Trans World Entertainment and Camelot Music Holdings Announce Stock Merger

Business Wire, Oct 26, 1998

ALBANY, N.Y.--(BUSINESS WIRE)--Oct. 26, 1998--

Merged Company to Have Sales and Market

Capitalization in Excess of $1 Billion

Trans World Entertainment Corporation (Nasdaq NM: TWMC) and Camelot Music Holdings, Inc. (OTC BB: CMHDA) today announced that they have signed a definitive agreement to merge in a stock-for-stock transaction that will create the nation's largest mall based music retailing company. The combined entity will have over 1,000 stores in 44 states. Both companies carry a wide selection of entertainment products including compact discs, prerecorded audio cassettes, videocassettes, DVD and related accessories. The transaction is subject to customary closing conditions and regulatory approvals, and is expected to close in early 1999.

The Board of Directors of each company has unanimously approved the transaction and recommends the strategic merger. Each Camelot shareholder will receive 1.9 newly issued shares of Trans World Entertainment common stock for each Camelot share, resulting in the issuance of approximately 20.7 million new shares. The transaction is intended to be accounted for as a tax-free pooling-of-interests and is expected to be immediately accretive to earnings, before considering savings due to anticipated synergies.

"This strategic merger creates value for both Trans World Entertainment and Camelot shareholders," said Robert J. Higgins, Chairman, Chief Executive Officer, and President of Trans World Entertainment. "Trans World's merger with Camelot opens the door to many new opportunities that will further solidify the company's leading position in the industry. With relatively few stores overlapping, this merger will allow us to rapidly grow the store base by expanding our presence in existing areas of operation while providing a springboard for expansion into new markets. In addition, by acquiring Camelot's distribution facilities in Ohio we will strengthen operating efficiencies and enhance overall financial performance."

Mr. Higgins will retain the titles of Chairman, CEO and President of the combined company, which will operate under the name Trans World Entertainment Corporation.

James E. Bonk, Chairman and CEO of Camelot Music Holdings, stated. "The merger of these two high profile music retailers will leave behind their history as competitors and enter the new year as the single largest mall based music retailer. The distribution center and nearly 500 Camelot, Wall and Spec's stores will continue to operate and grow in the new company. This business combination will provide significant value for our shareholders."

Two current members of Camelot's Board of Directors will join the Trans World Entertainment Board upon the completion of the merger.

Jeff Maillet, fund manager for Van Kampen Prime Rate Income Trust, Camelot's largest shareholder, stated that he is in full support of the transaction and believes it will ensure Camelot's long-term participation in the retail industry.

Trans World Entertainment, based in Albany, New York, operates 520 specialty retail music and video stores, including 322 mall locations under the names Record Town, Saturday Matinee, and F.Y.E. (For Your Entertainment), and 198 freestanding and strip center locations under the names Coconuts, Planet Music and Strawberries Music, which was acquired in 1997.

Camelot Music, primarily a mall-based retailer, emerged healthy from reorganization proceedings on January 27, 1998 and has since acquired both The Wall, Inc., and Spec's Music Inc., expanding the company to 435 mall and 57 freestanding stores.

Goldman, Sachs & Co. advised Trans World Entertainment. Merrill Lynch & Co. and Policano & Manzo LLC served as financial advisors to Camelot.

Certain statements in this report set forth management's intentions; plans, beliefs, expectations or predictions of the future based on current facts and analyses. Actual results may differ materially from those indicated in such statements. Additional information on factors that may affect the business and financial results of the Company can be found in filings of the Company with the Securities and Exchange Commission.