UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.         )

christopher & banks

Christopher & Banks Corporation

2400 Xenium Lane North

Plymouth, Minnesota 55441

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 30, 2008

TO OUR STOCKHOLDERS:

The Annual Meeting of Stockholders of Christopher & Banks Corporation will be held on Wednesday, July 30, 2008 at the offices of our outside counsel, Dorsey & Whitney LLP, at Suite 1500, 50 South Sixth Street, Minneapolis, Minnesota.  The meeting will convene at 3:00 p.m. local time for the following purposes:

The foregoing items of business are more fully described in the proxy statement accompanying this notice.

Our Board of Directors has fixed the close of business on June 3, 2008 as the record date for the determination of stockholders entitled to notice of and to vote at the meeting and at any adjournments or postponements thereof.

You are cordially invited to attend the meeting.  Your vote is very important.  Whether or not you plan to attend, please vote your shares promptly to ensure they are represented at the meeting.  You may submit your proxy vote by completing and signing the enclosed proxy card and returning it in the envelope provided.  If you decide later to change your proxy vote, you may do so at any time before it is voted.

June 12, 2008

TABLE OF CONTENTS

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christopher & banks

PROXY STATEMENT

2008 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD JULY 30, 2008

We are providing this proxy statement in connection with the solicitation of the enclosed proxy.  The proxy is for use at the 2008 Christopher & Banks Corporation Annual Meeting of Stockholders.  Our Annual Meeting will be held at 3:00 p.m. local time on Wednesday, July 30, 2008 at the offices of our outside counsel, Dorsey & Whitney LLP, at Suite 1500, 50 South Sixth Street, Minneapolis, Minnesota.  The proxy can also be used at any adjournment or postponement of the Annual Meeting.

This proxy is solicited by the Board of Directors (the “Board”) of Christopher & Banks Corporation (the “Company”, “we”, “us” and “Christopher & Banks”) for the following purposes:

1.     To elect three Class II directors as nominated by our Board of Directors to each serve a three-year term;

2.     To approve an amendment to our 2006 Equity Incentive Plan for Non-Employee Directors to increase the number of shares authorized for issuance under the plan from 300,000 to 625,000;

3.     To approve certain amendments to our 2005 Stock Incentive Plan, including an increase in the number of shares authorized for issuance under the plan from 1,800,000 to 2,975,000;

4.     To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending February 28, 2009;

5.     To consider a stockholder proposal requesting that our Board of Directors take the necessary steps to declassify the Board of Directors; and

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

This proxy statement and proxy card are being mailed to stockholders with our 2008 Annual Report to Stockholders beginning on or about June 12, 2008.

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

Who is entitled to vote at the Annual Meeting?

Holders of Christopher & Banks Common Stock, par value $0.01 per share (the “Common Stock”), at the close of business on June 3, 2008, the record date for the Annual Meeting, are entitled to vote at our Annual Meeting.  As of June 3, 2008, 35,410,992 shares of Common Stock were outstanding.

What are my voting rights?

Holders of our Common Stock are entitled to one vote per share.  Therefore, a total of 35,410,992 votes are entitled to be cast at the Annual Meeting for each proposal.  There is no cumulative voting.

How many shares must be present to hold the Annual Meeting?

In accordance with our by-laws, shares equal to a majority of the voting power of the outstanding shares of Common Stock entitled to vote as of the record date must be present at the Annual Meeting in order to hold the meeting and conduct business.  This is called a quorum.  Your shares are counted as present at the Annual Meeting if:

·                  you are present and vote in person at the Annual Meeting; or

·                  you have properly and timely submitted your proxy as described below under “How do I submit my proxy?”.

If a quorum is not present or represented at the Annual Meeting, the stockholders and proxies entitled to vote will have the power to adjourn the Annual Meeting, without notice other than an announcement at that time, until a quorum is present or represented.

What is a proxy?

It is your designation of another person to vote stock you own.  That other person is called a proxy.  If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card.  When you designate a proxy, you also may direct the proxy how to vote your shares.  We refer to this as your “proxy vote.”  Three of our executive officers have been designated as proxies for our 2008 Annual Meeting.  These executive officers are Lorna E. Nagler, Andrew K. Moller and Luke R. Komarek.

What is a proxy statement?

It is a document that we are required to give you, in accordance with regulations of the Securities and Exchange Commission, when we ask you to designate proxies to vote your shares of our Common Stock at an Annual Meeting of our stockholders.  The proxy statement includes information regarding the matters to be acted upon at the Annual Meeting and certain other information required by the regulations of the Securities and Exchange Commission and the rules of the New York Stock Exchange.

What is the difference between a stockholder of record and a “street name” holder?

If your shares are registered directly in your name, you are considered the stockholder of record with respect to those shares.  If your shares are held in a stock brokerage account or by a bank, trust or other nominee, then the broker, bank, trust or other nominee is considered to be the stockholder of record with respect to those shares, while you are considered the beneficial owner of those shares.  In that case, your shares are said to be held in “street name”.  Street name holders generally cannot vote their shares directly and must instead instruct the broker, bank, trust or other nominee how to vote their shares using the method described below under “How do I submit my proxy?”.

How do I submit my proxy?

If you are a stockholder of record, you can submit a proxy to be voted at the Annual Meeting by completing, signing and mailing the enclosed proxy card.  Please return your signed proxy card promptly to ensure we receive it before the Annual Meeting.

If you hold your shares in street name, you must vote your shares in the manner prescribed by your broker, bank, trust or other nominee.  Your broker, bank, trust or other nominee has enclosed or otherwise provided a voting instruction card for you to use in directing the broker, bank, trust or other nominee how to vote your shares.  If you are a beneficial owner (you hold your shares through a nominee such as a broker), your nominee can advise you whether you will be able to submit voting instructions by telephone or via the Internet.

If you are the beneficial owner, submitting your proxy will not affect your right to vote in person if you decide to attend the Annual Meeting.  See “Can I vote my shares in person at the Annual Meeting?” below.

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What does it mean if I receive more than one set of proxy materials?

If you receive more than one set of proxy materials or multiple control numbers for use in submitting your proxy, it means that you hold shares registered in more than one account.  To ensure that all of your shares are voted, please sign and return each proxy card or voting instruction card you receive or, if you submit your voting instruction card by Internet or telephone, vote once for each card or control number you receive.

Can I vote my shares in person at the Annual Meeting?

If you are a stockholder of record, you may vote your shares in person at the Annual Meeting by completing a ballot at the Annual Meeting.  Even if you currently plan to attend the Annual Meeting, we recommend that you also submit your proxy as described above in advance of the Annual Meeting so your vote will be counted if you later decide not to attend the Annual Meeting.  If you submit your vote by proxy and later decide to vote in person at the Annual Meeting, the vote you submit at the Annual Meeting will override your proxy vote.

If you are a street name holder, you may vote your shares in person at the Annual Meeting only if you obtain and bring to the Annual Meeting a signed letter or other form of proxy from your broker, bank, trust or other nominee giving you the right to vote the shares at the Annual Meeting.

How does the Board recommend that I vote?

The Board recommends a vote:

·                  FOR each of the three nominees to serve as a Class II director;

·                  FOR the approval of an amendment to the 2006 Equity Incentive Plan for Non-Employee Directors;

·                  FOR the approval of the amendments to the 2005 Stock Incentive Plan;

·                  FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending February 28, 2009; and

·                  AGAINST the stockholder proposal.

What if I do not specify how I want my shares voted but sign the proxy card?

If you sign but do not complete your proxy, your proxy will be voted:

·                  FOR each of the three nominees to serve as a Class II director;

·                  FOR the approval of an amendment to the 2006 Equity Incentive Plan for Non-Employee Directors;

·                  FOR the approval of the amendments to the 2005 Stock Incentive Plan;

·                  FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending February 28, 2009; and

·                  AGAINST the stockholder proposal.

Your vote is very important.  We urge you to vote, or to instruct your broker, bank, trust or other nominee how to vote, on all matters before the Annual Meeting.

Note:  If you are a street name holder and fail to instruct the stockholder of record how you want to vote your shares on a particular matter, those shares are considered to be “uninstructed.”  New York Stock Exchange rules determine the circumstances under which member brokers of the New York Stock Exchange may exercise discretion to vote “uninstructed” shares held by them on behalf of their clients who are street name holders.  With respect to the proposals to elect directors and ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, the rules permit member brokers to exercise voting discretion as to the

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uninstructed shares.  The rules do not permit member brokers to exercise discretion on the proposals to approve the amendment to the 2006 Equity Incentive Plan for Non-Employee Directors, the amendments to the 2005 Stock Incentive Plan or the stockholder proposal.  If the broker, bank or other nominee is not permitted to exercise discretion, the uninstructed shares will be referred to as a “broker non-vote.”  For more information regarding the effect of broker non-votes on the outcome of the vote, see below under “How are votes counted?”.

Can I change my vote after submitting my proxy?

Yes.  You may revoke your proxy and change your vote at any time before your proxy is voted at the Annual Meeting, in any of the following ways:

·                  by submitting a later-dated proxy to our Corporate Secretary to the Company’s address listed above, which must be received by us before the time of the Annual Meeting;

·                  by sending a written notice of revocation to our Corporate Secretary to the Company’s address listed above, which must be received by us before the time of the Annual Meeting; or

·                  by voting in person at the Annual Meeting.

What vote is required to approve each item of business included in the notice of Annual Meeting?

The election of the Class II directors shall be determined by the affirmative vote of a plurality of the votes cast at the Annual Meeting.  This means that since stockholders will be electing three directors, the three director nominees receiving the highest number of votes will be elected.  The affirmative vote of the holders of a majority of the votes cast at the Annual Meeting by the stockholders present in person or represented by proxy and entitled to vote at the Annual Meeting is required to approve an amendment to the 2006 Equity Incentive Plan for Non-Employee Directors, to approve the amendments to the 2005 Stock Incentive Plan, to ratify the selection of our independent registered public accounting firm and to approve the stockholder proposal.

How are votes counted?

You may either vote “FOR” or “WITHHOLD” authority to vote for each director nominee.  You may vote “FOR”, “AGAINST” or “ABSTAIN” on each of the other proposals.  If you properly submit your proxy, but withhold authority to vote for one or more director nominees or abstain from voting on one or more of the other proposals, your shares will be counted as present at the Annual Meeting for the purpose of determining a quorum and for the purpose of calculating the vote on the particular matter(s) with respect to which you abstained from voting or withheld authority to vote.  If you do not submit your proxy or voting instructions and also do not vote at the Annual Meeting, your shares will not be counted as present at the Annual Meeting for the purpose of determining a quorum unless you hold your shares in street name and the broker, bank, trust or other nominee has discretion to vote your shares and does so.  For more information regarding discretionary voting, see the information above under “What if I do not specify how I want my shares voted but sign the proxy card?”.

If you withhold authority to vote for one or more of the director nominees or you do not vote your shares on this matter, this will have no effect on the outcome of the vote.  With respect to the proposals to approve an amendment to the 2006 Equity Incentive Plan for Non-Employee Directors, to approve amendments to the 2005 Stock Incentive Plan, to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm and to approve the stockholder proposal, if you abstain from voting this will have the same effect as a vote against the proposal, but if you do not vote your shares (or, for shares held in street name, if you do not submit voting instructions and your broker, bank, trust or other nominee does not vote your shares), this will have no effect on the outcome of the vote.

Will my vote be kept confidential?

We have procedures to ensure that, regardless of whether you vote by mail or in person, the voting tabulations are performed by an independent third party.

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How can I attend the Annual Meeting?

All of our stockholders are invited to attend the Annual Meeting.  You may be asked to present valid photo identification, such as a driver’s license or passport, before being admitted to the Annual Meeting.  If you hold your shares in street name, you also may be asked to present proof of ownership to be admitted to the Annual Meeting.  A brokerage statement or letter from your broker, bank, trust or other nominee are examples of proof of ownership.

Who pays for the cost of proxy preparation and solicitation?

We pay for the cost of proxy preparation and solicitation, including the reasonable charges and expenses of brokerage firms, banks, trusts or other nominees for forwarding proxy materials to street name holders.  We have engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support for a services fee and the reimbursement of customary disbursements that are not expected to exceed $15,000 in the aggregate.  We are soliciting proxies primarily by mail.  In addition, our directors, officers and regular employees may solicit proxies by telephone, facsimile or personally.  These individuals will receive no additional compensation for these services other than their regular salaries.

Can I receive future proxy statements and annual reports electronically instead of receiving paper copies through the mail?

If your shares are held in street name, please contact your broker, bank, trust or other nominee and ask about the availability of electronic delivery.

ITEM 1 – ELECTION OF DIRECTORS

The number of directors currently serving on our Board is eight.  Our Board is divided into three classes.  The members of each class are elected to serve a three-year term, with the term of office for each class ending in consecutive years.

At this year’s Annual Meeting, the terms of our Class II directors will expire.  Our current Class II directors are Lorna E. Nagler, Larry C. Barenbaum, Martin L. Bassett and Donald D. Beeler.

On the recommendation of the Governance and Nominating Committee, the Board has nominated Ms. Nagler, Mr. Barenbaum and Mr. Bassett as Class II director nominees to serve until the 2011 Annual Meeting of Stockholders.  Each has indicated a willingness to serve.  Mr. Beeler, due to his age, is not eligible for re-nomination as a director and his term will end on July 30, 2008.  Mr. Barenbaum was re-elected as a Class II director at the Company’s Annual Stockholder Meeting in 2005.  Ms. Nagler was elected to the Board in August 2007 and Mr. Bassett was elected to the Board in May 2008.  The election of each nominee requires the affirmative vote of a plurality of the votes cast at the Annual Meeting in person or by proxy.  Proxies may not be voted for more than three directors.  If for any reason any nominee becomes unable to serve before the Annual Meeting occurs, the persons named as proxies may vote your shares for a substitute nominee as recommended by our Board of Directors.

The other directors will continue in office for their existing terms.  James J. Fuld and Mark A. Cohn serve as Class III directors with terms expiring in 2009.  Anne L. Jones and Robert Ezrilov serve as Class I directors with terms expiring in 2010.

Board Recommendation

The Board recommends a vote FOR the election of Ms. Nagler, Mr. Barenbaum and Mr. Bassett.  Proxies will be voted FOR the election of the three nominees, unless otherwise specified.

Below is biographical information for each of the nominees for election as a director and for the directors whose terms of office will continue after the Annual Meeting.

Class II Directors – Nominees for Terms Ending in 2011

Lorna E. Nagler, 51, has served as President and Chief Executive Officer since August 2007.  From 2004 to 2007, Ms. Nagler was President of Lane Bryant, a division of Charming Shoppes, Inc., a women’s apparel company. 

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She was President of Catherines’ Stores, also a division of Charming Shoppes, Inc., from 2002 to 2004.  From 1996 to 2002, Ms. Nagler held various retail management positions with Kmart Corporation, a general merchandise company, including Senior Vice President, General Merchandise Manager – Apparel and Jewelry from 2000 to 2002 and Divisional Vice President, General Merchandise Manager – Kids and Menswear from 1998 to 2000.  From 1994 to 1996, Ms. Nagler was a Vice President, Divisional Merchandise Manager for Kids R Us.  Ms. Nagler also has previous retail experience with Montgomery Ward and Main Street Department Stores.

Larry C. Barenbaum, 60, was named Chairman of our Board in December 2005.  He has served as one of our directors since March 1992.  Since November 1991, Mr. Barenbaum has engaged in investment activities and has provided consulting services to various companies in the specialty retail and services industries.  From 1986 to November 1991, Mr. Barenbaum was Chairman and Chief Executive Officer of Lawrence Jewelry Company, a fashion, wholesale jewelry distribution company he founded in 1970.  Mr. Barenbaum also serves on the Board of Lakes Entertainment, Inc.

Martin L. Bassett, 47, has served as one of our directors since May 2008.  Since February 2001, Mr. Bassett has been President and Chief Executive Officer of Walman Optical, an ophthalmic company.  Prior to that, Mr. Bassett served Walman Optical in the areas of finance and operations.  He is a director of The Walman Optical Company, Hydrogel Vision Corporation and The Vision Council of America.  Mr. Bassett is also a member of the Young President’s Association and the Minnesota Society of CPA’s.

Class III Directors – Terms Ending in 2009

James J. Fuld, Jr, 60, has served as one of our directors since 1986.  From November 1986 to December 1990, he served as our Secretary.  Since December 1979, Mr. Fuld has been the Chairman, President and sole stockholder of James J. Fuld, Jr. Corp., a private financial and management consulting firm which focuses on retail and consumer product companies.  Mr. Fuld served for approximately one year as the non-employee Chairman of the Board of J. Silver Clothing, Inc., a retailer, which filed a voluntary petition of relief under Chapter 11 of the U.S. Bankruptcy Code on February 25, 2005 and which was subsequently converted into a liquidation proceeding under Chapter 7 of the U.S. Bankruptcy Code.  Mr. Fuld also serves on the Executive Board of the University of Pennsylvania Fund.

Mark A. Cohn, 51, was elected to our Board in October 2006.  Mr. Cohn is currently the Chairman and Chief Executive Officer of Third Season, LLC (“Third Season”), a company he founded in 2003.  Third Season serves as a holding company, or incubator, of a number of small micro consumer marketing companies including Second Act, LLC, an online retailer of consumer electronics.  Mr. Cohn was a founder of Damark International Inc., a consumer catalog company.  He served as Damark’s Chief Executive Officer from the company’s inception in 1986 until February 2001.  Mr. Cohn served as Chairman, President and Chief Executive Officer of Intelefilm Corporation from October 2001 to August 2002.

Class I Directors – Terms Ending in 2010

Anne L. Jones, 62, has served as one of our directors since January 2000.  From 1979 to the present, Ms. Jones has served as Chief Executive Officer of Jones Consulting Group, Inc., an organizational development consulting firm.  In 2000, Ms. Jones partnered to form BancPlan LLC and developed an internet-based strategic assessment tool assisting community banks in the strategic planning process.  Ms. Jones served as President of BancPlan LLC from 2000 to 2005.  Prior to that, Ms. Jones served in various sales and product development capacities with IBM from 1968 to 1979.  Ms. Jones also serves on the Board of Ebenezer Society, Minneapolis, Minnesota and the Jones Family Foundation, Red Wing, Minnesota.

Robert Ezrilov, 63, has served as one of our directors since August 2001.  From May 2002 to the present, Mr. Ezrilov has served in various capacities, most recently as Chief Executive Officer of Cogel Management Co., an investment management company.  From April 2001 to May 2002, Mr. Ezrilov served as an independent consultant.  From July 1997 to April 2001, Mr. Ezrilov served as President of Metacom, Inc., a company that sold prerecorded music on interactive displays.  Mr. Ezrilov was self-employed as a business consultant from April 1995 to July 1997.  Prior to April 1995, he was a partner with Arthur Andersen LLP, which he joined in 1966.  Mr. Ezrilov also serves on the Board of C. H. Robinson Worldwide, Inc. and serves as an advisory director to Holiday Companies.

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INFORMATION REGARDING THE BOARD AND CORPORATE GOVERNANCE

The Board conducts its business through meetings and written consents of the Board and the following standing committees:  Audit, Compensation, and Governance and Nominating.  Each of the standing committees has adopted and operates under a written charter, all of which are available on our website at www.christopherandbanks.com – select the “Investor Relations” link and then the “Corporate Governance” link.  Other corporate governance documents available on our website include our Corporate Governance Guidelines, Code of Conduct and Corporate Policy on Fair Disclosure to Investors.  All of these documents also are available in print to any stockholder who requests them from our Corporate Secretary.

Code of Conduct

We have adopted a Code of Conduct applicable to all of our employees, directors and officers, including our principal executive officer, principal financial officer, principal accounting officer, controller and other employees performing similar functions.  The Code is available on our website at www.christopherandbanks.com – select the “Investor Relations” link and then the “Corporate Governance” link.

Director Independence

Our Corporate Governance Guidelines provide that a majority of the directors of the Company shall meet the independence requirements of the New York Stock Exchange.  Under the New York Stock Exchange rules, no director qualifies as independent unless the Board affirmatively determines that the director has no material relationship with us (directly, or as a partner, stockholder or officer of an organization that has a relationship with us).

The Board has affirmatively determined, in accordance with the standards set forth in the Corporate Governance Guidelines, that none of our non-employee directors (including the non-employee directors being nominated for election at the Annual Meeting) has a material relationship with us and that each non-employee director (including Larry C. Barenbaum, Martin L. Bassett, Donald D. Beeler, Mark A. Cohn, Robert Ezrilov, James J. Fuld, Jr. and Anne L. Jones) is independent.

Our other director, Ms. Nagler, cannot be considered an independent director because of her employment as our President and Chief Executive Officer.

Meetings of the Independent Directors

At both the Board and committee levels, our non-employee directors meet regularly in executive sessions in which Ms. Nagler and other members of management do not participate.  Mr. Barenbaum, our non-executive Chairman, serves as the presiding director of executive sessions of the Board, and the Chair of each committee serves as the presiding director at executive sessions of that committee.  In fiscal 2008, our non-employee directors met in executive sessions of the Board without management on seven occasions.

Stock Ownership Guidelines

The Board has established stock ownership guidelines for non-employee directors.  Each director is expected to achieve and maintain stock ownership of 10,000 shares by the fourth anniversary of the date he or she joined our Board.  As of May 23, 2008, all of the directors who have served four or more years on the Board met this stock ownership guideline.

Term/Age Limits

The Board does not believe it is advisable to establish arbitrary term limits on directors’ services.  The Board has a mandatory retirement age under which the director must complete his or her term before age 73.  For this reason, Mr. Beeler is not standing for re-election.  As part of its responsibilities, the Governance and Nominating Committee evaluates each incumbent director’s qualifications, performance and ability to continue to contribute productively before recommending the nomination of that director for an additional term.

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Limitation on Board Service

Our Corporate Governance Guidelines provide that no member of the Board shall simultaneously serve on the boards of directors of more than three public companies in addition to ours.  A director shall notify the Chairman of the Board prior to becoming a director of another public company, in order to avoid potential conflicts of interest and to address whether the aggregate number of directorships held by such director would interfere with his or her ability to carry out his or her responsibilities as one of our directors.  In the event that the Board determines that the additional directorship constitutes a conflict of interest or interferes with such director’s ability to carry out his or her responsibilities as one of our directors, such director, upon the request of the Board, shall either offer his or her resignation or not accept the other directorship.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

All of the Company’s directors, and in particular the director nominees, are encouraged to attend the Annual Meeting.  Seven of the eight then current directors attended the 2007 Annual Meeting of Stockholders.

The Board of Directors held nine meetings during fiscal 2008.  Each director holding office during the year attended at least 75 percent of the aggregate of the meetings of the Board of Directors (held during the period for which he or she had been a director) and the meetings of the committees on which he or she served (held during the period for which he or she served).

Our Board has three committees:  Audit, Compensation, and Governance and Nominating.  As of June 3, 2008, the members and Chairs of those committees were:

The Audit Committee

All Audit Committee members are “independent” under applicable New York Stock Exchange listing standards and Securities and Exchange Commission rules and regulations.  Our Board of Directors has determined that one member of the Audit Committee, Mr. Ezrilov, meets the definition of an “audit committee financial expert” as established by the Securities and Exchange Commission.  The Audit Committee provides assistance to the Board of Directors in fulfilling its oversight responsibilities relating to the quality and integrity of the financial reports of the Company.  The Audit Committee has the sole authority to appoint, review and discharge our independent accountants, and has established procedures for the receipt, retention, response to and treatment of complaints regarding accounting, internal controls or audit matters.  In addition, the Audit Committee is responsible for:

·                  reviewing the scope, results, timing and costs of the audit with the Company’s independent accountants and reviewing the results of the annual audit examination and any accompanying management letters;

·                  assessing the independence of the outside accountants on an annual basis, including receipt and review of a written report from the independent accountants regarding their independence consistent with the Independence Standards Board Standards;

·                  reviewing and approving in advance the services provided by the independent accountants;

·                  overseeing the internal audit function; and

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·                  reviewing the Company’s significant accounting policies, financial results and earnings releases, and the adequacy of our internal controls and procedures.

The Audit Committee held seven meetings during fiscal 2008.  The Audit Committee has engaged PricewaterhouseCoopers LLC as our independent accountants for fiscal year 2009 and is recommending that the Company’s stockholders ratify this appointment at the Annual Meeting.  The report of the Audit Committee is found on page 44 of this proxy statement.

The Compensation Committee

All Compensation Committee members are “independent” under applicable New York Stock Exchange listing standards.  The Compensation Committee assists the Board of Directors in fulfilling its oversight responsibilities relating to executive compensation, employee compensation and benefits programs and plans, and leadership development and succession planning.  In addition, the Compensation Committee is responsible for:

·                  reviewing corporate performance and the performance of our Chief Executive Officer;

·                  determining the compensation and benefits for our Chief Executive Officer and other executive officers;

·                  establishing our compensation policies and practices;

·                  administering our incentive compensation and stock plans, other than the 2006 Equity Incentive Plan for Non-Employee Directors (which is administered by the Governance and Nominating Committee); and

·                  evaluating our benefit plans.

The Compensation Committee has delegated authority to our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer to allocate equity awards to employees other than our executive officers in connection with recruiting, retention and significant promotions.  This delegation permits the executive officers to determine the recipient of the award, as well as the type and amount of the award, subject to a limitation of 10,000 stock option grants and 4,000 shares of restricted stock during any consecutive 12 month period to any one individual and an overall aggregate limit of 150,000 shares.

The Compensation Committee reviews and discusses with management the disclosures regarding executive compensation to be included in our annual proxy statement, and recommends to the Board inclusion of the Compensation Discussion and Analysis in our annual proxy statement.  The responsibilities of the Compensation Committee are more fully described in the Committee’s charter.  For more information regarding the Compensation Committee’s process in setting compensation, please see “Compensation Discussion and Analysis” below.

The Compensation Committee held ten meetings during fiscal 2008.  See “Compensation Discussion and Analysis” for a discussion of the role played by our Chief Executive Officer in compensation decisions.  The Compensation Committee report on executive compensation is found on page 25 of this proxy statement.

The Governance and Nominating Committee

All members of the Governance and Nominating Committee are “independent” under applicable New York Stock Exchange listing standards.  The Governance and Nominating Committee serves in an advisory capacity to the Board of Directors on matters of organization and the conduct of Board activities.  The Governance and Nominating Committee is responsible for:

·                  identifying and recommending candidates for service on the Board of Directors;

·                  adopting and revising our Corporate Governance Guidelines;

·                  leading the Board of Directors in its annual review of the performance of the Board and the Board’s committees;

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·                  recommending members and the Chair for Board committees;

·                  periodically reviewing and making recommendations to the Board as to the size and composition of the Board, criteria for director nominees and directors cash and equity compensation; and

·                  periodically reviewing our Code of Conduct with our General Counsel to recommend any appropriate changes to the Board.

The Governance and Nominating Committee will consider Board of Director nominees recommended by stockholders that are submitted in accordance with the process described below under the caption “Procedures for Recommending, Nominating and Selecting Director Candidates”.

The Governance and Nominating Committee held five meetings during fiscal 2008.

Procedures for Contacting the Board

The Board has established a process for stockholders and other interested parties to send written communications to the Board, a particular committee or to individual directors, as applicable.  Such communications should be sent by U.S. mail addressed to:

Christopher & Banks Board of Directors
c/o Christopher & Banks Corporation
Attention:  Corporate Secretary
2400 Xenium Lane North
Plymouth, MN  55441

The Board has instructed the Corporate Secretary to promptly forward all communications so received to the full Board or the individual Board members specifically addressed in the communication.  Comments or questions regarding our accounting, internal controls or auditing matters will be referred to the Audit Committee.  Comments or questions regarding our compensation and benefit programs will be referred to the Compensation Committee.  Comments or questions regarding the nomination of directors and other corporate governance matters will be referred to the Governance and Nominating Committee.

Depending on the subject matter, the Company’s Corporate Secretary will:

·                  forward the communication to the director or directors to whom it is addressed;

·                  attempt to handle the inquiry directly, for example, where it is a request for information about our Company or if it is a stock-related matter; or

·                  not forward the communication if it is primarily commercial in nature or if it relates to a topic that is not relevant to the Board or a particular committee or is otherwise improper.

Procedures for Recommending, Nominating and Selecting Director Candidates

The Governance and Nominating Committee will consider director candidates recommended by stockholders.  A stockholder who wishes to recommend a director candidate for nomination by the Board at the Annual Meeting of Stockholders or for vacancies of the Board that arise between Annual Meetings must timely provide the Governance and Nominating Committee with sufficient written documentation to permit a determination by the Board whether such candidate meets the required and desired director selection criteria set forth in our by-laws and our Corporate Governance Guidelines described below.  Such documentation and the name of the director candidate must be sent by U.S. mail to:

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Christopher & Banks Board of Directors
c/o Christopher & Banks Corporation
Attention:  Corporate Secretary
2400 Xenium Lane North
Plymouth, MN  55441

Under our by-laws, only persons nominated in accordance with the procedures set forth in the by-laws will be eligible to serve as directors.  In order to nominate a candidate for service as a director, you must be a stockholder at the time you give the Board notice of your nomination, and you must be entitled to vote for the election of directors at the Annual Meeting at which your nominee will be considered.  In accordance with our by-laws, director nominations generally must be made pursuant to notice delivered to or mailed and received at our principal executive offices at the address above, not later than the 90^th day, nor earlier than the 120^th day, prior to the first anniversary of the prior year’s Annual Meeting of Stockholders; provided, however, that in the event that the date of the Annual Meeting is advanced by more than 30 days or delayed by more than 30 days from such anniversary date, notice by the stockholder must be delivered not earlier than the close of business on the 120^th day prior to such Annual Meeting and not later than the close of business on the later of the 90^th day prior to such Annual Meeting or the 10^th day following the day on which public announcement of the date of the Annual Meeting is first made.  Your notice must set forth all information relating to the nominee that is required to be disclosed in solicitations of proxies for the election of directors in an election contest, or as otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including the nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected).  The notice must contain (1) the name and address of the stockholder giving notice, (2) the name and address of the person nominated and (3) the class and number of shares owned by each of the stockholder and the proposed nominee.

Our Corporate Governance Guidelines require the Governance and Nominating Committee to consider several factors when evaluating the appropriate characteristics of candidates for service as a director.  The Governance and Nominating Committee initially evaluates a prospective nominee based on his or her resume and other background information that has been provided to the Governance and Nominating Committee.  At a minimum, director candidates must demonstrate high standards of ethics, integrity, independence, sound judgment, strength of character and meaningful experience and skills in business or other appropriate endeavors.  In addition to these minimum qualifications, the Governance and Nominating Committee considers other factors it deems appropriate based on the current needs and desires of the Board, including specific business and financial expertise currently desired on the Board, experience as a director of a public company, location, age, gender and ethnic diversity.  A member of the Governance and Nominating Committee will contact for further review those candidates who the Governance and Nominating Committee believes are qualified, who may fulfill a specific Board need and who would otherwise best make a contribution to the Board.  The Governance and Nominating Committee is responsible for conducting, subject to applicable law, any inquiries into the background and qualifications of the candidate.  Based on the information the Governance and Nominating Committee learns during this process, it determines which nominee(s) to recommend to the Board to submit for election.  The Governance and Nominating Committee uses the same process for evaluating all director candidates, regardless of the source of the recommendation.

The Governance and Nominating Committee is authorized to use, as it deems appropriate or necessary, an outside consultant to identify and screen potential director candidates.  The Governance and Nominating Committee will reassess the qualifications of a current director, including the director’s attendance and contributions at Board and committee meetings, prior to recommending a director for reelection.

Compensation Program for Non-Employee Directors

For fiscal 2007 and prior years, our Compensation Committee had reviewed director compensation and made recommendations to our Board regarding the amount and form of director compensation.  Beginning in fiscal 2008, our Governance and Nominating Committee became responsible for reviewing director compensation and making recommendations to the Board.  The recommendations of the Governance and Nominating Committee for fiscal 2008 were based on industry comparisons of director compensation and past practices.  Based on committee recommendations, our Board determines the compensation of our directors on an annual basis.  Directors who are our employees do not receive compensation for their services as directors.  No outside consultants were used in setting director compensation for fiscal 2008.

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From March 4, 2007 through July 31, 2007, non-employee directors received an annual cash retainer of $36,000 for service on our Board.  In addition, such directors received $1,000 for each Board meeting attended, with a maximum of $4,000 per year.  Committee members received $500 per quarter for each committee on which they served.  The Chair of the Audit Committee received $2,000 per quarter, or $8,000 per year.  The Chair of each other standing committee received $1,000 per quarter, or $4,000 per year.

During fiscal 2008, the compensation for non-employee directors was modified.  Effective as of August 1, 2007, non-employee directors received an annual cash retainer of $48,000 for service on our Board.  Larry Barenbaum’s additional annual compensation as Chairman of the Board was $60,000.  In recognition of his substantial efforts in connection with the Chief Executive Officer transition during fiscal 2008, Mr. Barenbaum was awarded additional cash compensation of $40,000.  The Chairs of the Audit, Compensation, and Governance and Nominating Committees received an additional annual retainer of $9,000, $7,000 and $5,000, respectively.  Other members of the Audit Committee received an additional annual retainer of $4,500.  Other members of the Compensation Committee received an additional annual retainer of $3,500, and the other members of the Governance and Nominating Committee received an additional annual retainer of $2,500.

In addition to the cash retainer, we also grant equity awards to our non-employee directors in order to further align their interests with those of our stockholders.  On August 1, 2007, we granted each director (excluding Martin Bassett, who did not join the Board until May 20, 2008, as well as Robert Mang, whose Board service ended on August 1, 2007) an option to purchase 12,000 shares of our common stock with an exercise price of $14.63 per share and awarded 3,500 shares of restricted stock to each director.  On May 20, 2008, we granted Martin Bassett an option to purchase 2,000 shares of common stock with an exercise price of $10.20 per share and awarded Mr. Bassett 583 shares of restricted stock.  The options become exercisable six months from the date of grant.  The restricted shares are restricted from sale for six months from the date of grant.

The 2006 Equity Incentive Plan for Non-Employee Directors (the “2006 Directors Plan”) permits stock options, restricted stock awards, restricted stock unit awards, performance share awards, performance unit awards and stock appreciation rights.  The 2006 Directors Plan is administered by the Governance and Nominating Committee.  The Governance and Nominating Committee has broad powers to:  (i) establish rules for the administration of the 2006 Directors Plan; (ii) select the participants in the 2006 Directors Plan; (iii) determine the types of awards to be granted and the number of shares covered by such awards; and (iv) set the terms and conditions of such awards.

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Non-Employee Director Compensation for Fiscal 2008

The following table sets forth the cash and non-cash compensation awarded to or earned by each of our non-employee directors for fiscal 2008.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This Compensation Discussion and Analysis (“CD&A”) describes the major elements of our compensation program for the executive officers named in the Summary Compensation Table in this proxy statement (the “Named Executive Officers”).  This CD&A also discusses the objectives, philosophy, process and decisions underlying the compensation of the Named Executive Officers.  The CD&A should be read together with the executive compensation tables and related footnotes found later in this proxy statement.

The Compensation Committee of our Board of Directors is composed entirely of independent directors, as determined under the New York Stock Exchange rules and Section 162(m) of the Internal Revenue Code.  The Compensation Committee oversees our compensation and benefits policies, reviews and recommends to our Board of Directors the compensation for our Chief Executive Officer and oversees and sets the compensation for the other Named Executive Officers.  Beginning in fiscal 2009, the Compensation Committee will also determine the compensation for our Chief Executive Officer.

The principal elements of our executive compensation program for fiscal 2008 were:

·                  base salary;

·                  annual incentives;

·                  long-term incentives;

·                  other personal benefits and perquisites; and

·                  severance arrangements.

Compensation Program Objectives and Reward Philosophy

As a retail company, we operate in a highly competitive and challenging industry, with considerable mobility of, and opportunity for, experienced senior executives.  Attracting, retaining and motivating talented executives who will drive our marketplace success and industry leadership is a critical component of our ongoing financial performance.  In light of the competitive environment, our Compensation Committee believes that our compensation program should be designed with a dual purpose:  (1) provide a level of total compensation required to attract and retain talented and experienced key executives; and (2) provide rewards to motivate individual performance in a manner designed to promote Company success.  The Compensation Committee is guided by the following key objectives and reward philosophies in the design and implementation of our executive compensation program:

·                  Competitive Pay.  Our compensation program is designed to provide a total compensation package comprised of base salary and performance-based annual and long-term incentives that approximates at least the median level of compensation packages and practices of our peer group companies, as well as of retail companies in general.

·                  Pay for Performance.  Our compensation program is intended to motivate our executive officers, including the Named Executive Officers, to drive our business and financial results and is designed to reward both

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short-term performance as well as sustainable performance over a longer period of time.  A considerable portion of each executive’s compensation is conditioned upon the achievement of our pre-established financial objectives.

·                  Alignment with Stockholders.  By providing to our executive officers stock incentives that constitute a considerable part of their total compensation, our executive officers’ interests should be aligned with the interests of our stockholders.  Our compensation program should motivate and reward our executive officers to drive performance which leads to the enhancement of long-term stockholder value.

Currently, a portion of our executive officers’ annual compensation is conditioned upon the achievement of certain performance objectives.  It is our Compensation Committee’s intention to increase over the next several years the percentage of our executive officers’ long-term compensation that is contingent upon meeting our long-term financial performance objectives.

Process and Market Considerations

Process

In making its compensation decisions, the Compensation Committee takes into account the recommendations of the Chief Executive Officer as to compensation, including bonuses, stock option and restricted stock awards to be made to the other Named Executive Officers.  Other than giving such recommendations, our Chief Executive Officer does not participate in the Compensation Committee’s decisions regarding executive compensation.  All such decisions are made by the Compensation Committee.  Our Compensation Committee periodically engages outside compensation consultants to assist with compensation-related matters when deemed appropriate.  In connection with setting executive officer compensation for fiscal 2008, the Compensation Committee consulted the market data described under “Competitive Market Assessment” below.  The Compensation Committee regularly reports to the Board regarding its actions, decisions and recommendations.

In making decisions with respect to each element of executive compensation, our Compensation Committee takes into consideration the impact of the total value of these elements for each executive and all executives as a group.  In fiscal 2007, the Compensation Committee instituted a policy of conducting a review of tally sheets that set forth our total compensation obligations to our executives under various scenarios, including voluntary termination, retirement, involuntary termination and involuntary termination due to a change in control.  In conjunction with making the annual executive compensation awards, the Compensation Committee also reviews tally sheets setting forth each executive officer’s total compensation, including the executive officer’s realized compensation from the prior year, if applicable, the targeted and projected compensation for the current year, and targeted compensation for the coming year.  The Compensation Committee reviews the tally sheets in connection with its analysis of the competitiveness of the executives’ compensation.

Our Compensation Committee also reviews for each of the Named Executive Officers a summary report reflecting the total amount of the executive’s annual compensation, which includes perquisites and all other compensation.  The total amount of annual compensation provided to the Named Executive Officers is provided in the Summary Compensation Table in this proxy statement.

Compensation Committee Authority to approve Chief Executive Officer’s Compensation

Prior to February 2008, the Compensation Committee made recommendations to the full Board regarding compensation to be paid to our Chief Executive Officer, and such compensation was approved by the Board of Directors.  In February 2008, the Board of Directors amended the Compensation Committee charter to provide that the Compensation Committee has the authority to approve the compensation paid to our Chief Executive Officer.

Competitive Market Assessment

In fiscal 2008, the Compensation Committee engaged Towers Perrin, an independent compensation consultant, to review and analyze our overall compensation program and to conduct a competitive market assessment for executives and select management positions.  In evaluating the competitiveness of our compensation programs, Towers Perrin reviewed, and provided to the Compensation Committee, market data from the following sources:

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·                  Proxy Analysis of Peer Companies.  The Compensation Committee considered the compensation practices of a peer group of 21 companies from the specialty retail industry as listed below:

·                  External Surveys.  In analyzing the competitiveness of our compensation program, Towers Perrin reviewed the following three external surveys covering both general and retail industries:  (1) Towers Perrin Executive Compensation Database, (2) Watson Wyatt Report on Compensation and (3) William Mercer Compensation Surveys.

Towers Perrin also conducted a specific review of our annual and long-term incentive programs and assisted the Compensation Committee in developing revised programs for fiscal 2009.  See “Executive Compensation Changes for Fiscal 2009” below.

Our Fiscal 2008 Executive Compensation Program

Change in President and Chief Executive Officer

Summary of Employment Agreement with Lorna E. Nagler.  Lorna E. Nagler was elected President and Chief Executive Officer effective August 31, 2007.  We entered into an employment agreement with Ms. Nagler dated August 30, 2007, and amended the agreement effective April 30, 2008.  Pursuant to the agreement, we agreed to pay Ms. Nagler an annual base salary of $800,000 for fiscal 2008 (on a pro-rated basis) and $850,000 for each of fiscal 2009 and 2010.  Thereafter Ms. Nagler’s base salary will be reviewed and adjusted by the Compensation Committee; provided, however, that Ms. Nagler’s base salary cannot be reduced below $850,000 or Ms. Nagler’s base salary for fiscal year 2010, whichever is higher.  We also agreed to pay Ms. Nagler a guaranteed bonus of $250,000 for fiscal 2008.  The employment agreement provides that Ms. Nagler is eligible to earn an annual bonus each fiscal year, commencing in fiscal 2009, of up to 100 percent of her then-current base salary in accordance with our senior executive incentive plan as in effect from time-to-time.  Pursuant to the agreement, Ms. Nagler also received:  (1) stock options to purchase 98,700 shares of our common stock, effective August 31, 2007, (2) stock options to purchase 1,300 shares of our common stock, effective April 14, 2008, (3) 40,000 shares of restricted stock with performance-based vesting and (4) the right to receive 40,000 additional shares of performance-based restricted stock in 2008, 2009, 2010 and 2011.  Additional information regarding the equity awards made to Ms. Nagler in fiscal 2008 is provided in the Grants of Plan-Based Awards table in this proxy statement.

Pursuant to Ms. Nagler’s employment agreement, we agreed to pay Ms. Nagler a car allowance of $1,250 per month.  We also agreed to reimburse Ms. Nagler for all reasonable and documented business expenses in accordance with our expense reimbursement policy, including, without limitation, Ms. Nagler’s travel-related expenses for her travel from Ohio to Plymouth, Minnesota prior to her establishing a personal residence in the Minneapolis-St. Paul area.  In addition, we agreed to provide Ms. Nagler life insurance coverage with a death benefit in the amount of $2,500,000 and to provide long-term care insurance for Ms. Nagler.  We are also obligated under the agreement to pay certain expenses and compensation to Ms. Nagler in connection with her move from Ohio to the Minneapolis-St. Paul area.  More specific information regarding this compensation is provided in footnote 3 to the Summary Compensation Table in this proxy statement.

The termination and severance provisions in Ms. Nagler’s employment agreement are described below under “Employment and Severance Arrangements with the Named Executive Officers.”

Analysis of Ms. Nagler’s Employment Agreement.  The Compensation Committee set Ms. Nagler’s compensation at a level intended to retain her service in a competitive market for talent.  The Compensation Committee established the compensation terms of Ms. Nagler’s employment agreement based on review of the compensation arrangement with our departing Chief Executive Officer, the compensation Ms. Nagler received in her

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prior position and the market data compiled by Towers Perrin with respect to compensation paid to chief executive officers by our peer companies listed above and other retailers.

Summary of Separation Agreement with Matthew P. Dillon.  Matthew P. Dillon resigned as our President and Chief Executive Officer effective as of August 30, 2007.  Pursuant to a Separation Agreement and Release Agreement dated August 30, 2007, we agreed to pay to Mr. Dillon his ending base salary ($775,000 annualized) for the period from August 31, 2007 through February 28, 2010.  The agreement further provides that, in the event Mr. Dillon secures other employment, self-employment or a consulting position before February 28, 2010, the separation pay payable to Mr. Dillon as described above will be offset and reduced by any compensation earned by Mr. Dillon.  The agreement also provides that, if Mr. Dillon elects COBRA coverage, we will pay Mr. Dillon’s COBRA premiums for the period from September 1, 2007 through February 28, 2009.

Analysis of Mr. Dillon’s Separation Agreement.  The Compensation Committee established the terms of Mr. Dillon’s separation agreement based on the termination provisions in Mr. Dillon’s existing employment agreement with us.  No additional severance compensation was paid to Mr. Dillon other than what was provided under his employment agreement.

Total Fiscal 2008 Compensation

The Compensation Committee does not have a specific policy for allocating between annual and long-term compensation or between cash and equity compensation.  In fiscal 2008, all annual compensation was in the form of cash, and all long-term compensation was in the form of equity.  For Ms. Nagler, 40.6 percent of her fiscal 2008 compensation was in the form of annual cash compensation and 59.4 percent was in the form of long-term equity compensation.  For Ms. Connell, 66 percent of her fiscal 2008 compensation was in the form of annual cash compensation and 34 percent was in the form of long-term equity compensation.  For the other Named Executive Officers, 63.9 percent of fiscal 2008 target compensation was in the form of annual cash compensation and 36.1 percent was in the form of long-term equity compensation.

Total potential compensation for each of the Named Executive Officers in fiscal 2008 was between the 50^th and 75^th percentile of total compensation paid by the companies within the general and retail industry surveys referenced under “Competitive Market Assessment” above but below the median level of total compensation paid by the companies in our peer group.  The Committee’s goal is to provide a total compensation package that approximates at least the median level of our peer group.  The shortfall is due in part to design limitations in the Company’s past incentive programs.  The Committee has addressed certain of these limitations in its design of the fiscal 2009 incentive program and will continue to review total compensation as it compares to that of our peer companies.

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Base Salaries

Fiscal 2008 Base Salaries.  We pay a competitive base salary to help us attract and retain talented executives.  The amount of salary paid and the year-over-year increase for each of the Named Executive Officers is set forth in the following table:

(1)                    Because there were 53 weeks in fiscal 2007 and only 52 weeks in fiscal 2008, for comparison purposes, the amounts in this column reflect each Named Executive Officer’s annual rate of pay for the fiscal year, rather than the amounts actually paid to the Named Executive Officer in the fiscal year.

(2)                    Ms. Nagler was elected President and Chief Executive Officer, effective August 31, 2007.  Ms. Nagler’s base salary on an annualized basis was $800,000 for fiscal 2008.

(3)                    Ms. Connell was elected Executive Vice President, Chief Merchandise Officer, effective July 9, 2007.  Ms. Connell’s base salary on an annualized basis was $450,000 for fiscal 2008.

(4)                    Mr. Dillon’s salary was increased to $775,000 effective January 1, 2007 in conjunction with his appointment as Chief Executive Officer.  Mr. Dillon resigned from his position as Chief Executive Officer on August 30, 2007.

Analysis.  The base salary for Ms. Nagler for fiscal 2008 was set forth in her employment agreement, as described above under “Summary of Employment Agreement with Lorna E. Nagler.”  The base salary for Ms. Connell for fiscal 2008 was set forth in her offer letter and non-compete agreement and was set by the Compensation Committee at a level intended to retain her services in a competitive market for talent.  Ms. Connell’s base salary was also based on market data compiled by Towers Perrin with respect to compensation paid by our peer group companies listed above to employees with similar job responsibilities.  In fiscal 2008, Ms. Dahl received a 22.9% base salary increase based upon her increased level of responsibilities resulting from certain vacant officer positions, an assessment of her performance and the competitiveness of her base salary utilizing peer group information by way of comparison.  In fiscal 2008, Mr. Moller’s annual base salary increased 4.5% to $330,000 per year, as provided in his employment agreement dated May 24, 2007.  In fiscal 2008, Ms. Decker received a 6.6% annual base salary increase based upon an assessment of her individual performance and the competitive market data for her position.  In fiscal 2008, Mr. Dillon’s base salary, on an annualized basis as compared to fiscal 2007, increased 48.7%, due to his promotion to President and Chief Executive Officer.

Annual Cash Incentives

Annual Cash Incentive Plan.  The Compensation Committee adopted, and our stockholders approved, an annual cash incentive plan for our senior executives in 2006.  The primary objective of our 2006 Senior Executive Incentive Plan is to provide annual cash incentives for our executive officers to achieve our strategic goals.  This is consistent with our pay for performance reward philosophy.  Our Compensation Committee annually sets a pre-tax, pre-bonus earnings goal against which actual results for the year will be measured to determine whether bonuses will be paid under the annual incentive plan, and, if so, the amount of such bonuses.  Each of the Named Executive Officers was eligible to participate in our annual incentive plan for fiscal 2008, except for Ms. Nagler, who instead received a guaranteed bonus described under “Guaranteed Bonuses” below, and Mr. Dillon, who was no longer employed with us at the end of fiscal 2008.

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Target Amount of Annual Incentive Payout.  The Compensation Committee reviews and approves an annual incentive target payout amount (which is a dollar amount stated as a percentage of base salary) under the annual incentive plan for each Named Executive Officer.  For fiscal 2008, Ms. Connell, Ms. Dahl and Mr. Moller were eligible to earn a bonus of up to 200% of their base salaries.  Ms. Decker was eligible to earn a bonus of up to 100% of her base salary.  While, as stated above, the target payout amount is based on each Named Executive Officer’s annual base salary, the actual amount paid will be based on the salary earned by the Named Executive Officer for the fiscal year and will not be annualized if such Named Executive Officer was not employed for the complete fiscal year.

2008 Annual Incentive Plan Performance Goals and Results.  The performance measures for fiscal 2008 were formulated to reward the achievement of the following objectives:

·                  Improvements in operating income in fiscal 2008 as compared to fiscal 2007;

·                  Provide incentives to achieve growth in same store sales and to expand our store base;

·                  Maintain momentum in the development of merchandise which has significant appeal to our new and existing customers; and

·                  Provide incentives to improve merchandise and operating profit margins.

For fiscal 2008, the Compensation Committee determined that each participant would earn:

·                  25% of his or her base salary if we achieved earnings equal to 95% of the pre-tax, pre-bonus earnings goal;

·                  50% of his or her base salary if we achieved the pre-tax, pre-bonus earnings goal;

·                  100% of his or her base salary if we achieved 112% of the pre-tax, pre-bonus earnings goal; and

·                  for Ms. Connell, Ms. Dahl and Mr. Moller, 200% of his or her base salary if we achieved 127% of the pre-tax, pre-bonus earnings goal.

For fiscal 2008, the threshold performance goal established for the annual incentive plan was pre-tax, pre-bonus earnings of $63,604,432.  Actual pre-tax, pre-bonus earnings for fiscal 2008 were $22,607,886.  Applying the foregoing schedule to the actual results for fiscal 2008, no bonuses were payable under the plan for fiscal 2008.

Guaranteed Bonuses.  Pursuant to her employment agreement, Ms. Nagler was guaranteed a bonus of $250,000 for fiscal 2008 provided she remained employed with us through February 28, 2008.  Ms. Connell received a $52,500 signing bonus and was guaranteed a bonus of $150,000 provided she remained employed with us through the date annual incentives are determined under the 2008 annual incentive plan, which would be on or before May 15, 2008.  In determining to pay these guaranteed bonuses to Ms. Nagler and Ms. Connell, the Compensation Committee recognized that, by the time these executives commenced employment with us, a considerable portion of fiscal 2008 had passed (six months in the case of Ms. Nagler and four months in the case of Ms. Connell) and that their initial efforts at the Company would not likely have an impact on the operational results for fiscal 2008.  The Compensation Committee also viewed the guaranteed bonuses as attractive retention devices.  The Compensation Committee determined the amounts of such guaranteed bonuses based on what it believed was necessary to obtain and retain the executives’ services in a competitive market for talent.

Discretionary Bonus.  The Compensation Committee decided to pay a discretionary bonus to Mr. Moller in the amount of $15,000 to reward him for his significant efforts in fiscal 2008 in connection with the transitions in executive management.  The amount of the discretionary bonus was determined by the Compensation Committee based in part on the market data compiled by Towers Perrin with respect to annual incentive compensation paid by our peer group companies listed above to employees with similar job responsibilities.

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Long-Term Equity Incentives

Program Design for Long-Term Equity Incentives.  In general, we review whether to grant long-term equity incentive awards to our executive officers near the end of or shortly following each fiscal year and, to the extent we approve such awards, they are effective as of the first day of our April trading window.  The primary objectives of our equity incentive program are to:

·                  retain key executives in a competitive market for talent;

·                  more closely align executive interests with stockholder interests by directly conditioning a significant portion of the executive’s compensation to his or her performance, as well as our performance; and

·                  generate in our executives a strategic long-term interest in our performance rather than just on short-term financial success.

Historically, stock option awards were our primary form of long-term equity incentive awards.  Since February 2006, we have modified our approach to long-term equity incentives to balance between stock options and restricted stock awards.  This change allows us to provide a mix of long-term equity awards that has an effective incentive and retention impact across a range of business and industry conditions.  This change is also responsive to changes in accounting regulations for equity compensation and developments in competitive market practices.  All equity-based awards to the Named Executive Officers in fiscal 2008 were made under our 2005 Stock Incentive Plan.  The following types of equity compensation awards were used in fiscal 2008:

·                  Non-qualified stock options.  The exercise price of each option granted in fiscal 2008 was equal to the final closing price of our common stock as reported on the New York Stock Exchange on the date of grant.  Stock options granted in fiscal 2008 vest ratably over a three-year period and have a ten-year term.  As the potential value ultimately realized by the option holder upon exercise increases with improvement in our stock price, stock options provide incentive for our executives to drive performance leading to increases in long-term stockholder value.

·                  Restricted stock with time-based vesting.  All shares of time-based restricted stock granted in fiscal 2008 vest at the end of a three-year period following the date of grant, provided the executive officer remains continuously employed with us during that entire period.  These awards are designed primarily to attract and retain senior executives.  Because the value of a time-based restricted stock award increases as the market value of our stock increases, time-based restricted stock also provides an incentive for award recipients to drive performance that leads to improvement in the market value of our common stock.

·                  Restricted stock with performance-based vesting.  Ms. Nagler was the only Named Executive Officer to receive shares of performance-based restricted stock during fiscal 2008.  The shares of performance-based restricted stock awarded to Ms. Nagler vest on May 31, 2008, provided that Ms. Nagler has by such date delivered to us a strategic plan for the Acorn Division together with a schedule for implementation of the plan, and provided further that Ms. Nagler continues to be employed with us on such date.  These shares of restricted stock vest on an “all or nothing” basis, depending on whether the performance objective described above is achieved by May 31, 2008.  The shares of performance-based restricted stock granted in fiscal 2008 are intended to provide an incentive and reward the executive for achievement of our strategic plans.  As noted in the section “Executive Compensation Changes For Fiscal 2009—Changes in Long-Term Incentive Compensation Program,” we have approved new terms for shares of performance-based restricted stock awarded in fiscal 2009.

The Compensation Committee’s practice for determining equity grants to our executive officers is first to determine the value of compensation that should be provided as equity.  Then the Chief Executive Officer, with input from selected senior officers, recommends to the Compensation Committee, for executives other than the Chief Executive Officer, stock options and shares of restricted stock that have an estimated fair market value equal to that target amount on the date of grant, with 50% of the value granted as stock options and 50% of the value granted as restricted stock.  Using a Black-Scholes valuation methodology, the value of one share of restricted stock is approximately three times higher than the value of one stock option.  The vesting for the equity awards is determined by the Committee.

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Analysis.  Our Compensation Committee believes that the use of long-term equity incentives as a significant component of total compensation is consistent with our philosophy of aligning the interests of our executive officers with those of our stockholders and our pay for performance philosophy.  The targeted value of equity awards at the time of grant is determined based on consideration of individual performance, level of responsibility, scope and complexity of the position of the executive officers, competitive market data, the costs and potential stockholder dilution of the program, overall business and market conditions, and incentive and retention objectives.

In fiscal 2008, all of the equity awards received by the Named Executive Officers were part of the annual equity awards granted in April, except for Ms. Nagler and Ms. Connell, who each received equity awards in connection with the commencement of their employment.  Ms. Connell was also awarded a stock option in October 2007.  The targeted value of equity compensation grants for the other Named Executive Officers was determined in the Compensation Committee’s discretion based on each executive’s position, duties and responsibilities and based on the Compensation Committee’s historical grant practices.  The specific numbers of stock options, shares of time-based restricted stock and shares of performance-based restricted stock that were granted to each of the Named Executive Officers in fiscal 2008 are set forth in the Grants of Plan-Based Awards table in this proxy statement.

Our Compensation Committee intends to continue to use a mix of stock option and restricted stock grants.  As discussed under “Executive Compensation Changes for Fiscal 2009—Changes in Long-Term Incentive Compensation Program,” in fiscal 2009, the Compensation Committee approved a new form of performance-based restricted stock award and granted a mix of options, time-based restricted stock and performance-based restricted stock to our senior executives.

Timing of Equity Awards.  Our Board has adopted a policy with respect to the granting of options, restricted stock and other awards under our equity incentive plans that specifies that grants to our executive officers may only be made in or become effective within an open trading window under our insider trading policy.  An exception will be made for grants in connection with the hiring of an executive officer.  In such case, the grant may be approved in conjunction with the offer of employment but may not become effective until the first date of employment.

Other Personal Benefits and Perquisites

Primary Benefits.  The Named Executive Officers are eligible to participate in the same employee benefit plans in which all other eligible salaried employees participate.  These plans include medical, dental, life insurance, disability and a qualified retirement savings plan.

Perquisites.  Our Named Executive Officers are primarily compensated with cash and equity and not perquisites.  The Compensation Committee does not view perquisites, which are mainly used to recruit and retain executive talent, to be an important element of the executive compensation program.  All but one of the Named Executive Officers received either a monthly car allowance or the use of a Company car in fiscal 2008.  We paid the premiums on term and whole life insurance and long-term disability policies for some of the Named Executive Officers in fiscal 2008.  During fiscal 2008, we reimbursed three of the Named Executive Officers for moving and relocation expenses, and Ms. Nagler received gross-up payments for such expenses.  Pursuant to the terms of Ms. Nagler’s employment agreement, we agreed to reimburse Ms. Nagler for certain travel expenses, moving expenses, temporary living expenses and mortgage payments paid on her Ohio residence.  These perquisites relate to Ms. Nagler’s relocation to Minnesota and will not be provided to Ms. Nagler on an on-going basis.  Pursuant to the terms of Ms. Connell’s offer letter, we agreed to reimburse Ms. Connell for certain travel expenses, moving expenses, temporary living expenses and realtor fees.  These perquisites relate to Ms. Connell’s relocation to Minnesota and will not be provided to Ms. Connell on an on-going basis.  Detailed information regarding the personal benefits and perquisites paid to the Named Executive Officers in fiscal 2008 is provided in footnote 3 to the Summary Compensation Table in this proxy statement.

Severance Benefits

We believe that our Company should provide reasonable severance benefits to our executive officers to reflect the fact that it may be difficult for these executives to find comparable employment within a short period of time following a potentially unplanned event.  We also believe severance benefits are an important part of our overall compensation philosophy and are needed in order to attract and retain highly qualified key executives and provide competitive total compensation.  The Compensation Committee considers severance benefits to be an important

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element of a competitive compensation package but does not consider severance benefits to be a significant factor in determining annual total compensation.  We have entered into employment agreements containing severance provisions with each of the Named Executive Officers in the Summary Compensation Table, except for Ms. Connell and Ms. Decker; however, under Ms. Connell’s non-compete agreement, she may be entitled to a payment following an involuntary termination that is not for “cause”.  See “Employment and Severance Agreements with the Named Executive Officers” in this proxy statement.

The severance provisions provide certain benefits upon termination of employment depending on the circumstances of termination, excluding termination for cause (as defined in the severance agreement) and including a change of control.  The Compensation Committee believes that providing change of control benefits to the executive officers helps the executives focus their efforts on performing their day-to-day duties by providing the executives with assurances that they will continue to receive compensation in the event of a change of control transaction.  Further, it is the Compensation Committee’s belief that providing change of control benefits should eliminate or reduce the reluctance of executive management to pursue potential change of control transactions that may be in the best interests of our stockholders.  The severance arrangements with our executive officers contain a “double trigger” for change of control benefits, which means that there must be both a change of control and a termination of employment for the provisions to apply.  The Compensation Committee believes that a “double trigger” design is more appropriate for severance benefits than the “single trigger” design as it prevents payments in the event of a change in control where the executive continues to be employed without an adverse effect on compensation, role and responsibility or job location.  For details regarding the terms of the severance provisions in the employment agreements and the amounts each executive officer would have received under the applicable agreement based on a hypothetical termination date of February 29, 2008, see “Employment and Severance Agreements with the Named Executive Officers.”

Section 162(m) Policy

Under Section 162(m) of the Internal Revenue Code, we must meet specified requirements related to our performance and stockholder approval of certain compensation arrangements in order for us to fully deduct compensation in excess of $1,000,000 paid to any Named Executive Officer.  The 2006 Senior Executive Incentive Plan was approved by stockholders in 2006 and includes specific performance criteria; therefore, annual incentive awards granted under the 2006 Senior Executive Incentive Plan are deemed to meet the requirements of Section 162(m).  The Compensation Committee believes that compensation paid pursuant to the 2006 Senior Executive Incentive Plan will be deductible.

The stockholders approved the 2005 Stock Incentive Plan at the 2005 Annual Meeting of Stockholders.  Therefore, compensation attributable to stock options, stock appreciation rights and performance awards may be excluded from the $1,000,000 cap under Section 162(m) as well.

Compensation paid in fiscal 2008 subject to the Section 162(m) cap did not exceed $1,000,000 for any of the Named Executive Officers.

The Compensation Committee intends to continue its practice of paying competitive compensation consistent with our philosophy to attract, retain and motivate executive officers to manage our business in the best interests of the Company and our stockholders.  The Compensation Committee, therefore, may choose to provide non-deductible compensation to our executive officers if it deems such compensation to be in our best interests or the best interests of our stockholders.  The Compensation Committee recognizes that the compensation payable to Ms. Nagler during fiscal 2009 pursuant to Ms. Nagler’s employment agreement will likely exceed the Section 162(m) $1,000,000 cap.

Stock Ownership Guidelines

We have adopted stock ownership guidelines for our executive officers that are consistent with the Board’s desire and expectation that management build a long-term commitment to our Company by acquiring and holding stock.  Although compliance is not mandatory, it will be taken into consideration when evaluating future equity-based grants to executive officers.  These guidelines call for (1) the President and Chief Executive Officer to hold shares of our common stock equal to at least 1 times his or her annual salary, (2) the Executive Vice Presidents and Chief Merchandising Officer to hold shares of our common stock equal to at least .75 times their annual salary,

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(3) the Senior Vice Presidents and Vice Presidents-General Merchandising Managers to hold shares of our common stock equal to at least .5 times their annual salary and (4) the Vice Presidents to hold shares of our common stock equal to at least .25 times their annual salary.  Our executive officers, as of February 21, 2007, the date the stock ownership guidelines were adopted, are encouraged to comply with the guidelines by February 21, 2012.  Executive officers joining us after February 21, 2007 are encouraged to comply with the guidelines within five years of the date of their initial election as an officer.  As of May 23, 2008, Mr. Moller, the only officer with five years of service as an officer, had met the suggested stock ownership guidelines.

We have also established stock ownership guidelines for non-employee directors.  Each director is expected to achieve and maintain stock ownership of 10,000 shares by the fourth anniversary of the date he or she joined the Board.  As of May 23, 2008, all of the directors with four years of service on the Board had met this requirement.

Executive Compensation Changes for Fiscal 2009

During fiscal 2008, at the request of the Compensation Committee, Towers Perrin conducted a specific review of our annual and long-term incentive programs and assisted the Compensation Committee in developing revised programs for fiscal 2009.  As a result, we have implemented certain changes to our executive compensation program for fiscal 2009, as described further below.

Changes in Annual Incentive Plan for Fiscal 2009

As described under “Annual Cash Incentives” above, the Named Executive Officers are eligible to earn annual incentives under our 2006 Senior Executive Incentive Plan.  In recent years, the performance goals established under the plan have required that a high threshold level of performance be achieved before any bonus payments would be paid to the executives under the plan.  As a result, no payouts were made under the 2006 Senior Executive Incentive Plan in fiscal years 2006 through 2008.

In order to attract and retain top talent, achieve alignment between our compensation plans and our financial and operating goals and promote stockholder value by rewarding successful business results, we have changed the structure of our annual incentive plan for fiscal 2009 as follows:

·                  Decreased total incentive award opportunity.  The maximum incentive opportunity for the Chief Executive Officer would be 150% of base salary, instead of 200% in fiscal 2008, the maximum incentive opportunity for Executive Vice Presidents would be 100% of base salary, instead of 200% in fiscal 2008, and the maximum incentive opportunity for Senior Vice Presidents would be 100% of base salary, which is unchanged from fiscal 2008.

·                  Widened the payout ranges.  Participants are eligible for a bonus if threshold (defined to be 80% of target) is met, and the amount of bonus shall be interpolated for results between threshold and target (defined to be the operating income target under the fiscal 2009 budget) or between target and maximum (defined to be 120% of target).  In fiscal 2008, threshold was 95% of target and maximum was 127% of target.

·                  Individual performance component added for Senior Vice Presidents.  Unlike the annual incentive program in fiscal 2008, in fiscal 2009 Senior Vice Presidents will receive payouts that are based 80% on the corporate operating earnings goal and 20% on individual goals; provided, however, that no payouts will be made if the corporate operating earnings goal is not achieved at least at the threshold level.

Changes in Long-Term Incentive Compensation Program

We have increased our emphasis on performance-based stock-based awards as part of our increased focus on accountability and on a performance-based management system.  As a result, we have implemented certain changes to our long-term incentive compensation program for fiscal 2009.  These changes are intended to continue to improve our compensation program and are consistent with our pay for performance philosophy.  In fiscal 2009, we awarded shares of performance-based restricted stock as part of our annual grants to executive officers, in addition to awards of non-qualified stock options and shares of time-based restricted stock.  Of the total value of long-term equity awards granted to an executive officer in fiscal 2009, approximately one-third of the value is granted in the form of stock options, approximately one-third is granted in the form of time-based restricted stock, and

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approximately one-third is granted in the form of performance-based restricted stock at the Target level of performance.  Descriptions of the types of equity awards made in fiscal 2009 follow:

·                  Non-qualified stock options and restricted stock with time-based vesting.  Except as described below, our annual stock option awards and restricted stock with time-based vesting awards in fiscal 2009 generally have the same terms as the awards made in fiscal 2008.  The Compensation Committee did amend the tax withholding provisions in the existing non-qualified stock option agreement and the restricted stock agreement with time-based vesting to provide that the executive may elect to satisfy the executive officer’s federal and state income tax withholding obligations relating to the awards by (1) delivering cash, a check or a money order payable to the Company, (2) having the Company withhold a portion of the shares of common stock otherwise to be delivered having a fair market value equal to the amount of such taxes, (3) delivering to the Company shares of common stock already owned by the executive having a fair market value equal to the amount of such taxes, or (4) a combination of the methods described above.

·                  Restricted stock with performance-based vesting.  Our annual equity grants awarded in fiscal 2009 now include shares of performance-based restricted stock (the “2009 Restricted Stock”).  The 2009 Restricted Stock is subject to performance-based and time-based forfeiture restrictions.  The performance measure used for the 2009 Restricted Stock is operating income.  If operating income is not equal to the operating income threshold level, all shares of 2009 Restricted Stock awarded under the agreement will be forfeited.  If operating income equals the operating income threshold level, then the performance-based restrictions will lapse with respect to the number of shares of 2009 Restricted Stock equal to the Threshold Award Level (as set forth in the agreement).  If operating income equals the operating income target level, then the performance-based restrictions will lapse with respect to the number of shares of 2009 Restricted Stock equal to the Target Award Level (as set forth in the agreement).  If operating income equals the operating income maximum level, then the performance-based restrictions will lapse with respect to the number of shares of 2009 Restricted Stock equal to the Maximum Award Level (as set forth in the agreement).  For operating income between the threshold, target and maximum levels, the performance-based restrictions will lapse with respect to the number of shares of 2009 Restricted Stock that is linearly interpolated between the applicable levels.  The shares of 2009 Restricted Stock for which the performance-based restrictions lapse are referred to as the “Issued Shares.”  On the date the number of Issued Shares is determined, the time-based forfeiture restrictions will lapse with respect to one-third of the Issued Shares.  The time-based forfeiture restrictions will lapse with respect to one-third of the Issued Shares on each of the second and third anniversaries of the effective date of the grant.  If the executive officer’s employment with the Company is terminated, the shares of 2009 Restricted Stock or the Issued Shares (if previously determined) that have not vested will be forfeited and transferred back to the Company.  Notwithstanding the foregoing, the forfeiture restrictions on the 2009 Restricted Stock will lapse in the event of a change in control of the Company or in connection with the executive’s termination due to death, disability or normal retirement after age 65.

The performance-based restrictions applicable to the 2009 Restricted Stock relate to one fiscal year.  In the future, the Compensation Committee anticipates selecting a performance measurement relating to a longer period.  The Compensation Committee plans to grant awards of performance-based restricted stock that have a two or three-year performance period with no time-based forfeiture restrictions.  The Compensation Committee will continue reviewing market practices and other performance-based techniques in order to continue to be competitive, recognizing that over time the tools used to reward and measure performance, as well as to incent executive officers, will change.

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Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with our management.  Based on this review and discussion with management, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this proxy statement and in our Annual Report on Form 10-K for the fiscal year ended March 1, 2008.

Summary Compensation Table

The following table contains compensation information for the last two fiscal years for our Chief Executive Officer, our Chief Financial Officer, our three other most highly compensated executive officers and our former Chief Executive Officer (the “Named Executive Officers”).

(1)       Pursuant to her employment agreement, Ms. Nagler was guaranteed a bonus of $250,000 for fiscal 2008, provided she remained employed with us through February 28, 2008.  For fiscal 2008, Ms. Connell received a $52,500 signing bonus and was guaranteed a bonus of $150,000, provided she remained employed with us through the date annual incentives are determined under the 2008 annual incentive plan, which would be on or before May 15, 2008.  The other bonuses included in this column reflect discretionary bonuses paid to the Named Executive Officers.

(2)       The dollar value of restricted stock and stock options set forth in these columns is equal to the compensation cost recognized during the fiscal year for financial statement purposes in accordance with FAS 123R.  Additional information related to the calculation of the compensation costs, including the assumptions made, is set forth in Note 2 of the Notes to Consolidated Financial Statements of our 2008 Annual Report on Form 10-K.

(3)       All other compensation for fiscal 2008 is presented in the following table (see “Compensation Discussion and Analysis” for additional information regarding these payments).

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(A)     Under the terms of Mr. Dillon’s separation agreement, Mr. Dillon is entitled to severance compensation equal to his annual base salary of $775,000 from the date of termination (August 30, 2007) until February 28, 2010 and payment of his COBRA premiums for 18 months.

(4)      Mr. Dillon resigned from his position as Chief Executive Officer effective August 30, 2007.

(5)      The reversal of expense related to Mr. Dillon’s stock and option awards resulted from actual forfeitures of Mr. Dillon’s equity based awards as a result of his separation of employment with the Company.  The number of shares of restricted stock forfeited was 213,700 and the number of stock options forfeited was 58,500.

Grants of Plan-Based Awards

The following table provides information regarding the grants of plan-based awards made to the Named Executive Officers during the fiscal year ended March 1, 2008.