the immediately preceding fiscal year, all in reasonable detail, prepared in a manner consistent with the Company's compilation of quarterly financial statements filed with the Securities Exchange Commission, and as to the month of December, using the most recent estimates available for the results of operations, and for the month of January, using a forecast based upon assumptions that management believes are reasonable; (iii) the projected compliance or noncompliance with the provisions of Sections 5.9, 6.11, 6.12, 6.13 and 6.14 hereof for the fiscal year or quarterly period, as the case may be, ending January 28, 1995." 3. Representations and Warranties. To induce the Bank to enter into this Amendment, the Company hereby represents and warrants that: (a) The Company has the power, authority and legal right to make and deliver this Amendment and to perform its obligations under the Agreement, as amended by the Amendment, without any notice, consent, approval or authorization not already obtained, and the Company has taken all necessary action to authorize the same. (b) The making and delivery of this Amendment and the performance of the Agreement, as amended by this Amendment, do not violate any provision of law or any regulation or any provision of the Company's charter or by-laws or result in the breach of or constitute a default under or require any consent under any indenture or other agreement or instrument to which the Company is a party or by which the Company or any of its property may be bound or affected. The Agreement, as amended by this Amendment, constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' right generally. (c) The representations and warranties contained in Section 4 of the Agreement are true and correct on and as of the date of this Amendment, after giving effect hereto. (d) No Default or Event of Default has occurred and is continuing under the Agreement as of the date of this Amendment, after giving effect hereto. 4. Effective Date. This Amendment shall become effective as of December 5, 1994 (the "Effective Date"), subject to satisfaction of all of the following conditions: (a) The Bank shall have received counterparts of this Amendment, duly executed by each of the parties hereto. (b) The Bank shall have received a copy of the resolution of the Board of Directors of the Company authorizing the execution, delivery and performance of this Amendment by the appropriate officer of the Company. 19 (c) The Bank shall have received an opinion of Matthew H. Mataraso, Esq., counsel to the Company, dated the date hereof, to the effect that this Amendment has been duly authorized, executed and delivered by duly authorized officer of the Company and that the Agreement, as amended by this Amendment, constitutes a valid obligation of the Company, legally binding upon it and enforceable against it, except as may be limited by any applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights generally, in accordance with their terms as so amended. 5. Counterparts. This Amendment may be signed in counterparts, each of which shall be an original and both of which taken together shall constitute single instruments with the same effect as if the signature thereto and hereto were upon the same instrument. 6. Full Force and Effect. Except as expressly modified by this Amendment, all of the terms and provisions of the Agreement and the Note shall continue in full force and effect, and all parties hereto shall be entitled to the benefits thereof. 7. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date set forth. WITNESS TRANS WORLD ENTERTAINMENT CORPORATION (formerly Trans World Music Corp.) By: /s/ JOHN J. SULLIVAN By: /s/ ROBERT J. HIGGINS -------------------- ---------------------- John J. Sullivan Robert A. Higgins Vice President - Finance President WITNESS NATIONAL WESTMINSTER BANK USA By: /s/ NEIL PLATT By: /s/ STEPHEN R. BUSCHEL -------------------- ----------------------- Neit Platt Stephen R. Buschel Vice President Vice President 20 CONSENT AND AGREEMENT OF GUARANTOR For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned, the Guarantor under that certain Guarantee, dated as of June 11, 1993, in favor of the Bank (set forth above), pursuant to that certain Revolving Credit Agreement, dated as of June 11, 1993, as amended by First Amendment dated as of March 17, 1994, made by and between Trans World Entertainment Corporation (formerly, Trans World Music Corp.) and the Bank, hereby consents and agrees to the above-referenced Second Amendment, this 5th day of December, 1994. WITNESS RECORD TOWN, INC. By: /s/ JOHN J. SULLIVAN By: /s/ ROBERT J. HIGGINS --------------------- --------------------- John J. Sullivan, Robert J. Higgins, Vice President - Finance President 21 EX-10.1 4 1994 RETIREMENT PLAN EXHIBIT 10.1 TRANS WORLD ENTERTAINMENT CORPORATION 1994 DIRECTOR RETIREMENT PLAN SECTION 1. PURPOSE 1.01 The Purpose of the 1994 Director Retirement Plan (the "Plan") is to provide a reward to members of the Board of Directors for their service to Trans World Entertainment Corporation (which, together with any successor corporations, is referred to herein as the "Company"). In addition, the Plan is intended to help the Company attract and retain the services of qualified directors. SECTION 2. DEFINITIONS 2.01 "Benefits" shall mean an amount equal to Fifteen Thousand Dollars ($15,000) annually, payable in monthly installments in advance, for the period specified in Section 4. 2.02 "Board of Directors" shall mean the Board of Directors of the Company. 2.03 "Change in Control" is an event that may only be deemed to occur if and after a date that fewer than twenty percent of the outstanding shares of Common Stock of the Company in the aggregate are beneficially owned (as defined in Rule 13d-3 under the Exchange Act) by Robert J. Higgins, members of his immediate family and one or more trusts established for the benefit of such individual or family members for a period of 60 consecutive calendar days. If such condition has taken place, "Change in Control" shall mean the occurrence of any one of the following events that occur after such share ownership reduction, if ever, has occurred: (i) the sale of the Company substantially as an entirety (whether sale by stock, sale of assets, merger, consolidation, liquidation, dissolution or similar occurrence), where the shareholders of the Company, immediately prior to a consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined under Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate at least one-half of the voting stock of the corporation issuing cash or securities in a consolidation or merger (or its ultimate parent corporation, if any); (ii) any tender offer or exchange offer subject to the regulations of the Securities and Exchange Commission is made by which any person or group, other than Robert J. Higgins, members of his immediate family and one or more trusts established for the benefit of such individual or family members, as "person" or "group" is defined within the meaning of Section 13(d) of the Exchange Act, which becomes the beneficial owner, directly or indirectly, or more than one-half of the outstanding shares of Common Stock; or (iii) one-half or more of the directors elected to the Board of Directors in the most recent proxy statement of the Company, excluding from such computation the replacement of any director or directors who resign voluntarily and not as a result of any disagreement expressed in writing with the Company's operations, policies or practices. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred for purposes of Section 2.03(i) solely as the result of such 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 hereof. 22 2.04 "Committee" shall mean, initially, the Compensation Committee of the Board of Directors, and shall generally refer to the applicable committee of the Board of Directors authorized from time to time to administer the benefit plans of the Company. 2.05 "Company" shall mean the Company and any subsidiary or other entity at any time at which 50% or more of the voting power or beneficial interest of such subsidiary or other entity, is owned directly or indirectly by the Company. References in the Plan to the Company shall be deemed to include successors to the Company. 2.06 "Director" shall mean any member of the Board of Directors who does not participate in any defined benefit pension plan of the Company. 2.07 "Plan" shall mean the 1994 Director Retirement Plan, as described herein and as amended from time to time. 2.08 "Retiree" shall mean any Director who retires from the Board of Directors with the written consent of the Committee, or without the consent of the Committee if the Director is age 62 or older and has resigned from the Board of Directors or has permitted his last term on the Board of Directors to expire, on or after the Effective Date of the Plan; provided, however, that any such Director is not at the time of retirement or resignation then subject to a proceeding involving Removal for Cause (as permitted in the Company's By-Laws), or such Director is not then the subject of specific, written allegations that would support Removal for Cause (as permitted in the Company's By-Laws). 2.09 "Surviving Spouse" shall mean a person who is married to a Director at the date of his death and for at least one year prior thereto. 2.10 "Years of Service" shall mean the number of continuous 12 month periods occurring in succession during which a Director serves on the Board of Directors, beginning on the date that service on the Board of Directors was commenced. There shall be no proration of Years of Service. If an individual's service as a Director is interrupted with the consent of the Committee, but later resumes, service shall include the period of time before and the period of time after the interruption of service on the Board of Directors. SECTION 3. ELIGIBILITY 3.01 All Directors of the Company who, on or after the effective date of the Plan: (a) become Retirees, (b) are age 62 or older, and (c) complete at least five Years of Service, are eligible to receive Benefits under the Plan. A Director who completes fewer than five complete Years of Service is not eligible for any Benefits under the Plan without respect to the reason or reasons that service on the Board of Directors terminated. A Director need not be an active director of the Company when he becomes age 62 to be eligible to receive Benefits, provided that he has previously satisfied the minimum of five Years of Service at the time he becomes a Retiree, at which point he becomes vested under the Plan. SECTION 4. PLAN BENEFITS 4.01 Benefits under the Plan shall be payable by the Company only with respect to Directors who are Retirees or become Retirees. 23 4.02 Except as provided in Section 4.04, a Retiree shall be entitled to begin receiving monthly payments of the Benefits under the Plan immediately following the effective date of his resignation from or expiration of his last term on the Board of Directors, or upon reaching age 62, whichever date occurs later. A Retiree may, upon written notice to the Committee and at the Retiree's sole discretion, defer commencement of his Benefits beyond reaching age 62. Payment of the Benefits shall be made monthly in advance. 4.03 Except as provided in Section 4.04, the Benefits shall continue and be due and payable to the Retiree for a term equal to the shorter of three periods: (i) ten years; (ii) the number of Years of Service by the Retiree, or (iii) the life of the Retiree and his Surviving Spouse. Payment of the Benefits to a Retiree or his Surviving Spouse for a Retiree with ten or more Years of Service shall continue up to a maximum of ten years. 4.04 Notwithstanding the provisions of Section 4.02 and Section 4.03, if a Change in Control occurs, each Director with at least five Years of Service who resigns from the Board of Directors or permits his term to expire, or is forced to resign from the Board of Directors, or who otherwise is or becomes a Retiree, whether before or as a result of such Change of Control, shall be entitled to receive an immediate lump sum payment in cash equal to the net present value of the Benefits that would have been payable if the age of such Director were the greater of: (i) The Director's actual age at the time of becoming a Retiree or (ii) age 62, less any Benefits previously paid to the Retiree. In computing such a net present value the Committee shall utilize an interest rate assumption equal to the applicable interest rate (expressed as a percentage) used by the Pension Benefit Guaranty Company for valuing benefits for single employer plans that terminate on the date of such calculation, less two (2) percentage points. 4.05 If a Director dies before the commencement of payment of his Benefits, then his Surviving Spouse, upon reaching age 62, shall receive the Benefits that would otherwise be payable to the Director as a Retiree under the Plan. The Company may, in its sole and absolute discretion, make such payment in a lump sum to the Surviving Spouse upon the death of the Director, using a current discount rate of interest or the rate prescribed in Section 4.04. SECTION 5. ADMINISTRATION 5.01 The administration of the Plan shall be vested in the Committee. The Committee is authorized: (a) to adopt, alter and repeal administrative rules, guidelines and regulations for carrying out the Plan; (b) to determine whether and to what extent Benefits are payable under the Plan; (c) to determine the other terms, conditions and provisions of Benefits under the Plan; and (d) to interpret the Plan, in all cases in the Committee's sole discretion consistent with the Plan provisions. The interpretation of and decisions regarding any questions arising under the Plan made by the Committee shall be final and conclusive and binding upon all participants under the Plan. All expenses incurred in connection with administration of the Plan shall be paid for by the Company. SECTION 6. EFFECTIVE DATE 6.01 The Effective Date of the Plan Shall be June 1, 1994. 24 SECTION 7. GENERAL PROVISIONS 7.01 If the Committee shall find that a Retiree is unable to care for his affairs because of illness or accident, the Committee may direct that any Benefit payment due him, unless claim shall have been made therefore by a duly appointed legal representative, be paid to his Spouse, and any such payment so made shall constitute a discharge of the liabilities of the Plan therefor. 7.02 Benefits shall continue and be payable to the Retiree's Surviving Spouse upon the death of the Retiree, up to the maximum period prescribed. 7.03 Subject to any applicable law, no Benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any Benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Retiree. 7.04 If a Director shall at any time be convicted of a crime involving dishonesty or fraud on the part of such Director directly relating to his relationship with the Company, all Benefits that would otherwise be payable to him under the Plan shall be forfeited. 7.05 The rights of any Director to Benefits under the Plan prior to the actual receipt of such benefits shall be limited to those of a general unsecured creditor of the Company. The Company is under no requirement to fund the Plan. 7.06 The Plan shall be construed, regulated and administered under the laws of the State of New York. 7.07 The masculine pronoun shall mean the feminine wherever appropriate. 7.08 Each Retiree shall keep the Company informed of his current address and the current address of his Spouse. The Company shall not be obligated to search for the whereabouts of any person. If the location of a Retiree is not made known to the Company within three years after the date on which the first payment of Benefits is to be made, and the Company is likewise unable to locate a Surviving Spouse, then the Company shall have no further obligation to pay any benefit hereunder to such Retiree or Surviving Spouse or any other person, and such Benefits shall be irrevocably forfeited. 7.09 Notwithstanding any of the provisions of the Plan, no individual acting as an employee, Director or an agent of the Company shall be personally liable to any Retiree, other Director, Surviving Spouse or any other person for any claim, loss, liability or expense incurred in connection with the Plan. SECTION 8. AMENDMENT AND TERMINATION 8.01 The Board of Directors reserves the right to modify or to amend, in whole or in part, or to terminate, this Plan at any time; provided, however, that no such modification, amendment or termination shall adversely affect the right of any retired Director to receive benefits under the Plan had the Plan not been modified, amended or terminated, taking into account such Director's Years of Service and age at the time of such modification, amendment or termination. 25 EX-10.2 5 SEVERENCE AGREEMENT WITH EDWARD W. MARSHALL EXHIBIT 10.2 October 1, 1994 Edward W. Marshall 2301 Berkley Ave. Niskayuna, New York 12309 re: Severance Agreement ------------------- Dear Ed: Trans World Entertainment Corporation, a New York corporation, and its wholly owned subsidiary, Record Town, Inc. (collectively, the "Company"), considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its shareholders. In order to induce you to remain with the Company, and in consideration for your covenants set forth herein, this Agreement sets forth the severance benefits that the Company agrees will be provided to you in certain circumstances, as further described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect until January 31, 1996 (the"Term"); provided, however, that commencing on February 1, 1996 and each February thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to such February 1 date, either the Company or you shall have given notice that this Agreement shall not be extended,at which point, if the Company has given notice, you may, within 30 days thereafter, elect in writing to treat such notice as a termination without Cause. Notwithstanding anything in this Section 1 to the contrary, this Agreement shall terminate if you voluntarily separate your employment from the Company except as permitted hereunder. 2. Termination without Cause. (a) You shall be entitled to the benefits provided in Section 5 if, during the Term of this Agreement, your employment with the Company is ever terminated for any reason other than for Cause (defined below) or for Disability (defined below). (b) Disability. Termination by the Company of your employment based on "Disability" shall mean termination because of your absence from your duties with the Company on a full time basis for sixty (60) consecutive days as a result of your incapacity due to physical or mental illness, unless within thirty (30) days after notice of termination is given to you following such absence you shall have returned to the full time performance of your duties. (c) Cause. Termination by the Company of your employment for"Cause" shall mean termination for any one of the following reasons: (i) the willful or continued failure by you to perform substantially your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness) after demand for substantial performance is delivered to you by the Chairman of the Board or the President of the Company, which demand specifically identifies, in writing, the manner in which such executive believes that you have not substantially performed your duties; or (ii) the willful engaging by you in illegal conduct that materially and demonstrably damages the Company's business or reputation; or (iii) any conduct in the course of your employment that constitutes, in the Company's reasonable judgment, gross negligence, fraud, embezzlement or any acts of moral turpitude that result or are intended to result, directly or indirectly, to your personal enrichment at the Company's expense. For purposes of this Section 2(c), no act or failure to act on your part shall be considered "willful" unless done, or omitted to be done, by you in bad faith and without reasonable belief that your action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the corporation. 26 (d) Employment at Will. The Company or you may separate your employment at any time, subject to the Company's covenant to provide the benefits specified in accordance with the terms of thisAgreement. Your employment, base of operations or duties may be modified, changed or terminated by the Company at any time with or without Cause. 3. Severance Agreement. (a) The Company agrees that within two years of a Change in Control, you may voluntarily separate your employment from the Company if the Company relocates you during such period, for a period in excess of 30 consecutive days, from your then-current place of operation for a distance that is greater than 75 miles, without your prior written permission. Subject to the other terms and conditions of this Agreement, you thereafter become entitled to the severance package set forth in Section 5 below. You agree to extend at least 6 months prior written notice to the Company before separating from the Company. Although the Company may in its sole discretion reduce the required 6 month period of notice, your competent, good faith and full-time performance of your assigned employment responsibilities during the complete 6 month period is an absolute, express condition to earning the severance compensation provided; there shall be no proration of severance benefits. (b) "Change in Control" is an event that may only be deemed to occur if and after a date that fewer than twenty percent of the outstanding shares Common Stock in the aggregate are beneficially owned (as defined in Rule 13d-3 under the Exchange Act) by Robert J. Higgins, members of his immediate family and one or more trusts established for the benefit of such individual or family members for a period of 60 calendar consecutive days. If such condition has taken place, "Change in Control" shall mean the occurrence of any one of the following events that occur after such share ownership reduction, if ever, has occurred: (i) the sale of the Company substantially as an entirety (whether sale by stock, sale of assets, merger, consolidation, liquidation, dissolution or similar occurrence) occurs, where the shareholders of the Company, immediately prior to a consolidation or merger, would not immediately after the consolidation or merger, beneficially own (as such term is defined under Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate at least one-half of the voting stock of the corporation issuing cash or securities in a consolidation or merger (or its ultimate parent corporation, if any); (ii) any tender offer or exchange offer to subject to the regulations of the Securities and Exchange Commission is made by which any person or group, other than Robert J. Higgins, members his immediate family and one or more trusts established for the benefit of such individual or family members, as "person" or "group" is defined within the meaning of Section 13(d) of the Exchange Act, which becomes the beneficial owner directly or indirectly, or more than one-half of the outstanding shares of Common Stock; or (iii) fifty percent or more of the directors elected to the Board of Directors in the most recent proxy statement of the Company, excluding from such computation the replacement of any director or directors who resign voluntarily and not as a result of any disagreement expressed in writing with the Company's operations, policies or practices. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred for purposes of Section 3 (b)(i) solely as the result of such 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 (there than pursuant to a stock split, stock dividend, or similar transaction), then a "Change in Control" shall be deemed to have occurred for purposes hereof. 27 (c) Effective on the execution of this Agreement, your severance agreement with the Company, dated as April 4, 1989, and any renewals or extensions of such agreement, are hereby terminated and shall be of no further force and effect. This Agreement is intended by the parties to supersede, and it hereby replaces and supersedes, the agreements set forth under the captions "Severance Agreement", "Promotion" and "Change in Control", paragraphs 6through 8, contained in that certain Letter Agreement, dated as ofJuly 20, 1994, between you and the Company. 4. Assurance of Promotion. (a) The Company agrees to assure you of a promotion to a position of Division President, as "Division"is defined below, or a reasonably equivalent position or responsibility as designated by the Company, on or before January 31, 1997. If you do not receive such position on or before such target date and desire to leave the Company on the terms hereof, you will be entitled to the severance package set forth in Section 5 below. You will be required to give a written, six month notice within 90 days of such date, after which your right to voluntarily separate employment shall terminate and be of no further force and effect. Time shall be of the essence. During such 90 day period the Company may cure the condition and appoint you to the agreed-upon position or an equivalent position or responsibility. You agree to make your effective date of separation at least 6 months after the date of your written notice to the Company before leaving the Company. Although the Company may in its sole discretion reduce the required 6 month period of notice, your competent, good faith and full-time performance of your assigned employment responsibilities during the complete 6 month period is an absolute, express condition to earning the severance compensation provided; there shall be no proration of severance benefits if you perform for a shorter period unless requested by the Company. (b) The term "Division" for purposes of this Agreement shall mean a business operation as designated by the Company, consisting of at least $100 million in annual sales. The Company's designation of a"Division" is otherwise subject to its sole discretion. It is understood that many of the Company's business functions of such a Division, wherever it is located, will continue to be shared at the corporate level, including but not limited to accounting, merchandise procurement, maintenance, distribution, store construction, and information processing. 5. Severance Compensation; Other Agreements. (a) During any period that you fail to perform your duties as a result of a Disability, you shall continue to receive your salary at the rate then in effect and any benefits or awards under any benefit plans shall continue to accrue during such period, which period shall beat least 90 days, until your employment is terminated without Cause. Thereafter, your benefits shall be determined in accordance with any applicable benefit plans of the Company then in effect. (b) If your employment shall be terminated for any reason other than because of death, retirement, Disability or for Cause by the Company, or you voluntarily elect to separate your employment from the Company if expressly permitted by the terms and conditions of Sections 3 and 4 of this Agreement, then the Company shall pay you your base salary for 12 months following the effective date of separation at the rate in effect just prior to the time a notice of termination is given (which amount shall not be less than the annual rate of $250,000), plus any benefits (including health, disability and 401(k)). Any awards (including both the cash, bonus and stock components) which, pursuant to the terms of any applicable plans, had already been earned or become payable as of the date of separation, but which had not yet been paid to you, shall be due and payable within 30 days after the effective date of separation. It is expressly understood and agreed that no bonuses are deemed earned unless your employment is continued through the last day of the applicable fiscal year. Thereafter, the Company shall have no further obligations to you under this Agreement. 28 (c) To the extent that you shall receive cash consideration that is subject to federal income taxation in respect of otheremployment or a consulting position for another organization, andthat consideration is payable to you solely in respect of the remainder of the Term of this Agreement as in effect immediately prior to such termination, or a portion thereof, the payments to be made by the Company under this Section 5, shall be proportionately reduced. Notwithstanding the foregoing, you shall not be required to minimize damages or otherwise reduce severance payments payable under this Agreement by seeking or accepting other employment or a consulting position. 6. Taxes. All payments to be made to you under this Agreement will be subject to required withholding of federal, state and local income, excise and other employment taxes. 7. Survival. The respective obligations of, and benefits afforded to, the Company or you as provided in this Agreement shall survive any expiration or termination of this Agreement unlessprovided to the contrary. 8. Notices. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid and addressed, in the case of the Company, to the address set forth on the first page of this Agreement or, in the case of the undersigned employee, to the address set forth below his signature, provided that all notices to the Company shall be directed to the attention of the President of the Company, with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 9. Modification; Waiver; Governing Law. No provision of this Agreement may be modified, waived or discharged unless suchmodification, waiver or discharge is agreed to in a writing signed by you and the Chairman of the Board or President of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without reference to its principles of conflicts of laws. 10. Arbitration. Any dispute or controversy arising under or inconnection with this Agreement shall, at the Company's sole option, be settled exclusively by arbitration in Albany, New York by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction. 11. Non-Compete and Confidentiality Covenants. (a) For a period of 12 months after your employment is separated from the Company for whatever reason, whether or not it is for Cause, you covenant and agree not to compete with the Company, whether directly or indirectly, alone or as an employee, independent contractor of any type, partner, substantial shareholder (5% or greater) or holder of an option or right to become a substantial shareholder, in any retail music or video business in any state in the United States in which the Company then conducts its business. You also agree not to solicit, directly or indirectly, any then-current employees of the Company during such 12 month period. (b) In consideration for the Company's agreements hereunder, you agree that during and subsequent to your period of employment with the Company, you will not at any time communicate or disclose to any unauthorized person, without the written consent of the Company, business information, trade secrets, sales data or any proprietary processes of the Company or any subsidiary or other confidential information concerning their business, affairs, products, suppliers, or customers, unless otherwise required by law. You also acknowledge and agree that the Company retains all ownership of any inventions, ideas, processes, drawings, patents,trademarks, copyrights, trade secrets and other intellectual property that the you create or produce, or of which you participate in the creation or production. You hereby assign to the Company the right to obtain, register or enforce any copyrights or patent registrations on any and all such inventions conceived, developed or derived during the course of your employment with the Company. 29 (c)If any of the restrictions on post-employment competitive activity or the confidentiality covenants contained in this Section 11 are held by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, such restrictions shall be construed to be enforceable to the extent compatible with applicable law as it shall then exist, it being understood that by the execution of this Agreement the parties hereto regard such restrictions as reasonable and compatible with their respective rights and obligations. Therefore, it is agreed that in the event of a breach or threat of a breach of the provisions of this Agreement, the Company shall be entitled to provable damages and reasonable attorney's fees (which attorney's fees shall be payable by you in the event that the Company's position in any litigation is sustained), and to an immediate injunction from any court of competent jurisdiction restraining you from committing or continuing to commit a breach of such provisions without the showing or proving of actual damages. You hereby waive any right you may have to require the Company to post a bond or other security with respect to obtaining or continuing any such injunction or temporatry restraining order. (d) During the period of any breach or threatened breach of the provisions of this Section 11 the Company may cease payment or accrual of any severance compensation, without limiting any other remedies available to it at law or in equity. 12. Effective Date. This Agreement shall not take effect unless and until approval of the Company's Compensation Committee of the Board of Directors has been received by management. After reviewing the contents of this letter, if it correctly sets forth our agreement on the subject matter hereof, and you agree to the terms and conditions of this Agreement, kindly sign and return it to the Company, which will then constitute our binding agreement. Sincerely, TRANS WORLD ENTERTAINMENT CORPORATION RECORD TOWN, INC. By: /s/ ROBERT J. HIGGINS ---------------------------- Robert J. Higgins, President ACKNOWLEDGED, ACCEPTED AND AGREED TO: By: /s/ EDWARD W. MARSHALL ------------------------- Edward W. Marshall October 1, 1994 2301 Berkely Ave. Niskayuna, New York 12309 30 EX-27 6 ART. 5 FDS FOR 3ND QUARTER 10-Q
5 THIS SHEDULE CONTAINS DATA EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS, AND THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000795212 TRANS WORLD ENTERTAINMENT CORPORATION 1,000
Amount (in thousands, except per Item Description share data) - - - - - ------------------- -------------------------- 9-MOS JAN-28-1995 OCT-29-1994 7,501 0 0 0 265,875 293,960 179,066 83,372 399,979 215,733 60,738 0 0 97 118,735 399,979 330,264 330,264 207,865 207,865 127,373 0 7,346 (12,320) (4,916) (7,404) 0 0 0 (7,404) (.76) (.76)
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