SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CHARMING SHOPPES, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
------------------------------------------------------------------------
(3) Filing party:
------------------------------------------------------------------------
(4) Date filed:
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CHARMING SHOPPES, INC.
450 WINKS LANE
BENSALEM, PENNSYLVANIA 19020
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 27, 2002
---------------------
The Annual Meeting of Shareholders of Charming Shoppes, Inc. will be held
at the Lane Bryant offices of Charming Shoppes, Inc., 5 Limited Parkway,
Reynoldsburg, Ohio 43068, on Thursday, June 27, 2002 at 10:00 A.M. for the
following purposes:
1. To elect three Class C Directors of the Company; and
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Shareholders of record at the close of business on May 10, 2002 will be
entitled to notice of and to vote at the meeting.
A Proxy Statement, Proxy Card, Annual Report and postage-paid return
envelope are enclosed.
By Order of the Board of Directors
COLIN D. STERN
Secretary
May 29, 2002
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. SHAREHOLDERS
UNABLE TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO VOTE, DATE AND SIGN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, AND TO MAIL THE SAME IN THE
ENVELOPE ENCLOSED FOR THAT PURPOSE. NO POSTAGE IS REQUIRED IF IT IS MAILED IN
THE UNITED STATES.
TABLE OF CONTENTS
PAGE
----
The Meeting................................................. 1
General................................................ 1
Record Date and Outstanding Shares..................... 1
Voting by Proxy........................................ 1
Quorum................................................. 1
Revocability of Proxies................................ 1
Votes Required for Approval............................ 2
Election of Directors....................................... 2
Directors Standing for Election........................ 2
Biographical Information............................... 2
Board Committees....................................... 4
Compensation of Directors.............................. 6
Management Compensation..................................... 7
Summary Compensation Table............................. 7
Option Grants in Last Fiscal Year...................... 9
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values......................... 10
Employment, Change of Control and Severance
Agreements............................................ 10
Report of the Compensation and Stock Option Committees of
the Board of Directors on Executive Compensation.......... 13
Compensation Strategy.................................. 13
Base Salaries.......................................... 14
Annual Incentive Plan.................................. 14
Long-Term Incentive Plans.............................. 15
Other.................................................. 15
Compensation of Chief Executive Officer for the 2002
Fiscal Year........................................... 16
Deductibility of Compensation.......................... 16
Stock Performance Chart..................................... 18
Principal Shareholders and Management Ownership............. 19
Certain Relationships and Related Transactions.............. 21
Compensation Committee Interlocks and Insider
Participation............................................. 23
Relationship with Auditors.................................. 23
Audit Committee Report...................................... 23
Audit and Related Fees...................................... 24
Section 16(a) Beneficial Ownership Reporting Compliance..... 24
Proposals for 2003 Annual Meeting........................... 24
Cost of Solicitation........................................ 24
Other Business.............................................. 25
Additional Information...................................... 25
CHARMING SHOPPES, INC.
450 WINKS LANE
BENSALEM, PENNSYLVANIA 19020
---------------------
PROXY STATEMENT
---------------------
THE MEETING
GENERAL
The enclosed Proxy Card is solicited by the Board of Directors of Charming
Shoppes, Inc. (the "Company") for use at the Annual Meeting of Shareholders to
be held on Thursday, June 27, 2002 at 10:00 A.M. at the Lane Bryant offices of
the Company, 5 Limited Parkway, Reynoldsburg, Ohio 43068, and at any
adjournments thereof (the "Meeting"). This Proxy Statement, the accompanying
Notice of Annual Meeting of Shareholders and Proxy Card and the Company's 2001
Annual Report were mailed on or about May 29, 2002 to all Shareholders entitled
to vote at the Meeting.
RECORD DATE AND OUTSTANDING SHARES
Shareholders of record as of the close of business on May 10, 2002 are
entitled to notice of and to vote at the Meeting. On May 10, 2002 there were
113,017,918 shares of Common Stock outstanding. Each Shareholder has one vote
per share on all matters to be voted on.
VOTING BY PROXY
Shares of the Company's Common Stock represented by any unrevoked Proxy in
the enclosed form, if properly executed and received prior to the Meeting, will
be voted in accordance with the specifications made on the Proxy. Any properly
executed Proxy received on a timely basis on which no specification has been
made by the Shareholder will be voted "FOR" the election as Directors of the
nominees listed herein (or for such substitute nominee as may be nominated by
the Board of Directors if any initial nominee becomes unavailable, which event
is not anticipated), and, in the discretion of the Proxy Committee, upon all
other matters requiring a vote of Shareholders which may come before the
Meeting, and of which the Board of Directors was not aware a reasonable time
before this solicitation, and as otherwise permitted under the Rules of the
Securities and Exchange Commission ("SEC"). At the time of the mailing of this
Proxy Statement, the Board of Directors had not received any notice regarding
any other matter to come before the Meeting which was timely in accordance with
the Company's Bylaws. The Proxy Committee consists of Dorrit J. Bern, Chairman
of the Board of Directors, President and Chief Executive Officer, and Joseph L.
Castle, II, a member of the Board of Directors.
QUORUM
Presence at the Meeting, in person or by proxy, of the holders of a
majority of the shares of Common Stock entitled to vote is necessary to
constitute a quorum. There must be a quorum for the Meeting to be held.
Abstentions and broker non-votes (discussed below) are counted for the purpose
of determining the presence or absence of a quorum.
REVOCABILITY OF PROXIES
Any Shareholder who executes and delivers a Proxy may revoke it at any time
prior to its use by delivering a duly executed Proxy bearing a later date or by
sending notice to the Secretary of the Company at the address of the Company
listed above. Any Shareholder may choose to attend the Meeting and vote in
person, in which case any Proxy previously executed by such Shareholder will be
revoked.
1
VOTES REQUIRED FOR APPROVAL
The election of Directors will be determined by a plurality of the votes
cast at the Meeting. Votes may be cast in favor or withheld; votes that are
withheld will be excluded entirely from the vote and will have no effect. Other
matters properly coming before the Meeting will be determined by a majority of
the votes cast. Abstentions and broker non-votes are not considered votes cast
under Pennsylvania law. A broker non-vote occurs if a broker or other person
holding shares on behalf of a beneficial owner does not vote on a particular
item because the broker or other person does not have discretionary authority
for that item and has not received instructions from the beneficial owner of the
shares. Accordingly, abstentions and broker non-votes will not affect the
outcome of a vote on a particular matter coming before the Meeting.
ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
The Company's Restated Articles of Incorporation provide for a classified
Board of Directors, consisting of three classes of Directors with overlapping
three-year terms. One class of Directors is to be elected each year with terms
expiring on the third succeeding Annual Meeting after such election and until
their successors shall have been duly elected and qualified. The terms of the
three Class C Directors, namely, Dorrit J. Bern, Alan Rosskamm and Kenneth S.
Olshan, are scheduled to expire as of the date of the Meeting. At the Meeting,
Dorrit J. Bern, Alan Rosskamm and Kenneth S. Olshan will be standing for
election as Class C Directors for additional three-year terms and until their
successors shall have been duly elected and qualified. These three Directors
were last elected to the Board at the Company's Annual Meeting held on July 1,
1999.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL THE
NOMINEES.
BIOGRAPHICAL INFORMATION
The Class C Directors standing for election are:
DORRIT J. BERN Director Since 1995
Ms. Bern, 52, has been President and Chief Executive Officer since August
23, 1995 when she joined the Company. She also served as Vice Chairman of the
Board from August 23, 1995 until January 30, 1997 when she was elected Chairman
of the Board. Before her employment with the Company, Ms. Bern was employed by
Sears, Roebuck & Co. since 1987. She was a Divisional Vice President of Misses
and Junior Sportswear, Dresses, Outerwear, Petite and Large Size Sportswear and
Dresses, and Maternity until December 1992 when she was promoted to Category
Vice President of Women's Apparel. In December 1993, she was promoted to Group
Vice President of Women's Apparel and Home Fashions. Before joining Sears,
Roebuck & Co., Ms. Bern held merchandising positions at The Bon Marche and
Joske's, divisions of Allied Department Stores, Inc. Ms. Bern is also a Director
of Southern Company and Brunswick Corporation.
ALAN ROSSKAMM Director Since 1992
Mr. Rosskamm, 52, has been Chairman of the Board of Directors of Jo-Ann
Stores, Inc. ("Jo-Ann") since July 1992 and has been the Chief Executive Officer
and a Director of Jo-Ann for more than five years. Jo-Ann sells a wide variety
of fashion and decorator fabrics, notions, patterns, sewing accessories, crafts,
floral and seasonal merchandise under the Jo-Ann Fabrics and Crafts and Jo-Ann
etc names.
KENNETH S. OLSHAN Director Since 1999
Mr. Olshan, 69, currently serves as a member of the Board of Directors of
Footstar, Inc. and Well Gen. He has served on the boards of and provided
strategic consulting services to a variety of prominent companies. Mr. Olshan
was Chairman and Chief Executive Officer of Wells Rich Greene BDDP from 1990
until 1995. He also served as Chairman of Wells Rich Greene Advertising from
1982 to 1990 when the agency was acquired by BDDP, a Paris-based global
communications group. Mr. Olshan is a trustee of the Central Park Conservancy.
2
Directors Continuing in Office:
The following Class A Directors' terms end in 2003:
MARVIN L. SLOMOWITZ Director Since 1990
Mr. Slomowitz, 72, has served as Chief Executive Officer and Chairman of
the Board of Directors of Mark Development Company, a shopping center developer,
for more than five years. He also served as Chairman of the Board and Chief
Executive Officer of Mark Centers Trust (the "Trust"), which is the general
partner of Mark Centers Limited Partnership (the "Partnership") from June 1993
until August 1998 when the Trust and Partnership combined their real estate
interests with the real estate interests of certain other entities and changed
their names to Acadia Realty Trust and Acadia Realty Limited Partnership,
respectively. Mr. Slomowitz continued as a member of the Board of Trustees of
Acadia Realty Trust until December 1999. Acadia Realty Trust is principally
engaged in the development of shopping centers.
MARJORIE MARGOLIES-MEZVINSKY Director Since 1997
Ms. Margolies-Mezvinsky, 59, has served as Chair of the Women's Campaign
International since March 1998. She is a senior lecturer at the Fels Center of
Government at the University of Pennsylvania and a Woodrow Wilson Visiting
Fellow at Princeton University. Ms. Margolies-Mezvinsky also served as President
of the Women's Campaign Fund and the Women's Campaign Research Fund from March
1996 to February 1998. In 1995 she served as Director of the United States
Delegation to the United Nations Fourth World Conference on Women. From 1992 to
1994, she served as the United States representative from Pennsylvania's 13th
Congressional District in the 103rd Congressional Session. Before that, Ms.
Margolies-Mezvinsky was a television journalist. In February 2000, Ms.
Margolies-Mezvinsky was obliged to file a Bankruptcy petition under Chapter 7 of
the Bankruptcy Code (following a filing of reorganization by her husband under
Chapter 11 of the Bankruptcy Code) to obtain judicial relief from her portion of
their joint obligations. Mr. Mezvinsky has since filed under Chapter 7 of the
Bankruptcy Code. Both bankruptcy proceedings are presently in progress.
CHARLES T. HOPKINS Director Since 1999
Mr. Hopkins, 59, was associated with the public accounting firm of KPMG LLP
from 1966 until 1999. During his term at KPMG LLP, Mr. Hopkins served as an
audit partner and a SEC reviewing partner. From 1993 until 1998, Mr. Hopkins was
managing partner of KPMG's Philadelphia Business Unit.
The following Class B Directors' terms end in 2004:
JOSEPH L. CASTLE, II Director Since 1990
Mr. Castle, 69, was Chairman of the Company's Board of Directors for the
period March 21, 1996 through January 30, 1997. He has served as Chairman of the
Board of Castle Energy Corporation ("CEC") since December 1993. He has also
served as President, Chief Executive Officer and a Director of CEC since
December 1985 and was President and Chairman of the Board of Directors of its
predecessor (which merged with a subsidiary of CEC in December 1985) from
February 1981 through December 1985. Mr. Castle is a Director of Comcast
Corporation and also serves as Chairman of the Board of The AHP Settlement Trust
(Fen/Phen).
PAMELA S. LEWIS Director Since 1998
Dr. Lewis, 45, is the Chief Operating Officer and President-Elect of Queens
College. She is scheduled to assume the office of President on July 1, 2002.
From June 2000 until March 2001, Dr. Lewis was the Dean of the McColl School of
Business, Queens College. From June 1997 to June 2000 she served as Professor of
Management and Dean of the Bennett S. LeBow College of Business at Drexel
University. From 1992 to 1997 Dr. Lewis served as Chairman of the Department of
Management at the University of Central Florida. Her professional specialization
is in the field of strategic planning with a particular emphasis on competitive
and marketing strategy. She has written and lectured on these topics
extensively. Dr. Lewis is a Director of C & D Technologies, Inc.
KATHERINE M. HUDSON Director Since 2000
Ms. Hudson, 55, has been President, Chief Executive Officer and Director of
Brady Corporation since January 1994. Brady Corporation is a leading
manufacturer and marketer of complete identification solutions which improve
productivity, performance, safety and security. Its products include
high-performance labels,
3
signs, software, printers, specialty die-cut materials and data-collection
systems. Before joining Brady Corporation, she was a Vice President at Eastman
Kodak Company and General Manager of its Professional, Printing and Publishing
Imaging Division. Her 24 years at Eastman Kodak Company included positions in
finance, communication and public affairs, information systems and the
management of instant photography and printing. She is a director of CNH Global
N.V. and serves on the Alverno College Board of Trustees and the Medical College
of Wisconsin Board of Trustees.
Information concerning the beneficial ownership of the Company's shares of
Common Stock by each nominee for election as a Director and each person whose
term of office as a Director will continue is set forth under "PRINCIPAL
SHAREHOLDERS AND MANAGEMENT OWNERSHIP."
BOARD COMMITTEES
The Board of Directors currently has an Audit Committee, a Compensation
Committee, a Stock Option Committee, a Corporate Governance Committee and an
Administration Committee.
BOARD COMMITTEE MEMBERSHIP
------------------------------------------------------------------------------------------------------------------------
CORPORATE
AUDIT COMPENSATION STOCK OPTION GOVERNANCE ADMINISTRATION
COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE
-------------- ----------------- -------------------- ---------------- -----------------------
------------------------------------------------------------------------------------------------------------------------
Dorrit J. Bern - X
------------------------------------------------------------------------------------------------------------------------
Alan Rosskamm - X - X -
------------------------------------------------------------------------------------------------------------------------
Kenneth S. Olshan - - -
------------------------------------------------------------------------------------------------------------------------
Marvin L. Slomowitz - -
------------------------------------------------------------------------------------------------------------------------
Marjorie Margolies-
Mezvinsky - - -
------------------------------------------------------------------------------------------------------------------------
Charles T. Hopkins - X
------------------------------------------------------------------------------------------------------------------------
Joseph L. Castle,
II - - - - -
------------------------------------------------------------------------------------------------------------------------
Pamela S. Lewis - - X
------------------------------------------------------------------------------------------------------------------------
Katherine M. Hudson -
------------------------------------------------------------------------------------------------------------------------
* Number of
Meetings in Fiscal
2002 8 6 6 2 None
------------------------------------------------------------------------------------------------------------------------
- Member
X Chairperson
* The Board held eight meetings during the Company's fiscal year ended February
2, 2002. Each incumbent Director attended at least 75% of the aggregate of
all meetings of the Board and Committees on which he or she served (held at a
time he or she was a Director) except that Mr. Olshan attended two-thirds of
such meetings. The Board and the Committees from time to time act by
unanimous consent as well.
4
Audit Committee
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities to the Company's
Shareholders and other constituencies. The Audit Committee reviews the
independence and performance of the Company's independent auditors and annually
recommends to the Board of Directors the appointment of the independent auditors
or approves any discharge of such auditors. The Audit Committee also reviews
changes in the Company's accounting principles as applied in its financial
reporting and the independent auditors' judgments about the quality and
appropriateness of those principles. In addition, the Audit Committee oversees
the Company's internal compliance programs. The composition of the Audit
Committee, the attributes of its members and the responsibilities of the Audit
Committee as reflected in its Charter are intended to be in compliance with the
rules of the Securities and Exchange Commission and the Nasdaq listing
requirements adopted in December 1999 with regard to Corporate Audit Committees.
Compensation Committee
The Compensation Committee is responsible for overseeing the compensation
strategy of the Company and for the oversight and administration of the
Company's compensation programs. The Compensation Committee reviews and approves
performance targets, eligibility, participation and award levels for incentive
compensation plans; approves and reports to the Board on the administration of
compensation plans and the compensation of executives at specified salary
levels; and makes recommendations to the Board regarding the compensation of the
Chief Executive Officer.
Stock Option Committee
The Stock Option Committee oversees and administers the Company's stock
incentive plans. This includes selecting participants and the times at which
options and other equity-based awards should be granted and the number of shares
to be subject to each option or award. In addition, the Committee monitors
aggregate share usage and potential dilution. The Committee makes all other
determinations necessary or advisable for the administration of these stock
incentive plans.
Corporate Governance Committee
The Corporate Governance Committee, in consultation with the Chairman of
the Board of Directors and Chief Executive Officer of the Company, makes
recommendations to the Board regarding the size and composition of the Board;
recommends to the Board criteria regarding the personal qualifications required
for Board membership; establishes procedures for the nomination process and
recommends candidates for election to the Board of Directors; determines and
recommends to the Board appropriate compensation for Directors; evaluates the
performance of the Board as a whole; evaluates Board practices and recommends
appropriate changes to the Board; and considers various corporate governance
issues, including those raised by Shareholders and other constituents and
recommends appropriate responses to the Board.
Administration Committee
The Administration Committee is authorized to exercise the authority of the
Board of Directors on matters of a routine nature between the meetings of the
Board of Directors.
Director Nominations
Nominations for Director candidates are determined by the Board of
Directors after recommendation by the Corporate Governance Committee. The
Corporate Governance Committee will consider nominations for Directors initiated
by Shareholders. The Company's Bylaws establish advance notice procedures with
regard to the nomination, other than by or at the direction of the Board of
Directors or a committee thereof, of candidates for election as Directors. These
procedures generally provide that the notice of proposed Shareholder nominations
for the election of Directors must be given in writing to the Secretary of the
Company by the date on which a Shareholder proposal would be required to be
submitted to the Company in
5
order to be set forth in the Company's Proxy Statement, in accordance with SEC
Rules. See also "PROPOSALS FOR 2003 ANNUAL MEETING." This notice generally must
(i) identify the name and address of the nominating Shareholder and nominee,
(ii) contain representations concerning the nominating Shareholder's ownership
of Common Stock and intention to appear at the Meeting and make the nomination,
and (iii) include all relevant information concerning the nominee and his or her
relationship or transactions with the Company that are required to be disclosed
in the Proxy Statement pursuant to SEC Rules.
COMPENSATION OF DIRECTORS
Under the Company's Amended and Restated Non-Employee Directors
Compensation Program, each non-employee Director is entitled to:
- An annual cash retainer of $20,000 with an additional annual retainer of
$3,000 for a Committee Chairperson. By making a prior, timely election,
non-employee Directors may defer any cash fee as of the time the fee is
payable into the Company's Common Stock units payable in cash and/or into
cash deferrals which bear interest at the prime rate plus one percent
(1%). The cash deferrals may be reallocated among other investment
alternatives made available for cash deferrals under the Amended and
Restated Non-Employee Directors Compensation Program.
- An automatic annual grant of options to purchase 20,000 shares of Common
Stock. Each option grant vests in equal installments over five years and
permits the holder to purchase shares at their fair market value on the
date of grant, which was $5.52 in the case of the options granted on June
14, 2001. Each option expires at the earlier of ten years after the date
of grant or one year after the non-employee Director ceases to serve for
any reason except in the case of mandatory retirement as described below.
The options will vest in full upon the death or disability of the
non-employee Director or a change in control of the Company, and, in the
event of termination of service for reasons other than death, disability
or mandatory retirement, the options will vest pro-rata based on the
period of service through the date of termination, or as otherwise
determined by the Board. The Amended and Restated Non-Employee Directors
Compensation Program further provides that unvested options will not be
forfeited upon a mandatory retirement but will continue to become
exercisable at the times the options would have vested had the
non-employee Director not been required to retire. The non-employee
Director will have a period of one year following vesting to exercise
each portion of his or her option that becomes exercisable during this
post-retirement period.
- For newly elected non-employee Directors, a one-time grant of 10,000
shares of restricted stock which will vest in equal amounts over three
years. The restricted stock will also vest in full upon the death or
disability of a non-employee Director or a change in control of the
Company. In the event of termination of service as a non-employee
Director for reasons other than death, disability or voluntary
resignation, the restricted stock will vest as though the non-employee
Director served through the anticipated date of the next Annual Meeting
of Shareholders following termination of service, or as otherwise
determined by the Board.
Directors who are also employees of the Company receive no additional
compensation for services as a Director or Chairman of the Board.
6
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
earned or paid during each of the Company's last three fiscal years (ended
February 2, 2002 ("2002 fiscal year"), February 3, 2001 ("2001 fiscal year") and
January 29, 2000 ("2000 fiscal year")) to the Company's Chief Executive Officer,
each of the Company's four other most highly compensated Executive Officers who
were serving in such capacities at the end of the 2002 fiscal year based on
salary and bonus earned during the 2002 fiscal year, and Diane V. Missel and
Jeffery A. Warzel, employees of the Company whose salary and bonus earned during
the 2002 fiscal year, but for the fact they were not serving as Executive
Officers at the end of the 2002 fiscal year, would have placed them among the
four most highly compensated Executive Officers, excluding the Chief Executive
Officer.
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------------- -----------------------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND FISCAL COMPENSATION RESTRICTED STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR(1) SALARY($)(2) BONUS($)(3) ($)(4) AWARD(S)($)(5) OPTIONS(#) ($)(6)
------------------ ------- ------------ ----------- ------------ ---------------- ---------- ------------
Dorrit J. Bern............. 2002 $1,000,000 $300,000 $ 63,566 $1,644,000 200,000 $ 80,458
Chairman of the Board 2001 1,019,231 628,800 66,768 -- 200,000 112,998
President and Chief 2000 1,000,000 900,000 64,805 1,012,500 -- 109,854
Executive Officer
Diane V. Missel............ 2002 394,000 153,875 -- 58,500 66,000 16,630
President -- 2001 356,731 171,336 -- -- 60,000 7,608
Lane Bryant 2000 289,000 175,000 -- -- -- --
Jeffery A. Warzel.......... 2002 304,000 143,376 -- 26,000 30,000 3,456
Sr. Vice President -- 2001 265,000 75,918 -- 20,438 -- --
Chief Administrative 2000 20,000 -- -- 30,000 --
Officer -- Lane Bryant
Eric M. Specter............ 2002 355,000 100,000 -- 58,500 66,000 27,186
Executive Vice 2001 346,539 174,080 -- 61,313 66,000 28,365
President and Chief 2000 315,000 236,250 -- 39,875 83,000 20,428
Financial Officer
Erna Zint.................. 2002 400,000 -- 191,606 39,000 44,000 --
Executive Vice 2001 407,692 202,400 181,795 40,875 44,000 --
President -- Sourcing 2000 400,000 300,000 151,051 27,188 55,000 --
Colin D. Stern............. 2002 332,000 50,000 -- 39,000 44,000 51,786
Executive Vice 2001 326,154 163,840 -- 40,875 44,000 47,400
President, General 2000 300,000 181,200 -- 27,188 55,000 32,038
Counsel and Secretary
Anthony A. DeSabato........ 2002 355,000 -- -- 58,500 66,000 31,854
Executive Vice 2001 346,539 173,349 -- 61,313 66,000 35,247
President and 2000 290,000 224,000 -- 27,188 55,000 21,863
Corporate Director of
Human Resources
---------------
(1) The Company has a 52-53 week fiscal year ending the Saturday nearest January
31. The Company had a 53 week fiscal year for the fiscal year ended February
3, 2001. Accordingly, the amounts in the table for the fiscal year ended
February 3, 2001 reflect compensation paid for a 53 week fiscal year.
(2) Includes all salary amounts deferred under qualified and non-qualified
deferred compensation plans.
(3) Includes all annual bonus amounts deferred under qualified and non-qualified
deferred compensation plans. See "REPORT OF THE COMPENSATION AND STOCK
OPTION COMMITTEES OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION."
(notes continued on following page)
7
(4) The amount for the 2002 fiscal year with respect to Dorrit J. Bern includes
$14,094 paid on her behalf for air travel commuting expenses between Ms.
Bern's home in Illinois and the Company's main office in Pennsylvania and
$49,472 attributable to her for the rent-free use of an apartment in
Philadelphia, Pennsylvania. The amount for the 2002 fiscal year with respect
to Erna Zint includes $184,000 paid on her behalf as a housing allowance for
living accommodations in Hong Kong. No amount has been disclosed with
respect to the other named Executive Officers in accordance with SEC Rules
as the value of perquisites or other personal benefits received by each such
Executive Officer does not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported for such Executive Officer.
(5) Included for the 2002 fiscal year are 300,000 restricted shares granted to
Dorrit J. Bern and valued at $5.48 per share, the closing stock price on
April 26, 2001. Also included are restricted shares granted to the other
named Executive Officers valued at $6.50 per share, the closing stock price
on February 23, 2001. The number of restricted shares granted to the other
named Executive Officers are as follows: Diane V. Missel, 9,000; Jeffery A.
Warzel, 4,000; Eric M. Specter, 9,000; Erna Zint, 6,000; Colin D. Stern,
6,000; and Anthony A. DeSabato, 9,000. Based on the closing price of $5.61
per share on February 1, 2002, the number of restricted shares held by each
of the named Executive Officers still subject to risk of forfeiture and
restrictions on transferability and the aggregate value of these awards at
the end of the 2002 fiscal year were as follows: Dorrit J. Bern, 420,000
shares valued at $2,356,200; Diane V. Missel, 9,000 shares valued at
$50,490; Jeffery A. Warzel, 5,800 shares valued at $32,538; Eric M. Specter,
21,000 shares valued at $117,810; Erna Zint, 14,100 shares valued at
$79,101; Colin D. Stern, 14,100 shares valued at $79,101; and Anthony A.
DeSabato, 18,900 shares valued at $106,029. These restricted shares
generally vest in equal annual installments on the first five anniversaries
of the date of grant except that the restricted share award of 300,000
shares to Dorrit J. Bern on April 26, 2001 vests in equal annual
installments of 90,000 shares each on the third and fourth anniversaries of
the date of grant with the balance of 120,000 shares vesting on the fifth
anniversary of the date of grant. Dividends are payable on restricted shares
when, and if, dividends are paid on Common Stock.
(6) Included are contributions in the following amounts made or accrued by the
Company under its qualified and non-qualified deferred compensation plans on
behalf of the named Executive Officers during the 2002 fiscal year: Dorrit
J. Bern, $29,917; Diane V. Missel, $16,630; Jeffery A. Warzel, $3,456; Eric
M. Specter, $13,533; Erna Zint, $0; Colin D. Stern, $17,939; and Anthony A.
DeSabato, $12,033. In addition, the Company has enabled Dorrit J. Bern, Eric
M. Specter, Colin D. Stern and Anthony A. DeSabato to obtain life insurance
pursuant to "Split Dollar" arrangements. The Company is the beneficiary
under such policies to the extent of the premiums paid by it. Accordingly,
the economic value of this benefit included with respect to the 2002 fiscal
year is as follows: Dorrit J. Bern, $50,541; Eric M. Specter, $13,654; Colin
D. Stern, $33,847; and Anthony A. DeSabato, $19,822.
8
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to options granted to the
named Executive Officers during the 2002 fiscal year. The table indicates the
potential realizable value of options granted during the 2002 fiscal year
assuming the options are exercised immediately prior to their expiration date
and assuming the occurrence of the specified compounded rates of appreciation of
the Company's Common Stock over the term of such options. The potential
realizable value of such options is approximately equal to the amount a
purchaser of Common Stock would realize, exclusive of brokerage commissions,
assuming (i) the purchase of an equivalent number of shares of Common Stock at
the closing market price on the date of grant of the options depicted, (ii) the
sale of such shares immediately prior to the expiration date of such options at
the closing market price on such date, and (iii) the occurrence of the specified
compounded rates of appreciation of the Common Stock over such holding period.
This table is presented solely for purposes of complying with SEC Rules, and
there can be no assurance that the optionees or any purchaser of the Common
Stock under the circumstances described herein will actually realize the returns
assumed in this table under the circumstances depicted or under any other
circumstances. The actual amounts, if any, realized by an optionee or the
purchaser of Common Stock will be dependent upon a number of factors, including
the future performance of the Company and overall stock market conditions.
INDIVIDUAL GRANTS
-----------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES
UNDERLYING GRANTED TO OF STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(1)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------------
NAME (#)(2) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- -------- ---------- ----------- -------------
Dorrit J. Bern................ 200,000 7.9% 6.50 2/23/11 $817,563 $2,071,865
Diane V. Missel............... 66,000 2.6% 6.50 2/23/11 269,796 683,716
Jeffery A. Warzel............. 30,000 1.2% 6.50 2/23/11 122,634 310,780
Eric M. Specter............... 66,000 2.6% 6.50 2/23/11 269,796 683,716
Erna Zint..................... 44,000 1.7% 6.50 2/23/11 179,864 455,810
Colin D. Stern................ 44,000 1.7% 6.50 2/23/11 179,864 455,810
Anthony A. DeSabato........... 66,000 2.6% 6.50 2/23/11 269,796 683,716
---------------
(1) The potential realizable value of the options depicted above does not take
into account provisions of certain options providing for termination of the
options following the termination of employment or the vesting requirements
and risks of forfeiture of the options.
(2) All of these options to acquire shares of the Company's Common Stock are
non-qualified options and were granted with an exercise price equal to the
fair market value of the shares of Common Stock on the date of the grant.
Such options become exercisable as to 20% of the shares subject thereto on
each succeeding anniversary of the date of grant until the fifth anniversary
at which time all options are fully vested. Such options have a term of ten
years subject to earlier expiration at or following termination of
employment in certain circumstances. The option exercise price may be paid
in cash or, with the approval of the Stock Option Committee, in shares of
Common Stock owned by the Executive Officer or a combination of cash and
such shares. In the event of a change in control of the Company, any
unexercisable portion of the options will become immediately exercisable.
See "MANAGEMENT COMPENSATION -- Employment, Change of Control and Severance
Agreements." An Executive Officer can elect to have the Company withhold
shares upon exercise to satisfy tax withholding obligations.
9
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The table below provides the following information with respect to options
exercised by each of the named Executive Officers during the 2002 fiscal year:
(i) the number of shares of the Company's Common Stock acquired upon exercise of
options during the 2002 fiscal year, (ii) the aggregate dollar value realized
upon the exercise of such options, (iii) the total number of exercisable and
unexercisable stock options held at February 2, 2002 and (iv) the aggregate
dollar value of the in-the-money exercisable and unexercisable options at
February 2, 2002.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
Dorrit J. Bern....... -- -- 1,080,000 320,000 $985,000 $ --
Diane V. Missel...... -- -- 24,000 102,000 -- --
Jeffery A. Warzel.... -- -- 12,000 48,000 -- --
Eric M. Specter...... 15,000 $69,950 484,360 236,240 303,217 145,563
Erna Zint............ -- -- 357,600 135,400 774,130 96,645
Colin D. Stern....... -- -- 561,400 189,100 257,630 96,645
Anthony A. DeSabato.. -- -- 358,640 191,760 257,630 96,645
---------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market on February 1, 2002 was $5.61. Value is calculated on the
basis of the aggregate of the difference between the option exercise price
of in-the-money options and $5.61 multiplied by the number of shares of
Common Stock underlying such options.
EMPLOYMENT, CHANGE OF CONTROL AND SEVERANCE AGREEMENTS
On October 12, 1999 Dorrit J. Bern entered into a new Employment Agreement
(the "Bern Agreement") with the Company which replaced her prior Employment
Agreement. Under the Bern Agreement, Ms. Bern continues to be employed as the
Company's President and Chief Executive Officer at a minimum salary of
$1,000,000 for a five-year term commencing October 12, 1999 and continuing from
year to year thereafter unless either Ms. Bern or the Company gives the other
notice of such party's intention not to renew the Bern Agreement. Ms. Bern is
entitled to participate in the Company's Annual Incentive Plan. Her minimum
targeted incentive opportunity in any one fiscal year will be 60% of her base
salary and the maximum payout will be not less than 200% of her targeted
incentive opportunity.
Under the Bern Agreement, Ms. Bern was granted 200,000 restricted shares of
the Company's Common Stock with a fair market value on the date of grant of
$5.0625 per share, the closing price per Common Share on the Nasdaq National
Market on October 12, 1999. The restricted shares vest in equal installments
over five years subject to Ms. Bern's continued employment with the Company
through the relevant anniversary date; provided, however, that all restrictions
will lapse and the restricted shares will become fully vested upon a change in
control which is defined in the award agreement and the Bern Agreement on
substantially the same terms as are set forth in the agreements evidencing
options granted under the 1993 Employees' Stock Incentive Plan as more fully
described below, or if Ms. Bern resigns for Good Reason (as defined in the Bern
Agreement), is terminated without Cause (as defined in the Bern Agreement), dies
or is terminated by reason of her disability.
The Bern Agreement requires that Ms. Bern receive annual grants of options
to purchase a minimum of 200,000 shares of the Company's Common Stock under the
Company's 1993 Employees' Stock Incentive Plan or any successor plan. These
options vest in equal installments over five years, subject to Ms. Bern's
continued employment with the Company through the relevant anniversary date;
provided, however, that options will become fully vested upon a change in
control or if Ms. Bern resigns for Good Reason or is terminated without Cause,
dies or is terminated by reason of her disability. On February 11, 2002 Ms. Bern
10
was granted options to purchase 600,000 shares of the Company's Common Stock at
an exercise price of $6.00 per share. Such options have a three year term and
vest on the first anniversary of the date of grant. This grant was made in lieu
of her annual option grants under the Bern Agreement for fiscal years 2003
through 2005. The Stock Option Committee made similar grants of options to other
key executives as well. The purpose of the grants was to focus the management
team on integration and value creation following the Lane Bryant acquisition.
The Bern Agreement also provides for Ms. Bern's participation in the
Company's retirement, insurance and other benefit programs. In particular, the
Company purchased a $4,000,000 split dollar life insurance policy on Ms. Bern's
life. She is entitled to convert that policy to a "last to die" policy provided
that such conversion does not increase the Company's costs, or diminish its
rights, under the policy. Ms. Bern has since converted her policy to a "last to
die" policy with a death benefit of $8,000,000.
Ms. Bern's employment may be terminated (a) on her death or retirement, (b)
in the event of her disability, (c) on her voluntary termination on at least
ninety days prior notice, (d) by the Company without Cause, (e) by the Company
for Cause, or (f) by Ms. Bern for Good Reason. On her death or on termination by
reason of her disability, Ms. Bern will be entitled to her base salary for any
days worked prior to the date of death or termination, and all other benefits
that she is vested in pursuant to other plans and programs of the Company. If
Ms. Bern is discharged for Cause or she resigns without Good Reason, her
entitlement to further compensation generally will be limited to the receipt of
her base salary through the effective date of termination, plus all other
benefits to which she has a vested right at that time, except that in no event
shall she be entitled to receive any annual bonus with respect to the fiscal
year in which termination without Good Reason occurs. If Ms. Bern is discharged
without Cause or she resigns for Good Reason, she will be entitled to receive in
24 equal monthly installments an amount equal to two times the sum of her annual
base salary plus her targeted annual bonus established for the fiscal year in
which her effective date of termination occurs, and she will be entitled to
continuation of all health, welfare and benefit plan participation for two years
following the effective date of termination (unless substantially similar
benefits are provided by a successor employer). If, however, such discharge
without Cause or resignation for Good Reason occurs within 24 calendar months
following a change in control, Ms. Bern instead shall be entitled to (a) receive
a lump sum amount equal to (i) three times the highest rate of her annualized
base salary, (ii) three times the greater of her targeted annual bonus award
established for the plan year in which her effective date of termination occurs
or the plan year ending immediately prior to such effective date of termination,
and (iii) her unpaid targeted annual bonus award established for the year in
which her effective date of termination occurs pro-rated for the number of days
completed during that fiscal year, and (b) continuation of the benefits of
health care, life and accident insurance, and disability insurance coverage for
three full years after the effective date of termination. In the event that a
determination is made pursuant to the Internal Revenue Code of 1986 (the
"Code"), as amended, that a golden parachute excise tax is due, the benefits
provided to Ms. Bern under the Bern Agreement that are classified as "parachute
payments" under the Code shall be limited to the amount just necessary to avoid
the excise tax. However, this limitation will be applied only if it results in a
greater net (of excise tax) cash benefit to Ms. Bern than she would receive had
the benefits not been capped and an excise tax been levied. A non-renewal of the
employment term by the Company will be treated as a termination without Cause
for purposes of the Agreement. The Agreement requires the Company to pay up to
$50,000 in legal fees if incurred by Ms. Bern to enforce the Agreement, and up
to $50,000 in outplacement services, following termination by the Company
without Cause or by Ms. Bern for Good Reason.
During her employment and for a period of 24 months following Ms. Bern's
termination of employment for any reason, she may not, among other things, be
financially interested in or associated with any competitor of the Company in
the United States in the procuring, sale, marketing, promotion or distribution
of any product or product lines competitive with any product or product lines of
the Company, nor may she attempt to induce certain employees to terminate their
employment with the Company. As defined in the Bern Agreement, "competitor"
means a chain of retail stores with 50 or more store locations, provided that
the average square footage of the chain's stores is less than 15,000 square
feet.
On January 31, 2002 Erna Zint entered into a new Employment Agreement (the
"Zint Agreement") with the Company which replaced her existing Employment
Agreement. Under the Zint Agreement, Ms. Zint
11
continues to be employed as the Company's Executive Vice President -- Sourcing
at an annual salary of $400,000 for a term commencing January 30, 2002 and
ending on March 31, 2003 (the "Term"). Ms. Zint is assigned to perform her
duties under the Zint Agreement outside the United States, currently in Hong
Kong. Ms. Zint's salary will be reviewed at least annually by the Company's
Board of Directors to determine if an increase is appropriate, which increase is
in the sole discretion of the Company's Board of Directors. Commencing with the
fiscal year beginning February 3, 2002, Ms. Zint is entitled to receive
additional compensation ("Performance Compensation") if the Company achieves
certain performance objectives established under the Company's Annual Incentive
Plan. The formula and standards for determining this Performance Compensation
are determined by the Compensation Committee, but may not exceed 100% of Ms.
Zint's annual base salary for the applicable year.
Ms. Zint is entitled to certain benefits including, among others, a housing
allowance of $15,334 per month during the Term of her employment, the payment of
club membership fees and a round-trip airline ticket per year to Europe or the
United States in connection with her annual leave which, when possible, will
coincide with a business trip. The Zint Agreement also provides for Ms. Zint's
participation in the Company's retirement, insurance and other benefit programs.
The Company may terminate Ms. Zint's employment for Cause (as defined in the
Zint Agreement). The Company may also terminate Ms. Zint's employment at any
time during the Term upon written notice to Ms. Zint for any reason that does
not constitute "Cause" provided that the Company pays to Ms. Zint the lesser of
the amount to be paid during the remainder of the Term or one year's base salary
(severance) at the rate in effect on the date of any such termination and
continues to provide those benefits due to Ms. Zint under the Zint Agreement for
the period of time covered by such severance. Ms. Zint has also agreed that, for
a period of one year after the termination of her employment, she will not
solicit the employment of any person who was employed by the Company or any of
its affiliates or subsidiaries on a full or part-time basis at the time of Ms.
Zint's termination unless such person was involuntarily discharged by the
Company or such affiliate or subsidiary, without the prior consent of the
Company.
The Board of Directors has approved change in control agreements with
certain named Executive Officers (Eric M. Specter, Erna Zint, Colin D. Stern and
Anthony A. DeSabato) and other members of senior management designated by the
Board. Ms. Bern is not a party to such an agreement as her employment
relationship with the Company is governed by the Bern Agreement described above.
These agreements provide for severance and other benefits if, within 24 months
following the month in which a change in control of the Company (as discussed
below) occurs, the Company terminates the executive's employment without cause
or the executive terminates employment for "Good Reason" (as defined in the
change in control agreements). If a termination following a change in control
triggers benefits, the executive will receive:
- a lump-sum payment of a pro-rated portion of target annual incentive
compensation for the year in which the termination occurs.
- a lump-sum payment equal to the sum of the executive's highest base
salary and highest target annual incentive compensation, times a
multiplier of two for more senior executives or one for other executives.
- life, disability and health benefits following termination for a period
of two years for more senior executives or one year for other executives.
- payment of an allowance up to $30,000 for outplacement expenses.
- payment of reasonable legal expenses to enforce the agreement up to
$35,000.
- acceleration of the vesting of the executive's entitlement to benefits
under the executive's split-dollar life insurance and the payment of
annual premiums with respect to that insurance.
- if benefits are subject to the "golden parachute" excise tax, the
benefits shall be limited to the amount just necessary to avoid the
excise tax if such a limitation results in a greater net (of excise tax)
cash benefit to the executive than he or she would have received had the
benefits not been capped and an excise tax had been levied.
12
The agreements obligate each executive not to disclose or use the Company's
confidential or proprietary information during and after employment and not to
attempt to induce any employee of the Company to terminate employment or
interfere in a similar manner with the Company's business during and for 24
months after termination of the executive's employment.
In addition, the stock options granted to each of the named Executive
Officers under the Company's stock option plans provide that in the event of a
change in control of the Company, the options become fully exercisable. For
purposes of the stock option agreements and the change in control agreements, a
"change in control" is generally defined as (i) an acquisition of shares
resulting in an entity (but excluding certain entities) having at least 20% of
the voting power of the Company, (ii) a change in the Board's membership whereby
the current members, or those members elected or nominated by the current
members, no longer constitute a majority as provided in the stock option
agreement or two-thirds as provided in the change in control agreements, (iii)
certain mergers, recapitalizations, or reorganizations, or (iv) a liquidation or
sale of substantially all of the Company's assets (but excluding sales to
certain parties).
The information contained in this Proxy Statement with respect to the Audit
Committee Report, the Report of the Compensation and Stock Option Committees of
the Board of Directors on Executive Compensation and the Stock Performance Chart
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission, nor shall such information be incorporated
by reference into any future filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically incorporates it by reference in such
filing.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
COMPENSATION STRATEGY
The primary objectives of the Compensation and Stock Option Committees of
the Company's Board of Directors (collectively, the "Committee") are to assure
that the Company's executive compensation and benefit program:
- reflects the Company's unique, entrepreneurial and customer-focused
orientation;
- provides competitive compensation opportunities relative to retail
industry organizations or other companies that may reasonably reflect its
market for high caliber executive talent;
- is effective in driving performance to achieve financial goals and create
Shareholder value;
- is cost-efficient and fair to employees, management and Shareholders; and
- is well communicated and understood by program participants.
The Committee, which is comprised of independent, non-employee Directors of
the Company (see "ELECTION OF DIRECTORS -- Board Committees"), periodically
engages an independent compensation and benefits consulting firm to review the
Company's compensation and benefits program. In this regard consideration is
given to:
- business direction and strategy;
- comparisons of compensation forms and levels with other retail companies
or in industry more generally; and
- interests of Shareholders, customers, communities, management and other
employees.
The Company's executive compensation and benefits program reflects its
entrepreneurial business strategy and its need to attract and retain high
quality key employees. The Company's compensation strategy is to place the major
portion of total compensation at risk in the form of annual incentives and
long-term, stock-based compensation programs. The program gives great weight to
stock compensation opportunities
13
intended to align management's interests with those of the Company's
Shareholders. Combinations of cash and stock compensation have been critical
factors in attracting and retaining key employees and are intended to contribute
to a high level of employee commitment to the Company's business success.
The Company's target total compensation opportunities (base salary, bonus
and long-term incentives) for Executives are set to reflect the Company's size
and financial performance as compared to the size, financial performance and
corresponding compensation levels of a group of retail industry companies (the
"Compensation Peer Group"), its markets for executive talent, and the
expectation that the executive team should possess the necessary skills,
experience and motivations to attain ambitious goals for business growth. Pay
opportunities for specific individuals will vary based on skills, experience and
assessments with respect to individual performance. Actual total compensation
will vary above or below market standards based primarily on the attainment of
operating goals and the creation of Shareholder value. In some instances the
amount and structure of compensation results from negotiations with executives,
which reflects an increasingly competitive market for quality managerial talent.
To help attract and retain such talent, the Committee seeks also to provide a
level of Company benefits in line with those of comparable publicly traded
companies.
Each year, the Committee reviews the selection of peer companies which
comprise the Compensation Peer Group. The Committee believes that the Company's
most direct competitors for executive talent are not necessarily restricted to
those specialty apparel retail companies that are included in the
line-of-business industry index used to compare Shareholder returns, but
encompass a broader group of companies which are engaged in the recruitment and
retention of executive talent in competition with the Company. Thus, the
Compensation Peer Group is not the same as, and is broader than, the companies
comprising the retail apparel industry index in the graph under the caption
"Comparison of Five-Year Cumulative Total Returns." See "STOCK PERFORMANCE
CHART."
BASE SALARIES
Executive base salaries reflect the Company's operating philosophy, culture
and business direction, with each salary determined subjectively by an annual
assessment of a number of factors, including job responsibilities, impact on
development and achievement of business strategy, labor market compensation
data, corporate performance (corporate operating earnings), individual
performance relative to job requirements, the Company's ability to attract and
retain critical executives, and salaries paid for comparable positions within
the Company's Compensation Peer Group. No specific weighting criteria are
utilized among these factors. The Committee periodically evaluates market base
salaries for comparable roles among retailers and general industry. Market pay
levels and individual performance assessments are considered in evaluating
incumbent salaries and possible adjustments.
ANNUAL INCENTIVE PLAN
The fiscal 2002 annual incentive program established annual incentive
opportunities for executives ranging from zero to a maximum 150% of salary at
the end of the 2002 fiscal year. The amount of these incentive payments was
dependent on the extent to which individual performance goals were met or
exceeded and/or the extent to which the Company or a division of the Company
achieved operating earnings goals (reflecting operating earnings growth). These
goals were set in expectation of a stretch performance level (target
performance) and were approved by the Compensation Committee before
implementation.
The target performance incentive payment opportunity for each named
Executive Officer was based on factors similar to those used to determine base
salary (discussed above) and ranged from 30% to 75% of fiscal year-end salaries.
If minimum (threshold) performance was achieved, the level at which each
Executive Officer could earn an incentive payment ranged from 15% to 37.5% of
fiscal year-end salaries to a maximum incentive payment in a range from 45% to
150% of fiscal year-end salaries. These minimum and maximum payment levels were
prescribed by the Compensation Committee at the beginning of the 2002 fiscal
year. No awards may be paid out if operating earnings performance (reflecting
operating earnings growth) or divisional performance does not reach the
established minimum performance level.
14
The annual incentive payment opportunities for Dorrit J. Bern, the
Company's Chairman of the Board, President and Chief Executive Officer, were
based entirely on the quantitative corporate operating earnings goal (reflecting
corporate operating earnings growth). The annual incentive award opportunities
for the other named Executive Officers (except for Diane V. Missel and Jeffery
A. Warzel) were based 70% on the quantitative corporate operating earnings goal
(reflecting operating earnings growth) and 30% on performance relative to
individual responsibilities and objectives as quantitatively and subjectively
assessed by the Committee upon the recommendation of the Chief Executive
Officer. The annual incentive award opportunities for Diane V. Missel and
Jeffery A. Warzel were based 100% on a quantitative divisional operating
earnings goal reflecting operating earnings growth after the assumption of their
respective positions with Lane Bryant, Inc. on August 16, 2001. Prior to that
time, the annual incentive award opportunities for Diane V. Missel were based
50% on a corporate operating earnings goal, 40% on a divisional operatings
earnings goal and 10% on an individual goal while the annual incentive award
opportunities for Jeffery A. Warzel were based 70% on a corporate operating
earnings goal and 30% on an individual goal.
LONG-TERM INCENTIVE PLANS
The Company's long-term executive incentive program currently consists of
the following plans under which awards may be granted:
- The 1993 Employees' Stock Incentive Plan (the "1993 Plan") authorizes the
granting of a variety of stock-based awards. The Company has granted
options with an exercise price equal to 100% of the fair market value of
the Company's Common Stock at the date of grant ("Standard Options") up
to target award levels to the named Executive Officers and other key
employees. These option grants continue to align the major portion of
long-term compensation opportunities with the creation of Shareholder
value. The 2002 fiscal year grants of these options to the named
Executive Officers generally become exercisable at the rate of 20% per
year commencing with the first anniversary of the date of grant and
thereafter on each succeeding anniversary of the date of grant. The 1993
Plan also authorizes grants of restricted shares of the Company's Common
Stock. During the 2002 fiscal year, the Company granted 300,000
restricted shares to Dorrit J. Bern. See "Compensation of the Chief
Executive Officer for the 2002 Fiscal Year". The Company has granted
restricted shares to the other named Executive Officers to further align
their compensation with Shareholder interests and to promote retention
and long-term service. These restricted shares vest in installments over
five years subject to the named Executive Officer's continued employment
with the Company through the relevant anniversary date. See also
"MANAGEMENT COMPENSATION -- Employment, Change of Control and Severance
Agreements."
- The 1988 Key Employee Stock Option Plan ("KESOP") authorizes the granting
of "below market" options to key employees. In recent years, grants under
the KESOP generally have been used as an important retention tool and as
a recruiting tool to attract new employees. Options under the KESOP
generally become exercisable in one-third increments at the end of the
third, fourth and fifth years after the date of grant. No grants under
the KESOP are currently made to the named Executive Officers.
In accordance with its business strategy and compensation philosophy, the
Company has granted Standard Options and restricted shares to the named
Executive Officers to afford them an opportunity to participate in the Company's
future growth and to focus them on their contributions which are necessary for
the financial success and business growth of the Company and, thereby, the
creation of value for its Shareholders. Individual award sizes were evaluated
primarily on incumbent performance assessments and impact potential on value
creation initiatives. Aggregate share usage and dilution levels were also
assessed and compared in relation to general industry and retail industry norms.
OTHER
The Committee may, from time to time as warranted by business conditions
and the Company's need to attract, retain or recognize the contributions of key
executives, provide special incentive award opportunities to selected executives
to secure the employment of such executives, retain such executives or reward
such
15
executives for contributions made to the Company's success over extended or
extraordinary periods of service. In the 2002 fiscal year, the Committee granted
Eric M. Specter and Colin D. Stern special bonuses of $100,000 and $50,000,
respectively, in recognition of their respective contributions to the
acquisition of Lane Bryant, Inc. See also "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements."
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER FOR THE 2002 FISCAL YEAR
On August 23, 1995 Dorrit J. Bern was appointed President, Chief Executive
Officer and Vice Chairman of the Board of the Company. In order to attract Ms.
Bern to the employ of the Company, the Committee provided her with a base salary
of $1,000,000. This salary recognized the value of Ms. Bern's experience and
skills in the industry and included a premium for moving to the Company during a
period of exceptional business challenge from a highly stable employment
situation. Ms. Bern's salary was not increased for the 2002 fiscal year and
remains at $1,000,000. On October 12, 1999 Ms. Bern entered into a new
Employment Agreement (the "Bern Agreement") with the Company at the same base
salary of $1,000,000. See "MANAGEMENT COMPENSATION -- Employment, Change of
Control and Severance Agreements."
The Bern Agreement provides for the annual grant to Ms. Bern of options to
purchase a minimum of 200,000 shares of the Company's Common Stock under the
1993 Plan or any successor plan. For the 2002 fiscal year, the grant of options
to Ms. Bern to purchase 200,000 shares was made on February 23, 2001 at an
exercise price of $6.50, the closing price per Common Share on the Nasdaq
National Market on the date of grant. On the basis of the Committee's review of
the Company's 2002 fiscal year operating earnings in relation to Ms. Bern's
goals under the Annual Incentive Plan, no annual incentive payment was made to
Ms. Bern under the Annual Incentive Plan. Ms. Bern did receive a special bonus
of $300,000 in recognition of her leadership in, and contribution to, the
acquisition of Lane Bryant, Inc.
As part of the Committee's annual review of the Chief Executive Officer's
performance and remuneration, the Committee considered the competitive posture
of Ms. Bern's salary, annual and long-term incentive opportunities. Although
base salary was found to be fully competitive, incentive compensation targets
trailed market levels among a broad sample of retailers and across general
industry. It was the judgment of the Committee that Ms. Bern's ongoing
leadership and contribution to business revitalization warranted adjustments in
target annual incentive amounts that bolster her performance-based pay
opportunity. Annual incentive targets for fiscal 2002 were increased from 60% to
75% of salary. Maximum award amounts were similarly adjusted from 120% to 150%
of salary. In addition, a special award of 300,000 restricted shares was granted
on April 26, 2001 to elevate her ownership stake and to encourage continued
service through the restriction periods. The restricted shares vest in equal
annual installments of 90,000 shares each on the third and fourth anniversaries
of the date of grant with the balance of 120,000 shares vesting on the fifth
anniversary of the date of grant.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code subjects public companies to
limits on the deductibility of certain executive compensation. It limits to
$1,000,000 the annual deductible compensation of each person who is, as of the
end of the fiscal year , the chief executive officer or one of the four other
highest compensated officers listed in the Summary Compensation Table. Certain
forms of compensation are exempt from this deductibility limit, one of which is
performance-based compensation under plans approved by Shareholders.
The Committee recognizes that a portion of the compensation which was paid
to Ms. Bern in the 2002 fiscal year does not qualify for deduction under Section
162(m). The Committee considered the deductibility of compensation under Section
162(m) in designing compensatory arrangements and assessing the cost to the
Company of such compensatory arrangements and determined that the need to
attract and retain top industry executive talent considerably outweighed
deductibility considerations. The Committee therefore determined that it was
necessary and in the best interests of the Company to authorize compensation for
Ms. Bern that was, in part, in excess of the limitation on deductibility. As
circumstances change, the Committee will
16
determine what actions are appropriate in order to preserve tax deductibility of
executive compensation paid by the Company.
While the Annual Incentive Plan described above consists of
performance-based awards, cash payments thereunder will not comply with the
requirements for exemption from the deductibility limit under the Internal
Revenue Service regulations. Standard Options granted in the 2002 fiscal year,
and other awards such as restricted stock and options granted under the KESOP,
to the extent made, will not meet the exemption requirements for
performance-based compensation under Section 162(m).
Compensation Committee and Stock
Option Committee:
Alan Rosskamm (Chairman)
Joseph L. Castle, II
Marjorie Margolies-Mezvinsky
Kenneth S. Olshan
Marvin L. Slomowitz
17
STOCK PERFORMANCE CHART
The following graph shows a five-year comparison of cumulative total
returns on Common Stock for the Company, the Dow Jones Retailers -- Apparel
Index, and the Russell 2000 Composite Index. The Company's fiscal year ends on
the Saturday nearest January 31 in each year. The dates plotted on the chart
below correspond with the last trading day of each fiscal year.
[Cumulative Graph]
The chart above assumes $100 invested on February 1, 1997 in Charming
Shoppes, Inc., the Dow Jones Retailer -- Apparel Index, and the Russell 2000
Composite Index and was plotted using the following data:
02/01/97 01/31/98 01/30/99 01/29/00 02/03/01 02/02/02
-------- -------- -------- -------- -------- --------
Charming Shoppes, Inc. .................. $100 $ 86 $ 78 $137 $139 $118
Dow Jones Retailers -- Apparel Index..... $100 $159 $268 $238 $276 $240
Russell 2000 Composite Index............. $100 $118 $118 $142 $143 $139
18
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
The following table shows the beneficial ownership of the Company's Common
Stock of (1) each person or group known to the Company to be a beneficial owner
of more than five percent of the outstanding shares of Common Stock; (2) each
Director individually; (3) each of the Company's named Executive Officers for
the 2002 fiscal year, and (4) all current Directors, nominees and Executive
Officers of the Company as a group. The number of shares beneficially owned is
as of April 26, 2002, unless otherwise indicated, and all percentages are
calculated based on the shares outstanding as of April 26, 2002.
COMMON STOCK (1)
-------------------------
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES OWNED CLASS
------------------------ ------------ ----------
Dorrit J. Bern.............................................. 1,720,000(2) 1.5%
Joseph L. Castle, II........................................ 74,275(3) (13)
Marjorie Margolies-Mezvinsky................................ 54,000(3) (13)
Alan Rosskamm............................................... 48,734(3) (13)
Kenneth S. Olshan........................................... 46,500(3) (13)
Pamela S. Lewis............................................. 46,397(3) (13)
Charles T. Hopkins.......................................... 37,500(3) (13)
Katherine M. Hudson......................................... 27,000(3) (13)
Marvin L. Slomowitz......................................... 24,000(3) (13)
Eric M. Specter............................................. 582,307(4) (13)
Colin D. Stern.............................................. 505,794(4) (13)
Erna Zint................................................... 420,900(4) (13)
Anthony A. DeSabato......................................... 346,021(4) (13)
Diane V. Missel............................................. 60,086(4) (13)
Jeffery A. Warzel........................................... 27,795(4) (13)
First Pacific Advisors, Inc. ............................... 12,004,297(5) 10.5%
ICM Asset Management, Inc. ................................. 9,757,291(6) 8.8%
The Limited, Inc. .......................................... 9,526,035(7) 8.6%
Snyder Capital Management, Inc. ............................ 8,996,750(8) 8.1%
Royce & Associates, Inc. ................................... 8,347,783(9) 8.2%
FMR Corp. .................................................. 7,948,150(10) 7.1%
Dimensional Fund Advisors, Inc.............................. 6,762,300(11) 6.1%
All current Directors, Nominees and Executive Officers as a
Group (18 persons)........................................ 4,388,966(12) 3.8%
---------------
(1) Unless otherwise indicated, the persons named have sole voting and
investment power over the number of shares of the Company's Common Stock
shown as being beneficially owned by them.
(2) Includes 420,000 shares of restricted stock subject to risk of forfeiture
and restrictions on transferability. Also includes 820,000 shares as to
which Ms. Bern holds options exercisable within sixty days.
(3) Includes 24,000 shares for Mr. Castle, 54,000 shares for Ms.
Margolies-Mezvinsky, 24,000 shares for Mr. Rosskamm, 24,000 shares for Mr.
Olshan, 42,000 shares for Dr. Lewis, 24,000 shares for Mr. Hopkins, 12,000
shares for Ms. Hudson and 24,000 shares for Mr. Slomowitz as to which such
persons hold options exercisable within sixty days. Also includes shares of
restricted stock subject to risk of forfeiture and restrictions on
transferability in the following amounts: Mr. Olshan, 3,334 shares; Mr.
Hopkins, 3,334 shares and Ms. Hudson, 6,667 shares.
(notes continued on next page)
19
(4) Includes 538,000 shares for Mr. Specter, 480,200 shares for Mr. Stern,
397,400 shares for Ms. Zint, 300,400 shares for Mr. DeSabato, 37,200 shares
for Ms. Missel, and 18,000 Shares for Mr. Warzel as to which such persons
hold options exercisable within sixty days. Also includes shares of
restricted stock subject to risk of forfeiture and restrictions on
transferability in the following amounts: Mr. Specter, 26,000 shares; Mr.
Stern, 20,400 shares; Ms. Zint, 15,400 shares; Mr. DeSabato, 24,600 shares;
Ms. Missel, 16,200 shares; and Mr. Warzel, 8,500 shares.
(5) The source of this information is a Schedule 13G dated February 11, 2002
filed by First Pacific Advisors, Inc. ("FPAI") reporting beneficial
ownership at December 31, 2001. The Schedule 13G reported that FPAI had
shared power to vote or direct the vote of 5,200,888 shares of Common Stock
and shared power to dispose or direct the disposition of 12,004,297 shares
of Common Stock. The address of FPAI is 11400 W. Olympic Blvd., Suite 1200,
Los Angeles, CA 90064.
(6) The source of this information is a Schedule 13G dated February 5, 2002
filed by ICM Asset Management, Inc. ("ICM"), a registered investment
advisor, reporting beneficial ownership at December 31, 2001. The Schedule
13G reported that it had shared power to vote or direct the vote of
6,209,941 shares of Common Stock and shared power to dispose or direct the
disposition of 9,757,291 shares of Common Stock. The Schedule 13G states
that James M. Simmons, President of ICM, is also a beneficial owner of the
shares beneficially owned by ICM. The address of ICM Asset Management, Inc.
is 601 W. Main Avenue, Suite 600, Spokane, WA 99201.
(7) The source of this information is a Schedule 13G dated February 13, 2002
filed by The Limited, Inc. (the "Limited"), reporting beneficial ownership
as of December 31, 2001. The Limited reported that it had sole power to
vote or direct the vote of 9,526,035 shares and sole power to dispose or
direct the disposition of 9,526,035 shares. The address of the Limited is
Three Limited Parkway, Columbus, OH 43230. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS -- Arrangements with the Limited, Inc."
(8) The source of this information is a Schedule 13G filed February 14, 2002 by
Snyder Capital Management, Inc. ("SCMI") and Snyder Capital Management,
L.P. ("SCMLP") reporting beneficial ownership at December 31, 2001. The
Schedule 13G reported that SCMI and SCMLP each had shared power to vote or
direct the vote of 8,256,650 shares of Common Stock and shared power to
dispose or direct the disposition of 8,996,750 shares of Common Stock. SCMI
is wholly owned by Nvest Holdings, Inc., a wholly owned subsidiary of Nvest
Companies, L.P. ("Nvest"), which is owned indirectly through various
intermediate companies by Caisse Nationale des Consignations, which is
supervised by the government of France. Nvest is the sole limited partner
of SCMLP. SCMI and SCMLP report that Nvest and its controlling entities do
not have any direct or indirect control over the securities held in
accounts managed by SCMI and SCMLP. The address of SCMI and SCMLP is 350
California Street, Suite 1460, San Francisco, CA 94104.
(9) The source of this information is a Schedule 13G dated February 7, 2002
filed by Royce & Associates, Inc. ("Royce"), a registered investment
advisor, reporting beneficial ownership at December 31, 2001. The Schedule
13G reported that Royce had the sole power to vote or direct the vote of
8,347,783 shares of Common Stock and the sole power to dispose or direct
the disposition of 8,347,783 shares of Common Stock. The address of Royce
is 1414 Avenue of the Americas, New York, NY 10019.
(10) The source of this information is a Schedule 13G dated February 14, 2002
filed by FMR Corp. and certain other persons reporting beneficial ownership
as of December 31, 2001. FMR Corp. reported that it had sole power to
dispose or direct the disposition of 7,948,150 shares (with no voting power
over any shares). This Schedule 13G reported that Edward C. Johnson, 3rd,
Abigail P. Johnson, and certain unnamed members of the Johnson Family and
other persons form a controlling group with respect to FMR Corp. and that
Mr. Johnson and Ms. Johnson each had beneficial ownership of 7,948,150
shares (which shares are the same shares as those beneficially owned by FMR
Corp.), including sole dispositive power over 7,948,150 shares. The
7,948,150 shares include 715,550 shares which may be acquired by conversion
of $5,338,000 principal amount of the Company's 7.5% Convertible Subordi-
(notes continued on next page)
20
nated Notes due July 15, 2006 ("Convertible Debentures"). The Schedule 13G
stated that Fidelity Management & Research Company ("FMRC"), a wholly owned
subsidiary of FMR Corp. and a registered investment advisor, beneficially
owned 7,948,150 shares or 7.1% of the outstanding class of Common Stock
including 715,550 shares that may be acquired upon conversion of
Convertible Debentures in the principal amount of $5,338,000 (all of which
shares are included in the shares beneficially owned by FMR Corp.). The
address of FMR Corp. and its affiliates is 82 Devonshire Street, Boston, MA
02109.
(11) The source of this information is a Schedule 13G dated January 30, 2002
filed by Dimensional Fund Advisors, Inc. ("Dimensional") reporting
beneficial ownership at December 31, 2001. The Schedule 13G reported that
Dimensional had sole power to vote or direct the vote of 6,762,300 shares
of Common Stock and sole power to dispose or direct the disposition of
6,762,300 shares of Common Stock. Dimensional is a registered investment
advisor, and the reported shares are owned by certain investment companies,
trusts and accounts for which Dimensional acts as investment advisor or
investment manager. The address of Dimensional Fund Advisors, Inc. is 1299
Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(12) Includes 3,126,000 shares as to which Directors and Executive Officers hold
options exercisable within sixty days and 574,435 shares of restricted
stock subject to risk of forfeiture and restrictions on transferability.
(13) Does not exceed one percent of the outstanding class of Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ARRANGEMENTS WITH THE LIMITED, INC.
Background
On August 16, 2001, the Company, pursuant to a stock purchase agreement,
acquired 100% of the outstanding stock of Lane Bryant, Inc. ("Lane Bryant") from
a subsidiary of The Limited, Inc. ("The Limited") for cash of $280,000,000 and
an aggregate of 9,525,993 shares of Common Stock of the Company (the "Shares").
The Company also granted The Limited certain registration rights, whereby the
Company undertook to use its best efforts to cause a shelf registration
statement for the Shares to become effective under the Securities Act of 1933
within 11 months following the closing under the stock purchase agreement.
As of the date of the acquisition, Lane Bryant operated 651 retail apparel
stores in 46 states, specializing in fashion apparel and related accessories for
women wearing plus-sizes 14 and greater.
As a result of this transaction, The Limited beneficially owns
approximately 8.6% of the outstanding shares of Common Stock of the Company.
Services Agreement
In connection with the Lane Bryant acquisition, on August 16, 2001 LBH,
Inc., a subsidiary of the Company that was acquired in this transaction, entered
into a services agreement with The Limited and certain of its affiliates under
which LBH, Inc. receives certain transitional services, including data center
processing of Lane Bryant business applications such as store polling and
support of store systems, continuation of contract services with vendors for
voice and data networks, and conversion services, through October 2, 2002. LBH,
Inc. has begun moving all of the Lane Bryant business applications and processes
from The Limited to the Company's platform and the Company expects the
transition to be completed by October 2, 2002. The Company has guaranteed the
obligations of LBH, Inc. under the services agreement. The services agreement
includes certain cross-indemnification arrangements between LBH, Inc. and The
Limited. The cost of such services to be charged to LBH, Inc. is intended to
approximate The Limited's cost in providing the relevant services. For the
period August 16, 2001 through February 2, 2002, LBH, Inc. paid The Limited an
aggregate of $16,200,000 for such services. Other transitional services provided
by The Limited have terms ranging from one month to 36 months, and the Company
expects that approximately
21
$25,700,000 and $19,600,000, will be paid during the fiscal years ending
February 1, 2003 and January 31, 2004, respectively, to The Limited under these
agreements before their expiration dates with notice.
Headquarters Lease
In connection with the Company's acquisition of the Lane Bryant business
from The Limited, on August 16, 2001 the Company, as guarantor, and Lane Bryant
entered into a lease agreement with Distribution Land Corp., an affiliate of The
Limited, under which Lane Bryant has leased a distribution center and office
space near Columbus, Ohio for a period of three years. The lease agreement
includes certain cross-indemnification arrangements between Lane Bryant and
Distribution Land Corp. The current monthly rental is $393,000 and is subject to
annual Consumer Price Index adjustments. For the period August 16, 2001 through
February 2, 2002, the Company paid Distribution Land Corp. an aggregate of
$1,268,000 under the Lease Agreement.
Master Sublease
In connection with the Company's acquisition of the Lane Bryant business
from The Limited, on August 16, 2001 the Company, as guarantor, and Lane Bryant
entered into a Master Sublease with The Limited pursuant to which Lane Bryant
subleased 207 retail properties from The Limited under a Master Sublease. The
Limited is the guarantor of the leases underlying the Master Sublease, and the
Company has agreed to reimburse The Limited for any obligations arising from
such leases. The cost of the sublease for each property subject to the Master
Sublease is generally the cost incurred by The Limited under the prime lease for
such property. For the period August 16, 2001 through February 2, 2002, the
Company has paid an aggregate of $12,100,000 under the Master Sublease. The
stores subject to the Master Sublease had been operated as Lane Bryant stores
before the acquisition. In connection with the Company's agreement to reimburse
The Limited for obligations under the leases, the Company has agreed with The
Limited to certain limitations on its ability to incur debt, make distributions
to its shareholders, and purchase its own shares. These limitations will
continue until The Limited's liability for the leases falls below a certain
level or in certain other circumstances.
Store Leases Agreement
In connection with the Company's acquisition of the Lane Bryant business
from The Limited, on August 16, 2001 Lane Bryant entered into a Store Leases
Agreement with The Limited and certain of its subsidiaries pursuant to which
Lane Bryant subleases certain shared and adjacent facilities from the applicable
subsidiary of The Limited. The Store Leases Agreement also provides for the
parties to share the cost of permanently separating adjacent premises, with Lane
Bryant's share of the cost not to exceed $250,000. In addition to other specific
terms, the Store Leases Agreement includes certain cross-indemnification
arrangements between Lane Bryant, The Limited and certain of its subsidiaries.
With respect to each property that is the subject of this Store Leases
Agreement, the term of such sublease shall extend until the expiration of the
current term of the prime lease held by The Limited or its subsidiary that is
applicable to such property. Under the Store Leases Agreement, Lane Bryant is
responsible for its pro rata share (based on square feet occupied) of all costs
and expenses under the applicable prime lease. For the period August 16, 2001
through February 2, 2002, the Company has paid The Limited and its subsidiaries
an aggregate of $680,000 under the Store Leases Agreement.
Mast Industries, Inc.
Mast Industries is a wholly owned subsidiary of The Limited. Lane Bryant
purchases apparel products from Mast Industries pursuant to Lane Bryant's master
sourcing agreement and purchase orders that are written in the normal course of
business. For the period August 16, 2001 through February 2, 2002 the Company
has paid Mast Industries $59,100,000 for apparel products.
22
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 2002 fiscal year, Alan Rosskamm, Joseph L. Castle, II, Marjorie
Margolies-Mezvinsky, Kenneth S. Olshan and Marvin L. Slomowitz served as members
of the Compensation Committee and Stock Option Committee.
Alan Rosskamm owned equity interests in an entity which owns a shopping
center located in Napoleon, Ohio and in which the Company leases a store. The
aggregate amount paid by the Company for the 2002 fiscal year with respect to
the lease of such store was $11,000. Mr. Rosskamm disposed of his interest in
the shopping center with effect from April 11, 2001. Mr. Slomowitz, a Director,
owns equity interests in a partnership which owns a shopping center located in
Pittston, Pennsylvania and in which the Company leases a store. The store opened
on March 8, 2001. The rent charges are $64,000 per annum increasing by a
specified percentage to the extent that sales revenue thresholds are exceeded.
The Company believes that these leases and their transaction terms are no less
favorable to the Company than the Company could have negotiated with an
unaffiliated third party.
RELATIONSHIP WITH AUDITORS
The firm of Ernst & Young LLP served as the Company's independent auditors
for the fiscal year ended February 2, 2002. Ernst & Young LLP has no direct
financial interest and no material indirect financial interest in the Company.
Representatives of the auditors are expected to be present at the Annual Meeting
and available to make a statement, if they desire, or to answer appropriate
questions.
The Board of Directors selects the independent auditors of the Company upon
recommendation by the Audit Committee. The Board has selected Ernst & Young LLP
as the Company's independent auditors for the current fiscal year.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is comprised of the four
Directors named below. Each member of the Committee is an independent director
as defined by Nasdaq rules. The Committee has adopted a written Charter which
has been approved by the Board of Directors.
As noted in the Committee's Charter, the Company's management is
responsible for preparing the Company's financial statements. The Company's
independent auditors are responsible for auditing the financial statements. The
activities of the Committee are in no way designed to supersede or alter those
traditional responsibilities. In carrying out its oversight responsibilities,
the Committee does not provide any expert or special assurance as to the
Company's financial statements or any professional certification as to the
independent auditors' work.
The Committee has reviewed and discussed the audited financial statements
with management. The Committee has also discussed with the independent auditors,
Ernst & Young LLP, the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communications with Audit Committees). The Committee has
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), has considered the compatibility of
non-audit services with the auditors' independence, and has discussed with the
auditors the auditors' independence.
23
Based on the review and discussions referred to above, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 2002 for filing with the Securities and Exchange Commission. The
foregoing report is provided by the following independent Directors, who
constitute the Audit Committee:
Charles T. Hopkins (Chairman)
Joseph L. Castle, II
Katherine M. Hudson
Pamela S. Lewis
AUDIT AND RELATED FEES
The following table sets forth the aggregate fees billed to the Company for
services rendered for the fiscal year ended February 2, 2002 by the Company's
principal independent auditors, Ernst & Young LLP:
------------------------------------------------------------------
Audit Fees $ 764,332
------------------------------------------------------------------
Financial Information Systems,
Design and Implementation Fees $ -0-
------------------------------------------------------------------
All Other Fees* $ 654,704
------------------------------------------------------------------
* Includes audit-related fees of $343,687, which pertain primarily to
statutory audits, benefit plan audits, SEC filings, and accounting and
reporting consultations. The balance of $311,017 related primarily to tax
consulting services.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
SEC rules require the Company to disclose late filings of stock transaction
reports by its executive officers and directors. Based solely on a review of
reports filed by the Company on these individuals' behalf and written
representations from them that no other reports were required, the Company
believes that all Section 16(a) filing requirements have been met during
calendar year 2001.
PROPOSALS FOR 2003 ANNUAL MEETING
Any proposals of Shareholders that are intended to be presented at the
Company's 2003 Annual Meeting of Shareholders, and included in the Company's
proxy materials for that Meeting, must be received at the Company's principal
executive offices no later than January 29, 2003 and must comply with all other
applicable legal requirements in order to be included in the Company's Proxy
Statement and Proxy Card for that Meeting. In addition, under the terms of the
Company's Bylaws, a Shareholder who intends to present an item of business at
the 2003 Annual Meeting of Shareholders, other than a proposal submitted for
inclusion in the Company's proxy materials, must provide notice of such business
to the Company after February 28, 2003 and on or before March 30, 2003 and must
comply with all applicable requirements of the Company's Bylaws. See also
"ELECTION OF DIRECTORS -- Board Committees."
COST OF SOLICITATION
The cost of soliciting Proxies in the accompanying form will be borne by
the Company. The solicitation will be conducted primarily by mail, although
Directors, Officers and employees of the Company may solicit Proxies personally
or by telephone or telegram. Arrangements will be made with brokerage firms and
other custodians, nominees and fiduciaries for proxy material to be sent to
their principals, and the Company will reimburse them for their reasonable
expenses in so doing.
24
OTHER BUSINESS
The management of the Company knows of no other matters to be presented to
the Annual Meeting. However, if any matters other than those referred to herein
should properly come before the Meeting, it is the intention of the persons
named in the enclosed Proxy Card (namely Dorrit J. Bern and Joseph L. Castle,
II) to vote in accordance with their best judgment.
ADDITIONAL INFORMATION
A copy of the Annual Report of the Company for the fiscal year ended
February 2, 2002 which contains financial statements audited by the Company's
independent auditors, accompanies this Proxy Statement.
A copy of the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission (including financial statements and schedules
thereto) will be furnished without charge to Shareholders upon written request
to Colin D. Stern, Secretary, 450 Winks Lane, Bensalem, Pennsylvania 19020.
The Report of the Compensation and Stock Option Committees of the Board of
Directors on Executive Compensation, the Stock Performance Chart and the Audit
Committee Report included in this Proxy Statement shall not be deemed
"soliciting material" or otherwise deemed "filed" and shall not be deemed to be
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any other filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent the Company
specifically incorporates these Reports or the performance graph by reference
therein.
It is important that your shares be represented at the Meeting. If you are
unable to be present in person, you are respectfully requested to sign the
enclosed Proxy Card and return it in the enclosed stamped and addressed envelope
as promptly as possible.
By Order of the Board of Directors
COLIN D. STERN
Secretary
Bensalem, Pennsylvania
May 29, 2002
25
CHARMING SHOPPES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Dorrit J. Bern and Joseph L.
Castle, II, and each of them, Proxies of the undersigned, with full power of
substitution, to vote and act as designated on the reverse side with respect to
all shares of Common Stock of Charming Shoppes, Inc. (the "Company") which the
undersigned would be entitled to vote, as fully as the undersigned could vote
and act if personally present, at the Annual Meeting of Shareholders of the
Company to be held on Thursday, June 27, 2002 and at any adjournments thereof.
UNLESS OTHERWISE INDICATED ON THE REVERSE SIDE, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR, ALL AS SET
FORTH IN THE PROXY STATEMENT.
(continued on reverse side)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE.
ANNUAL MEETING OF SHAREHOLDERS
OF
CHARMING SHOPPES, INC.
THURSDAY, JUNE 27, 2002
10:00 A.M.
LANE BRYANT OFFICES
5 LIMITED PARKWAY
REYNOLDSBURG, OH 43068
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
--------------------------------------------------------------------------------
Please mark
your votes as [X]
in this example
1. ELECTION OF CLASS C DIRECTORS (INSTRUCTION: TO WITHHOLD AUTHORITY
TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME BELOW.)
Vote FOR Vote
all nominees WITHHELD Dorrit J. Bern, Alan Rosskamm and
(except as marked Kenneth S. Olshan
to the contrary)
------ ------ --------------------------------------
THE PROXIES ARE AUTHORIZED TO VOTE IN
THEIR DISCRETION UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
The undersigned acknowledges receipt
of the Annual Report, the Notice of
Annual Meeting of Shareholders and
the Proxy Statement, and revokes all
previously granted Proxies.
DATED: , 2002
--------------------------
--------------------------------------
Signature
--------------------------------------
Signature
Note: Please date and sign as name
appears hereon, and return promptly.
If the stock is registered in the name
of two or more persons, each should
sign. Executors, administrators,
trustees, guardians, attorneys and
corporate officers should add their
titles. Please note any change in your
address as it appears on this Proxy.