exh10227jan312009.htm


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    EXHIBIT
10.2.27

    


    Charming
Shoppes, Inc.

    


    


    Compliance
Rules Under Section 409A of the Internal Revenue Code

    (Including
Global Amendment to Certain Outstanding

    Restricted
Stock Units and Performance Shares)

    2008
Revisions

    


    Introduction

    


    Section 409A of the Internal Revenue
Code (“409A”) regulates deferred compensation, which it defines very broadly to
include arrangements not usually considered to be deferred
compensation.  This potentially can include Restricted Stock Units
(“RSUs”).

    


    Most RSUs granted by Charming Shoppes,
Inc. (the “Company”) under the 2004 Stock Award and Incentive Plan (the “2004
Plan”) will not be affected by 409A in a way that participants will
notice.  These awards will qualify under the 409A regulations’
“short-term deferral” rules, because in every circumstance these
awards will be settled – that is, shares will be delivered to the participant –
within a limited period of time after the “risk of forfeiture”
lapses.  In simple terms, the “risk of forfeiture” under 409A means
the risk that, if the participant voluntarily quits his or her employment, the
RSUs will be forfeited.

    


    Some RSUs, however, will not qualify
under the short-term deferral rules, and therefore will be fully subject to the
rules under 409A (these will be referred to here as “409A
RSUs”).  Failure to comply with the 409A rules could result in harsh
income tax consequences for the participant, including treating the RSUs as
income to be taxed long before the RSUs are settled, with interest on any unpaid
taxes and a 20% tax penalty.  States may impose similar taxes and
penalties, too.

    


    Unfortunately, it can be complicated to
identify 409A RSUs.  An award of RSUs that vests at different dates
(each vesting portion is called a “tranche”) may avoid 409A for early vesting
tranches but be subject to 409A for later tranches.  However, the
actual restrictions that apply to 409A RSUs will affect those awards only in a
few circum­stances. The effects in these cases will be to delay the
distribution of shares in settlement of the 409A RSUs; however, the 409A rules
do not increase the risk that a participant will forfeit the
RSUs.  For purposes of 409A, each tranche is deemed to be a separate
payment.

    


    This document (the “409A Compliance
Rules”) explains the rules and procedures to ensure compliance for 409A
RSUs.  This document supersedes an earlier version adopted in 2007;
such earlier version is of no further force or effect.

    



    
      
         


      

      
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    When
Will Plan Administrators Need to Apply Special 409A Compliance
Rules?

    


    Administratively, compliance with 409A
for 409A RSUs can be monitored based on the occurrence of specific triggering
events:

    


    
      	
              •  

            	
              A
      participant’s termination of employment which does not result in
      forfeiture of RSUs

            


    

    
      	
              •  

            	
              A
      participant’s change to part-time employment or
  consultant

            


    

    
      	
              •  

            	
              A
      Change in Control (as defined) of the
Company

            


    

    


    During
the life cycle of an award of RSUs, if these events do not occur, the RSUs will
be administered in the same way as in the past, whether or not the RSUs are 409A
RSUs.  (Note:  If a participant elects to defer settlement
of RSUs under the Company’s Variable Deferred Compensation Plan (the “VDCP”),
the timing of those elections to defer will have to comply with 409A
rules.  That compliance is governed separately by rules under the
VDCP.  If deferred, distributions will be based on the terms of the
deferral election.)

    


    Which
RSUs are Deemed To Be 409A RSUs?

    


    RSUs are 409A RSUs in these two
cases:

    


    
      	
              •  

            	
              The
      participant has elected to defer settlement of the RSUs under the VDCP;
      or

            


    

    


    
      	
              •  

            	
              The
      participant will reach “Retirement” age somewhat before a given tranche of
      RSUs is scheduled to vest.

            


    

    
      	
              o  

            	
              Under
      current RSUs, “Retirement” eligibility occurs at age
  62

            


    

    
      	
              o  

            	
              So,
      if a participant will reach age 62 before the beginning of the fiscal year
      in which a given tranche will vest, that tranche in many cases will be
      deemed to be 409A RSUs1

            


    

    
      	
              o  

            	
              Even
      if the participant terminates before age 62, some RSUs may be 409A RSUs if
      he or she would have attained age 62 before the fiscal year in which the
      final tranche would have vested had employment
  continued

            


    

    
      	
              o  

            	
              Such
      RSUs will be 409A RSUs if the Retirement provision creates a possibility that the
      participant could retire and not forfeit some RSUs that would remain
      outstanding

            


    

    
      	
              o  

            	
              Performance
      Shares may permit Retirement but still require that performance goals be
      achieved as a condition to earning the award (after Retirement); such
      terms would constitute a “substantial risk of forfeiture” so that the
      Performance Shares are not 409A
RSUs.

            


    

    

      

    

      
      1           If
the payout date for that tranche will be before the 15th day of
the third calendar month after the end of the fiscal year in which the
participant turned age 62, then that tranche will not be 409A
RSUs.  The date the participant reaches age 62 varies, vesting dates
vary, and fiscal year-end dates vary between January and February, so each RSU
tranche will have to be examined under this rule.  Administratively,
we intend to examine this only if the participant has a termination of
employment or upon a Change in Control, because those are the only times this
complex rule will matter.

    


    
      
         


      

      
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    What
are the Effects of Being 409A RSUs?

    


    If RSUs are 409A RSUs, the following
restrictions will apply:

    


    (1)           The  “six-month
delay rule”

    


    
      	
              •  

            	
              The
      six-month delay rule will apply to 409A RSUs if these four conditions are
      met:

            


    

    
      	
              o  

            	
              The
      participant has a separation from service (within the meaning of Treasury
      Regulation § 1.409A-1(h))

            


    

    
      	
              o  

            	
              A
      distribution of shares is triggered by the separation from service (but
      not due to death). Distributions upon termination due to disability or
      termination not for Cause could be subject to this rule in some
      cases.

            


    

    
      	
              o  

            	
              The
      Participant is a “key employee” (as defined in Code Section 416(i) without
      regard to paragraph (5) thereof).  The Company will determine
      status of “key employees” annually, under administrative procedures
      applicable to all Section 409A
plans

            


    

    
      	
              o  

            	
              The
      Company’s stock is publicly traded on an established securities market or
      otherwise.

            


    

    
      	
              •  

            	
              If
      it applies, the six-month delay rule will delay a distribution in
      settlement of 409A RSUs triggered by separation from service where the
      distribution otherwise would be within six months after the
      separation

            


    

    
      	
              o  

            	
              Any
      delayed payment shall be made on the date six months after separation from
      service

            


    

    
      	
              o  

            	
              During
      the six-month delay period, accelerated distribution will be permitted in
      the event of the participant’s death and for no other reason (including no
      acceleration upon a Change in Control), except to the extent permitted
      under Section 409A

            


    

    
      	
              o  

            	
              Any
      payment that is not triggered by a separation from service, or is
      triggered by a separation from service but would be made more than six
      months after separation (without applying this six-month delay rule),
      shall be unaffected by the six-month delay
rule.

            


    

    
      	
              •  

            	
              RSUs
      generally provide for distribution upon termination due to disability or
      due to termination by the Company not for Cause.  In those
      cases, the Company will determine whether the six-month delay rule will
      apply to 409A RSUs.

            


    

    
      	
              •  

            	
              If
      the terms of an RSU agreement impose this six-month delay rule in
      circumstances in which it is not required for compliance with Section
      409A, those terms shall not be given
effect.

            


    

    



    
      
         


      

      
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    (2)           Change in Control
rule:

    


    
      	
              •  

            	
              Any
      distribution of 409A RSUs triggered by a Change in Control will be made
      only if, in connection with the Change in Control, there occurs a change
      in the ownership of the Company, a change in effective control of the
      Company, or a change in the ownership of a substantial portion of the
      assets of the Company as defined in Treasury Regulation
      § 1.409A-3(i)(5) (a "409A Change in
  Control").

            


    

    
      	
              o  

            	
              Note:  Events
      constituting a Change in Control in most instances will also trigger a
      distribution under Section 409A, except an acquisition of Beneficial
      Ownership of 20% of the outstanding voting securities but less than 30% of
      the voting power likely would not trigger a distribution under
      409A.

            


    

    
      	
              •  

            	
              In
      this case, distribution of the 409A RSUs shall occur not later than five
      business days after (i) the occurrence of a 409A Change in Control
      occurring at the time of or following the Change in Control or (ii) upon
      occurrence of the Change in Control occurring within 90 days after the
      409A Change in Control, but only if the occurrence of the Change in
      Control is non-discretionary and objectively determinable at the time of
      the 409A Change in Control (in this case, the Participant shall have no
      influence on when during such 90-day period the settlement shall
      occur).

            


    

    
      	
              •  

            	
              If
      any distribution is delayed by operation of this Change in Control rule,
      the distribution shall be made at the earliest permissible time or event
      thereafter that could trigger a distribution under Code Section 409A
      (subject to the six-month delay rule if
  applicable).

            


    

    
      	
              •  

            	
              No
      accelerated distribution upon a Change in Control (even if otherwise
      permitted under this Change in Control rule) applies to a distribution
      delayed by application of the six-month delay
  rule.

            


    

    


    (3)           Separation from
Service

    


    
      	
              •  

            	
              Any
      distribution in settlement of the 409A RSUs that is triggered by a
      termination of employment will occur only at such time as the participant
      has had a “separation from service” within the meaning of Treasury
      Regulation § 1.409A-1(h), regardless of whether any other event might
      be viewed as a termination of employment by the Company for any other
      purpose.

            


    

    
      	
              o  

            	
              In
      particular, i a participant switches to part-time employment or becomes a
      consultant in connection with a termination of employment, whether that
      event will be deemed a termination of employment for purposes of 409A RSUs
      will be governed by the 409A rules on “separation from
      service.”

            


    

    


    (4)           Other
Restrictions.

    


    
      	
              •  

            	
              The
      settlement of 409A RSUs may not be accelerated by the Company except to
      the extent permitted under Section
409A.

            


    

    



    
      
         


      

      
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    Any
restriction imposed on 409A RSUs under these 409A Compliance Rules or imposed on
RSUs under the terms of other documents solely to ensure compliance with Section
409A shall not be applied to an RSU that is not a 409A RSU except to the extent
necessary to preserve the status of such RSU as not a 409A RSU.  If
any mandatory term required for 409A RSUs or non-409A RSUs to avoid tax
penalties under Section 409A is not otherwise explicitly provided under this
document or other applicable documents, such term is hereby incorporated by
reference and fully applicable as though set forth at length
herein.

    


    Performance
Share Agreements

    


    Performance Shares currently do not
constitute 409A RSUs, unless they are electively
deferred.  Performance Share Agreements that provide for
non-forfeiture upon Retirement nevertheless require that the Performance Shares
be earned by performance over the designated performance period, with any
settlement to be made shortly after the end of the designated performance period
and within the short-term deferral period permitted under Treasury Regulation
§ 1.409A-1(b)(4).  In the case of certain terminations, vesting
may accelerate and distributions may be made following such terminations, but
these are permitted without causing the awards to fail to constitute “short-term
deferrals.”  Some Performance Shares provide that, in the case of
termination by the Company not for cause or retirement, a pro rata portion of
the award will remain outstanding and be earned if and to the extent that
performance goals are met for the full performance period.  Such
performance requirement also constitutes a substantial risk of forfeiture, so
that the Performance Shares still should qualify as “short-term
deferrals.”  Any pro rata portion of a tranche of Performance Shares
(or RSUs, if pro rationing applies) calculated from the stated vesting date of
the previously vesting tranche (or grant date, in the case of the first tranche)
until December 31, or calculated for that tranche for the period from January 1
until the end of the Company's then current fiscal year, or calculated for that
tranche for the period from the beginning of the fiscal year until the next
stated vesting date (or anniversary of grant if there is no vesting in that
year), shall be deemed a separate payment for purposes of Section
409A.

    


    If Performance Share Agreements
(including any applicable elections of the Participant) contain terms that
nevertheless cause them to be deemed “deferrals of compensation” for purposes of
Section 409A2, they
shall be subject to the terms above applicable to 409A RSUs (but this provision
shall not result in any waiver of a performance condition).

    


    Global
Amendment to Agreements Governing Restricted Stock Units

    


    

      

    

      
      2           This
could occur in the case of performance shares that a participant can earn after
retirement or termination not for cause if the performance goals or the Change
in Control acceleration terms do not constitute a “condition related to a
purpose of the compensation” under Treasury Regulation
§ 1.409A-1(d).  There is at present little guidance on what
constitutes a “condition related to a purpose of the
compensation.”

    


    
      
         


      

      
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    This document shall be deemed a global
amendment to RSU agreements relating to RSUs (and Performance Shares, to the
extent provided herein) granted on or before December 31, 2008 which vested or
will vest on or after January 1, 2005 and which remain outstanding after
December 31, 2008.

    


    In addition to the provisions above
which amend such RSUs, such non-409A RSUs are amended to provide that settlement
shall occur within 60 days after the lapse of the Restricted Period (this period
is generally specified in such agreements), except that in the case of a
participant who has previously attained age 62 and for whom settlement will
occur at a fixed date (i.e., the stated vesting date of the RSUs), such RSUs
will be settled within ten days of such fixed date.

    


    It is understood that any RSU Agreement
(including any Performance Shares Agreement) that permits accelerated vesting
upon a termination for “Good Reason” as defined in another agreement will
require that the definition of Good Reason qualify under Treasury Regulation
§ 1.409A-1(n)(2), and any amendment to such other agreement to comply with
this requirement shall be deemed also to amend such RSU Agreement.

    


    In the case of any RSU Agreement
(including a Performance Shares Agreement) that provides for accelerated lapse
of the substantial risk of forfeiture and/or settlement upon a termination due
to disability, the following rules will apply:

    


    In case
of a disability of a Participant, (i) for any RSUs or Performance Shares that
constitute a short-term deferral for purposes of Section 409A, the Company shall
determine whether the Participant's circumstances are such that the Participant
will not return to service, in which case such disability will be treated as a
termination of employment for purposes of determining the time of payment of
such Award or portion thereof then subject only to service-based vesting, and
(ii) for any Award or portion thereof that constitutes a 409A Award, the Company
shall determine whether there has occurred a "separation from service" as
defined under Treasury Regulation § 1.409A-1(h) based on Participant's
circumstances, in which case such disability will be treated as a separation
from service for purposes of determining the time of payment of such Award or
portion thereof then subject only to service-based vesting.  In each
case, the Participant shall be accorded the benefit of vesting that would result
in the case of disability in the absence of this provision, so that the
operation of this provision, intended to comply with Section 409A, will not
disadvantage the Participant.  The Company's determinations hereunder
will be made within 30 days after the disability arises or there occurs a
material change in the Participant's condition that constitutes the
disability.  In the case of any short-term deferral, if (i)
circumstances arise constituting a disability but not constituting a termination
of employment, (ii) the Award would provide for vesting upon a termination due
to disability, and (iii) the Award would not qualify as a short-term deferral if
the Participant were then


    
      
         


      

      
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    permitted
to elect the time at which to terminate employment due to the disability, then
only the Company will be entitled to act to terminate Participant's employment
due to disability.

    


    A
termination of a Retirement-eligible participant shall be deemed a Retirement
unless the termination is for cause; such termination shall not be deemed a
termination not for cause or a termination due to disability.

    


    Any reference in a tax withholding
provision to the "minimum" federal, state and local tax withholding amount shall
be understood to mean the mandatory amount the Company is required by law to
withhold upon settlement of the Restricted Stock Units.

    


    Nothing in these 409A Compliance Rules
shall be deemed to modify the performance goals required to be achieved as a
condition to the grant of stock appreciation rights, RSUs or other
awards.

    


    


    Approved
by the Board of Directors December 1, 2008

    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    



    
      
         


      

      
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