Fill and Sign the Charming Shoppes Inc Proxy Statement Definitive Def Form

APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN The Board of Directors has adopted the Charming Shoppes, Inc. Employee Stock Purchase Plan (the "Plan"), subject to approval by Shareholders of the Company. The Plan provides a means for employees (other than certain "highly compensated" Directors and Executive Officers) to authorize payroll deductions on a voluntary basis to be used for the periodic purchase of the Company's Common Stock. It is not expected that any Executive Officer of the Company will be eligible to participate in the Plan. Under the Plan, the Company will initially sell shares to participants at a price equal to the lesse r of 85% of the fair market value of Common Stock at the beginning of a three-month offering period or 85% of the fair market value of Common Stock on the purchase date after the end of the offering period. The Plan permits the Company to change the manner in which purchases are made so that, instead of the Company selling shares at such a discount, the Company would make a matching contribution equal to 15% of an employee's payroll contribution which funds would then be used for market purchases of Common Stock. The Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The Board of Directors believes that the Plan will further encourage broader stock ownership by employees of the Company and thereby provide an incentive for non-executive employees to contribute to the profitability and success of the Company. In particular, the Board intends that the Plan offer a convenient means for such employees who might not otherwise own Common Stock in the Company to purchase and hold Common Stock, and that the discounted sale and matching contribution features of the Plan provide a meaningful inducement to participate. The Board believes that employees' continuing economic interest, as Shareholders, in the performance and success of the Company will further enhance the entrepreneurial spirit of the Company, which can greatly contribute to the long-term growth and profitability of the Company. The Plan will replace a Common Stock purchase program that has been available to employees through a securities brokerage firm. Such program, which did not provide for discounts or matching contributions by the Company and did not give participants certain tax advantages available under the Plan, currently has approximately 380 participants. The Company believes that the more favorable terms of the Plan, when communicated to employees, should result in broader participation in the Plan than in the existing program. Description of the Plan The Plan is set forth in full as Exhibit "A" to this Proxy Statement. The following description of the material features of the Plan is qualified in its entirety by reference to Exhibit "A". Under the terms of the Plan, the shares of the Company's Common Stock which are to be purchased by participants may either be purchased directly from the Company or purchased in the market. The maximum number of shares that may be purchased under the Plan from all sources is 2,000,000, subject to appropriate adjustment in the case of any extraordinary dividend or other distribution, recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange, or other similar corporate transaction or event affecting the Common Stock. Shares purchased from the Company will be either authorized but unissued shares or treasury shares.The Plan will be administered by the Board of Directors, although the Board may delegate some or all of its administrative duties to a Board committee or a committee of employees. The Board or such committee will have authority to interpret the Plan, construe terms, adopt rules and regulations, prescribe forms, and make all determinations under the Plan, including the determination of whether the Company will sell shares directly to participants at a discount (operating as a "discount plan") or will instead make matching contributions for market purchases (operating as a "matching plan"). If a participant is a member of a committee administering the Plan, such person may not decide any matter relating to his or her participation in the Plan. Any full or part-time employee of the Company or any subsidiary will be eligible to participate in the Plan beginning 90 days after commencing employment, excluding any person who is at any time during the offering period both a Director or Executive Officer of the Company (i.e. any person subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended) and a "highly compensated employee" within the meaning of Section 414(q) of the Code) and excluding any other employee who owns five percent or more of the total combined voting power or value of all outstanding shares of all classes of securities of the Company or any subsidiary. Approximately 14,000 employees of the Company currently would be eligible to participate in the Plan. An eligible employee may enroll for any three-month offering period, commencing January 1, April 1, July 1, and October I of each year, by filing an enrollment form with the Company at least 15 days before the commencement of the offering period. After initial enrollment in the Plan, the employee will be automatically re-enrolled in the Plan for subsequent offering periods unless he or she files a notice of withdrawal before such offering period begins, terminates employment or otherwise becomes ineligible to participate. Upon enrollment in the Plan, the employee must elect a rate at which he or she will make payroll contributions for the purchase of Common Stock. An employee generally may elect to make contributions in an amount not less than one percent nor more than ten percent of such employee's regular earnings (or such higher or lower rates as the Board may specify), although an employee's contributions will be adjusted downward (or refunded) to the extent necessary to ensure that he or she will not purchase during any offering period Common Stock that has a fair market value, as of the beginning of the offering period, in excess of $6,250 (representing an annual limitation of $25,000). All employee contributions will be made by means of direct payroll deduction. The contribution rate elected by a participant will continue in effect until modified by the participant, except that an employee may not increase a previously elected contribution rate during a given offering period. The contributions of an employee will be credited to an account maintained on behalf of such employee by a brokerage firm (or a successor appointed by the Board of Directors), designated as custodian under the Plan. The Plan provides that purchases of Common Stock are to be made on the fifth business day after the end of each offering period. As described above, for so long as the Plan is operated as a "discount plan," the Company will sell shares directly to the custodian for employees' accounts at a price equal to the lesser of 85% of the fair market value of Common Stock at the beginning of the three-month offering period or 85% of the fair market value of Common Stock on such purchase date. If the Board designates the Plan as a "matching plan," such discounted sales by the Company would be discontinued, but the Company instead would make a matching contribution equal to 15% of an employee's payroll contributions to be used by the custodian to make market purchases of Common Stock at or promptly after such purchase date.Pursuant to either of the above methods, shares of the Company's Common Stock will be purchased on a given purchase date in the aggregate for all accounts under the Plan. Shares purchased will be credited to the accounts maintained by the custodian for each participant based upon the average cost of all shares purchased. No interest will be credited on payroll contributions pending investment in Common Stock. Dividends paid on Common Stock credited to participants' accounts will be automatically reinvested in additional shares by the custodian, either through purchases in the market or directly from the Company (no matching contributions or discounts will apply to such dividend reinvestment purchases). Participants will have the exclusive right to vote or direct the voting of shares credited to their accounts, and will be permitted to withdraw, transfer, or sell their shares without restriction. Participants' rights under the Plan are nontransferable except pursuant to the laws of descent and distribution. A participant's enrollment in the Plan may be terminated at any time, effective for payroll periods or offering periods beginning after the filing of a notice of termination of enrollment. Enrollment will also terminate upon termination of a participant's employment by the Company and its subsidiaries, or if a participant becomes a "highly compensated" Director or Executive Officer. Upon termination of enrollment, uninvested cash amounts resulting from previous payroll contributions will be repaid to the participant. The custodian will continue to hold Common Stock for the account of such a participant until the participant sells or withdraws the Common Stock, but in no event more than one year after the participant ceases to be employed by the Company and its subsidiaries. A participant may also reduce or eliminate future contribu- tions for future payroll periods without thereby terminating enrollment. In such case, previous payroll contributions held in the participant's cash account will be used for the purchase of Common Stock at the next purchase date. The Company will pay costs and expenses incurred in the administration of the Plan and maintenance of accounts, and will pay brokerage fees and commissions for purchases. The Company will not pay brokerage fees and expenses relating to sales by participants, and participants may be charged reasonable fees by the custodian for withdrawals of share certificates and other specified services. The custodian will be responsible for furnishing account statements to participants. The Board of Directors may amend, alter, suspend, discontinue or terminate the Plan without further Shareholder approval, except Shareholder approval must be obtained within one year after the effectiveness of such action if required by law or regulation or under the rules of any automated quotation system (such as the Nasdaq National Market) or securities exchange on which the Common Stock is then quoted or listed, or if such Shareholder approval is necessary in order for the Plan to continue to meet the requirements of Section 423 of the Code. Thus, Shareholder approval will not necessarily be required for amendments which might increase the cost of the plan or broaden eligibility. The Plan will continue until terminated by action of the Board, although as noted above the number of shares authorized under the Plan is limited.On May 10, 1994, the last reported sale price of the Company's Common Stock on the Nasdaq National Market was $10.125 per share. Federal Income Tax Consequences The Company believes that under present law the following federal income tax consequences would generally result under the Plan. Rights to purchase shares under the Plan are intended to constitute "options" issued pursuant to an "employee stock purchase plan" within the meaning of Section 423 of the Code: (1) No taxable income results to the participant upon the grant of a right to purchase or upon the purchase of shares for his or her account under the Plan (although the amount of a participant's payroll contributions under the Plan will be taxable as ordinary income to the participant). (2) If the participant disposes of shares less than two years after the first day of an offering period with respect to which he or she purchased the shares, then at that time the participant will recognize as ordinary income an amount equal to the excess of the fair market value of the shares on the date of purchase over the amount of the participant's payroll contributions used to purchase the shares. (3) If the participant holds the shares for at least two years after the first day of an offering period with respect to which he or she purchased the shares, then at the time of the disposition the participant will recognize as ordinary income an amount equal to the lesser of (i) the excess of the fair market value of the shares on the first day of the offering period over the amount of the participant's payroll contributions used to purchase the shares, and (ii) the excess of the fair market value of the shares on the date of disposition over the amount of the participant's payroll contributions used to purchase the shares. (4) In addition, the participant will recognize a long-term or short-term capital gain or loss, as the case may be, in an amount equal to the difference between the amount realized upon any sale of the Common Stock and the participant's basis in the Common Stock (i.e., the purchase price plus the amount, if any, taxed to the participant as ordinary income, as noted in (2) and (3) above), (5) If the statutory holding period described in (2) and (3) above is satisfied, the Company will not receive any deduction for federal income tax purposes with respect to any discount in the sale price of Common Stock or matching contribution applicable to such participant. If such statutory holding period is not satisfied, the Company generally should be entitled to a deduction in an amount equal to the amount taxed to the participant as ordinary income. The foregoing provides only a general description of the application of federal income tax laws to the Plan. The summary does not address the effects of other federal taxes or taxes imposed under state, local, or foreign tax laws. Because of the complexities of the tax laws, participants are encouraged to consult a tax advisor as to their individual circumstances. Adoption of the proposal to approve the Plan requires the affirmative vote of a majority of the votes cast. The Board of Directors unanimously recommends a vote FOR approval of the Employee Stock Purchase Plan.