The Compensation Committee

     The CompanyBoard of Directors has a Compensation Committee, of the Board of Directors, consisting solely of independent directors,Directors, whose members during the 20032006 fiscal year were: Mark A. Cohen (Chairman), Martin E. Hanaka, (Chairman), George Dougan and Isaac Kaufman. Mr. Cohen was added to the Compensation Committee upon his appointment to the Board. The Compensation Committee held 2 meetingsone meeting during the 20032006 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 processes and procedures used for the consideration and determination of executive compensation are described in the section of this Proxy captioned “Compensation Discussion and Analysis.” The Board of Directors has adopted a written charter for the Compensation Committee, a copy of which is attached as AppendixExhibit B. A copy of the report of the compensation committee is on page 10 of this Proxy.

   The Nominating and Governance Committee

     The CompanyBoard of Directors has a Nominating and Corporate Governance Committee, of the Board of Directors, consisting of independent directors,Directors, whose members during the 20032006 fiscal year were: Joseph MoroneMartin E. Hanaka (Chairman), Dean Adler, George Dougan, Martin Hanaka,Mark A. Cohen, Isaac Kaufman, Dr. Joseph G. Morone, Lori Schafer, Michael B. Solow and Michael Solow. Mr. Cohen and Mr. Thomas were added to the Nominating and Corporate Governance Committee upon their appointment to the Board.Edmond Thomas. The Nominating and Corporate Governance Committee held 4four meetings during the 20032006 fiscal year. The Nominating Committee develops qualification criteria for Board members,members; interviews and screens individuals qualified to become Board members in order to make recommendations to the BoardBoard; and oversees the evaluation of executive management. The Committee seeks to select a Board that is strong in its collective knowledge of and diversity of skills and experience concerning retail operations, accounting and finance, management and leadership, vision and strategy, risk assessment and corporate governance. The Board of Directors has adopted a written charter for the Nominating and Corporate Governance Committee, a copy of which is attached as AppendixExhibit C.

     The Nominating and Corporate Governance Committee will consider nominations submitted by Shareholders. To recommend a nominee, a Shareholder should write to the Company'sCompany’s Secretary. To be considered by the Nominating and Corporate Governance Committee for nomination and inclusion in the Company'sCompany’s Proxy Statement for its 20052008 Annual Meeting of Shareholders, a Shareholder recommendation for a Director must be received by the Company'sCompany’s Secretary no later than January 15, 2005.2008. Any recommendation must include (i) the name and address of the candidate, (ii) a brief biographical description, including his or her occupation for at least the last five years, and a statement of the qualifications of the candidate, taking into account the qualification requirements summarized above, and (iii) the candidate'scandidate’s signed consent to be named in the Proxy Statement and to serve as a Director if elected. The Committee may seek additional biographical and background information from any candidate that must be received on a timely basis to be considered by the Nominating and Corporate Governance Committee.

     The process followed by the Nominating and Corporate Governance Committee to identify and evaluate candidates includes requests to Board members and others for recommendations, including a search firm or outside consultant, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating and Corporate Governance Committee and the Board. Assuming the appropriate biographical and background material is provided for candidates submitted by Shareholders, the Nominating and Corporate Governance Committee will evaluate those candidates by following substantially the same process, and applying substantially the same criteria, as for candidates submitted by Board members. All Director nominees recommended for election by the Shareholders at the 2004 Annual Meeting are current members of the Board. The Nominating and Corporate Governance Committee did not receive any nominations from Shareholders for the 20042007 Annual Meeting.

Communications with the Board of Directors

     The Board has established a process for Shareholders to communicate with members of the Board. The Chairman of the Nominating and Corporate Governance Committee, with the assistance of the Company'sCompany’s Secretary, will be primarily responsible for monitoring communications from Shareholders and providing copies or summaries of such communications to the other Directors, as he or she considers appropriate. Communications will be forwarded to all Directors if they relate to appropriate matters and may include suggestions or comments from the Chairman of the Nominating and Corporate Governance Committee. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to personal grievances and matters as to which the Company tends to receive repetitive or duplicative communications. Shareholders who wish to send communications to the Board may do so by writing to:

Dr. Joseph MoroneMartin Hanaka
Chairman of the Nominating and
Corporate Governance Committee
c/o the Company'sCompany’s Secretary
Trans World Entertainment Corporation
38 Corporate Circle
Albany, New York 12203.12203

Compensation of Directors

Cash Compensation.Each directorDirector who is not a salaried employee of the Company receives a $25,000 retainer per annum plus a $2,000 attendance fee for each board meetingBoard Meeting attended and a $1,000 attendance fee for each committee meeting attended, except that the compensation for telephone conference meetings is $1,000 and $500 for committee telephone conference meetings. A committee chairperson receives an additional $5,000 retainer per year and the Audit Committee chairperson receives a $15,000 annual retainer. The Company may, 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 directorsDirectors from time to time.

Directors Stock Option Plan.Each outside Director is entitled to participate in the Company'sCompany’s 1990 Stock Option Plan for Non-Employee Directors (the "Directors Plan"“Directors Plan”). Currently, Messrs. Adler, Dougan,Cohen, Hanaka, Kaufman, Morone, Schafer, Solow and SolowThomas participate in the Directors Plan. A total of 750,000 shares of Common Stock are reserved for issuance pursuant to non-qualified stock options (the "Director Options"“Director Options”) issued under such plan, and Director Options covering 362,500363,401 shares of Common Stock have been granted and are outstanding. Stock options issuable under the Directors Plan are granted at an exercise price equal to the fair market value of the Common Stock on the date of grant.

     An initial grant of 15,000 Director Options is made to each new director.Director. In addition, on or about May 1 of each year, directorsDirectors receive grants of deferred shares of Common Stock ("(“Deferred Shares"Shares”) under the Directors Plan representing $80,000 in market value of Common Stock as of the date of grant. However, the number of deferred sharesDeferred Shares granted willmay be no greater than 15,000. The Deferred Share grants vest on the third anniversary of the date of grant. The terms of the Deferred Share grants provide that no later than six months priorPrior to vesting, the recipient of a grant may electDecember 31, 2006, each Director elected to either receive Common Stock upon vesting or defer the receipt of such common stockCommon Stock until such person is no longer a director;Director; provided that Deferred Shares will immediately vest and be distributed upon (1) the death or permanent disability of a directorDirector or (2) certain events amounting to a sale or reorganization of the Company. The Board of Directors is authorized, in its discretion, to grant additional Director Options or Common Stock awards to Directors Plan participants. During fiscal 2003,2006, annual grants to outside Directors of 30,000 Director Options were made at an exercise price of $6.44 per share, equal to the market value on the date of grant and 90,000105,000 Deferred Share grantsShares were made.

Retirement Plan.    ThePrior to June 1, 2003 the Company providesprovided the Board of Directors with a noncontributory, unfunded retirement plan that payspaid a retired directorDirector an annual retirement benefit equal to 60% of the annual

retainer at the time of retirement plus a 3% annual increase through the final payment. Payments beginbegan at age 62 or retirement, whichever iswas later, and continuecontinued for 10 years or the life of the directorDirector and his or her spouse, whichever period is shorter. Partial vesting in the retirement plan beginsbegan after six years of continuous service. Participants becomebecame fully vested after 12 years of continuous service on the board.Board.

     EffectiveAs of June 1, 2003, new directors willDirectors were not be covered by the retirement plan. Current directorsDirectors who arewere not yet vested in their retirement benefits will havehad the present value of benefits already accrued as of the effective date converted to Deferred Shares under the Directors Plan. Directors that arewere fully or partially vested in their retirement benefits will beon June 1, 2003 were given a one time election to continue to participate in the current retirement program or convert the present value of benefits already accrued to Deferred Shares under the Directors Plan as of the effective date.June 1, 2003.

EXECUTIVE COMPENSATION

Related Party TransactionsCompensation Discussion and Analysis

     The primary objectives of the Company leaseswith respect to executive compensation are to (i) attract and retain the best possible executive talent, (ii) tie annual and long-term cash and stock incentives to achievement of measurable corporate and individual performance objectives, and (iii) align executives’ incentives with shareholder value creation.

     To achieve these objectives, the Compensation Committee maintains compensation plans that tie a portion of executives’ overall compensation to our financial performance, as measured against established goals.

   Components of Executive Compensation

     The Company’s compensation program for its 168,000 square foot distribution center/office facilitynamed executive officers consists of the following components:

Base Salary.Base salaries for our executives are established based on the scope of their responsibilities, taking into account competitive market compensation paid by other companies for similar positions. Base salaries are reviewed annually, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. For 2007, the executives will receive grants of restricted stock in Albany, New York from Robert J. Higgins, its Chairman,lieu of merit increases.

Annual Incentives.Our annual incentive bonus plan, approved by shareholders, provides for a cash bonus, dependent upon the level of achievement of the stated corporate goals and personal performance goals, calculated as a percentage of the officer’s base salary, with higher ranked executive officers being compensated at a higher percentage of base salary. The Compensation Committee approves the annual incentive award for the Chief Executive Officer and principal shareholder,for each officer below the Chief Executive Officer level, based on the Chief Executive Officer’s recommendations. For 2007, the target bonus awards (as a percentage of base salary) will be as follows: Chief Executive Officer, 75%; Chief Operating Officer, 50%; Executive Vice President, 40%; Senior Vice President, 35%; and Vice President, 30%. Depending on the achievement of the predetermined targets, the annual bonus may be less than or greater than the target bonus. Maximum payout (as a percentage of base salary) for officers is as follows: Chief Executive Officer, 150%; Chief Operating Officer, 120%; Executive Vice President, 100%; Senior Vice President, 80%; and Vice President, 60%. Further information regarding the 2007 bonus opportunities to our named executives is set forth under three capitalized leases that expire in‘‘Grant of Equity and Incentive Plan-Based Awards’’.

     For fiscal 2006 and 2007, the year 2015.Committee approved a special bonus plan designed to reward select associates, including Executive Officers for exceptional performance. 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 adjoiningplan would pay an incentive bonus for company operating income performance above the existing facility. A 19,100 square foot expansion was completed in September 1998 adjoininglevels required to pay maximum bonuses under the existing facility.

        Under the three capitalized leases, dated April 1, 1985, November 1, 1989 and September 1, 1998 (the "Leases"),annual incentive bonus plan. During 2006, the Company paid Mr. Higginsfailed to achieve the operating income levels required to payout bonuses per the special bonus plan. For 2007, the target operating income level to begin payout under the plan is $48.1 million.

Long-Term Incentive Program.We believe that long-term performance is achieved through an annual rentownership culture that encourages long-term performance by our executive officers through the use of $1.8 million in fiscal 2003. On January 1, 2004, 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, 2006, 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 one of its retail stores from Mr. Higgins under a long-term lease, with an annual rental of $40,000. Under the terms of the lease, the Company pays property taxes, maintenance and a contingent rental if a specified sales level is achieved. Total additional charges during fiscal 2003 were $4,600.

        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 owns 47.5%, the Company paid $60,000 for chartered aircraft services in fiscal 2003. The Company also charters an aircraft from Crystal Jet, a corporation wholly-owned by Mr. Higgins.stock-based awards. During fiscal 2003, payments to Crystal Jet aggregated $13,000. The Company also charters an aircraft from Richmor Aviation, an unaffiliated corporation which leases an aircraft owned by Mr. Higgins. Payments to Richmor Aviation were $235,000 in 2003. 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 the2005, our Board of Directors either byadopted and Shareholders’ approved the AuditLong Term Share and Incentive Award Plan, which permits the grant of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares, and other stock-based awards. Historically the Company has granted equity awards to employees, including Executive Officers, each May 1. The determination of the size of any long-term equity compensation grant is made based on competitive factors and the attainment of strategic long term objectives. Equity compensation and stock ownership serve to link the net worth of Executive Officers to the performance of our common stock. In 2007, we intend to provide long-term awards through stock settled appreciation rights, which will vest based on continued employment.

Retirement and Other Benefits.The Company’s benefits program includes retirement plans and group insurance plans. The objective of the program is to provide Executive Officers with reasonable and competitive levels of protection against the four contingencies (retirement, death, disability and ill health) which could interrupt the Executive Officer’s employment and/or income received as an active employee. Retirement plans, including the

supplemental executive retirement plans that cover the Executive Officers, are designed to provide a competitive level of retirement income to Executive Officers and to reward them for continued service with the Company. The retirement program for Executive Officers consists of a supplemental executive retirement plan.

     The group insurance program consists of life, disability and health insurance benefit plans that cover all full-time management and administrative employees and the supplemental long-term disability plan, which covers Executive Officers and other Officers.

Other Compensation.We continue to maintain modest executive benefits and perquisites for officers; however, the Compensation Committee in its discretion may revise, amend or at a meetingadd to the officer’s executive benefits and perquisites if it deems it advisable. We believe these benefits and perquisites are currently below median competitive levels for comparable companies.

REPORT OF THE COMPENSATION COMMITTEE

     The Compensation Committee is responsible for the oversight of the Company’s compensation programs on behalf of the Board of Directors. TheIn fulfilling this responsibility, we have reviewed and discussed with management the Compensation Analysis and Discussion set forth in this Proxy.

     Based on this review we have recommended to the Board of Directors believes that the leasesCompensation Discussion and other provisions are at ratesAnalysis be included in this Proxy for the 2007 Annual Meeting of Shareholders and on terms that are at least as favorable as those that would have been available tofiled with the Company from unaffiliated third parties underSecurities and Exchange Commission.

Compensation Committee of the circumstances.Board of Directors
Mark A. Cohen, Chairman
Martin E. Hanaka
Isaac Kaufman

Summary Compensation Table

     Prior to July 30, 2002, the Company made loans aggregating $442,717 to John J. Sullivan, the Company'sThe following table sets forth information regarding compensation earned by our Chief Executive Vice President andOfficer, our Chief Financial Officer in connection with income taxes due on restricted stock. As of the date hereof, $359,387 of the principal amount of the loan was outstanding. The loan bears interest at the Federal short term rate in effect under section 1274(d) of the Internal Revenue Code.

        Prior to July 30, 2002, the Company made a loan in the amount of $258,405 to Bruce J. Eisenberg, the Company'sand three other most highly compensated Executive Vice President—Real Estate, in connection with income taxes due on restricted stock. As of the date hereof, $219,341 of the principal amount of the loan was outstanding. The loan bears interest at the Federal short term rate in effect under section 1274(d) of the Internal Revenue Code.Officers:

												Non-Equity		Change in
								Stock		Option		Incentive Plan		Pension		All Other		Total
				Salary		Bonus		Awards		Awards		Compensation		Value		Compensation		Compensation
Name		Principal Position		($)(1)		($)		($)(2)		($)(2)		($)(3)		($)(4)		($)(6)		($)
Robert J. Higgins		Chairman of the		1,274,038		—		—		740,333		—		573,170		223,035		2,810,576
		Board and Chief
		Executive Officer
James A. Litwak		President and		458,654		—		—		296,600		—		30,975		1,038		787,267
		Chief Operating
		Officer
Bruce J. Eisenberg		Executive Vice		359,327		—		—		102,634		—		48,059		3,442		513,462
		President – Real
		Estate
Fred Fox(5)		Former Executive		90,192		—		—		—		—		—		150,879		241,071
		Vice President –
		Merchandising and
		Marketing
John J. Sullivan		Executive Vice		359,327		—		—		102,634		—		95,639		3,442		561,042
		President – Chief
		Financial Officer
		and Secretary

(1)	Salary represents amounts paid during fiscal 2006, which included a 53rd week.
(2)	Equity Assumptions: Reflect amounts expensed in the Company’s 2006 financial statements for stock options and stock awards (see footnote 1 to Consolidated Financial Statements contained in the Company’s Form 10-K for the fiscal year ended February 3, 2007).
(3)	Non-Equity Incentive Plan: Amounts we previously disclosed as “Bonus” in prior years under securities rules then in effect. Refer to the narrative following the Grants of Equity and Incentive Plan-Based Awards table on page 14 of this Proxy Statement for more details on non-equity incentive plan compensation.
(4)	Increase in Actuarial Value of Defined Benefit Pension: Includes an estimate of the 2006 increase in actuarial value of the named Executive Officers’ defined benefit pension plan benefit. These estimates were calculated by first determining the difference between the normal retirement age benefit accrued as of November 1, 2005 and the normal retirement age benefit accrued as of November 1, 2006. The narrative and footnotes following the Pension Benefits table on page 16 provide additional detail about the Company’s pension plans.
(5)	Mr. Fox left the Company effective May 2006. All of Mr. Fox’s unvested stock awards and options were cancelled. As a result, the aggregate FAS 123R expense associated with such stock awards and options was reversed.
(6)	Includes the following payments the Company paid on behalf of the executives:

				Perquisites						Company
				and Other						Contributions to		Severance		Change in
				Personnel		Tax		Insurance		Retirement and		Payments/		Control
				Benefits		Reimbursements		Premiums		401(K) Plans		Accruals		Payments/
Name		Year		($)(1)		($)		($)		($)		($)		Accruals ($)		Total ($)
Robert J. Higgins		2006		69,106		—		150,000		3,929		—		—		223,035
James A. Litwak		2006		—		—		—		1,038		—		—		1,038
Bruce J. Eisenberg		2006		—		—		—		3,442		—		—		3,442
Fred Fox		2006		—		—		—		2,706		148,173		—		150,879
John J. Sullivan		2006		—		—		—		3,442		—		—		3,442

(1)	Perquisites for the Named Executive Officer include club dues ($10,531) and fees paid for a personal assistant ($58,575). The cost of perquisites was determined on the basis of aggregate incremental cost to the Company.

        Mr. Solow, a member of the Company's Board of Directors, is a partner of the law firm Kaye Scholer LLP, which rendered legal services to the Company in 2003. Kaye Scholer will conclude its representation of the Company in 2004.

Employment AgreementsAgreement

     As founder and Chief Executive Officer of the Company, Robert J. Higgins has been instrumental in the operations of the Company. During fiscal 2003,2006, Mr. Higgins was employed as Chief Executive Officer of the Company pursuant to an employment agreement that is in effect until April 30, 2008, unless earlier terminated pursuant to its terms. Pursuant to its terms, Mr. Higgins earns a minimum annual salary of $1,200,000,$1,250,000, with annual increases based on performance, as determined by the Compensation Committee, provided however that such increase shall not be less than the percentage amount, if any, by which the Consumer Price Index for All Urban Consumers (the “CPI”) for all items for New York, New York as of April exceeds the CPI for the previous April. For 2006, Mr. Higgins elected to forgo his annual increase. For 2007, Mr. Higgins received shares of restricted stock in lieu of his increase. Mr. Higgins is reimbursed for two club memberships and is entitled to payment of or reimbursement for life insurance premiums of an amount which has an annual net after tax cost to the Company of up to $150,000 per year on insurance policies for the benefit of persons designated by Mr. Higgins. In addition, the Company must provide Mr. Higgins with an automobile and Mr. Higgins is eligible to participate in the Company'sCompany’s executive bonus plan, health and accident insurance plans, stock option plans and in other fringe benefit programs adopted by the Company for the benefit of its executive employees. For the fiscal year ended January 31, 2004, Mr. Higgins received $1,674,000 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.

Severance PolicyEXECUTIVE COMPENSATION

Compensation Committee Report on Executive Compensation

        Compensation and Purpose of the Compensation Committee.    The Company's Compensation Committee (the "Committee") was comprised during fiscal 2003 of three non-employee directors of the Company. Mr. Cohen was added to the Compensation Committee upon his appointment to the Board. It is the Company's policy to constitute the Committee with directors that qualify as outside directors under 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.

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.

        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 2003, 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 500 participants, as the principal long-term incentive for executives. The stock option plan is designed to encourage executive officers to become shareholders and to achieve meaningful increases in shareholder value. The Committee normally grants stock options to executive officers annually. The level of stock option grants is determined using a matrix that considers the executive's position, salary level, and performance as measured by the individual's performance rating.

     The Company also has a restricted stock planseverance policy that is applicable to Officers, including Executive Officers. Under that policy, which the Committee may useis subject to grant awards of Common Stock to officersreview 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 is granted at the discretion of the Committee.

Chief Executive Officer's Compensation

        The Chief Executive Officer was compensated in fiscal 2003 pursuant to an employment agreement, approvedamendment by the Committee which will be in effect through April 30, 2008. Mr. Higgins' base annual compensation, pursuantfrom time to the agreement,time, an Officer whose employment is $1,200,000 with annual increases based on performance, as determinedterminated by the Committee. The employment agreement provides forCompany as a result of a reduction in force, position elimination or a failure to keep pace with the strategic demands of his or her position and who executes a release in the form requested by the Company is generally entitled to continue to receive one week of salary continuation, and continued participation in other benefit plans, for each year of service, with a minimum of 13 weeks for Vice President level officers and 26 weeks for the management bonus plan at a level of 0% toPresident and a maximum of 150% of his salary if certain targets are achieved by26 weeks for Vice President level officers and 52 weeks for the Company. Because the Company's operating income exceeded predetermined targets, the Chief Executive Officer received an annual incentive payment as outlined in the "SUMMARY COMPENSATION TABLE."President.

DeductibilityGrants of Compensation Expenses

        Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to a public corporation for annual 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 industryEquity and geographic region in order to continue to attract the types of executives needed to manage the business. Executive compensation is structured to avoid limitations on deductibility where this result can be achieved consistent with the Company's compensation goals.

Compensation Committee Interlocks and Insider ParticipationIncentive Plan-Based Awards

        There were no compensation committee interlocks during fiscal 2003. None of the Committee's 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.

Compensation Committee of the Board of Directors

Martin E. Hanaka, Chairman
Mark A. Cohen
George W. Dougan
Isaac Kaufman

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Notwithstanding anything to the contrary set forth in the Company's previous filings under the Securities Act of 1933 or under the Securities Exchange Act of 1934 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 below shall not be incorporated by reference to such filings.

Executive Officers and Compensation

     The Company's executive officers (other than Mr. Higgins whose biographical information is included under "Electionfollowing table summarizes grants of Directors" herein) are identified below. At year end, four officers met the definition of "executive officer" under applicable regulations for the fiscal year 2003, 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.

        Bruce J. Eisenberg    has been Executive Vice President of Real Estate at the Company since May 2001. He joined the Company in August of 1993 as Vice President of Real Estate and was named Senior Vice President of Real Estate in May 1995. Prior to joining the Company, Mr. Eisenberg was responsible for leasing, finance and construction of new regional mall development at The Pyramid Companies.

        Fred Fox    has been Executive Vice President of Merchandising and Marketing at the Company since February 2002. Prior to joining Trans World, Mr. Fox held several key executive level positions within OfficeMax and Montgomery Ward as well as various management positions within Circuit City Incorporated, Target Stores and Fischer Scientific Company, LLC.

        John J. Sullivan    has been Executive Vice President, Chief Financial Officer and Secretary of the Company since May 2002. 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, Senior Vice President of Finance, Treasurer and Chief Financial Officer in May 1995 and Executive Vice President, Treasurer

and Chief Financial Officer in May 2001. Prior to joining the Company, Mr. Sullivan was Vice President and Controller for Ames Department Stores, a discount department store chain.

        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 the Chief Executive Officer and each of the three executive officers of the Company whose cash compensation for that year exceeded $100,000 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

										Long-Term Compensation Awards
				Annual Compensation
										Restricted Stock Award(s) ($)		Securities Underlying Options/ SARS (#)
Name and Principal Position		Year		Salary ($)		Bonus ($)		Other Annual Compensation ($)						All Other Compensation ($)
Robert J. Higgins Chairman and Chief Executive Officer		2003 2002 2001		1,116,000 1,066,000 1,030,000		1,674,000 — —		160,479 201,974 260,877	(1) (1) (1)	— — 196,900		1,000,000 550,000 500,000		6,323 6,670 5,274	(4) (4) (4)
Bruce J. Eisenberg Executive Vice President- Real Estate		2003 2002 2001		317,625 307,875 287,495		320,000 — —		—(2) —(2) —(2)		— — 89,500		150,000 60,000 50,000		6,061(4) 5,457(4) 5,581(4)
Fred Fox Executive Vice President- Merchandising and Marketing		2003 2002 2001		307,500 280,385 —		310,000 — —		75,096(3) — —		— — —		150,000 150,000 —		— — —
John J. Sullivan Executive Vice President, Chief Financial Officer and Secretary		2003 2002 2001		321,207 307,875 287,495		320,000 — —		—(2) —(2) —(2)		— — 89,500		150,000 60,000 50,000		6,283(4) 5,815(4) 5,581(4)

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(1)

"Other Annual Compensation" in fiscal 2003, 2002 and 2001 for Mr. Higgins includes $150,000, $154,755, and $166,692, respectively, in payments for, or reimbursement of, life insurance premiumsplan-based awards made on behalf of Mr. Higgins or his beneficiaries, pursuant to his employment agreement.

(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)

"Other Annual Compensation" for the named executive was for relocation expenses.

(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 14,800,000 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. 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 term of any options subject to such terms and conditions as the compensation committee deems appropriate. The option exercise price was set at the fair market value (last reported sale price) on the date of grant. The following tables set forth, as to each of the Named Executive Officers certain information with respect to all options granted or exercisedduring the last fiscal year. All awards were stock settled appreciation rights which vest 50% after three years and 50% after four years. The Compensation Committee has approved target and maximum bonus opportunities (expressed as a percentage of salary) for our Named Executives for 2007, based upon achievement of corporate financial goals and achieving measurable individual annual performance objectives.

														All Other
												All Other		Option
												Stock		Awards;		Exercise or		Grant Date
						Estimated Future Payouts Under Equity						Awards;		Number of		Base Price		Fair Value
						Incentive Plan Awards						Number of		Securities		of Option		of Stock
				Approval		Threshold		Target		Maximum		Shares of		Underlying		Awards		and Option
Name		Grant Date		Date		($)		($)		($)		Stock (#)		Options (#)		($/Share)		Awards
Robert J. Higgins		5/1/2006		5/1/2006		—		—		—		—		450,000		5.32		1,471,642
James A. Litwak		—		—		—		—		—		—		—		—		—
Bruce J. Eisenberg		5/1/2006		3/23/2006		—		—		—		—		50,000		5.32		175,865
Fred Fox(1)		—		—		—		—		—		—		—		—		—
John J. Sullivan		5/1/2006		3/23/2006		—		—		—		—		50,000		5.32		175,865

(1)      Mr. Fox left the fiscal year ended January 31, 2004, under the Stock Option Plan.Company effective May 2006.

Outstanding Equity Awards at Fiscal Year-endSTOCK OPTION GRANTS IN LAST FISCAL YEAR

     The following table sets forth information concerning individual grants of stock options made during the fiscal year ended January 31, 2004, to each ofbelow summarizes the Named Executive Officers.

		Individual Grants
											Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(1)
		Number of Securities Underlying Options Granted (#)		Percent of Total Options Granted to Employees in Fiscal Year
						Exercise or Base Price Per Share
Name									Expiration Date
											5%			10%
Robert J. Higgins		1,000,000		42.6	%	$	3.50		5/1/2013		$	8,716,710		$	15,953,068
Bruce J. Eisenberg		150,000		6.4	%	$	3.50		5/1/2013			1,307,506			2,392,960
Fred Fox		150,000		6.4	%	$	3.50		5/1/2013			1,307,506			2,392,960
John J. Sullivan		150,000		6.4	%	$	3.50		5/1/2013			1,307,506			2,392,960

---

(1)

These amounts are based on assumed appreciation ratesOfficers’ equity awards that were unvested or unexercised, as applicable, as of 5% and 10% as prescribed byFebruary 3, 2007.

		Option Awards
		Number of		Number of
		Securities		Securities
		Underlying		Underlying
		Unexercised		Unexercised		Option		Option
		Options (#)		Options (#)		Exercise Price		Expiration
Name		Exercisable		Unexercisable		($)		Date
Robert J. Higgins		900,000		—		11.20		11/14/2007
		200,000		—		13.06		6/9/2009
		500,000		—		10.88		5/1/2010
		500,000		—		8.95		5/1/2011
		550,000		—		8.02		5/1/2012
		375,000		125,000		3.50		5/1/2013
		—		500,000		3.50		5/1/2013
		550,000		—		10.31		5/1/2014
		475,000		—		14.32		5/1/2015
		—		450,000		5.32		5/1/2016
James A. Litwak		50,000		250,000		7.10		10/24/2015
Bruce J. Eisenberg		60,000		—		3.96		5/1/2007
		22,500		—		17.79		5/1/2008
		75,000		—		15.25		5/3/2009
		50,000		—		10.88		5/1/2010
		50,000		—		8.95		5/1/2011
		60,000		—		8.02		5/1/2012
		75,000		75,000		3.50		5/1/2013
		60,000		—		10.31		5/1/2014
		50,000		—		14.32		5/1/2015
		—		50,000		5.32		5/1/2016
Fred Fox		—		—		—		—
John J. Sullivan		22,500		—		17.79		5/1/2008
		75,000		—		15.25		5/3/2009
		50,000		—		10.88		5/1/2010
		50,000		—		8.95		5/1/2011
		60,000		—		8.02		5/1/2012
		75,000		75,000		3.50		5/1/2013
		60,000		—		10.31		5/1/2014
		50,000		—		14.32		5/1/2015
		—		50,000		5.32		5/1/2016

Mr. Fox left 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 $7.50 at January 30, 2004.

Company effective May 2006.

     On May 1, 2003, stock options representing 1,000,000 shares of Common Stock were granted to Mr. Higgins subject to the following vesting arrangement: options representing 500,000 shares will vest over a 4-year period and options representing 500,000 shares will vest pursuant to a 5-year cliff vesting arrangement with a performance accelerator clause. The performance acceleration will apply at such time as Mr. Higgins recommends, and the Board of Directors approves, a successor chief executive officerChief Executive Officer for Trans World Entertainment Corporation. If a successor chief executive officerChief Executive Officer is hired before the 5-year cliff vesting is satisfied, the 500,000 shares vest in full.

Fiscal 2006 Option Exercises and Stock VestedAGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES

     The following table sets forth information concerning each exercise ofsummarizes options exercised and stock options madeawards that vested during the last completed fiscal year ended January 31, 2004, by eachyear.

		Option Awards				Stock Awards
		Number of				Number of
		Shares				Shares		Value
		Acquired on		Value Realized		Acquired on		Realized on
		Exercise		on Exercise		Vesting		Vesting
Name		(#)		($)		(#)		($)
Robert J. Higgins		—		—		—		—
James A. Litwak		—		—		—		—
Fred Fox		75,000		169,084		—		—
Bruce J. Eisenberg		—		—		—		—
John J. Sullivan		—		—		—		—

Mr. Fox left the NamedCompany effective May 2006.

Pension Benefits

     The Company maintains a non-qualified Supplemental Executive Retirement Plan (“SERP”) for certain Executive Officers of the Company. The SERP, which is unfunded, provides eligible executives defined pension benefits that supplement benefits under other retirement arrangements. The annual benefit amount is equal to 50% of the average of the participant’s base compensation for the five years prior to retirement plus the average of the three largest bonus payments for the last five years prior to retirement, to the extent vested. The Company andhas established a rabbi trust, the purpose is to be a source of funds to match respective funding obligations to participants in the SERP. As of February 3, 2007, total assets related to the Rabbi Trust were $5.3 million related to the cash surrender value of unexercised stock options held by such person astrust owned life insurance policies. The following table illustrates pension benefits accrued under the Supplemental Executive Retirement Plan:

				Number of		Present Value		Payments
				Years Credited		of Accumulated		During Last
				Service		Benefit		Fiscal Year
Name		Plan Name		(#)		($)(1)		($)
Robert J. Higgins		Supplemental Executive		34		13,532,541		—
		Retirement Plan
James A. Litwak		Supplemental Executive		1		30,975		—
		Retirement Plan
Bruce J. Eisenberg		Supplemental Executive		13		507,248		—
		Retirement Plan
Fred Fox		Supplemental Executive		—		—		—
		Retirement Plan
John J. Sullivan		Supplemental Executive		15		941,919		—
		Retirement Plan

Mr. Fox left the Company effective May 2006.
(1)	The amounts shown in this column are based on the same assumptions used in preparation of the Company’s 2006 Consolidated Financial Statements, which are described in Notes 1 and 9 to the Company’s 2006 Consolidated Financial Statements.

Potential Payments Upon Termination or Change of January 31, 2004.

						Number of Securities Underlying Unexercised Options at Fiscal Year End (#)		Value of Unexercised In-the-Money Options at Fiscal Year End ($)
		Shares Acquired on Exercise (#)
Name				Value Realized ($)		Exercisable/ Unexercisable		Exercisable/ Unexercisable(1)
Robert J. Higgins		—		—		1,737,500/1,862,500		0/4,000,000
Bruce J. Eisenberg		60,000		100,486		386,750/253,750		1,244,709/600,000
Fred Fox		—		—		25,000/275,000		0/600,000
John J. Sullivan		30,000		54,617		408,750/253,750		1,383,125/600,000

---

(1)

Calculated on the basis of the fair market value of the underlying securities as of January 30, 2004, minus the exercise price.

ControlFIVE-YEAR PERFORMANCE GRAPH

     The following line graph reflects a comparisontable illustrates potential payments upon termination or change of control as of February 3, 2007:

				Involuntary								Change of
		Voluntary		For Cause		W/O Cause		Death		Disability		Control
Retirement Benefits(1)
Mr. Higgins		—		—		—		—		—		—
Mr. Litwak		—		—		—		1,202,680		1,202,680		1,202,680
Mr. Eisenberg		—		—		—		597,501		597,501		597,501
Mr. Sullivan		—		—		—		740,674		740,674		740,674
Equity(2)
Mr. Higgins		—		—		—		1,642,750		1,642,750		1,642,750
Mr. Litwak		—		—		—		—		—		—
Mr. Eisenberg		—		—		—		195,250		195,250		195,250
Mr. Sullivan		—		—		—		195,250		195,250		195,250
Severance Benefits(3)
Mr. Higgins		—		—		4,140,624		5,071,063		5,071,063		3,737,500
Mr. Litwak		—		—		225,000		225,000		225,000		225,000
Mr. Eisenberg		—		—		88,750		88,750		88,750		88,750
Mr. Sullivan		—		—		102,404		102,404		102,404		102,404
Health and Welfare Benefits(4)
Mr. Higgins		—		—		503,386		193,610		193,610		3,610
Mr. Litwak		—		—		1,444		1,444		1,444		1,444
Mr. Eisenberg		—		—		722		722		722		722
Mr. Sullivan		—		—		833		833		833		833

(1)	Under provisions of the Trans World Entertainment Supplemental Executive Retirement Plan, a participant would be fully vested in his pension benefit in the event of death, disability or of a change in control of the Company. The estimated present value of the benefit increases due to the death, disability or change in control provisions as of 2/3/2007 are presented. Additionally, all benefits under the Supplemental Executive Retirement Plan will be forfeited in the event of any of the following: competitive conduct during the 5 years following termination or at any time while in receipt of benefits; solicitation for employment or employment of company employees during the 5 years following termination or at any time while in receipt of benefits (this clause is waived in the event of a change in control); disclosure of confidential information; or termination for cause.
(2)	Value as of February 3, 2007 of unvested option awards.
(3)	Severance provisions as provided by the Company’s severance policy as described above except as it relates to Mr. Higgins, which is per the provisions stated in Mr. Higgins employment agreement.
(4)	Anticipated costs of continuing life insurance, disability, medical, dental and hospitalization benefits for estimated severance period.

Deductibility of Compensation Expenses

     Section 162(m) of the cumulative total returnInternal Revenue Code generally disallows a tax deduction to a public corporation for annual compensation over $1 million for its Chief Executive Officer or any of its four other highest paid Executive Officers. Qualifying performance based compensation will not be subject to the deduction limit if certain requirements are met. The Committee believes that it is necessary to pay salaries that are competitive within the industry and geographic region in order to continue to attract the types of executives needed to manage the business. Executive compensation is structured to avoid limitations on deductibility where this result can be achieved consistent with the Company’s compensation goals.

Compensation Committee Interlocks and Insider Participation

     There were no compensation committee interlocks during fiscal 2006. None of the Company's Common StockCommittee’s 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.

RELATED PARTY TRANSACTIONS

     The Company leases its 181,300 square foot distribution center/office facility in Albany, New York from Robert J. Higgins, its Chairman and 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 office 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 $2.0 million in fiscal 2006. On January 29, 1999 through January 30, 20041, 2006, the aggregate rental payment increased in accordance with the Nasdaqbiennial increase in the Consumer Price Index, (U.S. Stocks)pursuant to the provisions of each lease. The next such increase will be effective January 1, 2008, and occurs every two years thereafter. 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 one of its retail stores from Mr. Higgins under an operating lease, with an annual rental of $40,000. Under the terms of the lease, the Company pays property taxes, maintenance and a contingent rental if a specified sales level is achieved. Total additional charges during fiscal 2006 were $4,100.

     The Company regularly charters an aircraft for Company business from Crystal Jet, a corporation wholly-owned by Mr. Higgins. During fiscal 2006, payments to Crystal Jet aggregated $11,000. The Company also charters an aircraft, for Company business, from Richmor Aviation, an unaffiliated corporation which leases an aircraft owned by Mr. Higgins. Payments to Richmor Aviation were $526,000 in 2006. 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.

     Mark Higgins, the son of Robert J. Higgins was employed with the Nasdaq National Market Retail Trade Stocks index. Because only oneCompany as Vice President —Merchandising Movies, Games, Electronics and Trend. During 2006, Mark Higgins received $213,923 in cash compensation and was granted 8,500 stock settled appreciation rights.

     The Board has assigned responsibility for reviewing related party transactions to its Audit Committee. The Audit Committee has adopted a written policy pursuant to which all transactions between the Company or its subsidiaries and any Director or Officer must be submitted to the Audit Committee for consideration prior to the consummation of the Company's

leading competitors has beentransaction. The Audit Committee reports to the Board, for its review, on all related party transactions considered. The transactions that were entered into with an independent publicly traded company over“interested Director” were approved by a majority of disinterested Directors of the period,Board of Directors, either by the Company has elected to compare shareholder returns withAudit Committee or at a meeting of the published indexBoard of retail companies compiled by NASDAQ. All values assume a $100 investment on January 29, 1999, and that all dividends were reinvested.Directors.

		1999		2000		2001		2002		2003		2004
Trans World Entertainment Corporation		100		63		63		54		22		51
NASDAQ (U.S.)		100		156		109		77		53		82
NASDAQ Retail Trade Stocks		100		81		63		74		60		88

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 generally requires the Company's directors, executive officersCompany’s Directors, Executive Officers and persons who own more than ten percent of the registered class of the Company'sCompany’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,Directors, and greater than ten percent stockholders were complied with.

REPORT OF THE AUDIT COMMITTEE

     The Audit Committee reviews the Company'sCompany’s financial reporting processesprocess on behalf of the Board of Directors.Directors and monitors the Company’s efforts to comply with certain aspects of the Sarbanes-Oxley Act of 2002. The Audit Committee of the Board has reviewed and discussed the Company'sCompany’s audited financial statements with management.the Company’s Management and its independent accountants, KPMG, LLP. Management is responsible for the financial statements and the underlying financial reporting processes, including the system of internal controls. The Audit Committee has discussed with KPMG LLP, the Company'sCompany’s independent accountants, the matters required to be discussed by Statement on Auditing Standards 61 (Communications with Audit Committees). The Audit Committee has reviewed the internal audit function of the Company, including proposed programs for the current year and the coordination of

such programs with the independent accountants.61. The Audit Committee also has received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees) and has discussed with KPMG LLP the independence of such independent accounting firm. The Committee has also considered whether the independent accountants'accountants’ provision of information technology and other non-audit services to the Company is compatible with the accountants'accountants’ independence.

     The Audit Committee also discussed with the Company’s internal auditors and with KPMG LLP the overall scope and plans for their respective audits. The Audit Committee meets periodically with the Company’s internal auditors and with KPMG LLP, with and without management present, to discuss the results of their examinations, the evaluation of the Company’s internal controls and the overall quality and transparency of the Company’s financial reporting. Based on its review and discussions referred to above, theThe Audit Committee recommended to the Board that the audited financial statements for the fiscal year ended January 31, 2004February 3, 2007 be included in the Company'sCompany’s Annual Report on Form 10-K for the Company'sCompany’s fiscal year ended January 31, 2004.February 3, 2007.

Audit Committee of the Board of Directors

Isaac Kaufman (Chairman)
Michael SolowLori Schafer
Joseph Morone
Edmond Thomas

OTHER MATTERS

Other Items.Management knows of no other items or matters that are expected to be presented for consideration at the meeting. If other matters properly come before the meeting, however, the persons named in the accompanying proxy intend to vote thereon in their discretion.

Proxy Solicitation.The Company will bear the cost of the meeting and the cost of soliciting proxies, including the cost of mailing the proxy materials. In addition to solicitation by mail, directors,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 Accountants.The Board of Directors currently intends to select KPMG LLP as independent accountants for the Company for the fiscal year ending January 29, 2005.February 2, 2008. KPMG LLP has acted as accountants for the Company since 1994, when it purchased the Albany practice of Ernst & Young, the Company'sCompany’s accountants 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.

     The appointment of independent accountants is approved annually by the Board of Directors. The decision of the Board is based on the recommendation of the Audit Committee, which reviews and approves in advance the audit scope, the types of non-audit services, and the estimated fees for the coming year. The Audit Committee also reviews and approves non-audit services to ensure that they will not impair the independence of the accountants.

     Before making its recommendation to the Board for appointment of KPMG LLP, the Audit Committee carefully considered that firm'sfirm’s qualifications as independent accountants for the Company. This included a review of its performance in prior years, as well as its reputation for integrity and competence in the fields of accounting and auditing. The Audit Committee has expressed its satisfaction with KPMG LLP in all of these respects. The Audit Committee'sCommittee’s review included inquiry concerning any litigation involving KPMG LLP and any proceedings by the Securities and Exchange Commission (the “SEC”) against the firm. In this respect, the Audit Committee has concluded that the ability of KPMG LLP to perform services for the Company is in no way adversely affected by any such investigation or litigation. The following is a description of the fees billed to the Company by KPMG LLP for fiscal years 20032006 and 2002.2005.

Audit Fees.Audit fees include fees paid by the Company to KPMG LLP in connection with the annual audit of the Company'sCompany’s consolidated financial statements and KPMG'sKPMG LLP’s review of the Company'sCompany’s interim financial statements. Audit fees also include fees for services performed by KPMG LLP that are closely related to the audit and in many cases could only be provided by independent accountants. Such services include comfort letters and consents related to SEC registration statements and certain reports relating to the Company'sCompany’s regulatory filings. The aggregate fees billed to the Company by KPMG LLP for audit services rendered to the Company and its subsidiaries for fiscal years 20032006 and 20022005 totaled $281,578$750,000 and $277,000,$725,000, respectively.

Audit Related Fees.Audit related services include due diligence and audit services related to employee benefit plan audits and certain attest services. The aggregate fees billed to the Company by KPMG LLP for audit related services rendered to the Company and its subsidiaries for fiscal years 20032006 and 20022005 totaled $10,000$210,000 and $9,000,$21,700, respectively. The increase from 2005 was due to additional services provided related to the Musicland acquisition.

Tax fees.Tax fees include corporate tax compliance and counsel and advisory services. The aggregate fees billed to the Company by KPMG LLP for tax related services rendered to the Company and its subsidiaries for fiscal years 20032006 and 20022005 totaled $127,689$0 and $43,697,$0, respectively. Deloitte & Touchéwill beand Touche LLP was the Company'sCompany’s primary tax advisor in 2004.2006.

     Each year, the Company reviews its existing practices regarding the use of its independent accountants to provide non-audit and consulting services, to ensure compliance with recent SEC proposals. The Company has a policy which provides that the Company'sCompany’s independent accountants may provide certain non-audit services which do not impair the accountants'accountants’ independence. In that regard, the Audit Committee must pre-approve all audit services provided to the Company, as well as non-audit services provided by the Company'sCompany’s independent accountants.accoun-

tants. This policy is administered by the Company'sCompany’s senior financial management, which reports throughout the year to the Audit Committee.

Financial Statements.The Company's 2003Company’s 2006 Annual Report to Shareholders (which does not form a part of the proxy solicitation material), including financial statements for the fiscal year ended January 31, 2004February 3, 2007 is being sent concurrently to shareholders. If you have not received or had access to the 20032006 Annual Report to Shareholders, you may request a free copy by writing to: Trans World Entertainment Corporation, Attention: Treasurer, 38 Corporate Circle, Albany, New York 12203.NY 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 20052008 must submit the same in writing so as to be received at the executive offices of the Company on or before January 15, 2005.2008. Such proposals must also meet the other requirements of the rules of the Securities and Exchange Commission relating to shareholders'shareholders’ proposals. Proposals should be addressed to John J. Sullivan, Secretary, Trans World Entertainment Corporation, 38 Corporate Circle, Albany, NY 12203. No such proposals were received with respect to the annual meeting scheduled for June 16, 2004.6, 2007.

		By Order of the Board of Directors,
		John J. Sullivan, Secretary

By order of the Board of Directors,

John J. Sullivan,
Secretary

May 19, 20049, 2007

APPENDIX A

Appendix A

TRANS WORLD ENTERTAINMENT CORPORATION

CHARTER OF THE AUDIT COMMITTEE

OF THE

BOARD OF DIRECTORS

A.   FORMATION OF THE AUDIT COMMITTEE

     There shall be a committee of the Board of Directors (the "Board"“Board”) of Trans World Entertainment Corporation, a New York corporation (the "Company"“Company”), to be known as the "Audit Committee"“Audit Committee” (the "Committee"“Committee”). The Committee shall be composed of directors who are independent of the management of the Company and are free of any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a committee member. Without limiting the generality of the preceding sentence, the directors appointed to the Committee shall satisfy the independence requirements of the NASDAQ National Market and shall not be an affiliated person of the issuer or any subsidiary as defined under the Sarbanes-Oxley Act of 2002. The Committee shall consist of no fewer than three independent directors, for a term of appointment at the discretion of the Board of Directors, usually for one year. Compensation paid to a director, directly or indirectly, by the Company, other than compensation for board and committee services, regardless of the amount is prohibited. All members of the Committee shall have a working familiarity with basic finance and accounting practices, including the ability to read and understand financial statements at the time of their appointment, and at least one member of the Committee shall have accounting or related financial management experience, such that they would be considered a "financial expert"“financial expert” under applicable SEC rules. The Committee shall meet regularly at least four times annually, and special meetings may be called as circumstances require. The Committee will meet annually with management, the director of the internal auditingaudit function and the independent accountants in separate executive sessions. In addition, the Committee, will meet with the independent accountants and management quarterly to review the Company'sCompany’s financials and public filings. The Company shall provide for appropriate funding, as determined by the Committee, for the performance of its duties, including compensation for the Company'sCompany’s independent accountantsauditors and any independent counsel and advisors retained by the Committee.

B.A.   RESPONSIBILITIES OF THE COMMITTEE

     The Committee shall assist the corporate directors in fulfilling their responsibility to the Company'sCompany’s shareholders, potential shareholders and the investment community, with specific attention to the Company'sCompany’s accounting function, its SEC and NASDAQ reporting practices, and the quality and integrity of the Company'sCompany’s system of internal and disclosure controls regarding finance, accounting, legal compliance and ethics. It is the responsibility of the Audit Committee to maintain free and open means of communication among the corporate directors, the independent accountants,auditors, the internal auditor (if any), general counsel and outside counsel to the Company, and the financial management of the Company.

C.B.   DUTIES OF THE COMMITTEE

     In carrying out its responsibilities, the Committee shall:

1.Review the Charter. Review this charter periodically, at least annually, and update it as conditions dictate.

2.Select, authorize and oversee accountants.auditors. Have the sole authority to review, select and appoint the independent accountantsauditors to audit the books of the Company and its divisions or subsidiaries. Approve the compensation of independent accountants,auditors, oversee the work of the independent accountantsauditors and resolve disagreements between management and the accountants.auditors.




3.Authorize and oversee independent counsel. Appoint and approve compensation for independent counsel and advisors, including legal, accounting and other experts, as deemed necessary, to obtain clarifications and opinions on the financial statements, litigation and any other matters as considered necessary.

4.Audit Plan. Meet with the independent accountantsauditors and financial management of the Company to review the scope of the proposed external audit for the current fiscal year and the audit procedures to be utilized and, at the conclusion of the audit, review any comments or recommendations of the independent accountants.auditors. As part of the audit plan, the Committee shall review the process of assessing the risk of fraudulent financial reporting in any material respect, and the procedures that the independent accountantsauditors plan to undertake in the audit.

5.Approve non-audit services provided by independent accountants.auditors. Approve in advance all non-audit services provided by the independent accountant.auditor. Designate at least one member for approval of non-audit services and ratify such approval at the Audit Committee meeting immediately following the approval. Ensure that the Company publicly discloses approval for non-audit services in its periodic reports.

6.Internal Accounting Controls. Review with the independent accountantsauditors and the Company'sCompany’s financial and accounting management the adequacy and effectiveness of the internal auditing, accounting and financial controls of the Company, and elicit any recommendations for improvement of the internal control procedures or particular areas where new or more detailed controls or procedures may be desirable. Discuss guidelines and policies and govern the process by which risk assessment and management are undertaken.

7.Accounting Principles. Meet with financial management of the Company concerning any proposed changes in accounting principles of the Company and, subject to review with independent accountants,auditors, approve such changes.

8.Related Party Transactions. Review and approve all "related party"“related party” transactions with the Company'sCompany’s directors and officers.

9.Code of Ethics. Review and approve the Company'sCompany’s policy statements on ethical corporate conduct and determine whether the views of the Board are sufficiently detailed in the Company'sCompany’s formal Code of Ethics.

10.Communication. Establish open channels of communication such that the Company'sCompany’s employees can confidentially and anonymously express their concerns over accounting, internal control or auditing matters. Nominate one director who will receive such concerns. Employees may communicate with the Committee without fear of retaliation or liability for any use of the information provided.

11.Proxy Report. Prepare the Audit Committee report to be included in the Company'sCompany’s annual proxy statement, as required by the SEC.

12.Internal Audit Function. Review the internal audit function of the Company, including proposed programs for the current year and the coordination of such programs with the independent accountants,auditors, with particular attention to maintaining the most effective balance between independent and internal auditing resources.

13.Operating Results. Review, prior to each Committee meeting but no less than quarterly, a summary of the Company'sCompany’s financial results compared to plan and a revised forecast for the balance of the fiscal year provided by financial management.

14.Review year-end and quarterly financial statements. Review, prior to release, quarterly unaudited and annual audited financial statements, and MD&A, with management and the Company'sCompany’s independent accountants.auditors. Review of the year-end financial statements shall be accompanied by an explanation from management of all significant fluctuations in balance sheet and income statement line items compared to the preceding fiscal year and to plan. The Committee shall review the disclosures contained in the financial statements with the independent accountantsauditors to determine that the independent accountantsauditors are satisfied with such disclosures and the content of the financial statements to be presented to the shareholders. The Committee shall discuss with management, the press releases and earnings guidance provided to analysts and rating agencies although such discussions need not occur prior to the release or guidance.

15.Review periodic reports. Review and discuss with the management and the independent accountantsauditors the SEC filings made by the Company and other published documents containing the Company'sCompany’s financial statements,state-




ments, with attention to whether the information contained in these documents is consistent with the information contained in the financial statements.

16.Accounting Accruals. Inquire of financial management of the Company about the existence and substance of any significant accounting accruals, reserves or estimates made by management that had a material impact on the financial statements.

17.Private Consultation with Independent Accountants.Auditors. Make available the independent accountantsauditors for private consultation at all meetings of the Committee; the independent accountantsauditors should be encouraged by the Committee to evaluate the Company'sCompany’s financial, accounting and auditing personnel, and describe the level of cooperation that the independent accountantsauditors received during the course of the audit. Review all critical accounting policies and practices to be used; discuss with the independent accountantsauditors all alternative treatments and disclosures of financial information within accounting principles generally accepted in the United States of America (GAAP), that have been discussed with management, their ramifications and the treatment preferred by the independent accountants;auditors; and all other material written communication between the independent accountantsauditors and the management. Ensure that independent accountantsauditors periodically submit formal written statements delineating all relationships between the accountantauditor and the Company and discuss any disclosed relationships or services that may impact, or appear to impact, the objectivity and independence of the accountantauditor and recommend that the Board take appropriate action regarding the accountant'sauditor’s independence. Discuss with the independent accountantauditor matters required to be discussed by Statement of Auditing Standards No. 61 relating to the conduct of the audit.

18.Hiring employees of the Independent Accountant.Auditor. Set clear hiring policies for employees or former employees of the independent accountants.auditors.

19.Review of Legal Matters. Meet at least annually with the appropriate officer of the Company and, if applicable or appropriate in the Committee'sCommittee’s judgment, outside counsel, to review compliance with the Company'sCompany’s Code of Ethics and other policies and procedures, to discuss legal matters that may have a significant impact on the Company'sCompany’s financial statements and to review legal compliance matters including security trading policies. The Committee shall cause to be made an investigation into any matter brought to its attention within the scope of its duties, with the power to retain outside counsel for this purpose if, in its judgment, conduct of such an investigation is appropriate.

20.Income Tax Matters. Review once annually the open years on federal income tax returns, whether there are significant items that have been or might be disputed by the IRS, and inquire as to the status of the related tax reserves.

21.Minutes. Submit minutes of all the meetings of the Committee to the Company'sCompany’s Board.

22.Letter from Audit Committee Chairman. Submit once annually, at or about the time of the Company'sCompany’s Annual Meeting of Shareholders, a letter from the Committee Chairman setting forth to the Board a summary of the Committee'sCommittee’s responsibilities and activities.

23.Qualified Legal Compliance Committee. The Committee shall serve as the Company'sCompany’s Qualified Legal Compliance Committee ("QLCC"(“QLCC”) within the meaning of and in accordance with 17 CFR Part 205. In such capacity, the Committee shall meet only as and when required to discharge its QLCC responsibilities.

     In its capacity as the QLCC, the Committee shall:

1.

Establish written procedures for the confidential receipt, retention and consideration of reports to the Committee by the appropriate officer of the Company or the Company's reporting attorneys that credible evidence of a material violation of an applicable United States federal or state securities law, a material breach of fiduciary duty arising under United States federal or state law or at common law, or a similar material violation of any United States federal or state law by the Company or its subsidiaries or by any officer, director, employee or agent of the Company or its subsidiaries has occurred, is ongoing or is about to occur (each, a "Material Violation").



2.

Inform the appropriate officer of the Company, the Company's Chief Executive Officer and the Company's Chairman of the Board of any evidence of a Material Violation that is reported to the Committee (unless the Committee reasonably believes that it would be futile to report such evidence of Material Violation to such persons).



3.

Determine whether an investigation is necessary regarding any evidence of a Material Violation that is reported to the Committee by the appropriate officer of the Company or reporting attorneys.



4.

If the Committee determines an investigation is necessary or appropriate in relation to a report of evidence of a Material Violation: (i) notify the Board; (ii)  initiate an investigation, which may be conducted either by the appropriate officer of the Company or by outside attorneys; and (iii) retain such additional expert personnel as the Committee deems necessary. At the conclusion of any such investigation: (i) recommend to the Board, by majority vote, that the Company implement an appropriate response to the evidence of a Material Violation; and (ii) inform the the appropriate officer of the Company, the Company's Chief Executive Officer, the Company's Chairman of the Board and the Company's Board of Directors of the results of any such investigation and the appropriate remedial measures to be adopted.



5.

Acting by majority vote, take all other appropriate actions to respond to evidence of a Material Violation that is reported to the Committee by the appropriate officer of the Company or reporting attorney, including the authority to notify the Securities and Exchange Commission in the event the Company fails in any material respect to implement the appropriate response that the Committee has recommended the Company to take.

	1.	Establish written procedures for the confidential receipt, retention and consideration of reports to the Committee by the appropriate officer of the Company or the Company’s reporting attorneys that credible evidence of a material violation of an applicable United States federal or state securities law, a material breach of fiduciary duty arising under United States federal or state law or at common law, or a similar material violation of any United States federal or state law by the Company or its subsidiaries or by any officer, director, employee or agent of the Company or its subsidiaries has occurred, is ongoing or is about to occur (each, a “Material Violation”).
	2.	Inform the appropriate officer of the Company, the Company’s Chief Executive Officer and the Company’s Chairman of the Board of any evidence of a Material Violation that is reported to the Committee (unless the Committee reasonably believes that it would be futile to report such evidence of Material Violation to such persons).
	3.	Determine whether an investigation is necessary regarding any evidence of a Material Violation that is reported to the Committee by the appropriate officer of the Company or reporting attorneys.
	4.	If the Committee determines an investigation is necessary or appropriate in relation to a report of evidence of a Material Violation: (i) notify the Board; (ii) initiate an investigation, which may be conducted either by the appropriate officer of the Company or by outside attorneys; and (iii) retain such additional expert personnel as the Committee deems necessary. At the conclusion of any such investigation: (i) recommend to the Board, by majority vote, that the Company implement an appropriate response to the evidence of a Material Violation; and (ii) inform the appropriate officer of the Company, the Company’s Chief Executive Officer, the Company’s Chairman of the Board and the Company’s Board of Directors of the results of any such investigation and the appropriate remedial measures to be adopted.
	5.	Acting by majority vote, take all other appropriate actions to respond to evidence of a Material Violation that is reported to the Committee by the appropriate officer of the Company or reporting attorney, including the authority to notify the Securities and Exchange Commission in the event the Company fails in any material respect to implement the appropriate response that the Committee has recommended the Company to take.

April 2004* * * * *

March 2007

APPENDIX B

Appendix B

TRANS WORLD ENTERTAINMENT CORPORATION

CHARTER OF THE COMPENSATION COMMITTEE

OF THE BOARD OF DIRECTORS

A.   FORMATION OF THE COMPENSATION COMMITTEE

     There shall be a committee of the Board of Directors (the "Board"“Board”) of Trans World Entertainment Corporation, a New York corporation (the "Company"“Company”) to be known as the "Compensation Committee"“Compensation Committee” (the "Committee"“Committee”). The Committee shall be composed of directors who are independent of the management of the Company and are free of any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a committee member. Without limiting the generality of the preceding sentence, the directors appointed to the Committee shall satisfy the independence requirements of the NASDAQ National Market, shall not be an affiliated person of the issuer or any subsidiary as defined under the Sarbanes-Oxley Act of 2002 and, if deemed appropriate from time to time, meet the definition of "non-employee director"“non-employee director” under Rule 16b-3 under the Securities Exchange Act of 1934, and "outside director"“outside director” for purposes of Section 162(m) of the Internal Revenue Code of 1986. The Committee shall consist of no fewer than three independent directors, for a term of appointment at the discretion of the Board of Directors, considering the recommendation of the Nominating & Governance Committee, and further considering the views of the Chairman of the Board and the Chief Executive Officer, as appropriate,appropriate., usually for one year. The members of the Committee shall serve until their successors are appointed and qualify, and shall designate the Chairman of the Committee. The Board shall have the power at any time to change the membership of the Committee and to fill vacancies in it, subject to such new member(s) satisfying the above requirements and any other corporate legislation in effect at that time. Except as expressly provided in this Charter or the by-laws of the Company, the Committee shall fix its own rules of procedure.

B.   RESPONSIBILITIES OF THE COMMITTEE

        The Committee shall:

(a)

discharge the Board's responsibilities relating to compensation of the Company's executives and



(b)

prepare an annual report on executive compensation for inclusion in the Company's proxy statement in accordance with applicable rules and regulations.

C.    DUTIES OF THE COMMITTEE

        In carrying out its responsibilities, the Committee shall:

1.

Review and approve all executive compensation. The Committee shall review and approve corporate goals and objectives relevant to all executive officer compensation, evaluate each executive officer's performance in light of those goals and objectives, and set the executive compensation level based on this evaluation. In determining the long-term incentive component of executive officers compensation, the Committee should consider the Company's performance and relative shareholder return, the value of similar incentive awards to executive officers at comparable companies, and the awards given to the Company's executive officers in past years.



2.

Annual Review. The Committee shall annually review and make recommendations to the Board with respect to the compensation of all officers and other key executives.

	The Committee shall:
	(a)	discharge the Board’s responsibilities relating to compensation of the Company’s executives and
	(b)	prepare an annual report on executive compensation for inclusion in the Company’s proxy statement in accordance with applicable rules and regulations.
C.	DUTIES OF THE COMMITTEE
	In carrying out its responsibilities, the Committee shall:
	1.	Review and approve all executive compensation. The Committee shall review and approve corporate goals and objectives relevant to all executive officer compensation, evaluate each executive officer’s performance in light of those goals and objectives, and set the executive compensation level based on this evaluation. In determining the long-term incentive component of executive officers compensation, the Committee should consider the Company’s performance and relative shareholder return, the value of similar incentive awards to executive officers at comparable companies, and the awards given to the Company’s executive officers in past years.
	2.	Annual Review. The Committee shall annually review and make recommendations to the Board with respect to the compensation of all officers and other key executives.
	3.	Recommendations to the Board. The Committee shall make recommendations to the Board with respect to incentive compensation plans and equity-based plans.

3.

Recommendations to the Board. The Committee shall make recommendations to the Board with respect to incentive compensation plans and equity-based plans.



4.

Authority to retain consultants. The Committee shall have the sole authority to retain and terminate any compensation consultant to be used to assist in the evaluation of director, Chief Executive Officer or senior executive compensation and shall have sole authority to approve the consultant's fees and other retention terms.



5.

Authorize and oversee independent counsel. The Committee shall also have authority to obtain advice and assistance from internal or external legal, accounting or other advisors as deemed necessary or appropriate.



6.

Administer awards and incentives. The Committee shall adopt, administer, approve and ratify awards under incentive compensation and stock plans, including amendments to the awards made under any such plans, and review and monitor awards under such plans.



7.

Periodic reports. The Committee shall make periodic reports to the Board.



8.

Review of Charter. The Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.



9.

Review Committee performance. The Committee shall annually review its own performance.



10.

Delegation of authority. The Committee may form and delegate authority to subcommittees when appropriate.



11.

Review overall compensation for officer employees. The Committee shall review the overall compensation structure of the Company to determine that it establishes appropriate incentives for officer employees at all levels. All incentives, while industry-dependent and different for different categories of officers should further the Company's long-term strategic plan and be consistent with the culture of the Company and the overall goal of enhancing shareholder value.

	4.	Authority to retain consultants. The Committee shall have the sole authority to retain and terminate any compensation consultant to be used to assist in the evaluation of director, Chief Executive Officer or senior executive compensation and shall have sole authority to approve the consultant’s fees and other retention terms.
	5.	Authorize and oversee independent counsel. The Committee shall also have authority to obtain advice and assistance from internal or external legal, accounting or other advisors as deemed necessary or appropriate.
	6.	Administer awards and incentives. The Committee shall adopt, administer, approve and ratify awards under incentive compensation and stock plans, including amendments to the awards made under any such plans, and review and monitor awards under such plans.
	7.	Periodic reports. The Committee shall make periodic reports to the Board.
	8.	Review of Charter. The Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.
	9.	Review Committee performance. The Committee shall annually review its own performance.
	10.	Delegation of authority. The Committee may form and delegate authority to subcommittees when appropriate.
	11.	Review overall compensation for officer employees. The Committee shall review the overall compensation structure of the Company to determine that it establishes appropriate incentives for officer employees at all levels. All incentives, while industry-dependent and different for different categories of officers should further the Company’s long-term strategic plan and be consistent with the culture of the Company and the overall goal of enhancing shareholder value.

April 2004March 2007

APPENDIX C

TRANS WORLD ENTERTAINMENT CORPORATION

CHARTER OF THE NOMINATING AND CORPORATE GOVERNANCE

COMMITTEE OF THE

BOARD OF DIRECTORS

A.   FORMATION OF THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

     There shall be a committee of the Board of Directors (the "Board"“Board”) of Trans World Entertainment Corporation, a New York corporation (the "Company"“Company”), to be known as the "Nominating“Nominating and Corporate Governance Committee"Committee” (the "Committee"“Committee”). The Committee shall be composed of directors who are independent of the management of the Company and are free of any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a Committee member. Without limiting the generality of the preceding sentence, the directors appointed to the Committee shall satisfy the independence requirements of the NASDAQ National Market and shall not be an affiliated person of the issuer or any subsidiary as defined under the Sarbanes-Oxley Act of 2002. The Committee shall consist of no fewer than three independent directors, for a term of appointment at the discretion of the Board of Directors, considering the views of the Chairman of the Board and the Chief Executive Officer, as appropriate, usually for one year. The members of the Committee shall serve until their successors are appointed and qualify, and shall designate the Chairman of the Committee. The Board shall have the power at any time to change the membership of the Committee and to fill vacancies in it, subject to such new member(s) satisfying the above requirements and any other corporate legislation in effect at that time. The Committee may form and delegate authority to subcommittees when appropriate, and shall meet as necessary, but at least once each year, in order to enable it to fulfill its responsibilities and duties as set forth herein. Except as expressly provided in this Charter, the by-laws of the Company and any applicable corporate governance guidelines of the Company, the Committee shall fix its own rules of procedure.

B.   RESPONSIBILITIES OF THE COMMITTEE

     The Committee shall (1) assist the Board in identifying individuals qualified to become Board members and recommend to the Board the director nominees for the next annual meeting of shareholders; (2) recommend members of the Board to serve on the committees of the Board; (3) recommend to the Board individuals qualified to be elected as officers of the Company; (4) recommend to the Board the corporate governance and business ethics policies, principles, guidelines and codes of conduct applicable to the Company; and (5) lead the Board in its annual review of the Board'sBoard’s performance.

C.    DUTIES OF THE COMMITTEE

NOMINATING. The Committee shall:

•

Develop policies on the size and composition of the Board and qualification criteria, as prescribed by corporate legislation and NASDAQ rules, for Board members in order to insure that the Board is comprised of members reflecting the proper expertise, skills, attributes and personal and professional backgrounds for service as a director of the Company and who have sufficient time available to devote to the affairs of the Company;



•

Actively seek, interview and screen individuals qualified to become Board members for recommendation to the Board;

C.	DUTIES OF THE COMMITTEE
	NOMINATING. The Committee shall:
			Develop policies on the size and composition of the Board and qualification criteria, as prescribed by corporate legislation and NASDAQ rules, for Board members in order to insure that the Board is comprised of members reflecting the proper expertise, skills, attributes and personal and professional backgrounds for service as a director of the Company and who have sufficient time available to devote to the affairs of the Company;
			Actively seek, interview and screen individuals qualified to become Board members for recommendation to the Board;
			Receive suggestions concerning possible candidates for election to the Board, including self-nominations, nominations from shareholders in accordance with the Company’s by-laws and other third-party nominations;
			Recommend to the Board individuals for vacancies occurring from time to time on the Board, including vacancies resulting from an increase in the size of the Board;

•

Receive suggestions concerning possible candidates for election to the Board, including self-nominations, nominations from shareholders in accordance with the Company's by-laws and other third-party nominations;



•

Recommend to the Board individuals for vacancies occurring from time to time on the Board, including vacancies resulting from an increase in the size of the Board;



•

Recommend the slate of nominees to be proposed for election at each annual meeting of shareholders;



•

Recommend members of the Board to serve on the committees of the Board; and



•

Recommend to the Board individuals qualified to be elected as officers of the Company.

CORPORATE GOVERNANCE.GOVERNANCE. The Committee shall:

•

Develop and recommend to the Board a set of corporate governance and business ethics policies, principles, guidelines and codes of conduct applicable to the Company and its directors, officers and employees;



•

Review and reassess at least annually the adequacy of the Company'sCompany’s corporate governance and business ethics policies, principles, guidelines and codes of conduct in light of emerging issues and developments related to corporate governance and other factors and formulate and recommend any proposed changes to the Board for approval;



•

Generally advise the Board as a whole on corporate governance matters;



•

Review and reassess at least annually the adequacy of this Charter and recommend any proposed changes to the Board for approval;



•

Annually review its own performance; and



•

Review and assess the management succession plan for the Chief Executive Officer position.

OTHER.OTHER. The Committee shall have the authority to:

•

Request reports from internal or external sources on matters related to its authority and duties as described in this Charter and on any subject that it deems related to its responsibilities;



•

Retain and terminate any search firm to be used to identify director or officer candidates and to approve the search firm'sfirm’s fees and other retention terms;



•

Receive communications from shareholders and provide copies or summaries of such communications to the other Directors, as the Chairman of the Committee considers appropriate;



•

Retain and terminate outside accountants, legal counsel and other advisors to advise the Committee with respect to Committee matters as it may deem appropriate in its sole discretion and approve related fees and retention terms; and



•

Perform such other activities as the Committee or the Board may from time to time deem necessary or appropriate.

D.   PROCEDURE FOR SHAREHOLDER NOMINATIONS

     The Committee will consider nominations submitted by shareholders. To recommend a nominee, a shareholder must write to the Company'sCompany’s Secretary. To be considered by the Committee for nomination and inclusion in the Company'sCompany’s proxy statement for its annual meeting of shareholders, a shareholder recommendation for a director must be received by the Company'sCompany’s Secretary no later than the deadline for submitting shareholder proposals pursuant to Rule 14a-8(e) of the Securities Exchange Act of 1934.

Any recommendation must include (i) the name and address of the candidate, (ii) a brief biographical description, including his or her occupation for at least the last five years, and a statement of the qualifications of the candidate, taking into account the qualification requirements summarized above, and (iii) the candidate'scandidate’s signed consent to be named in the proxy statement and to serve as a director if elected. The Committee may seek additional biographical and background information from any candidate that must be received on a timely basis to be considered by the Committee.

     Assuming the appropriate biographical and background material is provided for candidates submitted by shareholders, the Committee will evaluate those candidates by applying substantially the same criteria, as for candidates submitted by Board members.

April 2004March 2007

Trans World Entertainment Corporation

Please Mark Here for Address Change or Comments SEE REVERSE SIDE

o

The Board of Directors recommends a vote FOR item 1.
Item 1—ELECTION OF DIRECTORS Nominees: 01 Robert J. Higgins, 02 Mark Cohen, 03 Dr. Joseph Morone and 04 Edmond Thomas		Item 2—In their discretion, the Proxies are authorized to vote upon all other matters that properly may be presented at the meeting.

FOR		WITHHELD FOR ALL		Plan to Attend Meeting        o
o		o

WITHHELD FOR: (Write that nominee's name in the space provided below).

---

Signature				Signature				Date
NOTE: Please sign as name appears herein. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
FOLD AND DETACH HERE

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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

TRANS WORLD ENTERTAINMENT CORPORATION

The undersigned hereby appoints Robert J. Higgins and John J. Sullivan proxies, with power to act without the other and with power of substitution, and hereby authorizes them to represent and vote, as designated on the other side, all the shares of stock of Trans World Entertainment Corporation standing in the name of the undersigned with all powers which the undersigned would possess if present at the Annual Meeting of Stockholders of the Company to be held June 16, 2004 or any adjournment thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1.

(Continued, and to be marked, dated and signed, on the other side)

	The undersigned hereby appoints Robert J. Higgins and John J. Sullivan proxies, with power to act without the other and with power of substitution, and hereby authorizes them to represent and vote, as designated on the other side, all the shares of stock of Trans World Entertainment Corporation standing in the name of the undersigned with all powers which the undersigned would possess if present at the Annual Meeting of Stockholders of the Company to be held June6, 2007or any adjournment thereof. THIS PROXY WHEN PROPERLY EXECUTED WlLL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS PROXY WlLL BE VOTED "FOR" PROPOSAL 1. (Continued, and to be marked, dated and signed, on the other side)
	Address Change/Comments (Mark(Mark the corresponding box on the reverse side)

/\ FOLD AND DETACH HERE /\

You can now access your Trans World Entertainment account online.

Access your Trans World Entertainment shareholder account online via Investor ServiceDirect®ServiceDirect^® (ISD).

Mellon Investorlnvestor Services LLC, Transfer Agent for Trans World Entertainment, now makes it easy and convenient to get current information on your shareholder account.

•
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For Technical Assistance Call 1-877-978-7778 between 9am-7pm
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Trans World Entertainment Corporation

Please           Mark Here for Address Change or Comments SEE REVERSE SIDE

c

							•
The Board of Directors recommends a vote FOR item 1.					Establish/change your PIN
Item 1- ELECTION OF DIRECTORS					Item 2- In their discretion, the Proxies are authorized to vote upon all other
Nominees:					matters that properly may be presented at the meeting.
01	Robert J. Higgins
02	Mark A. Cohen
03	Dr. Joseph G. Morone and
04	Brett Brewer				Plan to Attend Meetingc
		WITHHELD
	FOR	FOR ALL
	c	c
Visit us onWITHHELD FOR: (Write that nominee's name in the web at http://www.melloninvestor.comspace provided below).

Signature ________________________________________ Signature

Date _____________
NOTE:Please sign as name appears herein. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.

/\ FOLD AND DETACH HERE /\

ChooseFor Technical Assistance Call 1-877-978-7778 between 9am-7pm Monday-Friday Eastern Time MLinkSMfor fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on toInvestor ServiceDirect® at www.melloninvestor.com/isd where step-by-step instructions will prompt you through enrollment.

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TRANS WORLD ENTERTAINMENT CORPORATION 38 Corporate Circle Albany, New York 12203 (518) 452-1242
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TRANS WORLD ENTERTAINMENT CORPORATION 38 Corporate Circle Albany, New York 12203 (518) 452-1242
PROXY STATEMENT
VOTING SECURITIES
QUORUM AND TABULATION OF VOTES
PRINCIPAL SHAREHOLDERS
Item 1. ELECTION OF DIRECTORS
EXECUTIVE COMPENSATION
Compensation Committee of the Board of Directors Martin E. Hanaka, Chairman Mark A. Cohen George W. Dougan Isaac Kaufman
SUMMARY COMPENSATION TABLE
STOCK OPTION GRANTS IN LAST FISCAL YEAR
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
FIVE-YEAR PERFORMANCE GRAPH
Audit Committee of the Board of Directors Isaac Kaufman (Chairman) Michael Solow Joseph Morone Edmond Thomas
TRANS WORLD ENTERTAINMENT CORPORATION CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
TRANS WORLD ENTERTAINMENT CORPORATION CHARTER OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
TRANS WORLD ENTERTAINMENT CORPORATION CHARTER OF THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE OF THE BOARD OF DIRECTORS
Trans World Entertainment Corporation
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TRANS WORLD ENTERTAINMENT CORPORATION