CHARMING SHOPPES INC, DEF 14A, 1997-05-14

CHARMING SHOPPES INC
DEF 14A, 1997-05-14
WOMEN'S CLOTHING STORES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant /X/

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)

N/A
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
/X/ 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:
- --------------------------------------------------------------------------------

<PAGE>

CHARMING SHOPPES, INC.
450 WINKS LANE
BENSALEM, PENNSYLVANIA 19020

------------------------

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 19, 1997

------------------------

TO OUR SHAREHOLDERS:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Charming
Shoppes, Inc. will be held at the offices of Charming Shoppes, Inc. at 450 Winks
Lane, Bensalem, Pennsylvania 19020, on June 19, 1997 at 10:00 A.M. for the
following purposes:

1. To elect three Class A Directors of the Company;

2. To authorize and approve the issuance of shares under the
Non-Employee Directors Compensation Program;

3. To authorize and approve the issuance of shares under the
Compensation Program for the Non-Employee Chairman of the Board of
Directors; and

4. To transact such other business as may properly come before the
meeting or any adjournments thereof.

Only Shareholders of record at the close of business on May 2, 1997 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

BERNARD BRODSKY
Secretary

May 15, 1997

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.

<PAGE>
CHARMING SHOPPES, INC.
450 WINKS LANE
BENSALEM, PENNSYLVANIA 19020

------------------------

PROXY STATEMENT
------------------------

Execution and return of the enclosed Proxy Card is being solicited by the
Board of Directors of Charming Shoppes, Inc. (the "Company") for use at the
Annual Meeting of Shareholders to be held on June 19, 1997 at 10:00 A.M. at the
offices of the Company at 450 Winks Lane, Bensalem, Pennsylvania 19020, or at
any adjournments thereof (the "Meeting"). Shares of the Company's Common Stock
represented by any unrevoked Proxy in the enclosed form, if such Proxy is
properly executed and is received prior to the Meeting, will be voted in
accordance with the specifications made on such 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 in the event any initial nominee becomes unavailable, which event is
not anticipated), "FOR" the proposal to authorize and approve the issuance of
shares under the Non-Employee Directors Compensation Program (the "Non-Employee
Directors Program"), "FOR" the proposal to authorize and approve the issuance of
shares under the Compensation Program for the Non-Employee Chairman of the Board
of Directors (the "Non-Employee Chairman Program") 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"). This Proxy Statement,
the accompanying Notice of Annual Meeting of Shareholders and Proxy Card and the
Company's 1997 Annual Report have been mailed on or about May 15, 1997. Only
Shareholders of record as of the close of business on May 2, 1997 are entitled
to notice of and to vote at the Meeting.

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. 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.

As of May 2, 1997, the Company had 105,737,866 shares of Common Stock
outstanding, the holders of which are entitled to one vote per share. 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. The
election of Directors will be determined by a plurality of the votes cast, while
the authorization and approval of shares under the Non-Employee Directors
Program and the Non-Employee Chairman Program will require the affirmative vote
of a majority of the votes cast. With regard to the election of Directors, votes
may be cast in favor or withheld; votes that are withheld will be excluded
entirely from the vote and will have no effect. Abstentions may be specified on
the proposals concerning the Non-Employee Directors Program and the Non-Employee
Chairman Program. If a shareholder records the fact of abstention in person or
by proxy, or if a nominee, broker or other person holding shares on behalf of a
beneficial owner specifies that shares are not to be voted on a given matter (a
"non-vote"), such action will be excluded entirely from the vote and will have
no effect.

<PAGE>
RECENT MANAGEMENT CHANGES

On February 9, 1996, Philip Wachs resigned from his offices as Chairman of
the Board and Chief Operating Officer of the Company. On April 25, 1996, he
resigned as a Director of the Company. On March 21, 1996, Joseph L. Castle, II,
a Director, was elected Chairman of the Board of Directors of the Company. He
served the Company as Chairman of the Board until January 30, 1997 when he
resigned from that office and was succeeded as Chairman of the Board by Dorrit
J. Bern, President, Chief Executive Officer and the then Vice Chairman of the
Board of the Company. Mr. Castle has continued to serve as a Director of the
Company. On April 25, 1996, Samuel Sidewater resigned from the office of
Executive Vice President -- Mens Division and as a Director of the Company. On
April 11, 1997, Jeffrey M. Zelenko resigned from the office of Executive Vice
President -- Merchandising. See "MANAGEMENT COMPENSATION -- Employment, Change
of Control and Severance Agreements".

ELECTION OF DIRECTORS

GENERAL

Pursuant to the Company's Restated Articles of Incorporation, which
provides for a classified Board of Directors, the Board of Directors consists 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 three Class A Directors, namely Marvin
L. Slomowitz, Geoffrey W. Levy and Marjorie Margolies-Mezvinsky, are scheduled
to expire as of the date of the Meeting. At the Meeting, Marvin L. Slomowitz,
Geoffrey W. Levy and Marjorie Margolies-Mezvinsky will be nominated to serve as
Class A Directors for additional three-year terms and until their successors
shall have been duly elected and qualified. Messrs. Slomowitz and Levy were last
elected as Class A Directors to the Board at the Company's Annual Meeting held
on June 8, 1994. Ms. Margolies-Mezvinsky was elected as a Class A Director on
January 30, 1997 to fill the vacancy created by the resignation of Mordechay
Kafry, a former Director and officer of the Company.

Unless otherwise directed, the Proxy solicited hereby will be voted for the
election of Marvin L. Slomowitz, Geoffrey W. Levy and Marjorie
Margolies-Mezvinsky as Class A Directors.

If any of the nominees refuses or is unable to serve as a Director (which
event is not anticipated), discretionary authority may be exercised by the Proxy
Committee to vote for a substitute to be named by the present Board of
Directors. The election of Directors will be determined by a plurality of the
votes cast.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL THE
NOMINEES.

2
<PAGE>

BIOGRAPHICAL INFORMATION

The following information is submitted as of May 2, 1997 concerning each
nominee for election as a Director and each person whose term of office as a
Director will continue after the Annual Meeting:

NOMINEES FOR DIRECTOR

<TABLE>
<CAPTION>
POSITION HELD YEAR FIRST TERM
NAME WITH THE COMPANY AGE BECAME DIRECTOR TO EXPIRE
- ---- -------------------- --- --------------- ---------
<S> <C> <C> <C> <C>
Marvin L. Slomowitz.................................. Director 67 1990 2000
Geoffrey W. Levy..................................... Director 49 1993 2000
Marjorie Margolies-Mezvinsky......................... Director 54 1997 2000

DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
Joseph L. Castle, II................................. Director 64 1990 1998
Michael Solomon...................................... Director 49 1990 1998
Dorrit J. Bern....................................... Chairman of the 47 1995 1999
Board, President
and Chief Executive
Officer
Alan Rosskamm........................................ Director 47 1992 1999
</TABLE>

Marvin L. Slomowitz has served as Chairman of the Board and Chief Executive
Officer of Mark Centers Trust since June 1993 and as President of Mark Centers
Trust from June 1993 to February 1994. He has also served as Chairman of the
Board of Directors, President and Chief Executive Officer of the predecessor to
Mark Centers Trust, Mark Development Company, from 1955 through June 1993. Mark
Centers Trust is principally engaged in the development of shopping centers.

Geoffrey W. Levy has been principally engaged in the development of
shopping centers in the northeastern section of the United States since 1969. He
has also acted as a consultant to national and regional retail chains providing
them with advisory services on site selection and lease negotiations. Prior to
1988, Mr. Levy owned and operated twenty-five movie theaters in the northeastern
section of the United States. From 1988 until 1995, Mr. Levy served as President
of Southbridge Cinema, Inc. which owned and operated a movie theater in
Massachusetts and from 1988 until the present he has served as Treasurer of
Fishkill Cinema, Inc. which owns and operates a movie theater in New York. In
September 1995 Southbridge Cinema, Inc. was dissolved. Mr. Levy is also the
general partner of Wakefield Mall Associates which owns and operates a shopping
center in Wakefield, Rhode Island.

Marjorie Margolies-Mezvinsky has served as President of the Women's
Campaign Fund and the Women's Campaign Research Fund since March 1996. 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. From 1971 to 1991, Ms. Margolies-Mezvinsky was a
television journalist with NBC and its owned and operated stations in both New
York and Washington, D.C.

Joseph L. Castle, II 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. He is also a Director of Comcast
Corporation and Mark Centers Trust.

Michael Solomon has been associated with the investment banking firm of
Lazard Freres & Co. LLC since 1981 and is currently a Managing Director of that
firm.

Dorrit J. Bern 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. Prior to her employment with the Company, Ms. Bern was employed by
Sears, Roebuck & Co. since 1987. As Divisional Vice President

3
<PAGE>

of Misses and Junior Sportswear, Dresses, Outerwear, Petite and Large Size
Sportswear and Dresses, and Maternity, Ms. Bern was instrumental in the creation
and execution of the women's apparel strategy at Sears. In December 1992, 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.
Prior to joining Sears, Roebuck & Co., Ms. Bern held merchandising positions at
The Bon Marche and Joske's, divisions of Allied Department Stores, Inc.

Alan Rosskamm has been Chairman of the Board of Directors of Fabri-Centers
of America, Inc. ("FCA") since July 1992 and has been the Chief Executive
Officer and a Director of FCA for more than five years. FCA sells a wide variety
of fashion and decorator fabrics, notions, patterns, sewing accessories, crafts
and seasonal merchandise under the Jo-Ann, Cloth World and New York Fabric
names. In February 1997, FCA reached a settlement with the SEC, without
admitting or denying the allegations, concerning alleged violations of the
securities laws primarily in connection with certain inventory reserve estimates
in the Company's 1992 financial statements and their use in a 1992 securities
offering. Concurrently, Mr. Rosskamm consented to a separate SEC administrative
cease and desist order against violations of the federal securities laws,
without admitting or denying the SEC's allegations. The SEC contended that Mr.
Rosskamm violated certain federal securities laws in connection with the 1992
offering by not adequately inquiring before signing representation letters to
FCA's auditors and by signing a Form 10-Q which was filed following the
offering.

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".

COMMITTEES OF THE BOARD

The Board of Directors has an Audit Committee, a Compensation Committee,
certain Stock Option Committees and an Administration Committee. During the
Company's 1997 fiscal year, Joseph L. Castle, II, Alan Rosskamm and Geoffrey W.
Levy were members of the Audit Committee. On March 10, 1997, Marvin L. Slomowitz
replaced Alan Rosskamm as a member of the Audit Committee. The Audit Committee
monitors the activities of the Company's independent auditors and the Company's
internal audit functions. The Audit Committee met six times during the Company's
1997 fiscal year. During the Company's 1997 fiscal year, Joseph L. Castle, II,
Alan Rosskamm, Michael Solomon and Marvin L. Slomowitz were members of the
Compensation Committee and Stock Option Committees. On March 10, 1997, Marjorie
Margolies-Mezvinsky replaced Marvin L. Slomowitz as a member of the Compensation
and Stock Option Committee. The Compensation Committee reviews the compensation
of the Company's Executive Officers. See "REPORT OF THE COMPENSATION AND STOCK
OPTION COMMITTEES OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION". The
Compensation Committee had seven meetings (some of which were joint meetings
with the Stock Option Committee) during the Company's 1997 fiscal year. The
Stock Option Committees have the responsibility to administer the Company's
employee stock option and stock incentive plans; to determine the individuals
from among those eligible under these plans to whom, and the time or times at
which, options and awards shall be granted and the number of shares to be
subject to each option or award; and to make all other determinations necessary
or advisable for the administration of these plans. The Stock Option Committees
had seven meetings (some of which were joint meetings with the Compensation
Committee) during the Company's 1997 fiscal year and, on nine occasions, acted
by unanimous consent.

During the Company's 1997 fiscal year, Geoffrey W. Levy, Dorrit J. Bern and
Joseph L. Castle, II were members of the Board of Directors' Administration
Committee (the "Administration Committee"). Dorrit J. Bern and Joseph L. Castle,
II were appointed to fill the vacancies resulting from the resignations of
Philip Wachs and Samuel Sidewater, respectively, during the 1997 fiscal year.
The Administration Committee is authorized to exercise the authority of the
Board of Directors on matters of a routine nature between meetings of the Board
of Directors. The Administration Committee did not act during the Company's 1997
fiscal year.

4
<PAGE>

The Company does not have a formal nominating committee, and nominations
for Director candidates are determined by the Board of Directors. The Company's
By-laws 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 not later than the date
on which a shareholder proposal would be required to be submitted to the Company
in order to be set forth in the Company's Proxy Statement, in accordance with
SEC Rules. See "PROPOSALS FOR 1998 ANNUAL MEETING". Such 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.

Eleven meetings of the Board of Directors were held during the Company's
fiscal year ended February 1, 1997. Each incumbent Director attended at least
75% of the meetings of the Board and Committees on which he or she served (held
at a time at which he or she was a Director).

COMPENSATION OF DIRECTORS

Since the Company's 1996 Annual Meeting on June 27, 1997, Directors and the
Chairman of the Board who are not also employees of the Company have been
compensated under the Non-Employee Directors Program and the Non-Employee
Chairman Program, respectively, which were adopted by the Board of Directors on
August 21, 1996. Under the Non-Employee Directors Program, each non-employee
Director is entitled to receive an award of shares with a fair market value
equal to 60% of the annual fee payable thereunder. The annual fee currently is
$60,000. The balance of the annual fee is payable in cash to each non-employee
Director. Under the Non-Employee Chairman Program, the non-employee Chairman is
entitled to receive an award of shares with a fair market value equal to 50% of
the annual fee payable thereunder. The annual fee currently is $300,000. The
balance of the annual fee is payable in cash. For a description of the
Non-Employee Directors Program and the Non-Employee Chairman Program and the
awards granted thereunder, see "AUTHORIZATION AND APPROVAL OF THE ISSUANCE OF
SHARES UNDER THE NON-EMPLOYEE DIRECTORS COMPENSATION PROGRAM AND THE
COMPENSATION PROGRAM FOR THE NON-EMPLOYEE CHAIRMAN OF THE BOARD OF DIRECTORS".
Prior to the Company's 1996 Annual Meeting, non-employee Directors were paid
$20,000 per year for their services on the Board and any Committees.
Non-employee Directors were also granted shares of restricted stock under the
Company's Non-Employee Directors' Restricted Stock Plan (the "Restricted Stock
Plan") which expired April 3, 1996. The Restricted Stock Plan provided for a
one-time grant of 5,000 shares of restricted stock to each non-employee Director
who was serving at the effective date of the Restricted Stock Plan and, during
the five-year life of the Restricted Stock Plan, a pro-rata grant to each newly
elected or appointed non-employee Director who at the time he or she joined the
Board was not related to another Director and had not been an employee of the
Company for at least three years. Joseph L. Castle, II was paid $120,000 for his
services as Chairman of the Board until the Company's 1996 Annual Meeting. A
Director who is also a Company employee is not separately compensated for his or
her service as a Director or Chairman of the Board.

Non-employee Directors have participated and continue to participate in the
Company's 1989 Non-Employee Director Stock Option Plan (the "1989 Plan"). The
1989 Plan provides that each person who after the inception of the 1989 Plan
becomes a non-employee Director of the Company shall automatically receive an
option under the 1989 Plan, as of the date of such Director's commencement of
service as a non-employee Director, to purchase 30,000 shares of Common Stock.
The exercise price for the shares of Common Stock to be purchased upon exercise
of such option is equal to the fair market value of the shares covered by such
option on the date of grant. Options granted under the 1989 Plan generally have
a term of ten years and become cumulatively exercisable as to 20% of the shares
subject to the option on each of the first five anniversaries of the date of
grant.

5
<PAGE>

MANAGEMENT COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years (ended February 1,
1997 ("1997 fiscal year"), February 3, 1996 ("1996 fiscal year") and January 28,
1995 ("1995 fiscal year")) to the Company's Chief Executive Officer and each of
the Company's four other most highly compensated Executive Officers who were
serving in such capacities at the end of the 1997 fiscal year based on salary
and bonus earned during the 1997 fiscal year.

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
AWARDS
ANNUAL COMPENSATION ------------------------
-------------------------------------- RESTRICTED
OTHER ANNUAL STOCK SECURITIES ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD(S) UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR(1) ($) ($)(2) ($)(3) ($) OPTIONS(#) ($)(4)(5)
- --------------------------------- ------- ---------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dorrit J. Bern(6) ............... 1997 $1,000,000 $570,000 $ 67,978 $1,900,000(6) -- $ 58,392
Chairman of the Board, President 1996 438,462(7) -- -- -- 1,000,000 1,000,000(6)
and Chief Executive Officer 1995 -- -- -- -- -- --

Erna Zint(8) .................... 1997 400,000 190,000 150,568 -- -- --
Executive Vice President -- 1996 16,667(7) -- -- -- 250,000 150,000(8)
Sourcing 1995 -- -- -- -- -- --

Jeffrey M. Zelenko(9) ........... 1997 350,000 140,443 -- -- 50,000 12,924
Executive Vice President -- 1996 226,154(7) -- -- -- 110,000 250,000(9)
Merchandising 1995 -- -- -- -- -- --

Colin D. Stern .................. 1997 300,000 136,806 -- -- 100,000 48,862(10)
Executive Vice President and 1996 300,000 -- -- -- 145,000 19,096
General Counsel 1995 300,000 -- -- -- 133,500 22,220

Elizabeth Williams .............. 1997 300,000 130,924 -- -- 200,000 70,843(11)
Executive Vice President -- 1996 86,538(7) -- -- -- 100,000 259,991(11)
Merchandising 1995 -- -- -- -- -- --
</TABLE>

- ------------------
(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, 1996. All amounts in the table have been adjusted to reflect
the fiscal year ended February 3, 1996 as a 52 week fiscal year.

(2) The Company has an annual incentive plan for key employees (the
"Participants"). Each Participant receives a specified percentage of his or
her base salary on a graduated scale as a bonus, if and to the extent the
performance goals prescribed for that Participant are met. The performance
goals vary depending on the functions of each Participant. The plan and the
performance goals are reviewed and approved by the Compensation Committee
prior to implementation. See "REPORT OF THE COMPENSATION AND STOCK OPTION
COMMITTEES OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION".

(3) The amount disclosed under the caption "Other Annual Compensation" with
respect to Dorrit J. Bern includes $17,254 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 $45,600 paid on her behalf as a
housing allowance for living accommodations in Philadelphia, Pennsylvania.
The amount disclosed under the caption "Other Annual Compensation" with
respect to Erna Zint includes $144,000 paid on her behalf as a housing
allowance for living accommodations in Hong Kong. No amount has been
disclosed under the caption "Other Annual Compensation" 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 equal or exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported for each such Executive Officer.

Notes continued on following page

6
<PAGE>

(4) The Company has enabled Dorrit J. Bern, Jeffrey M. Zelenko, Colin D. Stern
and Elizabeth Williams 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 to each named Executive Officer included under the caption "All
Other Compensation" with respect to the 1997 fiscal year are as follows:
Dorrit J. Bern, $57,584; Jeffrey M. Zelenko, $12,924; Colin D. Stern,
$10,162; and Elizabeth Williams, $9,782. Also included under the caption
"All Other Compensation" with respect to Mr. Stern are premiums in the
amount of $6,000 paid by the Company on behalf of Mr. Stern for a
cash-value type insurance policy on the life of Mr. Stern. With respect to
the life insurance coverage for Dorrit J. Bern, see "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS".

(5) Included under the caption "All Other Compensation" are contributions in
the following amounts made or accrued by the Company under its defined
contribution plan on behalf of the named Executive Officers during the 1997
fiscal year: Dorrit J. Bern, $808; Erna Zint, $0; Jeffrey M. Zelenko, $0;
Colin D. Stern, $2,700; and Elizabeth Williams, $0.

(6) On August 23, 1995, Dorrit J. Bern was appointed President, Chief Executive
Officer and Vice Chairman of the Board of the Company. The Company entered
into an employment agreement with Ms. Bern pursuant to which she will
render services to the Company in those capacities. On January 30, 1997,
Ms. Bern was appointed Chairman of the Board. Included under the caption
"All Other Compensation" is a $1,000,000 cash bonus paid to Ms. Bern in
conjunction with her acceptance of employment with the Company. See
"MANAGEMENT COMPENSATION -- Employment, Change of Control and Severance
Agreements". Included under the caption "Restricted Stock Award(s)" is the
value of a stock award of 400,000 shares which was granted to Ms. Bern on
March 20, 1996. 160,000 shares were granted without risk of forfeiture and
240,000 shares were granted subject to risk of forfeiture and restrictions.
The closing price for the Company's Common Stock as reported by the Nasdaq
National Market on March 20, 1996, the date of the award, was $4.75. At
February 1, 1997, the 240,000 shares subject to risk of forfeiture and
restrictions had an aggregate value of $1,140,000.

(7) Mss. Bern, Zint and Williams and Mr. Zelenko commenced employment with the
Company on August 23, 1995, January 15, 1996, October 16, 1995 and June 7,
1995, respectively. The salaries which were paid to them during the year of
commencement of employment with the Company reflect payment for services
rendered for only that portion of the year during which they were employed
by the Company.

(8) On January 15, 1996, Ms. Zint was appointed Executive Vice President --
Sourcing of the Company. The Company entered into an employment agreement
with Ms. Zint pursuant to which she will render services to the Company in
that capacity. Included under the caption "All Other Compensation" is a
$150,000 cash bonus paid to Ms. Zint in conjunction with her acceptance of
employment with the Company. See "MANAGEMENT COMPENSATION -- Employment,
Change of Control and Severance Agreements".

(9) On April 11, 1997, Mr. Zelenko, the Company's Executive Vice President --
Merchandising, resigned from his office. The Company has entered into a
severance agreement and consulting agreement with Mr. Zelenko. Included
under the caption "All Other Compensation" are cash bonuses in the amounts
of $150,000 and $100,000, respectively, which were paid to Mr. Zelenko in
conjunction with his acceptance of employment with the Company. See
"MANAGEMENT COMPENSATION -- Employment, Change of Control and Severance
Agreements".

(10) Included under the caption "All Other Compensation" is a one-time award in
the amount of $30,000 for purpose of retention and in recognition of
performance over a period including more than one fiscal year.

(11) Included under the caption "All Other Compensation" are relocation and
temporary housing expenses in the aggregate amount of $71,052 paid to or on
behalf of Elizabeth Williams in the 1996 fiscal year and 1997 fiscal year
in conjunction with her acceptance of employment with the Company. Also
included under the caption "All Other Compensation" is a cash bonus in the
amount of $250,000 which was paid to Ms. Williams in conjunction with her
acceptance of employment with the Company.

7
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information relating to options granted to the
named Executive Officers during the 1997 fiscal year. The table indicates the
potential realizable value of options granted during the 1997 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 herein 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.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(1)
GRANTED EMPLOYEES PRICE EXPIRATION ----------------------
NAME (#)(2) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- -------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dorrit J. Bern......................... -- -- -- -- -- --
Erna Zint.............................. -- -- -- -- -- --
Jeffrey M. Zelenko..................... 50,000 3.2% $ 3.9375 2/23/06 $123,814 $ 313,768
Colin D. Stern......................... 100,000 6.5% 3.9375 2/23/06 247,627 627,536
Elizabeth Williams..................... 200,000 13.0% 3.9375 2/23/06 495,255 1,255,072
</TABLE>

- ------------------
(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, the non-transferability of
the options or the vesting requirements 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 30% of the shares subject thereto on
each of the first and second anniversaries of the date of grant and as to
20% on the third and fourth anniversaries of the date of grant and 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 of 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.

8
<PAGE>

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 1997 fiscal year:
(i) the number of shares of the Company's Common Stock acquired upon exercise of
options during the 1997 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 January 31, 1997, and (iv) the aggregate
dollar value of the in-the-money exercisable and unexercisable options at
January 31, 1997.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR-END
YEAR-END(#) ($)(1)
SHARE ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dorrit J. Bern................. -- -- 200,000 800,000 $ 25,000 $ 100,000
Erna Zint...................... -- -- 50,000 200,000 93,750 375,000
Jeffrey M. Zelenko............. -- -- 20,000 140,000 5,000 98,125
Colin D. Stern................. 50,000 $ 312,188 334,900 370,100 120,000 81,250
Elizabeth Williams............. -- -- 20,000 280,000 46,250 347,500
</TABLE>

- ------------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market on January 31, 1997 was $4.75. Value is calculated on the
basis of the aggregate of the difference between the option exercise price
of in-the-money options and $4.75 multiplied by the number of shares of
Common Stock underlying such options.

EMPLOYMENT, CHANGE OF CONTROL AND SEVERANCE AGREEMENTS

On August 22, 1995, Dorrit J. Bern entered into an Employment Agreement
(the "Bern Agreement") with the Company pursuant to which Ms. Bern is employed
as the Company's President and Chief Executive Officer at an annual salary of
$1,000,000 for an initial term of five years commencing August 23, 1995 (the
"Initial Term"). The Bern Agreement continues in full force and effect from year
to year after the expiration of the Initial Term unless either Ms. Bern or the
Company gives the other at least ninety days prior written notice before the
commencement of any such year of such party's intention to terminate the Bern
Agreement. Such annual salary may be increased or decreased at the discretion of
the Company's Board of Directors, but in no event may the annual salary be less
than $1,000,000. Ms. Bern received a cash bonus of $1,000,000 under the Bern
Agreement. Commencing with the fiscal year beginning February 4, 1996, Ms. Bern
is entitled to receive additional compensation ("Performance Payout") if the
Company achieves certain performance criteria established under the Company's
Annual Incentive Plan. The formula and standards for determining this
Performance Payout are determined by the Compensation Committee, but may not
exceed 120% of Ms. Bern's annual base salary for the applicable year. The Bern
Agreement provides that Ms. Bern will receive a Performance Payout of not less
than 30% of her annual salary for the fiscal year commencing February 4, 1996.
For the fiscal year beginning February 4, 1996, the Compensation Committee
determined that Ms. Bern's Performance Payout could not exceed 90% of her annual
base salary for that year. Ms. Bern received a Performance Payout of $570,000
for that year. See "REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION". The Company's obligations
under the Bern Agreement are secured by a Letter of Credit in the face amount of
$2,500,000.

Under the Bern Agreement, Ms. Bern was granted options to purchase up to
1,000,000 shares of the Company's Common Stock under the Company's 1993
Employees' Stock Incentive Plan. The options were granted at an exercise price
of $4.625 per share, the closing price per common share on the Nasdaq National
Market on the date of grant. Options covering 200,000 shares become exercisable
on the first anniversary of the date of grant and options covering an additional
200,000 shares vest on each succeeding anniversary of the date of grant until
the fifth anniversary at which time all options are fully vested. All options
become fully vested if Ms. Bern resigns for Good Reason or is discharged without
Cause. As defined in the Bern Agreement, "Good Reason" means: (i) a substantial
change in her duties and responsibilities, which change would materially reduce
her stature, importance and

9
<PAGE>

dignity within the Company; (ii) the appointment of an executive officer
superior in rank to her; (iii) the failure of the Board to nominate her for
re-election as a director, or the failure of the stockholders to re-elect her;
(iv) the failure of the Company to pay any amount due to her hereunder which
failure shall persist for ten (10) days after written notice of such failure
shall have been given to the Company; and/or (v) the assignment of her to office
space which is not commensurate with her position and title, the failure of the
Company to provide the ministerial, administrative and secretarial support
customarily associated with her title and position or the withdrawal by the
Company of any such ministerial, administrative and secretarial support. As
defined in the Bern Agreement, "Cause" includes but is not limited to: her
chronic neglect, refusal or failure to perform her employment duties and
responsibilities, other than for reasons of sickness, accident or other similar
causes beyond her control; or her commission of any dishonest act or intentional
wrongdoing committed against the Company, its agents or employees or otherwise
in connection with her employment by the Company or a conviction of a felony,
whether or not in connection with employment. The Bern Agreement also provides
for Ms. Bern's participation in the Company's retirement, insurance and other
benefit programs. In particular, the Company has purchased a $4,000,000 split
dollar life insurance policy on Ms. Bern's life. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS".

Ms. Bern's employment may be terminated (a) in the event of her disability
or incapacity, (b) on her death, (c) on her resignation for Good Reason, (d) on
her resignation without Good Reason, (e) on her resignation upon a Change of
Control which is defined in 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 and the 1990 Employees' Stock Incentive Plan as
more fully described below, (f) for Cause, or (g) by the Company without Cause.
If Ms. Bern is discharged without Cause or resigns for Good Reason or the Bern
Agreement is not extended, she will continue to receive her base salary, paid in
monthly installments, for the greater of the remaining term of the Bern
Agreement or 18 months and her Performance Payout for such period provided that
the Company's obligation for base salary will be offset by 65% of any
compensation from other employment or self-employment during this period (the
"Mitigation Reduction"). If Ms. Bern resigns upon a Change of Control, she will
be entitled to post-termination compensation on these same terms for a period of
two years, subject to the Mitigation Reduction. If within 12 months following a
Change of Control, Ms. Bern's employment is terminated by her for Good Reason or
if her employment is terminated without Cause then, in lieu of any other
severance payments under the Bern Agreement, the Company will pay Ms. Bern on
termination a lump sum amount equal to 2.5 times her "base amount" within the
meaning of Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended.
On death or on termination for disability or incapacity, Ms. Bern will be
entitled to her base salary for any days worked prior to the date of death or
termination, a Performance Payout and amounts payable under disability or
insurance plans or policies maintained by the Company for her benefit. If Ms.
Bern is discharged for Cause or she resigns without Good Reason, her sole
entitlement will be the receipt of base salary for any days worked through the
date of termination. During the term of the Bern Agreement and for a period
equal to the greater of two years following the termination of employment for
any reason or the period during which Ms. Bern is entitled to payments upon
termination under the Bern Agreement, she may not, among other things, engage in
or be financially interested in any business which is in competition with the
Company.

On January 15, 1996, Erna Zint entered into an Employment Agreement (the
"Zint Agreement") with the Company pursuant to which Ms. Zint is employed as the
Company's Executive Vice President -- Sourcing at an annual salary of $400,000
for an initial term of five years commencing January 15, 1996 (the "Term"). Ms.
Zint is assigned to perform her duties under the Zint Agreement outside the
United States and initially 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 4, 1996, 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

10
<PAGE>

the Compensation Committee, but may not exceed 100% of Ms. Zint's annual base
salary for the applicable year.

Under the Zint Agreement, Ms. Zint was granted options to purchase up to
250,000 shares of the Company's Common Stock under the Company's 1993 Employees'
Stock Incentive Plan. The options were granted at an exercise price of $2.875
per share, the closing price per common share on the Nasdaq National Market on
the date of grant. Options covering 50,000 shares become exercisable on the
first anniversary of the date of grant and options covering an additional 50,000
shares vest on each succeeding anniversary of the date of grant until the fifth
anniversary at which time all options are fully vested. In addition, Ms. Zint is
entitled to certain other benefits including, among others, a housing allowance
of $12,000 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 (a) in the event of her
disability or death, or (b) for Cause. As defined in the Zint Agreement, "Cause"
means (i) a material breach by Ms. Zint of the provisions of the Zint Agreement;
(ii) the commission by Ms. Zint of fraud against the Company or the conviction
of Ms. Zint for aiding or abetting, or the commission of, a felony or of a fraud
or a crime involving moral turpitude or a business crime, or (iii) certain
events relating to drug or alcohol abuse which materially impair Ms. Zint's
ability to perform her duties under 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" as defined above
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 Company has entered into a Severance Agreement and Consulting Agreement
with Jeffrey M. Zelenko. Under his Severance Agreement, Mr. Zelenko will be paid
an aggregate amount of $282,692 in equal weekly installments through January 30,
1998. Health care benefits will be provided to Mr. Zelenko and his eligible
dependents through January 31, 1998. Pursuant to his hiring arrangement, Mr.
Zelenko's previously granted options to purchase shares of the Company's Common
Stock were amended so as to permit their immediate exercise on the termination
of his employment with the Company. The period during which Mr. Zelenko may
exercise certain previously granted options, namely options to purchase 100,000
shares of the Company's Common Stock at $4.50 per share and 50,000 shares of the
Company's Common Stock at $3.9375 per share, was extended until September 30,
1997. The balance of Mr. Zelenko's previously granted options, namely options to
purchase 10,000 shares of the Company's Common Stock at $1.00 per share, are
exercisable until July 11, 1997. Under his Consulting Agreement with the
Company, Mr. Zelenko will provide consulting services to the Company through
June 6, 2000 and will be paid an aggregate amount of $350,000 per annum for the
first two years and $123,846 for the balance of the consulting term in equal
weekly installments during the period February 1, 1998 through June 8, 2000. Mr.
Zelenko may elect under the Consulting Agreement to receive the weekly payments
in two payments (otherwise payable over 12 and 16 month periods, respectively)
in advance of the applicable consulting periods discounted by a rate equal to
the Company's cost of borrowing at that time. Mr. Zelenko has also agreed, among
other things, during the period through October 31, 1998 not to employ any
individual who was an employee of the Company as of April 11, 1997 and who was
employed by the Company within 120 days of such employment. In the event that
Mr. Zelenko engages in professional activities in retailing prior to October 31,
1998, with certain limited exceptions, he will pay the Company the sum of
$150,000.

11
<PAGE>

The Company has a severance arrangement with Elizabeth Williams who
commenced employment with the Company on October 2, 1995. Under this
arrangement, if Ms. Williams is terminated during the second year of employment
with the Company, she will be paid three months salary at her original base
salary, less withholdings, provided she executes a general release in the form
generally used by the Company. The Company has no obligation for severance to
Ms. Williams after completion of the second year of employment.

The agreements evidencing options granted to each of the named Executives
under the Company's stock option plans provide that in the event of a change of
control of the Company the options become fully exercisable. In the case of
options granted under the 1993 Employees' Stock Incentive Plan and the 1990
Employees' Stock Incentive Plan, a change of control is defined to mean (i) an
acquisition of shares giving a person or group, except an Excluded Party,
beneficial ownership of more than 20% of the voting power of the Company's
voting securities, (ii) a change in the Board's membership such that the current
members, or those elected or nominated by vote of two-thirds of the current
members and successors elected or nominated by them, cease to represent a
majority of the Board, (iii) certain mergers, recapitalizations,
reorganizations, or similar transactions substantially reducing the percentage
of voting power held by shareholders of the Company prior to such transactions
(unless otherwise determined by the Board), and (iv) liquidation or sale of all
or substantially all of the assets of the Company, except such transaction which
would result in Excluded Parties owning or acquiring more than 50% of the assets
owned by the Company immediately prior to the transaction. An "Excluded Party"
includes subsidiaries of the Company, employee benefit plans of the Company and
parties whose acquisitions of shares in excess of ten percent of the voting
power of the Company have been approved in each case in advance by the Board of
Directors. In the case of options granted under the 1988 Key Employee Stock
Option Plan and the 1986 Employees' Stock Option Plan, a change of control will
be deemed to occur if any person, together with such person's affiliates and
associates, becomes a beneficial owner (including through any right to acquire)
of securities having 20% or more of the votes entitled to be cast for the
election of directors, or if, in connection with or during the two years
following an extraordinary transaction, the persons who were Directors
immediately before the transaction cease to constitute a majority of the Board
of the Company or a successor corporation (not counting terminations due to
death, disability or normal retirement), except that the Board of Directors may
determine in advance that a given event will not be a change of control.

12
<PAGE>

REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

The following report of the Compensation and Stock Option Committees of the
Board of Directors and the performance graph included elsewhere 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 this Report or the performance
graph by reference therein.

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:

o reflects the Company's unique, entrepreneurial and customer-focused
orientation;

o provides competitive compensation opportunities relative to
profitable and growing retail industry organizations;

o is effective in driving performance to achieve financial goals and
create Shareholder value;

o is cost-efficient and fair to employees, management and
Shareholders; and

o 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 -- Committees of the Board"),
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:

o business direction and strategy;

o comparisons of compensation forms and levels with peer companies in
the retail industry; and

o 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 thereby aligning management's interests with
those of the Company's Shareholders. These stock compensation programs 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 levels (base salary, annual 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 high growth, retail industry
companies (the "Compensation Peer Group"). Cash compensation (base salary and
cash bonuses) targets for each Executive (other than the Chief Executive
Officer) are set at no more than the performance and size adjusted median level
of cash compensation of the Compensation Peer Group. The Company's Executives
can achieve total compensation in excess of the performance and size adjusted
median level of total compensation of such Compensation Peer Group when annual
and long-term performance significantly exceed established goals (see "Annual
Incentive Plan") and Shareholders are rewarded through stock price growth (see
"Long-Term Incentive Plans"). Likewise, the Company's Executives' total
compensation levels could fall below the performance and size adjusted median
compensation level of such Compensation Peer Group when established goals are
not achieved and Shareholder value is not created. These results are consistent
with the Company's business strategy and its compensation philosophy of placing
the major portion of total compensation opportunity at risk.

13
<PAGE>

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 specialty apparel retail 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 relative job and industry experience criteria. No
specific weighting criteria are utilized among these factors. Executive salaries
generally are targeted to be no more than the performance and size adjusted
median level of salaries of the Compensation Peer Group. The Committee may, from
time to time as business conditions and the Company's need to attract top
industry talent warrant, provide salaries to selected executives above the
performance and size adjusted median level of salaries of the Compensation Peer
Group. See also "MANAGEMENT COMPENSATION -- Employment, Change of Control and
Severance Agreements".

Annual Incentive Plan

The fiscal 1997 annual incentive program established annual incentive
opportunities for Executives ranging from zero to a maximum 90% of salary at the
end of the 1997 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 achieved corporate operating
earnings goals (reflecting corporate operating earnings growth). These goals
were set in expectation of a stretch performance level (target performance) and
were approved by the Compensation Committee prior to 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 40% to 60% 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 28% to 42% of
fiscal year-end salaries to a maximum incentive payment in a range from 60% to
90% of fiscal year-end salaries. These minimum and maximum payment levels were
prescribed by the Compensation Committee at the beginning of the 1997 fiscal
year. No awards may be paid out if corporate operating earnings performance
(reflecting corporate operating earnings growth) does not reach the established
minimum performance level.

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) subject to the provisions of her Employment
Agreement with the Company which provides for Ms. Bern to receive an incentive
payment of not less than 30% of her annual salary for the 1997 fiscal year. See
"MANAGEMENT COMPENSATION -- Employment, Change of Control and Severance
Agreements". The annual incentive award opportunities for the other named
Executive Officers were based 70% on the quantitative corporate operating
earnings goal (reflecting corporate operating earnings growth) and 30% on
performance relative to individual (and business unit, where applicable)
responsibilities and objectives as quantitatively and subjectively assessed by
the Committee upon the recommendation of the Chief Executive Officer.

14
<PAGE>

Long-Term Incentive Plans

The Company's long-term executive incentive program currently consists of
"market value" stock options (having a per share exercise price of 100% of the
fair market value of the Company's Common Stock on the date of grant) ("Standard
Options") and performance-accelerated stock options ("PSO's") also having a per
share exercise price of 100% of the fair market value of the Company's stock on
the date of grant. The Company occasionally grants "below market" stock options,
primarily to attract new executives and retain key employees. Long-term
incentives involving Standard Options and PSO's reward the Executives for
successful Company performance as reflected by appreciation in the market price
of the Company's Common Stock. The Company's long-term executive incentive
program currently consists of the following plans under which awards may be
granted:

1. 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 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 1997 fiscal year
grants of these options to the named Executive Officers generally become
exercisable at the rate of 30% per year commencing with the first and
second anniversaries of the date of grant and at the rate of 20% per year
commencing with the third and fourth anniversaries of the date of grant.
The 1993 Plan also authorizes grants of restricted stock. The Company did
not make any 1997 fiscal year grants of PSO's. See also "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements".

2. The 1988 Key Employee Stock Option Plan ("KESOP") authorizes the
granting of "below market" options to senior executives and other key
employees. In recent years, grants under the KESOP generally have been used
as an important 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.

In accordance with its business strategy and compensation philosophy, the
Company has granted stock options and awards in the nature of restricted stock
to a significant number of employees 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.

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 to reward
such executives for contributions made to the Company's success over extended or
extraordinary periods of service. The Committee made awards of this nature
during the 1997 fiscal year. See also "MANAGEMENT COMPENSATION -- Employment,
Change of Control and Severance Agreements".

Compensation of the Chief Executive Officer for the 1997 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. See "MANAGEMENT COMPENSATION -- Employment, Change of Control and
Severance Agreements". 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 1997 fiscal
year. Ms. Bern's salary is well above the performance and size adjusted median
level of base salary levels for the Compensation Peer Group.

15
<PAGE>

On March 20, 1996, Ms. Bern was granted a stock award of 400,000 shares
comprising 160,000 shares which were granted without risk of forfeiture and
240,000 shares of restricted stock subject to risk of forfeiture and
restrictions. These restrictions expire as to 60,000 shares of restricted stock
on each of the third and fourth anniversaries of the date of the stock award and
the restrictions on the remaining 120,000 shares of restricted stock expire on
the fifth anniversary of the stock award. The closing price for the Company's
Common Stock as reported by the Nasdaq National Market on March 20, 1996 was
$4.75. This stock award was granted to further align Ms. Bern's compensation
program with Shareholder interests and to recognize her effective leadership and
management of the Company during a very challenging period. The Committee
intended the grant to promote retention and augment the long-term component of
Ms. Bern's compensation.

No stock options were granted to Ms. Bern during the 1997 fiscal year. On
the basis of the Committee's review and certification of the Company's 1997
fiscal year operating earnings in relation to Ms. Bern's goals under the Annual
Incentive Plan, an annual incentive payment of $570,000 was made to Ms. Bern
under the Annual Incentive Plan.

On an annualized basis, the combination of Ms. Bern's annual salary, cash
bonus awarded during fiscal 1997 and stock award grant made during fiscal 1997
placed her total compensation well above the performance and size adjusted
median level of total compensation levels for the Compensation Peer Group.

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
deductible compensation for each Executive Officer named in the Summary
Compensation Table and serving as such at the end of the fiscal year to
$1,000,000 per year. See "MANAGEMENT COMPENSATION". Certain forms of
compensation are exempt from this deductibility limit, primarily
performance-based compensation under plans approved by Shareholders.

The Committee recognizes that a portion of the cash compensation which was
paid to Ms. Bern in fiscal 1997 and the stock award made to her in fiscal 1997
do not qualify for exemption 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 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 as Shareholders have not been asked to approve the
stated performance goals.

Outstanding Standard Options and PSO awards appear to meet the exemption
requirements for performance-based compensation under Section 162(m). Awards of
restricted stock, to the extent made, will not meet the exemption requirements
for performance-based compensation under Section 162(m).

Compensation Committee and Stock Option
Committees:

Alan Rosskamm
Joseph L. Castle, II
Michael Solomon
Marvin L. Slomowitz

16
<PAGE>
STOCK PERFORMANCE CHART

The following graph shows a five-year comparison of cumulative total
returns on Common Stock for the Company, the Standard and Poor's 500 Composite
Index, and the Dow Jones Retailers -- Specialty Apparel 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.

In the printed version of the document, a line graph appears which depicts
the following plot points:

The chart above assumes $100 invested on January 31, 1992 in Charming
Shoppes, Inc., the S&P 500 Composite Index, and the Dow Jones Retailers --
Specialty Apparel Index, and was plotted using the following data:

<TABLE>
<CAPTION>
01/31/92 01/29/93 01/28/94 01/27/95 02/02/96 01/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Charming Shoppes, Inc............................. $100 $138 $ 88 $ 49 $ 23 $ 40
S&P 500 Composite Index........................... $100 $111 $124 $125 $173 $219
Dow Jones Retailers -- Specialty Apparel
Index............................................. $100 $ 95 $ 88 $ 80 $ 81 $110
</TABLE>

17
<PAGE>

AUTHORIZATION AND APPROVAL OF THE ISSUANCE OF SHARES UNDER THE
NON-EMPLOYEE DIRECTORS COMPENSATION PROGRAM AND THE
COMPENSATION PROGRAM FOR THE NON-EMPLOYEE CHAIRMAN OF THE
BOARD OF DIRECTORS

The Company's Board of Directors believes that attracting and retaining
non-employee Directors of high quality is essential to the Company's growth and
success. The Board also believes that important advantages to the Company are
gained by a comprehensive compensation program for members of the Board which
includes stock awards for non-employee Directors. Such stock awards enable them
to acquire or increase their proprietary interest in the Company thereby
promoting a closer identity of interest between the non-employee Directors and
the Company's Shareholders.

Accordingly, on August 21, 1996, the Company's Board of Directors adopted,
subject to Shareholder approval, the Non-Employee Directors Compensation Program
(the "Non-Employee Directors Program") and the Compensation Program for the
Non-Employee Chairman of the Board of Directors (the "Non-Employee Chairman
Program"). These programs provide for payment of a significant portion of the
compensation to the non-employee Directors and the non-employee Chairman of the
Board of Directors in the form of stock. Currently six non-employee Directors
are eligible to participate in the Non-Employee Directors Program. No current
Director is currently eligible to participate in the Non-Employee Chairman
Program, although as discussed below, one Director participated in that Program
during the 1997 fiscal year.

A total of 700,000 shares of Common Stock have been authorized for
issuance, on a non-allocated basis, between the Non-Employee Directors Program
and the Non-Employee Chairman Program. Such number of shares authorized for the
Non-Employee Directors Program and the Non-Employee Chairman Program shall be
appropriately adjusted to reflect stock splits, stock dividends, and other
extraordinary corporate events affecting the Common Stock. Shareholders are
being asked to approve the authorization of such shares for issuance under the
Non-Employee Directors Program and the Non-Employee Chairman Program in order to
comply with the rules of the Nasdaq National Market and for purposes of the
Pennsylvania Business Corporation Law. On April 29, 1997, the closing price per
share of Common Stock on the Nasdaq National Market was $5.84375 per share.

The Board of Directors may amend or terminate the Non-Employee Directors
Program and the Non-Employee Chairman Program at any time; provided, however,
that a termination or amendment of the Non-Employee Directors Program and the
Non-Employee Chairman Program that occurs after a stock award is made will not
result in the termination or amendment of the award unless the recipient of such
Award has provided his or her consent. Any change in the Non-Employee Directors
Program and the Non-Employee Chairman Program, including changes in the rate for
fees payable thereunder or the percentages to be paid in cash or stock, are not
subject to Shareholder approval. However, Shareholder approval will be necessary
for any increase in the shares of Common Stock which have been authorized for
issuance on a non-allocated basis between the Non-Employee Directors Program and
the Non-Employee Chairman Program. Changes in the Non-Employee Directors Program
and the Non-Employee Chairman Program that might increase the costs thereof to
the Company would not necessarily be subject to Shareholder approval.

DESCRIPTION OF THE NON-EMPLOYEE DIRECTORS PROGRAM

ADMINISTRATION

The Non-Employee Directors Program will be administered and interpreted by
the Board of Directors. The Board has full power and authority to administer and
interpret the Non-Employee Directors Program, to make factual determinations and
to adopt or amend such rules and regulations for implementing the Non-Employee
Directors Program and for conduct of its business as it deems necessary or
advisable, in its sole discretion.

18
<PAGE>

SHARES ISSUANCE AND CASH COMPENSATION

The Non-Employee Directors Program authorizes the payment of aggregate
compensation at the rate of $60,000 per annum to the non-employee Directors
(which does not include a non-employee Chairman) of the Company (the "Annual
Directors Fee"). Under the terms of the Non-Employee Directors Program, from
Annual Meeting to Annual Meeting, each non-employee Director is entitled to
receive an award of shares with a fair market value equal to 60% of the Annual
Directors Fee. The balance of the Annual Directors Fee is payable in cash in
four equal installments.

STOCK AWARDS

The Board may issue or transfer shares under an award pursuant to the
Non-Employee Directors Program. The Board will determine the portion of the
Annual Directors Fee to be paid by issuance of shares under the Non-Employee
Directors Program, which portion is currently set at 60% of the Annual Directors
Fee. The number of shares to be issued to a non-employee Director pursuant to an
award will equal the specified portion of the Annual Directors Fee divided by
the closing price for the Company's Common Stock on the Nasdaq National Market
on the date of the Company's Annual Meeting for that year (except stock awards
granted at times other than the day of an Annual Meeting are based on the
closing price of Common Stock on the date of award). The award will vest in four
equal installments on the date of the Annual Meeting for that year and on the
succeeding September 30th, December 31st and March 31st, at which vesting date
shares will be issued and delivered. If a non-employee Director is elected to
the Board by means other than election at an Annual Meeting of Shareholders, a
pro-rata award will be made of the number of shares determined by (a) dividing
the specified portion of the Annual Directors Fee by the closing price for the
Company's Common Stock on the Nasdaq National Market on the date such Director
is so elected, (b) multiplying the result determined in (a) by the reasonably
anticipated number of full months until the next Annual Meeting of Shareholders,
and (c) dividing the result determined in (b) by 12. Such pro-rata award shall
vest in four equal installments determined by the Board of Directors prior to
the next Annual Meeting of Shareholders. Each non-employee Director is entitled
to (i) receive dividends on the vested portion of each stock award, when, as,
and if dividends are declared and paid on the Common Stock of the Company, and
(ii) vote with regard to the number of vested shares subject to the stock award
on any matter submitted to a vote of holders of Common Stock of the Company.

FORFEITURE PROVISIONS

Stock awards to current non-employee Directors will be cancelled in the
event the authorization of shares is not approved by Shareholders of the Company
or in the event a non-employee Director's service on the Board terminates prior
to the date a stock award becomes fully vested in accordance with its terms.
Once vested, a non-employee Director is free to sell or dispose of his or her
shares.

DESCRIPTION OF THE NON-EMPLOYEE CHAIRMAN PROGRAM

ADMINISTRATION

The Non-Employee Chairman Program will be administered and interpreted by
the Board of Directors. The Board has full power and authority to administer and
interpret the Non-Employee Chairman Program, to make factual determinations and
to adopt or amend such rules and regulations for implementing the Non-Employee
Chairman Program and for conduct of its business as it deems necessary or
advisable, in its sole discretion.

SHARES ISSUANCE AND CASH COMPENSATION

The Non-Employee Chairman Program authorizes the payment of aggregate
compensation at the rate of $300,000 per annum to the non-employee Chairman of
the Company (the "Annual Chairman Fee"). Under the terms of the Non-Employee
Chairman Program, from Annual Meeting to Annual Meeting, the non-employee
Chairman is entitled to receive an award of shares with a fair market value
equal to 50% of the Annual Chairman Fee. The balance of the Annual Chairman Fee
is payable in cash in four equal installments.

<PAGE>

STOCK AWARDS

The Board may issue or transfer shares under an award pursuant to the
Non-Employee Chairman Program. The Board will determine the portion of the
Annual Chairman Fee to be paid by issuance of shares under the Non-Employee
Chairman Program, which portion is currently set at 50% of the Annual Chairman
Fee. The number of shares to be issued to the non-employee Chairman pursuant to
an award will equal the specified portion of the Annual Chairman Fee divided by
the closing price for the Company's Common Stock on the Nasdaq National Market
on the date of the Company's Annual Meeting for that year (except stock awards
granted at times other than the day of an Annual Meeting are based on the
closing price of Common Stock on the date of award). The award will vest in four
equal installments on the date of the Annual Meeting for that year and on the
succeeding September 30th, December 31st and March 31st, at which vesting date
shares will be issued and delivered. If the non-employee Chairman is elected to
the Board by means other than election immediately following an Annual Meeting
of Shareholders, a pro-rata award will be made of the number of shares
determined by (a) dividing the specified portion of the Annual Chairman Fee by
the closing price for the Company's Common Stock on the Nasdaq National Market
on the date the non-employee Chairman is so elected, (b) multiplying the result
determined in (a) by the reasonably anticipated number of full months until the
next Annual Meeting of Shareholders, and (c) dividing the result determined in
(b) by 12. Such pro-rata award shall vest in four equal installments determined
by the Board of Directors prior to the next Annual Meeting of Shareholders. The
non-employee Chairman is entitled to (i) receive dividends on the vested portion
of each stock award, when, as, and if dividends are declared and paid on the
Common Stock of the Company, and (ii) vote with regard to the number of vested
shares subject to the stock award on any matter submitted to a vote of holders
of Common Stock of the Company.

FORFEITURE PROVISIONS

Stock awards to a non-employee Chairman will be cancelled in the event the
authorization of shares is not approved by Shareholders of the Company or in the
event the non-employee Chairman's service on the Board terminates prior to the
date a stock award becomes fully vested in accordance with its terms. Once
vested, a non-employee Chairman is free to sell or dispose of his or her shares.

INITIAL STOCK AWARDS UNDER THE NON-EMPLOYEE DIRECTORS PROGRAM
AND THE NON-EMPLOYEE CHAIRMAN PROGRAM

Subject to Shareholder approval of the share authorization for the
Non-Employee Directors Program, the Company made the following initial stock
awards under the Non-Employee Directors Program: the Company awarded to each of
Alan Rosskamm, Michael Solomon, Marvin L. Slomowitz and Geoffrey W. Levy 4,966
shares of Common Stock as the stock component of compensation for services from
the 1996 Annual Meeting until the 1997 Annual Meeting. The stock awards were
based on the closing price of $7.25 per share for the Company's Common Stock on
the Nasdaq National Market on August 23, 1996, the first full day of trading
after the announcement of the Company's earnings for the second quarter ended
August 3, 1996. The Company awarded to Marjorie Margolies-Mezvinsky a pro-rata
award of 3,158 shares of Common Stock on January 30, 1997, the date that she was
elected to the Board of Directors of the Company. This award was based on the
closing price of $4.75 per share for the Company's Common Stock on the Nasdaq
National Market on January 30, 1997, the date she was so elected. This award is
intended as the stock component of compensation for her services as a
non-employee Director from January 30, 1997 until the 1997 Annual Meeting.
Joseph L. Castle, II was granted a pro-rata award of 3,646 shares of Common
Stock under the Non-Employee Directors Program with effect from January 1, 1997,
the date that Mr. Castle ceased to be compensated under the Non-Employee
Chairman Program as the stock component of his compensation for services as a
non-employee Director until the 1997 Annual Meeting. Mr. Castle's award was
based on the closing price of $4.9375 per share for the Company's Common Stock
on the Nasdaq National Market on January 2, 1997, the date Mr. Castle was first
compensated under the Non-Employee Directors Program.

Subject to Shareholder approval of the share authorization for the
Non-Employee Chairman Program, the Company awarded Joseph L. Castle, II 20,690
shares of Common Stock as the stock component of compensation for services from
the 1996 Annual Meeting until the 1997 Annual

20
<PAGE>

Meeting under the Non-Employee Chairman Program. The award was based on the
closing price of $7.25 per share for the Company's Common Stock on the Nasdaq
National Market on August 23, 1996, the first full day of trading after the
announcement of the Company's earnings for the second quarter ended August 3,
1996. On January 30, 1997, Mr. Castle resigned as the non-employee Chairman of
the Board. Subject to Shareholder approval, he will receive 10,345 shares of
Common Stock being that portion of his original stock award under the
Non-Employee Chairman Program which vested prior to his resignation. Mr. Castle
will continue to be compensated under the Non-Employee Directors Program for his
services until the 1997 Annual Meeting.

The following table sets forth the amount of shares awarded under the
Non-Employee Directors Program and the Non-Employee Chairman Program to date to
the specified groups, which awards are subject to Shareholder approval of the
authorization of shares for issuance under the Non-Employee Directors Program
and the Non-Employee Chairman Program:

NEW PLAN BENEFITS

STOCK AWARDS TO DATE UNDER THE NON-EMPLOYEE DIRECTORS PROGRAM
AND THE NON-EMPLOYEE CHAIRMAN PROGRAM

<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
SUBJECT TO SHAREHOLDER SUBJECT TO SHAREHOLDER
AUTHORIZATION FOR THE AUTHORIZATION FOR THE
NON-EMPLOYEE NON-EMPLOYEE CHAIRMAN
NAME AND POSITION DIRECTORS PROGRAM PROGRAM
- ----------------- ---------------------- ----------------------
<S> <C> <C>
Executive Officers as a group............................ -0- -0-
Non-Executive Directors as a group....................... 26,668 10,345
Non-Executive employees as a group....................... -0- -0-
</TABLE>

FEDERAL INCOME TAX CONSEQUENCES OF STOCK AWARDS UNDER THE NON-EMPLOYEE
DIRECTORS PROGRAM AND THE NON-EMPLOYEE CHAIRMAN PROGRAM

The federal income tax treatment of stock awards under the Non-Employee
Directors Program and the Non-Employee Chairman Program under present tax law is
described generally below. Local and state tax authorities may also tax
compensation awarded under the Non-Employee Directors Program and the
Non-Employee Chairman Program. The non-employee Directors and the non-employee
Chairman (a "Grantee") are urged to consult with their personal tax advisors
concerning the application of the general principles discussed below to their
own situations and the application of state and local tax laws.

A Grantee normally will not recognize taxable income upon the grant of a
stock award, and the Company will not be entitled to a deduction, until such
stock is transferable by the Grantee or is no longer subject to a substantial
risk of forfeiture for federal tax purposes, whichever occurs earlier. When the
shares are either transferable or are no longer subject to a substantial risk of
forfeiture, the Grantee will recognize ordinary income in an amount equal to the
fair market value of the shares at that time and the Company will be entitled to
a deduction in the same amount. The Grantee may, however, elect to recognize
ordinary income in the year the award is granted in an amount equal to the fair
market value of the shares at the date of grant, determined without regard to
the restrictions. In such event, the Company generally will be entitled to a
corresponding deduction in the same year. Any gain or loss recognized by the
Grantee upon subsequent disposition of the shares will be a capital gain or
loss. If, after making the election, any shares subject to an award are
forfeited for any reason, or the market value declines during the restricted
period, the Grantee is not entitled to any tax deduction or tax refund.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
AUTHORIZATION AND APPROVAL OF THE ISSUANCE OF SHARES UNDER THE NON-EMPLOYEE
DIRECTORS COMPENSATION PROGRAM AND THE COMPENSATION PROGRAM FOR THE NON-EMPLOYEE
CHAIRMAN OF THE BOARD OF DIRECTORS.

21
<PAGE>

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 1997 fiscal year and (4) all current Directors, nominees and Executive
Officers of the Company as a group. Unless otherwise indicated, beneficial
ownership information is presented as of April 11, 1997.

<TABLE>
<CAPTION>
COMMON STOCK (1)
------------------------------
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES OWNED CLASS
- ------------------------ ------------ ----------
<S> <C> <C>
Dorrit J. Bern.................................................... 600,000(2) (14)
Michael Solomon................................................... 110,000(3) (14)
Alan Rosskamm..................................................... 35,484(4) (14)
Marvin L. Slomowitz............................................... 35,000(4) (14)
Joseph L. Castle, II.............................................. 22,000(4) (14)
Geoffrey W. Levy.................................................. 32,250(4) (14)
Marjorie Margolies-Mezvinsky...................................... 0
Colin D. Stern.................................................... 392,700(5) (14)
Elizabeth Williams................................................ 90,600(6) (14)
Erna Zint......................................................... 50,000(7) (14)
Jeffrey M. Zelenko................................................ 35,000(8) (14)
FMR Corp.......................................................... 16,010,351(9) 14.9%
Ryback Management Corporation..................................... 13,821,603(10) 12.7%
First Pacific Advisors, Inc....................................... 11,043,834(11) 10.3%
Pioneering Management Corporation................................. 5,631,500(12) 5.4%
All current Directors, nominees and Executive Officers
as a Group (18 persons)......................................... 2,109,955(13) 2.0%
</TABLE>

- ------------------
(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 a stock award of 400,000 shares to Ms. Bern comprising 160,000
shares which were granted without risk of forfeiture and 240,000 shares of
restricted stock subject to risk of forfeiture and restrictions. These
restrictions expire as to 60,000 shares of restricted stock on each of the
third and fourth anniversaries of March 20, 1996, which is the date of the
stock award, and the restrictions on the remaining 120,000 shares of
restricted stock expire on the fifth anniversary of the date of the stock
award. Also includes 200,000 shares as to which Ms. Bern holds options
exercisable within sixty days.

(3) Includes 45,000 shares owned by a trust for the benefit of Mr. Solomon's
daughter, as to which shares Mr. Solomon disclaims any beneficial
ownership. Also includes 30,000 shares owned by Mr. Solomon's profit
sharing and savings plan and 30,000 shares as to which Mr. Solomon holds
options exercisable within sixty days. See "ELECTION OF DIRECTORS --
Compensation of Directors ".

(4) Includes 18,000 shares for Mr. Castle, 30,000 shares for Mr. Slomowitz,
30,000 shares for Mr. Rosskamm and 24,000 shares for Mr. Levy, as to which
such persons hold options exercisable within sixty days. See "ELECTION OF
DIRECTORS -- Compensation of Directors".

(5) Includes 392,700 shares as to which Mr. Stern holds options exercisable
within sixty days.

(6) Includes 80,000 shares as to which Ms. Williams holds options exercisable
within sixty days.

Notes continued on following page

22
<PAGE>

(7) Includes 50,000 shares as to which Ms. Zint holds options exercisable
within sixty days.

(8) Includes 35,000 shares as to which Mr. Zelenko holds options exercisable
within sixty days.

(9) The source of this information is an Amendment to Schedule 13G dated
February 14, 1997, filed by FMR Corp. and certain other persons reporting
beneficial ownership as of December 31, 1996. FMR Corp. reported that it
had sole power to vote or direct the vote of 798,549 shares and sole power
to dispose or direct the disposition of 16,010,351 shares. This Schedule
13G reported that Edward C. Johnson, 3rd and certain of his family members
and trusts form a controlling group with respect to FMR Corp. and that he
and Abigail P. Johnson each also had beneficial ownership of 16,010,351
shares (which shares are the same shares as those beneficially owned by FMR
Corp.), including sole voting power over 798,549 shares and sole
dispositive power over 16,010,351 shares. The 16,010,351 shares includes
2,303,615 shares which may be acquired by conversion of $17,185,000
principal amount of the Company's 7.5% Convertible Subordinated Notes due
July 15, 2006 ("Convertible Debentures"). The Schedule 13G also stated that
Fidelity Management & Research Company ("FMRC"), a wholly owned subsidiary
of FMR Corp. and a registered investment advisor, beneficially owned
15,147,050 shares or 14.06% of the outstanding class of Common Stock
including 1,789,541 shares that may be acquired upon conversion of
Convertible Debentures (all of which shares are included in the shares
beneficially owned by FMR Corp.). In addition, the Schedule 13G stated that
Fidelity Contrafund, a registered investment company as to which FMRC
serves as an investment advisor, was the beneficial owner of 10,629,633
shares or 9.9% of the outstanding class of Common Stock, including 650,133
shares that may be acquired upon conversion of Convertible Debentures (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.

(10) The source of this information is an Amendment to Schedule 13G dated
January 27, 1997, filed by Ryback Management Corporation, reporting that it
had sole voting and dispositive power over 13,821,603 shares of Common
Stock. The shares reported as beneficially owned by Ryback Management
Corporation include 7,955,100 shares, or 7.3% of the outstanding class of
Common Stock, beneficially owned by Lindner Growth Fund, 5,791,503 shares
(including 3,756,703 shares that may be acquired upon conversion of
Convertible Debentures) or 5.3% of the outstanding class of Common Stock
beneficially owned by the Lindner Dividend Fund and 75,000 shares
beneficially owned by Ryback Management Corporation. Both the Lindner
Growth Fund and the Lindner Dividend Fund are separate series of the
Lindner Investment Series Trust. The address of Ryback Management
Corporation and the other reporting persons is 7711 Carondelet Avenue, Box
16900, St. Louis, MO 63105.

(11) The source of this information is an Amendment to Schedule 13G dated
February 10, 1997, filed by First Pacific Advisors, Inc., reporting that it
had shared power to vote or direct the vote of 6,962,935 shares of Common
Stock and shared power to dispose or direct the disposition of 11,043,834
shares of Common Stock at January 31, 1997. The 11,043,834 shares include
1,343,834 shares that may be acquired upon conversion of Convertible
Debentures. The address of First Pacific Advisors, Inc. is 11400 West
Olympic Boulevard, Suite 1200, Los Angeles, CA 90064.

(12) The source of this information is a Schedule 13G dated January 22, 1997,
filed by Pioneering Management Corporation, reporting that it had sole
power to vote or direct the vote of 5,631,500 shares of Common Stock, sole
power to dispose or to direct the disposition of 85,000 shares of Common
Stock and shared power to dispose or to direct the disposition of 5,546,500
shares of Common Stock at December 31, 1996. The address of Pioneering
Management Corporation is 60 State Street, Boston, MA 02109.

(13) Includes 571,208 shares as to which Directors and Executive Officers hold
options exercisable within sixty days.

(14) The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the Company's issued and outstanding shares of Common Stock.

23
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Geoffrey W. Levy, a Director, owns equity interests in shopping centers
located in Gilford, Massachusetts and Wakefield, Rhode Island. The amounts
(including rent, common area maintenance charges, taxes, insurance and other
charges payable under the lease) paid by the Company for the 1997 fiscal year
with respect to each store in each shopping center are as follows: Gilford,
Massachusetts: $106,110; and Wakefield, Rhode Island: $70,758. The foregoing
leases involve less than one percent of the Company's stores, and are not
individually or in the aggregate material to the Company. The Company believes
that the terms thereof are no less favorable to the Company than the Company
could have negotiated with an unaffiliated third party. See "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION".

Bernard Brodsky, an Executive Officer, and his wife (the "Brodskys"), were
personally indebted to the Company for a loan made to them in the aggregate
amount of $150,000 (the "Loan"). The Loan bore interest, payable monthly, at an
annual rate of 6 1/2%, and was payable in full on January 31, 1997. The Loan was
secured by a first mortgage on a residence owned by the Brodskys. No amount was
outstanding with respect to the Loan as of February 1, 1997. The largest
aggregate amount of indebtedness outstanding at any time during the 1997 fiscal
year was $128,739.

The Company provides additional life insurance coverage for Dorrit J. Bern,
the Company's Chairman of the Board, President and Chief Executive Officer.
Under a split dollar arrangement, the Company will pay annual premiums of
$78,500, provided, however, that the proceeds of such policies shall be first
used to repay all premiums paid by the Company. Under this arrangement, a
sufficient amount of insurance coverage will be in place at all times to insure,
at a minimum, that the amount of all premiums paid by the Company will be
repaid. The balance of such policy proceeds will be paid to certain designated
beneficiaries. See also, "MANAGEMENT COMPENSATION -- Summary Compensation Table:
Footnote (4)".

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the 1997 fiscal year the members of the Compensation Committee and
Stock Option Committees were: Joseph L. Castle, II, Michael Solomon, Marvin L.
Slomowitz and Alan Rosskamm. Marvin L. Slomowitz is also Chairman of the Board,
Chief Executive Officer and a shareholder of Mark Centers Trust which is the
general partner of Mark Centers Limited Partnership (the "Partnership"). See
"ELECTION OF DIRECTORS -- Compensation of Directors". Mr. Slomowitz is also a
principal shareholder of the Partnership, which owns shopping centers in which
the Company leased twelve stores during the 1997 fiscal year. The aggregate
amounts (including rent, common area maintenance charges, taxes, insurance and
other charges payable under the leases (the "Lease Amounts")) paid by the
Company for the 1997 fiscal year with respect to these twelve stores was
$781,963, which is less than two percent of the aggregate rental revenues of the
Partnership. As part of the construction and expansion of four of the stores
owned by the Partnership, the Company received construction allowances in the
aggregate amount of $957,484 to offset the cost of certain leasehold
improvements. As of February 28, 1997, the balance of the allowance receivables
was $876,577. One of these leased stores was closed during the 1997 fiscal year
and the Company paid $15,000 as part of a termination agreement with the
Partnership. The Company also leases a store in a shopping center located in
Pittston, Pennsylvania. Mr. Slomowitz owns a mortgage over this shopping center.
The Lease Amount paid by the Company for the 1997 fiscal year with respect to
the Pittston store is approximately $46,494.

Michael Solomon is a Managing Director of Lazard Freres & Co. LLC which was
retained by the Company during the 1997 fiscal year to act as managing
underwriter in a public offering of the Company's Convertible Subordinated
Notes. Mr. Solomon also owns equity interests in two entities which own shopping
centers located in Massena, New York and Logan, West Virginia and in which the
Company leases stores. The Lease Amounts paid by the Company for the 1997 fiscal
year with respect to each store in each shopping center are as follows: Massena,
New York: $40,676; and Logan, West Virginia: $99,164.

The foregoing leases currently involve fewer than one percent of the
Company's stores, and are not individually or in the aggregate material to the
Company. The Company believes that the foregoing leases and transaction terms
are no less favorable to the Company than the Company could have negotiated with
an unaffiliated third party.

24
<PAGE>

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.

RELATIONSHIP WITH AUDITORS

The firm of Ernst & Young LLP served as the Company's independent auditors
for the fiscal year ended February 1, 1997. 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.

PROPOSALS FOR 1998 ANNUAL MEETING

Any proposals of Shareholders that are intended to be presented at the
Company's 1998 Annual Meeting of Shareholders must be received at the Company's
principal executive offices no later than January 15, 1998 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. See "ELECTION OF DIRECTORS --
Committees of the Board".

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.

ADDITIONAL INFORMATION

A copy of the Annual Report of the Company for the fiscal year ended
February 1, 1997, 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 Bernard Brodsky, Secretary, at 450 Winks Lane, Bensalem, Pennsylvania 19020.

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

BERNARD BRODSKY
Secretary

Bensalem, Pennsylvania
May 15, 1997

<PAGE>

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. ("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 19, 1997 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, "FOR" THE
PROPOSAL TO AUTHORIZE AND APPROVE THE ISSUANCE OF SHARES UNDER THE NON-EMPLOYEE
DIRECTORS COMPENSATION PROGRAM AND "FOR" THE PROPOSAL TO AUTHORIZE AND APPROVE
THE ISSUANCE OF SHARES UNDER THE COMPENSATION PROGRAM FOR THE NON-EMPLOYEE
CHAIRMAN OF THE BOARD OF DIRECTORS, ALL AS SET FORTH IN THE PROXY STATEMENT.

(continued on reverse side)

- --------------------------------------------------------------------------------

FOLD AND DETACH HERE

<PAGE>

Please mark
your votes as [X]
indicated in
this example

<TABLE>
<S> <C>
1. ELECTION OF CLASS A DIRECTORS (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE
FOR ANY INDIVIDUAL NOMINEE: WRITE THAT
NOMINEE'S NAME BELOW.)
Vote FOR Vote
all nominees WITHHELD Marvin L. Slomowitz Geoffrey W. Levy
Marjorie Margolies-Mezvinsky
(except as marked
to the contrary) ______________________________________________

------ ------

2. PROPOSAL TO AUTHORIZE AND 3. PROPOSAL TO AUTHORIZE AND APPROVE
APPROVE THE ISSUANCE OF SHARES THE ISSUANCE OF SHARES UNDER THE
UNDER THE NON-EMPLOYEE DIRECTORS COMPENSATION PROGRAM FOR THE
COMPENSATION PROGRAM NON-EMPLOYEE CHAIRMAN OF THE BOARD
OF DIRECTORS

FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN

---- ----- ----- ----- ----- -----
</TABLE>

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: , 1997
--------------------------------------------

- ---------------------------------------------------------
Signature

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.
- --------------------------------------------------------------------------------

FOLD AND DETACH HERE

Annual Meeting of Shareholders
of
Charming Shoppes, Inc.
Thursday, June 19, 1997
10:00 a.m.
Charming Shoppes, Inc.
450 Winks Lane
Bensalem, PA 19020