<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
Norton McNaughton, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
NORTON MCNAUGHTON, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 6, 1998
New York, New York
March 6, 1998
To the Holders of Common Stock of NORTON MCNAUGHTON, INC.:
The Annual Meeting of the Stockholders of NORTON MCNAUGHTON, INC. (the
"Company") will be held at the Company's Showroom at 1407 Broadway, 26th Floor,
New York, New York on Monday, April 6, 1998 at 10:00 a.m. local time (the
"Meeting") for the following purposes, as more fully described in the
accompanying Proxy Statement:
1. To elect seven directors of the Company for the ensuing year;
2. To consider and take action upon a proposal to approve the
1998 Long Term Incentive Plan;
3. To consider and take action upon a proposal to approve the
Stock Option Plan for Non-Employee Directors;
4. To consider and take action upon a proposal to ratify the
Board of Directors' selection of Ernst & Young LLP to serve as
the Company's independent accountants for the Company's fiscal
year ending October 31, 1998; and
5. To transact such other business as may properly come before
the Meeting or any adjournment or adjournments thereof.
The close of business on February 17, 1998 has been fixed by the Board
of Directors as the record date for the determination of the stockholders
entitled to notice of, and to vote at, the Meeting. A list of the stockholders
entitled to vote at the Meeting may be examined at the Company's executive
offices located at 463 Seventh Avenue, New York, New York, during the ten-day
period preceding the Meeting.
By Order of the Board of Directors,
Amanda J. Bokman, Secretary
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU DO
NOT EXPECT TO BE PRESENT, PLEASE MARK, SIGN AND DATE THE ENCLOSED FORM OF PROXY
AND MAIL IT IN THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED
IN THE UNITED STATES, SO THAT YOUR VOTE CAN BE RECORDED.
<PAGE> 3
PROXY STATEMENT
This Proxy Statement, which will be mailed commencing on or about March
6, 1998 to the persons entitled to receive the accompanying Notice of Annual
Meeting of Stockholders, is provided in connection with the solicitation of
Proxies on behalf of the Board of Directors of Norton McNaughton, Inc. (the
"Company") for use at the Annual Meeting of Stockholders, to be held on April 6,
1998 (the "Meeting"), and at any adjournment or adjournments thereof, for the
purposes set forth in such Notice. The Company's executive offices are located
at 463 Seventh Avenue, New York, New York 10018.
At the close of business on February 17, 1998 the record date stated in
the accompanying Notice, the Company had outstanding 7,412,582 shares of common
stock, $.01 par value (the "Common Stock"). Each outstanding share is entitled
to one vote with respect to each matter to be voted on at the Meeting. The
Company has no class or series of stock outstanding other than the Common Stock.
A majority of the outstanding shares of Common Stock present in person or by
proxy will constitute a quorum for the transaction of business at the Meeting.
Directors are elected by plurality vote. Adoption of proposals 2, 3
and 4 will require the affirmative vote of a majority of the shares of Common
Stock present and entitled to vote thereon at the Meeting. Abstentions and
broker non-votes (as hereinafter defined) will be counted as present for the
purpose of determining the presence of a quorum. For the purpose of determining
the vote required for approval of matters to be voted on at the Meeting, shares
held by stockholders who abstain from voting will be treated as being "present"
and "entitled to vote" on the matter and, thus, an abstention has the same legal
effect as a vote against the matter. However, in the case of a broker non-vote
or where a stockholder withholds authority from his proxy to vote the proxy as
to a particular matter, such shares will not be treated as "present" and
"entitled to vote" on the matter and, thus, a broker non-vote or the withholding
of a proxy's authority will have no effect on the outcome of the vote on the
matter. A "broker non-vote" refers to shares of Common Stock represented at the
Meeting in person or by proxy by a broker or nominee where such broker or
nominee (i) has not received voting instructions on a particular matter from the
beneficial owners or person entitled to vote and (ii) the broker or nominee does
not have discretionary voting power on such matter.
<PAGE> 4
INFORMATION CONCERNING CERTAIN STOCKHOLDERS
The stockholders (including any "group," as that term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), who, to
the knowledge of the Board of Directors of the Company, owned beneficially more
than five percent of the Common Stock as of February 15, 1998, each nominee for
director, each executive officer of the Company named in the Summary
Compensation Table who owned beneficially shares of Common Stock, and all
directors and executive officers as a group, and their respective shareholdings
as of such date (based upon information obtained from such persons) are set
forth in the following table. Except as indicated in the footnotes to the table,
all of such shares are owned with sole voting and investment power.
<TABLE>
<CAPTION>
Shares of Common
Stock Owned Percent
Name Beneficially of Class
---- ------------ --------
<S> <C> <C>
Princeton Services, Inc. 759,600(1) 10.25%
Mutual Management Corp. 513,000(2) 6.92%
Brinson Partners, Inc. 512,900(3) 6.92%
Lighthouse Capital Management, Inc. 499,650(4) 6.74%
Dimensional Fund Advisors Inc. 498,900(5) 6.73%
Sanford Greenberg 798,117(6) 10.72%
Norton Sperling 770,616(7) 10.35%
Jay Greenberg 635,817(8) 8.58%
Peter Boneparth 105,100(9) 1.40%
Amanda J. Bokman 10,000(10) *
Stuart Bregman 50,000(11) *
David M. Blumberg 32,000(12) *
Howard Greenberg 28,755(13) *
Bradley P. Cost 25,000(14) *
Jerald S. Politzer 15,000(15) *
All Directors and Executive Officers as a Group (eight 1,063,972(16) 13.85%
persons)
</TABLE>
- ---------------------
* Less than 1%.
(1) Information as to the holdings of Princeton Services, Inc. ("PS"), Fund
Asset Management, L.P. ("FAM") and Merrill Lynch Special Value Fund,
Inc. ("SVF") is based upon a report on Schedule 13G filed with the
Securities and Exchange Commission. Such report indicates that PS owns
759,600 shares with shared voting power and shared dispositive power,
FAM owns 700,500 shares with shared voting and shared dispositive power
and SVF owns 700,500 shares with shared voting power and shared
dispositive power. Such report indicates that PS is a parent holding
company as defined in the Securities Exchange Act of 1934, as amended,
FAM is an investment adviser registered under the Investment Advisers
Act of 1940 and SVF is an investment
2
<PAGE> 5
company registered under the Investment Company Act of 1940. PS
disclaims any beneficial ownership interest in such shares. The address
for PS, FAM and SVF is 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
(2) Information as to the holdings of Mutual Management Corp. ("MMC"),
Salomon Smith Barney Holdings Inc. ("SSBH") and Travelers Group Inc.
("TG") is based upon a report on Schedule 13G filed with the Securities
and Exchange Commission. Such report indicates that MMC owns 513,000
shares with shared voting power and shared dispositive power, SSBH owns
513,000 shares with shared voting power and shared dispositive power
and TG owns 513,000 shares with shared voting power and shared
dispositive power. Such report indicates that SSBH and TG are parent
holding companies as defined in the Securities Exchange Act of 1934, as
amended, and MMC, SSBH and TG are investment advisers registered under
the Investment Advisers Act of 1940. TG and SSBH disclaim any
beneficial ownership interest in such shares. The address for MMC, SSBH
and TG is 388 Greenwich Street, New York, New York 10013.
(3) Information as to the holdings of Brinson Partners, Inc. ("BPI"),
Brinson Holdings, Inc. ("BH"), SBC Holding (USA), Inc. ("SBC Holding")
and Swiss Bank Corporation ("Swiss Bank") is based upon a report on
Schedule 13G filed with the Securities and Exchange Commission. Such
report indicates that each of BPI, BH, SBC Holding and Swiss Bank owns
512,900 shares with shared voting power and shared dispositive power.
Such report indicates that BPI is an investment adviser registered
under the Investment Advisers Act of 1940 and BH, SBC Holding and Swiss
Bank are parent holding companies as defined in the Securities Exchange
Act of 1934, as amended. The address for BPI and BH is 209 South
LaSalle, Chicago, Illinois 60604. The address for SBC Holding is 222
Broadway, New York, New York 10038. The address for Swiss Bank is
Aeschenplatz 6 CH-4002, Basel, Switzerland.
(4) Information as to the holdings of Lighthouse Capital Management, Inc.
("Lighthouse") and its affiliates is based upon a report on Schedule
13G filed with the Securities and Exchange Commission. Such report
indicates that 499,650 shares are owned by Lighthouse and its
affiliates with sole voting power and sole dispositive power. Such
report indicates that Lighthouse is an investment adviser registered
under the Investment Advisers Act of 1940. The address for Lighthouse
is 10000 Memorial Drive, Suite 660, Houston, Texas 77024.
(5) Information as to the holdings of Dimensional Fund Advisors Inc.
("DFA") and its affiliates is based upon a report on Schedule 13G filed
with the Securities and Exchange Commission. Such report indicates that
498,900 shares are owned by DFA and its affiliates with sole voting
power and sole dispositive power (of which shares an aggregate of
174,300 are voted by officers of DFA in their capacities as officers of
affiliates of DFA). Such report indicates that DFA is an investment
adviser registered under the Investment Advisers Act of 1940. The
address for DFA is 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401.
3
<PAGE> 6
(6) Includes 32,500 shares issuable upon exercise of currently exercisable
non-qualified stock options held by Mr. S. Greenberg. The address for
Mr. S. Greenberg is c/o Norton McNaughton, Inc., 463 Seventh Avenue,
New York, New York 10018.
(7) Includes 35,000 shares issuable upon exercise of currently exercisable
non-qualified stock options held by Mr. Sperling. The address for Mr.
Sperling is c/o Norton McNaughton, Inc., 463 Seventh Avenue, New York,
New York 10018.
(8) The address for Mr. J. Greenberg is c/o Norton McNaughton, Inc., 463
Seventh Avenue, New York, New York 10018.
(9) Includes 105,000 shares issuable upon exercise of currently exercisable
non-qualified stock options held by Mr. Boneparth.
(10) Consists of 10,000 shares issuable upon exercise of currently
exercisable non-qualified stock options held by Ms. Bokman.
(11) Consists of 50,000 shares issuable upon exercise of currently
exercisable non-qualified stock options held by Mr. Bregman.
(12) Includes 25,000 shares issuable upon exercise of currently exercisable
non-qualified stock options held by Mr. Blumberg.
(13) Includes 10,000 shares issuable upon exercise of currently exercisable
non-qualified stock options held by Mr. H. Greenberg.
(14) Includes 20,000 shares issuable upon exercise of currently exercisable
non-qualified stock options held by Mr. Cost.
(15) Consists of 15,000 shares issuable upon exercise of currently
exercisable non-qualified stock options held by Mr. Politzer.
(16) Includes for all directors and Executive Officers an aggregate of
267,500 shares issuable upon exercise of currently exercisable
non-qualified stock options.
To the Company's knowledge, there have been no significant changes in
stock ownership or control of the Company since February 15, 1998.
4
<PAGE> 7
I. ELECTION OF DIRECTORS
Seven directors are to be elected at the Meeting. It is the
intention of each of the persons named in the accompanying form of Proxy to vote
the shares of Common Stock represented thereby in favor of the seven nominees
listed below, unless otherwise instructed in such Proxy. Each such nominee is
presently serving as a director. In case any nominee is unable or declines to
serve, such persons reserve the right to vote the shares of Common Stock
represented by such Proxy for another person duly nominated by the Board of
Directors in such nominee's stead or, if no other person is so nominated, to
vote such shares only for the remaining nominees. The Board of Directors has no
reason to believe that any nominee named will be unable or will decline to
serve.
Certain information concerning the nominees for election as
directors of the Company is set forth below. Such information was furnished by
them to the Company.
SANFORD GREENBERG, age 57, has been Chairman of the Board, Chief
Executive Officer and a director of the Company since its founding in
1981.
PETER BONEPARTH, age 38, has been President and Chief Operating Officer
of the Company since April 1997. Prior to that time, Mr. Boneparth was
Executive Vice President and Senior Managing Director of Investment
Banking for Rodman & Renshaw, Inc., an investment banking firm, from
March 1995 to April 1997, and Managing Director of Investment Banking
for Mabon Securities Corp., a financial services firm, from May 1989 to
March 1995. Mr. Boneparth has been a director of the Company since
March 1997.
AMANDA J. BOKMAN, age 34, has been Vice President and Chief Financial
Officer of the Company since June 1992, Secretary since March 1995,
Treasurer since February 1996 and a director since January 1994. From
1987 to 1992, Ms. Bokman was employed by Tishman Speyer Properties as
an associate in acquisitions and finance. From 1985 to 1987, Ms. Bokman
was an audit professional with Arthur Andersen, LLP.
STUART BREGMAN, age 60, has been Chief Executive Officer of Miss Erika,
Inc., a wholly owned subsidiary of the Company, since October 1997. Mr.
Bregman served as Chairman of the Board and Chief Executive Officer of
Miss Erika, Inc. prior to its acquisition by the Company since January
1991 and as President since January 1978. Mr. Bregman has been a
director of the Company since October 1997.
DAVID M. BLUMBERG, age 39, has been Director of Investment Banking of
Wit Capital Corporation, an investment banking firm, since May 1996.
Prior to that time, Mr. Blumberg was President of Blumberg Associates,
Inc., an investment advisory firm, since 1992. From 1991 to 1992, Mr.
Blumberg was a Managing Director of Merrill Lynch & Co., and from 1988
to 1992, he was a Senior Vice President of Merrill Lynch Interfunding
Inc. Mr. Blumberg has been a director of the Company since January
1994.
5
<PAGE> 8
BRADLEY P. COST, age 44, has been a partner in the law firm of Haythe &
Curley, New York, New York, since January 1988. Mr. Cost has been a
director of the Company since December 1995.
JERALD S. POLITZER, age 52, has been Chief Executive Officer of Salant
Corporation since April 1997. Prior to that time Mr. Politzer was
employed by Melville Corporation, a retail holding company, from June
1989 to November 1996. He held various positions at Melville
Corporation, including Executive Vice President and Group Vice
President and was a director and member of the Executive Committee and
Operating Committee. Mr. Politzer was Chief Executive Officer of G.
Fox, a division of May Company, from 1986 to 1989. From 1969 to 1986,
he served in various executive positions with the Hecht Company, also a
division of May Company. Mr. Politzer has been a director of the
Company since January 1996.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the past fiscal year, the Board of Directors of the
Company met nine times. Each of the persons named above who were directors
during fiscal 1997 attended at least 75% of the meetings of the Board of
Directors and meetings of any Committees of the Board of Directors on which such
person served which were held during the time that such person served.
The Board of Directors of the Company has a Compensation
Committee whose members are Messrs. Blumberg, Cost and Politzer, a Stock Option
Committee whose members are Messrs. Blumberg, Politzer and Boneparth and an
Audit Committee whose members are Messrs. Blumberg, Cost and Politzer. The
Company does not have a Nominating Committee and has established no procedures
whereby nominees for directors may be recommended by stockholders.
The Compensation Committee reviews and recommends remuneration
arrangements for executive officers and for members of the Board of Directors
and adopts compensation plans in which officers and directors are eligible to
participate. The Stock Option Committee grants stock options under the Company's
stock option plans and administers the Company's 1994 Stock Purchase Plan. The
Audit Committee reviews the Company's internal accounting procedures and will
consult with, and review the services provided by, the Company's independent
auditors. The Compensation Committee met three times, the Stock Option Committee
met three times, and the Audit Committee met one time during the fiscal year
ended November 1, 1997.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following table sets forth information concerning the
compensation paid or awarded to the Chief Executive Officer and each of the four
other most highly compensated executive officers of the Company for the fiscal
years ended November 1, 1997, November 2, 1996 and November 4, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL FISCAL ANNUAL COMPENSATION ALL OTHER
POSITION(1) YEAR SALARY BONUS COMPENSATION
----------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Sanford Greenberg 1997 $898,693(2) $ - $ 53,488(3)
Chairman of the Board and CEO 1996 872,693(2) - 49,109(3)
1995 638,693 - 57,061(3)
Peter Boneparth 1997 $250,000 $ - $ 250,000(4)
President and COO 1996 - - -
1995 - - -
-
-
Andrew Miller(5) 1997 $447,387 $ -
Vice President 1996 446,674 -
1995 435,472 10,000
-
-
-
Howard Greenberg 1997 $447,287 $ - $ -
Vice President 1996 446,674 - -
1995 435,472 - -
Amanda J. Bokman 1997 $293,842 $ - $ -
Vice President, 1996 291,563 - -
Chief Financial Officer, 1995 267,612 - -
Secretary and Treasurer
</TABLE>
- ---------------------
(1) Effective January 31, 1996, Mr. J. Greenberg retired from his positions
as Executive Vice President, Treasurer and director of the Company.
Effective April 30, 1997, Norton Sperling retired from his positions as
President and director of the Company. See "Employment Agreements"
below.
(2) Amount includes a bonus paid in connection with Mr. S. Greenberg's
agreement to extend the term of his employment agreement with the
Company. See "Employment Agreements" below.
(3) Amount includes the current dollar value of the benefit to such
executive officer of premiums paid by the Company with respect to the
split-dollar insurance arrangement, which benefit was determined by
calculating the time value of money (using the applicable federal rate)
of the premiums paid by the Company in the fiscal years ended
7
<PAGE> 10
November 1, 1997, November 2, 1996 and November 4, 1995 for the period
from the date on which premiums were paid until March 2015 (which is
the earliest date on which the split-dollar arrangement could terminate
and premiums paid could be refunded to the Company).
(4) Signing bonus paid to Mr. Boneparth in connection with the execution of
his employment agreement with the Company. See "Employment Agreements"
below.
(5) On November 4, 1997, Mr. Miller's Employment Agreement with the Company
expired by its terms. Effective December 31, 1997, Mr. Miller resigned
his position as a Vice President of the Company. See "Employment
Agreements" below.
The following table sets forth the grants of stock options to
the executive officers named in the Summary Compensation Table during the fiscal
year ended November 1, 1997. The amounts shown for each of the named executive
officers as grant date values are determined by the Black Scholes option pricing
model. Actual gains, if any, on option exercises and holdings of Common Stock
are dependent on the future performance of the Common Stock and overall stock
market conditions.
STOCK OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
GRANTED TO GRANT
OPTIONS EMPLOYEES IN EXERCISE OF BASE EXPIRATION DATE PRESENT
NAME GRANTED FISCAL 1997 PRICE ($/SH) DATE VALUE ($)(2)
---- ------- ----------- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
Sanford Greenberg -- -- -- -- --
Peter Boneparth 700,000 53.69% $ 5.50 4/30/07 $2,129,400
10,000 $ 6.125 3/31/07 $ 34,010
Andrew Miller 20,000 3.02% $ 6.00 10/22/07 $ 65,192
20,000(1) $ 6.50 10/22/07 $ 62,684
Howard Greenberg 20,000 3.02% $ 6.00 10/22/07 $ 70,826
20,000(1) $ 6.50 10/22/07 $ 62,684
Amanda J. Bokman 5,000 6.81% $ 6.00 10/22/07 $ 16,298
85,000(1) $ 6.50 10/22/07 $ 266,407
</TABLE>
- ---------------------
(1) On October 22, 1997, the Board of Directors of the Company approved an
option repricing offer to holders of options to purchase Common Stock
with exercise prices of $13.25 and $14.00 per share. In connection with
such repricing, certain holders of options to purchase Common Stock in
the table above elected to cancel their options with exercise prices of
$13.25 and $14.00 per share in exchange for new options to purchase the
same number of shares of Common Stock at a new exercise price of $6.50
(the fair market value of the Common Stock on October 22, 1997 was
$6.00) and on a longer vesting schedule. See "Ten-Year Option
Repricings Table" below.
8
<PAGE> 11
(2) The Company used the Black-Scholes option pricing model in determining
grant date present value. However, options will have no realizable
value unless, and then only to the extent that, the Common Stock price
appreciates from the grant date to the exercise date. The following key
assumptions used in the valuation are based upon historical experience
and are not a forecast of future stock price performance or volatility
or of future dividend policy:
Grant Dates: March 31, 1997, April 30, 1997 and October 22, 1997
Dividend Yield: N/A
Volatility: 0.56
Average Risk-Free Rate of Return: 6.474%
Expected Exercise Period: Five years
The following table sets forth the number and value of options
and warrants held by the executive officers of the Company named in the Summary
Compensation Table at November 1, 1997. None of such executive officers
exercised options or warrants during the fiscal year ended November 1, 1997.
FISCAL YEAR END OPTION AND WARRANT VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AND WARRANTS OPTIONS AND WARRANTS
AT 1997 FISCAL YEAR END(#) AT 1997 FISCAL YEAR END ($)(1)
-------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sanford Greenberg 32,500 7,500 (2) (2)
Peter Boneparth 105,000 605,000 $62,500(3) $ 375,000(4)
Andrew Miller 10,000 40,000 (2) $ 2,500(5)
Howard Greenberg 10,000 40,000 (2) $ 2,500(5)
Amanda J. Bokman 10,000 90,000 (2) $ 625(6)
</TABLE>
- ---------------------
(1) In-the-money options and warrants are those where the fair market value
of the underlying Common Stock exceeds the exercise price of the option
or warrant. The value of in-the-money options and warrants is
determined in accordance with regulations of the Securities and
Exchange Commission by subtracting the aggregate exercise price of the
option or warrant from the aggregate year-end value of the underlying
Common Stock.
(2) These options were not in-the-money as of November 1, 1997, as the fair
market value of the Common Stock was below the exercise price.
(3) Of the exercisable options, 100,000 are in-the-money.
(4) Of the unexercisable options 600,000 are in-the-money.
9
<PAGE> 12
(5) Of the unexercisable options 20,000 are in-the-money.
(6) Of the unexercisable options 5,000 are in-the-money.
In accordance with applicable Securities and Exchange
Commission regulations, the following table sets forth information as to the
repricing of options held by executive officers of the Company during the past
ten fiscal years:
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
MARKET PRICE EXERCISE OPTION TERM
NUMBER OF OF STOCK AT PRICE AT TIME REMAINING AT
OPTIONS TIME OF OF REPRICING DATE OF
REPRICED OR REPRICING OR OR NEW EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT(1)
---- ---- ------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Andrew Miller(2) 10/22/97 20,000 $ 6.00 $ 13.25 $ 6.50 7 years
Howard Greenberg 10/22/97 20,000 $ 6.00 $ 13.25 $ 6.50 7 years
Amanda J. Bokman 10/22/97 20,000 $ 6.00 $ 13.25 $ 6.50 7 years
65,000 $ 6.00 $ 14.00 $ 6.50 6 years
</TABLE>
- ---------------------
(1) In connection with the repricing, the newly granted options are
exercisable in cumulative annual installments of 20% of the shares
covered thereby commencing October 22, 1998, and will terminate on the
tenth anniversary of the date of grant if not exercised on or prior to
such date.
(2) Effective December 17, 1997, Mr. Miller resigned from his position as
Vice President of the Company.
COMPENSATION OF DIRECTORS
The Company's policy is to pay directors who are not employees
of the Company an annual fee of $20,000, payable quarterly, and to reimburse
each such director for out-of-pocket expenses incurred in attending meetings of
the Board of Directors and committees of the Board.
EMPLOYMENT AGREEMENTS
Norton McNaughton of Squire, Inc., a wholly owned subsidiary
of the Company ("Norton"), has Employment Agreements with the following
executive officers: Sanford Greenberg, Peter Boneparth, Howard Greenberg and
Amanda J. Bokman. Miss Erika, Inc., a wholly owned subsidiary of the Company
("Miss Erika"), has Employment Agreements with Stuart Bregman and Howard
Zwilling and four other officers of Miss Erika.
10
<PAGE> 13
Effective November 4, 1995, Norton entered into an Amended and
Restated Employment Agreement with Mr. S. Greenberg, the Company's Chairman of
the Board and Chief Executive Officer. The Amended and Restated Employment
Agreement terminates on November 6, 1999 (a two-year extension over the prior
Employment Agreement) and provides that Mr. S. Greenberg will receive a base
salary of $750,000 and is eligible to receive annual bonuses as determined by
the Compensation Committee of the Board of Directors. In addition, the Amended
and Restated Employment Agreement provides for an extension bonus of
approximately $600,000, payable over the term of the Agreement.
Effective April 30, 1997, Norton entered into an Employment
Agreement with Mr. Boneparth to serve as the President and Chief Operating
Officer of the Company, providing for a base salary of $500,000 per annum and a
signing bonus of $250,000. The Employment Agreement terminates on November 4,
2000. As provided in the Employment Agreement, the Company granted options to
Mr. Boneparth to purchase an aggregate of 700,000 shares of Common Stock at an
exercise price of $5.50 per share, which was the fair market value of the Common
Stock on the date of grant. These options vest over the term of the Employment
Agreement, with an acceleration of the vesting if certain target stock prices
are attained. Under the Employment Agreement, 100,000 options vested on April
30, 1997; an additional 250,000 options are to vest on the earlier to occur of
(i) December 10, 1998 or (ii) the date on which the Company's stock price equals
or exceeds $10.00 per share for 20 consecutive trading days; an additional
250,000 options are to vest on the earlier to occur of (i) December 10, 1999 or
(ii) the date on which the Company's stock price equals or exceeds $13.00 per
share for 20 consecutive trading days; and the remaining 100,000 options are to
vest on the earlier to occur of (i) November 4, 2000 or (ii) the date on which
the Company's stock price equals or exceeds $20.00 per share for 20 consecutive
trading days. The Employment Agreement also provides that in the event of a
change in control involving the Company, all outstanding options will become
vested and exercisable in full.
Norton is a party to Employment Agreements with each of Ms.
Bokman and Mr. H. Greenberg, Chief Financial Officer, Vice President, Secretary
and Treasurer, and Vice President, of the Company, respectively. The Employment
Agreements were amended on October 22, 1997 to extend the respective termination
dates from November 4, 1997 to November 6, 1999 and to provide that Ms. Bokman
and Mr. H. Greenberg will receive annual base salaries of $300,000 and $320,000,
respectively, and will be eligible to receive annual bonuses as determined by
the Compensation Committee of the Board of Directors.
All of the above Employment Agreements provide for
participation in all employee benefit plans and programs offered by the Company
to employees of comparable seniority, including any bonus plan. The Employment
Agreements provide that if the employee dies, becomes disabled (i.e., unable to
perform his or her normal duties for a cumulative period of six months in any
consecutive 12-month period), or is terminated by the Company for "due cause,"
the Company will pay to such employee or the employee's legal representative the
base salary (and, in the case of Mr. S. Greenberg, the unpaid portion of the
extension bonus) and, except in the case of termination for due cause, to the
extent approved by the Compensation Committee of the Board of Directors, bonus
amounts, in all cases, accrued and unpaid to the
11
<PAGE> 14
date of such death, disability or termination. If the Company terminates
employment without cause, it will be required to pay salary and bonuses until
the earlier to occur of the expiration date of the agreement or the death of the
employee. Pursuant to the Employment Agreements, each executive officer has
agreed that he or she will not compete with the Company so long as he or she is
employed by Norton and for a period ranging from six months to three years
thereafter, depending upon the circumstances.
Effective October 1, 1997, Miss Erika entered into Employment
Agreements with Mr. Stuart Bregman (Chairman of Miss Erika) and Mr. Howard
Zwilling (President of Miss Erika), providing for base salaries of $425,000 and
$425,000, respectively, per annum subject to increase if certain earnings
targets are achieved for any fiscal year during the term of the Employment
Agreements. The Employment Agreements terminate on November 6, 1999 if certain
earnings targets, averaged during fiscal years 1998 and 1999, are not achieved,
or, if these averaged earnings targets are achieved, on October 31, 2001. In
addition, the Employment Agreements provide for the participation of Messrs.
Bregman and Zwilling in the Miss Erika Bonus Plan (as defined below) in effect
during the term of the Employment Agreements. As provided in the Employment
Agreements, the Company has granted to each of Messrs. Bregman and Zwilling
currently exercisable options to purchase an aggregate of 50,000 shares of
Common Stock of the Company at an exercise price of $5.44 per share, which was
the fair market value of the Common Stock on the date of grant.
The Employment Agreements of Messrs. Bregman and Zwilling
provide for participation in all employee benefit plans and programs offered by
the Company to employees of comparable seniority. The Employment Agreements
provide that if the employee dies, becomes disabled (i.e., unable to perform his
normal duties for a cumulative period of six months in any consecutive 12-month
period), or is terminated by the Company for "due cause," the Company will pay
to such employee or the employee's legal representative the base salary and,
except in the case of termination for due cause, to the extent approved by the
Compensation Committee of the Board of Directors, bonus amounts, in all cases,
accrued and unpaid to the date of such death or disability. If the Company
terminates employment without cause, it will be required to pay salary and
bonuses during the period ending one year following the end of the then current
term of the Employment Agreement. Pursuant to the Employment Agreements, each of
Messrs. Bregman and Zwilling has agreed that he will not compete with the
Company so long as he is employed by Miss Erika and for a period ranging from
one year to one year plus the unexpired term of the Employment Agreement,
depending upon the circumstances.
The Company maintains a senior executive bonus plan (the "Miss
Erika Bonus Plan") for Messrs. Bregman, Zwilling and four other officers of Miss
Erika. The Miss Erika Bonus Plan provides for the establishment of an annual
cash Bonus Pool in the event that certain annual earnings targets have been
attained by Miss Erika. In addition, the Miss Erika Bonus Plan provides for the
establishment of an annual Option Pool of options to purchase an aggregate of
28,000 shares of Common Stock for each $500,000 earned by Miss Erika in excess
of an annual earnings target. Each participant in the Miss Erika Bonus Plan is
allocated a percentage of the Bonus Pool and Option Pool pursuant to that
participant's Employment Agreement.
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<PAGE> 15
On January 31, 1996, Mr. Jay Greenberg, a founder of the
Company and its Executive Vice President, Treasurer and a director, retired from
the Company. On February 1, 1996, Norton entered into a Consulting Agreement
with Mr. J. Greenberg which provided that during the term of the Agreement, Mr.
J. Greenberg would perform consulting services for the Company, as requested by
the Board of Directors or Chief Executive Officer of the Company. Mr. J.
Greenberg was paid consulting fees at an annual rate of $480,000 under this
agreement. On May 1, 1997 the Company entered into a Separation Agreement with
Mr. J. Greenberg which provided for a separation payment of $550,000 and the
termination of his Consulting Agreement. The Company has agreed to continue Mr.
J. Greenberg's split-dollar life insurance arrangement and to provide lifetime
health care benefits to Mr. J. Greenberg and his wife.
Effective April 30, 1997, Mr. Norton Sperling, a founder of
the Company and its President and a director, retired from his position as
President of the Company. On May 3, 1997, Norton entered into a Separation
Agreement with Mr. Sperling, which provided for a separation payment of
$2,500,000 and the termination of his Employment Agreement. On November 25,
1997, Norton and Mr. Sperling amended the Separation Agreement, whereby Mr.
Sperling resigned as a director of the Company. In addition, the amended
Separation Agreement provides that Mr. Sperling will provide consulting services
through April 30, 2007, on a project-by-project basis for the Company, as
requested by the Board of Directors or Chief Executive Officer of the Company
and as agreed to by Mr. Sperling, and will receive consulting fees to be agreed
upon at the time of the rendering of such services. The Company has agreed to
continue Mr. Sperling's split-dollar life insurance arrangement and provide
lifetime health care benefits for Mr. Sperling and his wife.
Effective December 31, 1997, Mr. Andrew Miller, Vice
President, retired from the Company. On December 17, 1997, Norton entered into a
Separation Agreement with Mr. Miller which provides that during the ten-year
term of the Agreement, Mr. Miller will perform consulting services on a
project-by-project basis for the Company, as requested by the Board of Directors
or Chief Executive Officer of the Company and as agreed to by Mr. Miller, and
will receive monthly consulting fees payable over a 19-month period at the rate
of $320,000 per annum and, following such 19-month period, will receive
consulting fees to be agreed upon at the time of the rendering of any such
services.
Norton has entered into split-dollar insurance arrangements
with Messrs. S. Greenberg, Sperling and J. Greenberg, pursuant to which Norton
will pay the premium costs of life insurance policies that pay death benefits of
$1,915,000, $1,915,000 and $1,914,000, respectively, upon the death of each such
person. Upon surrender of the policies or payment of the death benefit
thereunder, Norton is entitled to repayment of an amount equal to the aggregate
premiums paid by Norton, with all remaining policy benefits to be paid to
Messrs. S. Greenberg, Sperling and J. Greenberg, as the case may be, or their
respective beneficiaries. See the footnotes to the "Summary Compensation Table"
above for further information on the split-dollar arrangement premium payments
made by Norton on behalf of Mr. S. Greenberg.
13
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consisted
of David M. Blumberg, Bradley P. Cost, and Jerald S. Politzer during fiscal
1997. Each of the current members of the Compensation Committee are independent
directors of the Company.
SECTION 16(a) REPORTING REQUIREMENTS
Under Section 16(a) of the Securities Exchange Act of 1934,
directors and executive officers of the Company, and persons who own more than
ten percent of the Company's Common Stock, are required to file reports
concerning their beneficial ownership of securities of the Company with the
Securities and Exchange Commission (the "Commission"). Directors, executive
officers and greater than ten percent stockholders are required by regulations
of the Commission to furnish the Company with copies of all Section 16(a)
reports they file.
The Company believes that for the period ending November 1,
1997, its directors, executive officers and greater than ten percent
stockholders complied with all Section 16(a) filing requirements, except that
Mr. Cost and Mr. Politzer failed to make a timely filing of a statement on Form
5 regarding one transaction each, Mr. Blumberg and Mr. H. Greenberg failed to
make a timely filing of a statement on Form 5 regarding two transactions each
and Ms. Bokman failed to make a timely filing of a statement on Form 5 regarding
three transactions. All such persons have subsequently filed the required
reports.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company made loans, as of November 5, 1993, in the
principal amount of $920,000 to each of Messrs. S. Greenberg, Sperling and J.
Greenberg, and $120,000 to each of Messrs. Miller and H. Greenberg. Each loan is
evidenced by a limited recourse promissory note with interest accruing at the
rate of 5.84% per annum and a maturity date of November 5, 2003. Recourse on the
promissory notes is limited to a pledge to the Company of each Management
Investor's Common Stock. Each of the promissory notes provides that in the event
of any sale or other transfer of shares of Common Stock by any of the Management
Investors, such person is required to repay his note in an amount equal to the
principal amount owing under the note on March 27, 1995 multiplied by a
fraction, the numerator of which is the number of shares of Common Stock which
are being sold or transferred, and the denominator of which is the number of
shares owned by such Management Investor on March 27, 1995. At January 31, 1998,
the outstanding principal amounts of the promissory notes of Messrs. S.
Greenberg, Sperling, J. Greenberg, Miller and H. Greenberg totalled $887,700,
$887,700, $793,503, $62,966 and $22,811, respectively, and were secured by
pledge of an aggregate of 250,000, 250,000, 250,000, 33,000 and 18,755 shares of
Common Stock, respectively.
14
<PAGE> 17
PERFORMANCE GRAPH
The following performance graph compares the cumulative total
stockholder return on the Common Stock to the NASDAQ Stock Market-US Index and
to the S&P Textiles (Apparel) Index (referred to in the Company's Proxy
Statement for fiscal 1995 as the S&P Textile Index and for fiscal 1994 as the
S&P Textile and Apparel Index) since March 1, 1994, the date the Common Stock
began to be publicly traded. The graph assumes that $100 was invested in the
Common Stock and each Index on March 1, 1994 and that all dividends were
reinvested.
<TABLE>
<CAPTION>
Measurement Period Norton McNaughton NASDAQ Stock S & P Textiles
(Fiscal Year Covered) Inc. Market (U.S.) (Apparel)
<S> <C> <C> <C>
3/1/94 100 100 100
Apr-94 124 93 100
Jul-94 129 91 99
Oct-94 116 99 103
Jan-95 101 96 93
Apr-95 110 108 98
Jul-95 114 128 101
Oct-95 125 133 95
Jan-96 46 136 105
Apr-96 62 154 119
Jul-96 43 140 119
Oct-96 50 157 119
Jan-97 38 178 125
Apr-97 35 162 127
Jul-97 34 206 135
Oct-97 39 207 136
</TABLE>
15
<PAGE> 18
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors
determines the compensation arrangements for executive officers of the Company.
The Company's compensation program for its executives aims to attract and retain
individuals of superior ability and managerial talent, reward individual
initiative and performance and link pay with the interests of the Company's
stockholders by providing executives with incentives which reward achievement
that contributes to the growth and profitability of the Company.
Salaries. Salaries of the Company's executive officers are
intended to be generally consistent with executives at comparable apparel
companies. In determining salaries, the Compensation Committee has considered a
report prepared by a nationally recognized consulting firm and has analyzed
prevailing compensation levels among the Company's competitors. Factors
considered in determining salaries are individual performance, experience, level
of responsibility and contributions to the success of the Company. The base
salaries for Sanford Greenberg and each of the executive officers are determined
pursuant to the terms of their Employment Agreements with the Company, which
were based on the foregoing considerations.
Bonuses. Bonuses for Mr. S. Greenberg and each of the
Company's other executive officers are based upon the Company's performance and
achievement by executives of individual objectives, as evaluated by the
Compensation Committee. No such bonuses were paid to Mr. S. Greenberg or any
other executive officer during the fiscal year ended November 1, 1997.
Stock Options. The Company periodically grants stock options
to its executive officers and other key employees which are intended to provide
the Company's executives and other key employees with a significant incentive to
work to maximize stockholder value. The number of options granted are based upon
the executive's level of responsibility, company performance and individual
performance. Options are granted with an exercise price of 100% of the fair
market value of the Common Stock on the date of grant and have a ten year term.
The Compensation Committee believes that by providing its executives and key
employees who have substantial responsibility for the management and growth of
the Company with an opportunity to profit from increases in the value of the
Common Stock, the interests of the Company's stockholders and executives will be
most closely aligned. During the fiscal year ended November 1, 1997, Mr.
Boneparth was granted 10,000 non-qualified stock options on March 31, 1997 at an
exercise price of $6.125 per share, which are currently exercisable as to 50% of
the shares covered thereby, exercisable as to 75% of the number of shares
covered thereby on December 10, 1998 and exercisable as to 100% of the number of
Shares covered thereby on December 10, 1999. In addition, as part of Mr.
Boneparth's employment agreement, he was granted 700,000 non-qualified stock
options on April 30, 1997 at an exercise price of $5.50 per share, which are
currently exercisable as to 100,000 of the shares covered thereby, exercisable
as to an additional 250,000 options are to vest on the earlier to occur of (i)
December 10, 1998 or (ii) the date on which the Company's stock price equals or
exceeds $10.00 per share for 20 consecutive trading days, exercisable as to an
additional 250,000 options are to vest on the earlier to occur of (i) December
10, 1999 or (ii) the date on which the Company's stock price equals or exceeds
$13.00 per share for 20 consecutive trading days, and exercisable as to the
remaining 100,000 options are to vest on the earlier to occur of (i) November 4,
2000 or (ii) the date on which the
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<PAGE> 19
Company's stock price equals or exceeds $20.00 per share for 20 consecutive
trading days. Messrs. Miller and H. Greenberg and Ms. Bokman were granted
20,000, 20,000 and 5,000 non-qualified stock options, respectively, on October
22, 1997 at an exercise price of $6.00 per share, which are exercisable in
cumulative annual installments of 33 1/3% of the shares covered thereby
commencing October 22, 1998.
Repricing Offer. In October 1997, the Board of Directors
approved an option repricing offer (the "Repricing Offer") whereby certain
holders of options to purchase Common Stock with exercise prices of $13.25 and
$14.00 per share could exchange existing options for non-qualified replacement
options to purchase the same number of shares of Common Stock at an exercise
price of $6.50 per share (the "Repriced Options"); provided further that the
Repriced Options will be exercisable on a longer vesting schedule commencing
October 22, 1998. The Repriced Options are not currently exercisable.
On October 22, 1997, Messrs. Miller and H. Greenberg and Ms.
Bokman each participated in the Repricing Offer by electing to cancel an
aggregate of 20,000, 20,000 and 85,000 currently exercisable options to purchase
shares of Common Stock, respectively, in exchange for 20,000, 20,000 and 85,000
Repriced Options, respectively, which are exercisable in cumulative annual
installments of 20% of the shares covered thereby commencing October 22, 1998.
On November 4, 1996, the Company granted 10,000 non-qualified
stock options to each of Messrs. Blumberg, Cost, and Politzer. The options have
an exercise price of $8.1875 per share and are currently exercisable as to 50%
of the shares covered thereby, exercisable as to 75% of the shares covered
thereby beginning December 10, 1998 and exercisable as to 100% of the shares
covered thereby beginning December 10, 1999.
Other Compensation. The Company has entered into a
split-dollar insurance arrangement with Mr. S. Greenberg, pursuant to which the
Company will pay the premium costs of a life insurance policy that pays death
benefits of $1,915,000 upon the death of Mr. S. Greenberg. Upon surrender of the
policy or payment of the death benefit thereunder, the Company is entitled to
repayment of an amount equal to the aggregate premiums paid by the Company, with
all remaining policy benefits to be paid to Mr. S. Greenberg's beneficiaries.
Compliance with Internal Revenue Code Section 162(m). Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1,000,000 paid to each of the Company's Chief Executive Officers and four other
most highly compensated executive officers. Certain performance-based
compensation is not subject to the deduction limit if certain requirements are
met. The Company does not expect this deduction limitation to have a material
effect on its operations or financial condition.
THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
David M. Blumberg
Bradley P. Cost
Jerald S. Politzer
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<PAGE> 20
II. APPROVAL OF THE NORTON MCNAUGHTON, INC.
1998 LONG TERM INCENTIVE PLAN
The Board of Directors believes that attracting and retaining
key employees and directors of high quality is essential to the Company's growth
and success. The Board of Directors also believes that important advantages to
the Company are gained by a comprehensive compensation program which includes
different types of incentives for motivating such individuals and includes
rewards for outstanding service. In this regard, stock options and other
stock-related awards have been, and will continue to be, an important element of
the Company's compensation program because such awards enable employees and
directors to acquire or increase their proprietary interest in the Company,
thereby promoting a close identity of interests between such individuals and the
Company's stockholders. Such awards also provide to employees and directors an
increased incentive to expend their maximum efforts for the success of the
Company's business.
Only a limited number of shares remain available for stock
option grants under the current stock option plans of the Company. Stock option
grants have been an important aspect of the Company's compensation program in
attracting and retaining senior executives, directors and other key personnel.
The Board of Directors believes that it is in the interests of the Company and
its stockholders that the ability of the Company to grant stock options and
other stock-based awards be continued.
Accordingly, on February 2, 1998, the Board of Directors
adopted, subject to stockholder approval at the Meeting, the Norton McNaughton,
Inc. 1998 Long Term Incentive Plan (the "1998 Long Term Incentive Plan"). In
authorizing grants of a wide range of awards, including options, stock
appreciation rights ("SARs"), restricted stock, performance awards and other
stock-based awards, the 1998 Long Term Incentive Plan is intended to give the
Company greater flexibility to respond to rapidly changing business, economic
and regulatory requirements and conditions. In addition, such flexibility will
enhance the ability of the Company to closely link compensation to performance.
The following discussion of the material features of the 1998
Long Term Incentive Plan is qualified by reference to the text of the 1998 Long
Term Incentive Plan set forth in Exhibit A hereto.
Shares Subject to the Plan. Under the 1998 Long Term Incentive
Plan, 300,000 shares of Common Stock will be available for issuance of awards.
Shares distributed under the 1998 Long Term Incentive Plan may be either newly
issued shares or treasury shares. If any shares subject to the 1998 Long Term
Incentive Plan are forfeited or the award is settled in cash or otherwise
terminates without a distribution of shares, the shares subject to such award
will again be available for awards under the 1998 Long Term Incentive Plan.
Thus, for example, if an award is voluntarily surrendered in exchange for a new
award, the shares that were subject to the surrendered award would be available
for the new award (or other awards) under the 1998 Long Term Incentive Plan. The
maximum number of awards which may be granted to any
18
<PAGE> 21
participant under the 1998 Long Term Incentive Plan in any one year period shall
not exceed 150,000 shares of Common Stock.
The 1998 Long Term Incentive Plan provides that, in the event
of changes in the corporate structure affecting the Common Stock, the Committee
may adjust (i) the number and kind of shares which may be issued in connection
with awards, (ii) the number and kind of shares issued or issuable in respect of
outstanding awards and (iii) the exercise price, grant price or purchase price
relating to any award. The Committee may also adjust performance conditions and
other terms of awards in response to these kinds of events or to changes in
applicable laws, regulations or accounting principles. The 1998 Long Term
Incentive Plan provides that, in connection with (i) any merger or consolidation
in which the Company is not the surviving corporation, (ii) any sale or transfer
by the Company of all or substantially all its assets or (iii) any tender offer
or exchange offer for or the acquisition, directly or indirectly, by any person
or group of all or a majority of the then outstanding voting securities of the
Company, all outstanding options under the 1998 Long Term Incentive Plan will
become exercisable in full on and after (i) 15 days prior to the effective date
of such merger, consolidation, sale, transfer or acquisition or (ii) the date of
commencement of such tender offer or exchange offer, as the case may be.
Eligibility. Any employee of, and any officer or
employee-director of, or consultant or other individual providing services to,
the Company and its subsidiaries or affiliated companies is eligible to receive
awards under the 1998 Long Term Incentive Plan. Directors of the Company who are
not employees are eligible for grants of stock options under the 1998 Long Term
Incentive Plan.
Administration. The 1998 Long Term Incentive Plan will be
administered by the Stock Option Committee (the "Committee") of the Board of
Directors. Subject to the terms and conditions of the 1998 Long Term Incentive
Plan, the Committee is authorized to designate participants who are employees,
directors or consultants of the Company and its subsidiaries and affiliated
companies, determine the type and number of awards to be granted, set terms and
conditions of such awards, prescribe forms of award agreements, interpret the
1998 Long Term Incentive Plan, specify rules and regulations relating to the
1998 Long Term Incentive Plan, and make all other determinations which may be
necessary or advisable for the administration of the 1998 Long Term Incentive
Plan.
Stock Options and SARs. The Committee is authorized to grant
stock options, including both incentive stock options ("ISOs"), which can result
in potentially favorable tax treatment to the participant, and non-qualified
stock options, and also to grant SARs entitling the participant to receive the
excess of the fair market value of a share on the date of exercise or other
specified date over the grant price of the SAR. The exercise price per share of
Common Stock subject to an option and the grant price of an SAR is determined by
the Committee, provided that the exercise price may not be less than the fair
market value of the Common Stock on the date of grant. The term of each such
option or SAR, the times at which each such option or SAR shall be exercisable,
and provisions requiring forfeiture of unexercised options at or following
termination of employment, generally will be fixed by the Committee, except no
ISO
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<PAGE> 22
or SAR relating thereto will have a term exceeding ten (10) years. Options may
be exercised by payment of the exercise price in cash, or in Common Stock,
outstanding awards or other property (including notes or obligations to make
payment on a deferred basis, such as through "cashless exercises") having a fair
market value equal to the exercise price, as the Committee may determine from
time to time. Methods of exercise and settlement and other terms of the SARs
will be determined by the Committee.
Restricted Stock. The 1998 Long Term Incentive Plan also
authorizes the Committee to grant restricted stock. Restricted stock is an award
of shares which may not be disposed of by participants and which may be
forfeited in the event of certain terminations of employment prior to the end of
a restriction period established by the Committee. Such an award would entitle
the participant to all of the rights of a stockholder of the Company, including
the right to vote the shares and the right to receive any dividends thereon,
unless otherwise determined by the Committee.
Performance Awards. The 1998 Long Term Incentive Plan also
authorizes the Committee to grant to eligible employees performance awards. A
performance award is an award which consists of a right (i) denominated or
payable in cash, Common Stock, other securities or other property (including,
without limitation, restricted securities), and (ii) which shall confer on the
holder thereof rights valued as determined by the Committee and payable to, or
exercisable by, the holder of the performance award upon the achievement of such
performance goals during such performance periods as the Committee shall
establish. Subject to the terms of the 1998 Long Term Incentive Plan and any
applicable award agreement, performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
performance award granted and the amount of any payment or transfer to be made
pursuant to any performance award will be determined by the Committee and by the
other terms and conditions of any performance award.
Other Stock-Based Awards. In order to enable the Company to
respond to business, economic and regulatory developments, and to trends in
executive compensation practices, the 1998 Long Term Incentive Plan authorizes
the Committee to grant awards that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or related to Common
Stock. The Committee determines the terms and conditions of such awards,
including consideration to be paid to exercise awards in the nature of purchase
rights, the period during which awards will be outstanding, and forfeiture
conditions and restrictions on awards.
Other Terms of Awards. The flexible terms of the 1998 Long
Term Incentive Plan will permit the Committee to impose performance conditions
with respect to any award. Such conditions may require that an award be
forfeited, in whole or in part, if performance objectives are not met, or
require that the time of exercisability or settlement of an award be linked to
achievement of performance conditions.
No awards may be granted under the 1998 Long Term Incentive
Plan after June 30, 2008.
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<PAGE> 23
Awards may be settled in cash, stock, other awards or other
property, at the discretion of the Committee. The Committee may condition the
payment of an award on the withholding of taxes and may provide that a portion
of the Common Stock or other property to be distributed will be withheld (or
previously acquired Common Stock or other property surrendered by the
participant) to satisfy withholding and other tax obligations. Awards granted
under the 1998 Long Term Incentive Plan may not be pledged or otherwise
encumbered and are not transferable except by will or by the laws of descent and
distribution to a guardian or legal representative designated to exercise such
person's rights and receive distributions under the 1998 Long Term Incentive
Plan upon such person's death, or otherwise if permitted under Rule 16b-3 and by
the Committee.
Awards under the 1998 Long Term Incentive Plan are generally
granted for no consideration other than services. The Committee may, however,
grant awards alone or in addition to, in tandem with or in substitution for any
other award under the 1998 Long Term Incentive Plan, other awards under other
the Company plans, or other rights to payment from the Company. Awards granted
in addition to or in tandem with other awards may be granted either at the same
time or at different times. If an award is granted in substitution for another
award, the participant must surrender such other award in consideration for the
grant of the new award.
The Board of Directors may amend, modify or terminate the 1998
Long Term Incentive Plan at any time provided that, unless required by law, (i)
the number of shares of Common Stock available under the 1998 Long Term
Incentive Plan may not be amended without stockholder approval (subject to
certain provisions relating to adjustment as discussed above) and (ii) no
amendment or termination of the 1998 Long Term Incentive Plan may, without a
participant's consent, adversely affect any rights already accrued under the
1998 Long Term Incentive Plan by the participant. In addition, no amendment or
modification shall, unless previously approved by the stockholders (where such
approval is necessary to satisfy then applicable requirements of federal
securities laws, the Internal Revenue Code (the "Code"), or rules of any stock
exchange on which the Common Stock is listed) (i) in any manner affect the
eligibility requirements of the 1998 Long Term Incentive Plan, (ii) increase the
number of shares of Common Stock subject to any option, (iii) change the
purchase price of the shares of Common Stock subject to any option, (iv) extend
the period during which awards may be granted under the 1998 Long Term Incentive
Plan or (v) materially increase the benefits to participants under the 1998 Long
Term Incentive Plan.
Unless earlier terminated by the Board of Directors, the 1998
Long Term Incentive Plan will terminate when no shares remain available for
issuance and the Company has no further obligation with respect to any
outstanding award.
The 1998 Long Term Incentive Plan is not subject to any
provisions of ERISA, nor is the 1998 Long Term Incentive Plan a qualified plan
within the meaning of Section 401(a) of the Code.
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<PAGE> 24
Federal Income Tax Implications of the Plan. The following
description summarizes the material federal income tax consequences arising with
respect to the issuance and exercise of awards granted under the 1998 Long Term
Incentive Plan. The grant of an option or SAR (including a stock-based award in
the nature of a purchase right) will create no tax consequences for the
participant or the Company. A participant will not have taxable income upon
exercising an ISO (except that the alternative minimum tax may apply) and the
Company will receive no tax deduction at that time. Upon exercising an option
other than an ISO (including a stock-based award in the nature of a purchase
right), the participant must generally recognize ordinary income equal to the
difference between the exercise price and fair market value of the freely
transferable and nonforfeitable Common Stock acquired on the date of exercise,
and upon exercising an SAR, the participant must generally recognize ordinary
income equal to the cash or the fair market value of the freely transferable and
nonforfeitable Common Stock received. In each case, the Company will be entitled
to a tax deduction equal to the amount recognized as ordinary income by the
participant.
A participant's disposition of shares acquired upon the
exercise of an option, SAR or other stock-based award in the nature of a
purchase right generally will result in short-term or long-term capital gain or
loss measured by the difference between the sale price and the participant's tax
basis in such shares (or the exercise price of the option in the case of shares
acquired by exercise of an ISO and held for the applicable ISO holding periods).
Generally, there will be no tax consequences to the Company in connection with a
disposition of shares acquired under an option or other award, except that the
Company will be entitled to a tax deduction (and the participant will recognize
ordinary taxable income) if shares acquired upon exercise of an ISO are disposed
of before the applicable ISO holding periods have been satisfied.
With respect to other awards granted under the 1998 Long Term
Incentive Plan that may be settled either in cash or in Common Stock or other
property that is either not restricted as to transferability or not subject to a
substantial risk of forfeiture, the participant must generally recognize
ordinary income equal to the cash or the fair market value of Common Stock or
other property received, and the Company will be entitled to a tax deduction for
the same amount. With respect to awards involving stock or other property that
is restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received at the first time
the shares or other property become transferable or not subject to a substantial
risk of forfeiture, whichever occurs earlier. The Company will be entitled to a
tax deduction in an amount equal to the ordinary income recognized by the
participant. A participant may elect under Section 83(b) of the Code to be taxed
at the time of receipt of shares or other property rather than upon lapse of
restrictions on transferability or the substantial risk of forfeiture, but if
the participant subsequently forfeits such shares or property he would not be
entitled to any tax deduction, including as a capital loss, for the value of the
shares or property on which he previously paid tax. Such election must be made
and filed with the Internal Revenue Service within thirty days of the receipt of
the shares or other property.
Section 162(m) of the Code limits deductibility of certain
compensation for each of the chief executive officer and the four highest paid
executive officers employed at year end
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to $1 million per year, effective for tax years beginning on or after January 1,
1994. The Company anticipates that action will be taken with respect to awards
under the 1998 Long Term Incentive Plan to ensure deductibility.
The Committee may condition the payment of an award on the
withholding of taxes and may provide that a portion of the Common Stock or other
property to be distributed will be withheld (or previously acquired stock or
other property surrendered by the participant) to satisfy withholding and other
tax obligations.
The foregoing summarizes the material federal income tax
consequences arising with respect to the issuance and exercise of awards granted
under the 1998 Long Term Incentive Plan. Different tax rules may apply with
respect to participants who are subject to Section 16 of the Exchange Act when
they acquire Common Stock (i) in a transaction deemed to be a nonexempt purchase
under that statute or (ii) within six months of an exempt grant of a derivative
security under the 1998 Long Term Incentive Plan. This summary does not address
the effects of other federal taxes or taxes imposed under state, local or
foreign tax laws.
The affirmative vote of a majority of the votes cast by the
holders of outstanding shares of Common Stock present and voting thereon at the
Meeting is required to approve the 1998 Long Term Incentive Plan. The Board of
Directors recommends that the Company's stockholders vote FOR approval of the
1998 Long Term Incentive Plan. It is the intention of the persons named in the
accompanying form of proxy to vote the shares represented thereby in favor of
such approval unless otherwise instructed in such proxy.
III. APPROVAL OF NORTON MCNAUGHTON, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On February 2, 1998, the Board of Directors of the Company
unanimously adopted the Norton McNaughton, Inc. Stock Option Plan for
Non-Employee Directors (the "Non-Employee Directors' Plan"), subject to the
approval of the Non-Employee Directors' Plan by the stockholders of the Company.
The full text of the Non-Employee Directors' Plan is set forth in Exhibit B to
this Proxy Statement. A maximum of 100,000 shares of Common Stock may be issued
under the Non-Employee Directors' Plan and the Board of Directors has reserved
such number of shares for issuance. Pursuant to the Non-Employee Directors'
Plan, each member of the Board of Directors who is a "Non-Employee Director,"
within the meaning of the Non-Employee Directors' Plan, will be automatically
granted an option to acquire 5,000 shares of Common Stock on April 15th of each
year, beginning April 15, 1998. Under the Non-Employee Directors' Plan, a
director is a Non-Employee Director if he is not a full-time or part-time
employee of the Company or its parent or subsidiary corporations and was not
such an employee at any time during the twelve (12) months immediately preceding
his first election to the Board of Directors.
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<PAGE> 26
The ability to offer the Company's Non-Employee Directors an
opportunity to acquire shares of the Common Stock of the Company provides a
means by which the Company may compensate its Non-Employee Directors. By
providing competitive compensation levels, the Company can attract and retain
highly qualified Non-Employee Directors. Further, the Board of Directors
believes that granting options to the Non-Employee Directors provides an
incentive to such persons to continue their service to the Company and promotes
the best interests of the Company because Non-Employee Directors have an
opportunity to acquire a proprietary interest in the Company and ultimately to
benefit from the future success of the Company's operations through appreciation
in the value of the Common Stock. By providing such options through a formula
plan meeting the requirements of Rule 16b-3 under the Exchange Act, the Company
may at the same time provide for disinterested administration of its other
equity-based plans. Disinterested administration is required so that awards
under such plans are exempt from being purchases of Common Stock of the Company
for purposes of determining liability under Section 16 of the Exchange Act for
insider participants. Rule 16b-3 provides that a plan will continue to have
disinterested administration if the plan is administered by persons who did not
receive a grant or award while administering any plan of the Company, or during
the year prior to becoming an administrator of any plan, except that grants made
pursuant to a qualifying formula plan will not disqualify such person from
serving as a disinterested administrator.
BENEFITS UNDER THE PLAN
The Non-Employee Directors' Plan provides that each
Non-Employee Director of the Company will receive an annual award thereunder on
April 15th of each year, beginning April 15, 1998, of an option to purchase
5,000 shares of Common Stock (the "Annual Award"). The exercise price of such
options will be the fair market value of the Common Stock, as defined in the
Non-Employee Directors' Plan, on the date of grant. Presently there are three
Non-Employee Directors, Mr. Blumberg, Mr. Cost, and Mr. Politzer, eligible to
participate in such plan. No executive officers or other employees of the
Company will receive any options under the Non-Employee Directors' Plan.
DESCRIPTION OF NON-EMPLOYEE DIRECTORS' PLAN
The following description of the Non-Employee Directors' Plan
is merely a summary of some of its terms and provisions, is not intended to be a
complete description of the Non-Employee Directors' Plan and is qualified in its
entirety by reference to the full text of the Non-Employee Directors' Plan
attached hereto as Exhibit B.
Authorized Common Stock
A maximum of 100,000 shares of Common Stock may be issued
pursuant to options awarded under the Non-Employee Directors' Plan. Such shares
shall be shares of authorized but unissued Common Stock. As of March 6, 1998, no
options have been granted pursuant to the Non-Employee Directors' Plan.
24
<PAGE> 27
Administration
The Non-Employee Directors' Plan will be administered by the
Committee or such other Committee as may be appointed by the Board of Directors
to administer the Non-Employee Directors' Plan. The Committee, or such other
Committee, shall consist of not less than two Non-Employee Directors who are
"disinterested persons" within the meaning of Rule 16b-3(c)(2)(i) under the
Exchange Act. The Committee has authority to adopt such rules and regulations
and to make such determinations as are not inconsistent with the Non-Employee
Directors' Plan and as are necessary or desirable for its implementation and
administration. All decisions, determinations and interpretations of the
Committee are final and binding on all optionees. The number of shares subject
to Annual Awards for each Non-Employee Director and the terms of such Annual
Awards are fixed by the Non-Employee Directors' Plan. The Committee will have no
discretion to select the Non-Employee Directors who will receive Annual Awards
or to determine the number of shares covered by such Annual Award, the option
price per share, the circumstances under which an Annual Award may be granted,
or the period within which options granted pursuant to Annual Awards may be
exercised or to alter any other terms or conditions in the Non-Employee
Directors' Plan with respect to Annual Awards to Non-Employee Directors, except
for administering the plan subject to the express provisions of the plan.
Number of Shares for Each Eligible Director
On April 15th of each year, beginning April 15, 1998, each
Non-Employee Director then in office will be granted an Annual Award of an
option to purchase 5,000 shares of Common Stock. Notwithstanding the foregoing,
any Non-Employee Director may elect (1) to decline an Annual Award, or (2) to
revoke a previous election to decline an Annual Award, in either event, at any
time prior to the date such Annual Award would otherwise be made. A Non-Employee
Director who elects to decline an Annual Award will receive no compensation in
lieu thereof.
Exercise Prices
The exercise price of all options granted under the
Non-Employee Directors' Plan will equal the fair market value of the Common
Stock of the Company on the date of grant, determined as provided in the
Non-Employee Directors' Plan.
Exercise and Term
Options granted under the Plan shall become exercisable as to
one-half (1/2) of the Options subject to a particular grant beginning one year
from the date of grant and as to all of the Options subject to a particular
grant beginning two years from the date of grant, in either case if on such date
the Non-Employee Director to whom any such Option was granted remains a
Non-Employee Director. In the event a Non-Employee Director ceases to be a
Non-Employee Director, any of such persons's then outstanding Options that have
not become exercisable as provided herein shall terminate immediately. In
addition, in the event of a merger or
25
<PAGE> 28
consolidation in which the Company is not the surviving entity, or any other
capital reorganization (including a merger) in which more than 50% of the then
outstanding shares of Common Stock are exchanged, or the sale by the Company of
all or substantially all of its assets to another entity, any outstanding Option
that was granted under the Plan more than three months prior to the date of the
Company's adoption of a plan or definitive agreement in respect of such merger,
consolidation, reorganization or asset sale, as the case may be, shall become
exercisable in full as of such date. Ten business days following the
effectiveness of such merger, consolidation, reorganization or asset sale, as
the case may be, any then outstanding Option shall terminate.
An Option shall not be exercisable unless: (a) the Option has
become exercisable; (b) the person exercising the Option has been at all times
during the period beginning with the date of grant of the Option and ending on
the date of exercise of the Option, a Non-Employee Director, except that in the
event (i) a Non-Employee ceases to be a Non-Employee Director for any reason,
such person may exercise any of such persons's outstanding Options that are
exercisable on the date such person ceases to be a Non-Employee Director at any
time within two years after such date, subject to earlier termination of any
such Option as provided herein, at the end of which two-year period any such
Option that has not been fully exercised shall terminate, and (ii) an optionee
shall die holding any outstanding Options that are exercisable on the date of
such person's death, such person's executors, administrators, heirs or
distributees, as the case may be, may exercise any such Option at any time
within two years after the date of such optionee's death, even if such two-year
period extends beyond the two-year period described in the preceding clause (i),
but subject to any other earlier termination of any such Option as provided
herein, at the end of which two-year period any such Option that has not been
fully exercised shall terminate; (c) payment in full is made for the shares of
Common Stock being acquired thereunder at the time of exercise in United States
dollars by cash or check or by shares of Common Stock having a "fair market
value" equal to the aggregate Option Price in respect of Options being
exercised; and (d) payment in full is made for any tax withholding obligation.
Each option granted under the Non-Employee Directors' Plan
shall terminate on the tenth anniversary of the date of grant, subject to
earlier termination as provided above.
Adjustment for Changes in Capitalization
If the number of shares of Common Stock as a whole are
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or the
like, the Non-Employee Directors' Plan authorizes the Committee to make an
appropriate and proportionate adjustment in the number and kind of shares
subject to the Non-Employee Directors' Plan, and in the number, kind, and per
share exercise price of shares subject to unexercised options or portions
thereof granted prior to any such change. Any such adjustment in an outstanding
option, however, will be made without a change in the total
26
<PAGE> 29
price applicable to the unexercised portion of the option, but rather with a
corresponding adjustment in the price for each share covered by the option.
Other Terms
No option under the Non-Employee Directors' Plan can be
transferable except by will or the laws of descent and distribution. During the
lifetime of the optionee, an option may be exercisable only by the optionee. The
Non-Employee Directors' Plan may be amended by the Board of Directors, subject
to limitations set forth in the Non-Employee Directors' Plan, including that the
Non-Employee Directors' Plan may not be amended more than once each six months.
The Non-Employee Directors' Plan may be terminated by the Board of Directors at
any time. No amendment or termination of the plan may materially and adversely
affect any of the rights or obligations of any person, without his written
consent, under any option previously granted under the Plan, except that upon
the dissolution or liquidation of the Company, the Non-Employee Directors' Plan
and any options issued thereunder will terminate.
TAX EFFECTS OF NON-EMPLOYEE DIRECTORS' PLAN
Options granted under the Non-Employee Directors' Plan will be
treated as non-qualified stock options ("NQSOs") for federal income tax
purposes. The following discussion of the federal income tax consequences of the
Non-Employee Directors' Plan is intended only as a summary of the federal income
tax treatment of NQSOs under the Non-Employee Directors' Plan as of the date
hereof. The federal income tax laws pertaining to the Non-Employee Directors'
Plan are highly technical, and such laws are subject to change at any time. Some
variations on the federal income tax effects of Non-Employee Directors' Plan
participation described below may occur with respect to participation by persons
subject to Section 16(b) of the Exchange Act. The Non-Employee Directors' Plan
is not subject to the provisions of the Employee Retirement Income Security Act
of 1974, as amended.
The grant of a NQSO will create no tax consequences for the
participant or the Company. Upon the exercise of a NQSO, the participant must
generally recognize ordinary income equal to the excess, if any, of the fair
market value of the Common Stock acquired over the exercise price. The Company
will be entitled to a deduction equal to the amount recognized as ordinary
income by the participant.
Upon the disposition of shares acquired upon the exercise of a
NQSO, the participant will recognize short-term or long-term capital gain or
loss measured by the difference between the amount realized and the
participant's tax basis in such shares. There will generally be no tax
consequences to the Company upon the disposition by a participant of shares of
Common Stock acquired upon the exercise of a NQSO granted under the Non-Employee
Directors' Plan.
The affirmative vote of a majority of the votes cast by the
holders of outstanding shares of Common Stock present and voting thereon at the
Meeting is required to approve the Non-Employee Directors' Plan. The Board of
Directors recommends that the Company's
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<PAGE> 30
stockholders vote FOR approval of the Non-Employee Directors' Plan. It is the
intention of the persons named in the accompanying form of Proxy to vote the
shares represented thereby in favor of such approval unless otherwise instructed
in such Proxy.
IV. RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected Ernst &
Young LLP to serve as independent auditors for the Company for the fiscal year
ending October 31, 1998. The Board of Directors considers Ernst & Young LLP to
be eminently qualified.
Although it is not required to do so, the Board of Directors
is submitting its selection of Ernst & Young LLP for ratification at the
Meeting, in order to ascertain the views of stockholders regarding such
selection. If the selection is not ratified, the Board of Directors will
reconsider its selection.
A representative of Ernst & Young LLP will be present at the
Meeting, with the opportunity to make a statement if such representative desires
to do so, and will be available to respond to appropriate questions.
The Board of Directors recommends that stockholders vote FOR
ratification of the selection of Ernst & Young LLP to serve as independent
auditors for the Company for the fiscal year ending October 31, 1998.
V. OTHER MATTERS
The Board of Directors of the Company does not know of any
other matters which may be brought before the Meeting. However, if any such
other matters are properly presented for action, it is the intention of the
persons named in the accompanying form of Proxy to vote the shares represented
thereby in accordance with their judgement on such matters.
MISCELLANEOUS
If the accompanying form of Proxy is executed and returned,
the shares of Common Stock represented thereby will be voted in accordance with
the terms of the Proxy, unless the Proxy is revoked. If no directions are
indicated in such Proxy, the shares represented thereby will be voted FOR the
nominees proposed by the Board of Directors in the election of directors and FOR
approval of the 1998 Long Term Incentive Plan, approval of the Non-Employee
Directors' Plan and ratification of the Board of Directors' selection of
independent accountants for the Company. Any Proxy may be revoked at any time
before it is exercised. The casting of a ballot at the Meeting by a stockholder
who may therefore have given a Proxy or the subsequent delivery of a Proxy will
have the effect of revoking the initial Proxy.
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<PAGE> 31
All costs relating to the solicitation of Proxies will be
borne by the Company. Proxies may be solicited by officers, directors and
employees of the Company and its subsidiaries personally, by mail or by
telephone, telecopier or telegraph, and the Company may pay brokers and other
persons holding shares of stock in their names or those of their nominees for
their reasonable expenses in sending soliciting material to their principals.
It is important that Proxies be returned promptly.
Stockholders who do not expect to attend the Meeting in person are urged to
mark, sign and date the accompanying form of Proxy and mail it in the enclosed
envelope, which requires no postage if mailed in the United States, so that
their votes can be recorded.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Annual
Meeting of Stockholders of the Company for the fiscal year ending October 31,
1998 must be received by the Company by November 6, 1998 in order to be
considered for inclusion in the Company's Proxy Statement relating to such
Meeting.
AMANDA J. BOKMAN, SECRETARY
NEW YORK, NEW YORK
MARCH 6, 1998
29
<PAGE> 32
Exhibit A
NORTON MCNAUGHTON, INC.
1998 LONG TERM INCENTIVE PLAN
SECTION 1. Purpose. The purposes of this Norton McNaughton,
Inc. 1998 Long Term Incentive Plan (the "Plan") are to encourage selected
employees, officers, directors and consultants of, and other individuals
providing services to, Norton McNaughton, Inc. (together with any successor
thereto, the "Company") and its Affiliates (as defined below) to acquire a
proprietary interest in the growth and performance of the Company, to generate
an increased incentive to contribute to the Company's future success and
prosperity thus enhancing the value of the Company for the benefit of its
stockholders, and to enhance the ability of the Company and its Affiliates to
attract and retain exceptionally qualified individuals upon whom, in large
measure, the sustained progress, growth and profitability of the Company depend.
SECTION 2. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or
through one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, as determined by
the Committee.
"Award" shall mean any Option, Stock Appreciation Right,
Restricted Security, Performance Award, or Other Stock-Based Award granted under
the Plan.
"Award Agreement" shall mean any written agreement, contract
or other instrument or document evidencing any Award granted under the Plan.
"Board" shall mean the Board of Directors of the Company.
"Cause", as used in connection with the termination of a
Participant's employment, shall mean (i) with respect to any Participant
employed under a written employment agreement with the Company or an Affiliate
of the Company which agreement includes a definition of "cause," "cause" as
defined in such agreement or, if such agreement contains no such definition, a
material breach by the Participant of such agreement, or (ii) with respect to
any other Participant, the failure to perform adequately in carrying out such
Participant's employment responsibilities, including any directives from the
Board, or engaging in such behavior in his personal or business life as to lead
the Committee in its reasonable judgment to determine that it is in the best
interests of the Company to terminate his employment.
"Common Stock" shall mean the common stock of the Company,
$.01 par value.
<PAGE> 33
2
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated thereunder.
"Committee" shall mean the Stock Option Committee or any other
committee of the Board designated by the Board to administer the Plan and
composed of not less than two non-employee directors.
"Common Shares" shall mean any or all, as applicable, of the
Common Stock and such other securities or property as may become the subject of
Awards, or become subject to Awards, pursuant to an adjustment made under
Section 4(b) of the Plan and any other securities of the Company or any
Affiliate or any successor that may be so designated by the Committee.
"Employee" shall mean any employee of the Company or of any
Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean (A) with respect to any
property other than the Common Shares, the fair market value of such property
determined by such methods or procedures as shall be established from time to
time by the Committee; and (B) with respect to the Common Shares, the last sale
price regular way on the date of reference, or, in case no sale takes place on
such date, the average of the high bid and low asked prices, in either case on
the principal national securities exchange on which the Common Shares are listed
or admitted to trading, or if the Common Shares are not listed or admitted to
trading on any national securities exchange, the last sale price reported on the
National Market System of the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") on such date, or the average of the
closing high bid and low asked prices in the over-the-counter market reported on
NASDAQ on such date, whichever is applicable, or if there are no such prices
reported on NASDAQ on such date, as furnished to the Committee by any New York
Stock Exchange member selected from time to time by the Committee for such
purpose. If there is no bid or asked price reported on any such date, the Fair
Market Value shall be determined by the Committee in accordance with the
regulations promulgated under Section 2031 of the Code, or by any other
appropriate method selected by the Committee.
"Good Reason", as used in connection with the termination of a
Participant's employment, shall mean (i) with respect to any Participant
employed under a written employment agreement with the Company or an Affiliate
of the Company, "good reason" as defined in such written agreement or, if such
agreement contains no such definition, a material breach by the Company of such
agreement, or (ii) with respect to any other Participant, a failure by the
Company to pay such Participant any amount
<PAGE> 34
3
otherwise vested and due and a continuation of such failure for 30 business days
following notice to the Company thereof.
"Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of Section
422 of the Code or any successor provision thereto.
"Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option. Any stock option granted by the Committee which is not designated an
Incentive Stock Option shall be deemed a Non-Qualified Stock Option.
"Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
"Other Stock-Based Award" shall mean any right granted under
Section 6(e) of the Plan.
"Participant" shall mean any individual granted an Award under
the Plan.
"Performance Award" shall mean any right granted under Section
6(d) of the Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
"Released Securities" shall mean securities that were
Restricted Securities but with respect to which all applicable restrictions have
expired, lapsed or been waived in accordance with the terms of the Plan or the
applicable Award Agreement.
"Restricted Securities" shall mean any Common Shares granted
under Section 6(c) of the Plan, any right granted under Section 6(c) of the Plan
that is denominated in Common Shares or any other Award under which issued and
outstanding Common Shares are held subject to certain restrictions.
"Rule 16a-1" and "Rule 16b-3" shall mean Rule 16a-1 and Rule
16b-3, respectively, promulgated by the Securities and Exchange Commission under
the Exchange Act, or any successor rule or regulation thereto as in effect from
time to time.
"Stock Appreciation Right" shall mean any right granted under
Section 6(b) of the Plan.
<PAGE> 35
4
SECTION 3. Administration. The Plan shall be administered by
the Committee. Subject to the terms of the Plan and applicable law, and in
addition to other express powers and authorizations conferred on the Committee
by the Plan, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to an
eligible Employee or other individual under the Plan; (iii) determine the number
and classification of Common Shares to be covered by (or with respect to which
payments, rights or other matters are to be calculated in connection with)
Awards; (iv) determine the terms and conditions of any Award; (v) determine
whether, to what extent, and under what circumstances Awards may be settled or
exercised in cash, Common Shares, other securities, other Awards or other
property, or canceled, forfeited or suspended, and the method or methods by
which Awards may be settled, exercised, canceled, forfeited or suspended; (vi)
determine requirements for the vesting of Awards or performance criteria to be
achieved in order for Awards to vest; (vii) determine whether, to what extent
and under what circumstances cash, Common Shares other securities, other Awards,
other property and other amounts payable with respect to an Award under the Plan
shall be deferred either automatically or at the election of the holder thereof
or of the Committee; (viii) interpret and administer the Plan and any instrument
or agreement relating to, or Award made under, the Plan; (ix) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (x) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Award, any
stockholder and any Employee. Notwithstanding the foregoing, the maximum number
of Awards which may be granted to any one Participant under this Plan in any
one-year period shall not exceed 150,000 Common Shares, subject to the
adjustments provided in Section 4(b) hereof and no Awards under this Plan shall
be granted after June 30, 2008.
SECTION 4. Common Shares Available for Awards.
(a) Common Shares Available. Subject to adjustment as provided
in Section 4(b):
(i) Calculation of Number of Common Shares Available.
The number of Common Shares available for granting Awards under the Plan shall
be 300,000, any or all of which may be or may be based on Common Stock, any
other security which becomes the subject of Awards, or any combination thereof.
Initially 300,000 shares of Common Stock shall be reserved for Awards hereunder.
Further, if, after the effective date of the Plan, any Common Shares covered by
an Award granted
<PAGE> 36
5
under the Plan or to which such an Award relates, are forfeited, or if an Award
otherwise terminates or is canceled without the delivery of Shares or of other
consideration, then the Common Shares covered by such Award or to which such
Award relates, or the number of Common Shares otherwise counted against the
aggregate number of Common Shares available under the Plan with respect to such
Award, to the extent of any such forfeiture, termination or cancellation, shall
again be, or shall become, available for granting Awards under the Plan.
(ii) Accounting for Awards. For purposes of this
Section 4:
(A) if an Award is denominated in or based
upon Common Shares, the number of Common Shares covered by such Award or to
which such Award relates shall be counted on the date of grant of such Award
against the aggregate number of Common Shares available for granting Awards
under the Plan and against the maximum number of Awards available to any
Participant; and
(B) Awards not denominated in Common Shares
may be counted against the aggregate number of Common Shares available for
granting Awards under the Plan and against the maximum number of Awards
available to any Participant in such amount and at such time as the Committee
shall determine under procedures adopted by the Committee consistent with the
purposes of the Plan;
provided, however, that Awards that operate in tandem with
(whether granted simultaneously with or at a different time from), or that are
substituted for, other Awards may be counted or not counted under procedures
adopted by the Committee in order to avoid double counting. Any Common Shares
that are delivered by the Company, and any Awards that are granted by, or become
obligations of, the Company, through the assumption by the Company or an
Affiliate of, or in substitution for, outstanding awards previously granted by
an acquired company shall, in the case of Awards granted to Participants who are
officers or directors of the Company for purposes of Section 16 of the Exchange
Act, be counted against the Common Shares available for granting Awards under
the Plan.
(iii) Sources of Common Shares Deliverable Under
Awards. Any Common Shares delivered pursuant to an Award may consist, in whole
or in part, of authorized and unissued Common Shares or of treasury Common
Shares.
(b) Adjustments. In the event that the Committee shall
determine that any dividend or other distribution (whether in the form of cash,
Common Shares, other securities or other property), recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase or exchange of Common Shares or other
securities of the Company, issuance of warrants or other rights to purchase
Common Shares or other securities of the Company, or other
<PAGE> 37
6
similar corporate transaction or event affects the Common Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and kind of Common
Shares (or other securities or property) which thereafter may be made the
subject of Awards, (ii) the number and kind of Common Shares (or other
securities or property) subject to outstanding Awards, and (iii) the grant or
exercise price with respect to any Award or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award; provided,
however, that the number of Common Shares subject to any Award denominated in
Common Shares shall always be a whole number.
In connection with any merger or consolidation in which the
Company is not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all outstanding
Options under the Plan shall become exercisable in full, notwithstanding any
other provision of the Plan or of any outstanding options granted thereunder, on
and after (i) the fifteenth day prior to the effective date of such merger,
consolidation, sale, transfer or acquisition or (ii) the date of commencement of
such tender offer or exchange offer, as the case may be. The provisions of the
foregoing sentence shall apply to any outstanding Options which are Incentive
Stock Options to the extent permitted by Section 422(d) of the Code and such
outstanding Options in excess thereof shall, immediately upon the occurrence of
the event described in clause (i) or (ii) of the foregoing sentence, be treated
for all purposes of the Plan as Non-Qualified Stock Options and shall be
immediately exercisable as such as provided in the foregoing sentence.
SECTION 5. Eligibility. Any Employee, including any officer or
employee-director of the Company or of any Affiliate, and any consultant of, or
other individual providing services to, the Company or any Affiliate shall be
eligible to be designated a Participant. A non-employee director shall be
eligible to receive Non-Qualified Stock Options under the Plan.
SECTION 6. Awards.
(a) Options. The Committee is hereby authorized to grant to
eligible individuals options to purchase Common Shares (each, an "Option") which
shall contain the following terms and conditions and with such additional terms
and conditions, in
<PAGE> 38
7
either case not inconsistent with the provisions of the Plan, as the Committee
shall determine:
(i) Exercise Price. The purchase price per Common
Share purchasable under an Option shall be determined by the Committee;
provided, however, that such purchase price shall not be less than the Fair
Market Value of a Common Share on the date of grant of such Option, or such
other price as required under Subsection 6(a)(iv) hereof.
(ii) Time and Method of Exercise. Subject to the
terms of Section 6(a)(iii), the Committee shall determine the time or times at
which an Option may be exercised in whole or in part, and the method or methods
by which, and the form or forms (including, without limitation, cash, Common
Shares, outstanding Awards, or other property, or any combination thereof,
having a Fair Market Value on the exercise date equal to the relevant exercise
price) in which, payment of the exercise price with respect thereto may be made
or deemed to have been made.
(iii) Exercisability Upon Death, Retirement and
Termination of Employment. Subject to the condition that no Option may be
exercised in whole or in part after the expiration of the Option period
specified in the applicable Award Agreement (or in the absence of an Award
Agreement, June 30, 2008):
(A) Subject to the terms of paragraph (D)
below, upon the death of a Participant while employed or within 3 months of
retirement or disability as defined in paragraph (B) below, the person or
persons to whom such Participant's rights with respect to any Option held by
such Participant are transferred by will or the laws of descent and distribution
may, prior to the expiration of the earlier of: (1) the outside exercise date
determined by the Committee at the time of granting the Option, or (2) nine
months after such Participant's death, purchase any or all of the Common Shares
with respect to which such Participant was entitled to exercise such Option
immediately prior to such Participant's death, and any Options not so
exercisable will lapse on the date of such Participant's death;
(B) Subject to the terms of paragraph (D)
below, upon termination of a Participant's employment with the Company (x) as a
result of retirement pursuant to a retirement plan of the Company or an
Affiliate or disability (as determined by the Committee) of such Participant,
(y) by the Company other than for Cause, or (z) by the Participant with Good
Reason, such Participant may, prior to the expiration of the earlier of: (1) the
outside exercise date determined by the Committee at the time of granting the
Option, or (2) three months after the date of such termination or such later
time as shall be prescribed by the Committee, purchase any or all of the Common
Shares with respect to which such Participant was entitled to exercise any
Options immediately
<PAGE> 39
8
prior to such termination, and any Options not so exercisable will lapse on such
date of termination;
(C) Subject to the terms of paragraph (D)
below, upon termination of a Participant's employment with the Company under any
circumstances not described in paragraphs (A) or (B) above, such Participant's
Options shall be canceled to the extent not theretofore exercised;
(D) Upon (i) the death of the Participant,
or (ii) termination of the Participant's employment with the Company (x) by the
Company other than for Cause (y) by the Participant with Good Reason or (z) as a
result of retirement or disability as defined in paragraph (B) above, the
Company shall have the right to cancel all of the Options such Participant was
entitled to exercise at the time of such death or termination (subject to the
terms of paragraphs (A) or (B) above) for a payment in cash equal to the excess,
if any, of the Fair Market Value of one Common Share on the date of death or
termination over the exercise price of such Option for one Common Share times
the number of Common Shares subject to the Option and exercisable at the time of
such death or termination; and
(E) Upon expiration of the respective
periods set forth in each of paragraphs (A) through (C) above, the Options of a
Participant who has died or whose employment has been terminated shall be
canceled to the extent not theretofore canceled or exercised.
(F) For purposes of paragraphs (A) through
(D) above, the period of service of an individual as a director or consultant of
the Company or an Affiliate shall be deemed the period of employment.
(iv) Incentive Stock Options. The following
provisions shall apply only to Incentive Stock Options granted under the Plan:
(A) No Incentive Stock Option shall be
granted to any eligible Employee who, at the time such Option is granted, owns
securities possessing more than ten percent (10%) of the total combined voting
power of all classes of securities of the Company or of any Affiliate, except
that such an Option may be granted to such an Employee if at the time the Option
is granted the option price is at least one hundred ten percent (110%) of the
Fair Market Value of the Common Shares (determined in accordance with Section 2)
subject to the Option, and the Option by its terms is not exercisable after the
expiration of five (5) years from the date the Option is granted; and
(B) To the extent that the aggregate Fair
Market Value of the Common Shares with respect to which Incentive Stock Options
(without regard to this subsection) are exercisable for the first time by any
individual during any calendar year
<PAGE> 40
9
(under all plans of the Company and its Affiliates) exceeds $100,000, such
Options shall be treated as Non-Qualified Stock Options. This subsection shall
be applied by taking Options into account in the order in which they were
granted. If some but not all Options granted on any one day are subject to this
subsection, then such Options shall be apportioned between Incentive Stock
Option and Non-Qualified Stock Option treatment in such manner as the Committee
shall determine. For purposes of this subsection, the Fair Market Value of any
Common Shares shall be determined, in accordance with Section 2, as of the date
the Option with respect to such Common Shares is granted.
(v) Other Terms and Conditions of Options.
Notwithstanding any provision contained in the Plan to the contrary, during any
period when any member of the Committee shall not be a "non-employee director"
as defined in Rule 16b-3, then, the terms and conditions of Options granted
under the Plan to any director or officer, as defined in Rule 16a-1, of the
Company during such period unless, other terms and conditions are approved in
advance by the Board, shall be as follows:
(A) The price at which each Common Share
subject to an option may be purchased shall, subject to any adjustments which
may be made pursuant to Section 4, in no event be less than the Fair Market
Value of a Common Share on the date of grant, and provided further that in the
event the option is intended to be an Incentive Stock Option and the optionee
owns on the date of grant securities possessing more than ten percent (10%) of
the total combined voting power of all classes of securities of the Company or
of any Affiliate, the price per share shall not be less than one hundred ten
percent (110%) of the Fair Market Value per Common Share on the date of grant.
(B) The Option may be exercised to purchase
Common Shares covered by the Option not sooner than six (6) months following the
date of grant. The Option shall terminate and no Common Shares may be purchased
thereunder more than ten (10) years after the date of grant, provided that if
the Option is intended to be an Incentive Stock Option and the Optionee owns on
the date of grant securities possessing more than ten percent (10%) of the total
combined voting power of all classes of securities of the Company or of any
Affiliate, the Option shall terminate and no Common Shares may be purchased
thereunder more than five (5) years after the date of grant.
(b) Stock Appreciation Rights. The Committee is hereby
authorized to grant to eligible Employees "Stock Appreciation Rights." Each
Stock Appreciation Right shall consist of a right to receive the excess of (i)
the Fair Market Value of one Common Share on the date of exercise or, if the
Committee shall so determine in the case of any such right other than one
related to any Incentive Stock Option, at any time during a specified period
before or after the date of exercise over (ii) the grant price of the right as
specified by the Committee, which shall not be less than one hundred percent
(100%)
<PAGE> 41
10
of the Fair Market Value of one Common Share on the date of grant of the Stock
Appreciation Right (or, if the Committee so determines, in the case of any Stock
Appreciation Right retroactively granted in tandem with or in substitution for
another Award, on the date of grant of such other Award). Subject to the terms
of the Plan and any applicable Award Agreement, the grant price, term, methods
of exercise, methods of settlement, and any other terms and conditions of any
Stock Appreciation Right granted under the Plan shall be as determined by the
Committee. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it may deem appropriate.
(c) Restricted Securities.
(i) Issuance. The Committee is hereby authorized to
grant to eligible Employees "Restricted Securities" which shall consist of the
right to receive, by purchase or otherwise, Common Shares which are subject to
such restrictions as the Committee may impose (including, without limitation,
any limitation on the right to vote such Common Shares or the right to receive
any dividend or other right or property), which restrictions may lapse
separately or in combination at such time or times, in such installments or
otherwise, as the Committee may deem appropriate.
(ii) Registration. Restricted Securities granted
under the Plan may be evidenced in such manner as the Committee may deem
appropriate, including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of Restricted Securities granted under the Plan, such
certificate shall be registered in the name of the Participant and shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Securities.
(iii) Forfeiture. Except as otherwise determined by
the Committee, upon termination of a Participant's employment for any reason
during the applicable restriction period, all of such Participant's Restricted
Securities which had not become Released Securities by the date of termination
of employment shall be forfeited and reacquired by the Company; provided,
however, that the Committee may, when it finds that a waiver would be in the
best interests of the Company, waive in whole or in part any or all remaining
restrictions with respect to such Participant's Restricted Securities.
Unrestricted Common Shares, evidenced in such manner as the Committee shall deem
appropriate, shall be issued to the holder of Restricted Securities promptly
after such Restricted Securities become Released Securities.
(d) Performance Awards. The Committee is hereby authorized to
grant to eligible Employees "Performance Awards." Each Performance Award shall
consist of a right, (i) denominated or payable in cash, Common Shares, other
securities or other property (including, without limitation, Restricted
Securities), and (ii) which shall confer
<PAGE> 42
11
on the holder thereof rights valued as determined by the Committee and payable
to, or exercisable by, the holder of the Performance Award, in whole or in part,
upon the achievement of such performance goals during such performance periods
as the Committee shall establish. Subject to the terms of the Plan and any
applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award granted, the termination of a Participant's employment and the
amount of any payment or transfer to be made pursuant to any Performance Award
shall be determined by the Committee and by the other terms and conditions of
any Performance Award. The Committee shall issue performance goals prior to the
commencement of the performance period to which such performance goals pertain.
(e) Other Stock-Based Awards. The Committee is hereby
authorized to grant to eligible Employees "Other Stock-Based Awards." Each Other
Stock-Based Award shall consist of a right (i) which is other than an Award or
right described in Section 6(a), (b), (c) or (d) above and (ii) which is
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Common Shares (including, without limitation,
securities convertible into Common Shares) as are deemed by the Committee to be
consistent with the purposes of the Plan; provided, however, that such right
shall comply, to the extent deemed desirable by the Committee, with Rule 16b-3
and applicable law. Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the terms and conditions of Other
Stock-Based Awards. Common Shares or other securities delivered pursuant to a
purchase right granted under this Section 6(e) shall be purchased for such
consideration, which may be paid by such method or methods and in such form or
forms, including, without limitation, cash, Common Shares, other securities,
other Awards, other property, or any combination thereof, as the Committee shall
determine.
(f) General.
(i) No Cash Consideration for Awards. Awards may be
granted for no cash consideration or for such minimal cash consideration as may
be required by applicable law.
(ii) Awards May Be Granted Separately or Together.
Awards may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for any other Award, except that
in no event shall an Incentive Stock Option be granted together with a
Non-Qualified Stock Option in such a manner that the exercise of one Option
affects the right to exercise the other.
Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other awards.
<PAGE> 43
12
(iii) Forms of Payment Under Awards. Subject to the
terms of the Plan and of any applicable Award Agreement, payments or transfers
to be made by the Company or an Affiliate upon the grant, exercise or payment of
an Award may be made in such form or forms as the Committee shall determine,
including, without limitation, cash, Common Shares, other securities, other
Awards, or other property, or any combination thereof, and may be made in a
single payment or transfer, in installments, or on a deferred basis, in each
case in accordance with rules and procedures established by the Committee. Such
rules and procedures may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred payments. In
accordance with the above, the Committee may elect (i) to pay a Participant (or
such Participant's permitted transferee) upon the exercise of an Option in whole
or in part, in lieu of the exercise thereof and the delivery of Common Shares
thereunder, an amount of cash equal to the excess, if any, of the Fair Market
Value of one Common Share on the date of such exercise over the exercise price
of such Option for one Common Share times the number of Common Shares subject to
the Option or portion thereof so exercised or (ii) to settle other stock
denominated Awards in cash.
(iv) Limits on Transfer of Awards.
(A) No Award (other than Released
Securities), and no right under any such Award, may be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by a Participant
otherwise than by will or by the laws of descent and distribution (or, in the
case of Restricted Securities, to the Company) and any such purported
assignment, alienation, pledge, attachment, sale or other transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate.
(B) Each Award, and each right under any
Award, shall be exercisable during the Participant's lifetime only by the
Participant or, if permissible under applicable law, by the Participant's
guardian or legal representative.
(v) Terms of Awards. The term of each Award shall
be for such period as may be determined by the Committee; provided, however,
that in no event shall the term of any Option exceed a period of ten years from
the date of its grant.
(vi) Rule 16b-3 Six-Month Limitations. To the
extent required in order to maintain the exemption provided under Rule 16b-3
only, any equity security offered pursuant to the Plan must be held for at least
six months after the date of grant, and with respect to any derivative security
issued pursuant to the Plan, at least six months must elapse from the date of
acquisition of such derivative security to the date of disposition of the
derivative security (other than upon exercise or conversion) or its underlying
equity security. Terms used in the preceding sentence shall, for the purposes of
such sentence only, have the meanings, if any, assigned or attributed to them
under Rule 16b-3.
<PAGE> 44
13
(vii) Common Share Certificates. All certificates
for Common Shares delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the Plan or the rules, regulations, and
other requirements of the Securities and Exchange Commission, any stock exchange
upon which such Common Shares are then listed, and any applicable Federal or
state securities laws, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
(viii) Delivery of Common Shares or Other Securities
and Payment by Participant of Consideration. No Common Shares or other
securities shall be delivered pursuant to any Award until payment in full of any
amount required to be paid pursuant to the Plan or the applicable Award
Agreement is received by the Company. Such payment may be made by such method or
methods and in such form or forms as the Committee shall determine, including,
without limitation, cash, Common Shares, other securities, other Awards or other
property, or any combination thereof; provided that the combined value, as
determined by the Committee, of all cash and cash equivalents and the Fair
Market Value of any such Common Shares or other property so tendered to the
Company, as of the date of such tender, is at least equal to the full amount
required to be paid pursuant to the Plan or the applicable Award Agreement to
the Company.
SECTION 7. Amendments; Adjustments and Termination. Except to
the extent prohibited by applicable law and unless otherwise expressly provided
in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board may amend, alter,
suspend, discontinue, or terminate the Plan without the consent of any
stockholder, Participant, other holder or beneficiary of an Award, or other
Person; provided, however, that, subject to the Company's rights to adjust
Awards under Sections 7(c) and (d), any amendment, alteration, suspension,
discontinuation, or termination that would impair the rights of any Participant,
or any other holder or beneficiary of any Award theretofore granted, shall not
to that extent be effective without the consent of such Participant, other
holder or beneficiary of an Award, as the case may be; and provided further,
however, that notwithstanding any other provision of the Plan or any Award
Agreement, without the approval of the stockholders of the Company no such
amendment, alteration, suspension, discontinuation, or termination shall be made
that would:
(i) increase the total number of Common Shares
available for Awards under the Plan, except as provided in Section 4 hereof; or
(ii) otherwise cause the Plan to cease to comply
with any tax or regulatory requirement, including for these purposes any
approval or other requirement
<PAGE> 45
14
which is or would be a prerequisite for exemptive relief from Section 16(b) of
the Exchange Act.
(b) Amendments to Awards. The Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Award theretofore granted, prospectively or
retroactively; provided, however, that, subject to the Company's rights to
adjust Awards under Sections 7(c) and (d), any amendment, alteration,
suspension, discontinuation, cancellation or termination that would impair the
rights of any Participant or holder or beneficiary of any Award theretofore
granted, shall not to that extent be effective without the consent of such
Participant or holder or beneficiary of an Award, as the case may be.
(c) Adjustment of Awards Upon Certain Acquisitions. In the
event the Company or any Affiliate shall assume outstanding employee awards or
the right or obligation to make future such awards in connection with the
acquisition of another business or another corporation or business entity, the
Committee may make such adjustments, not inconsistent with the terms of the
Plan, in the terms of Awards as it shall deem appropriate in order to achieve
reasonable comparability or other equitable relationship between the assumed
awards and the Awards granted under the Plan as so adjusted.
(d) Adjustments of Awards Upon the Occurrence of Certain
Unusual or Non-recurring Events. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or non-recurring events (including, without
limitation, the events described in Section 4(b) hereof) affecting the Company,
any Affiliate, or the financial statements of the Company or any Affiliate, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.
SECTION 8. General Provisions.
(a) No Right to Awards. No Employee or other Person shall have
any claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Employees, or holders or beneficiaries of Awards
under the Plan. The terms and conditions of Awards need not be the same with
respect to each recipient.
(b) Delegation. Subject to the terms of the Plan and
applicable law, the Committee may delegate to one or more officers or managers
of the Company or any Affiliate, or to a committee of such officers or managers,
the authority, subject to such terms and limitations as the Committee shall
determine, to grant Awards to, or to cancel, modify, waive rights with respect
to, alter, discontinue, suspend or terminate Awards;
<PAGE> 46
15
provided, however, that no such delegation shall be permitted with respect to
Awards held by Employees who are officers or directors of the Company for
purposes of Section 16 of the Exchange Act, or any successor section thereto or
who are otherwise subject to such Section.
(c) Correction of Defects, Omissions, and Inconsistencies. The
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
(d) Withholding. The Company or any Affiliate shall be
authorized to withhold from any Award granted, from any payment due or transfer
made under any Award or under the Plan or from any compensation or other amount
owing to a Participant the amount (in cash, Common Shares, other securities,
other Awards, or other property) of withholding taxes due in respect of an
Award, its exercise, or any payment or transfer under such Award or under the
Plan and to take such other action as may be necessary in the opinion of the
Company or Affiliate to satisfy all obligations for the payment of such taxes.
(e) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
(f) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment, free from any liability, or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(g) Governing Law. The validity, construction and effect of
the Plan and any rules and regulations relating to the Plan shall be determined
in accordance with the laws of the State of Delaware and applicable Federal law.
(h) Severability. If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or as to any Person or Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan or
the Award, such provision shall be stricken as to such jurisdiction, Person or
Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
<PAGE> 47
16
(i) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(j) No Fractional Common Shares. No fractional Common Shares
shall be issued or delivered pursuant to the Plan or any Award, and the
Committee shall determine whether cash, other securities, or other property
shall be paid or transferred in lieu of any fractional Common Shares or whether
such fractional Common Shares or any rights thereto shall be canceled,
terminated, or otherwise eliminated.
(k) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of the Plan or any provision thereof.
SECTION 9. Adoption, Approval and Effective Date of the Plan.
The Plan shall be considered adopted and shall become effective on the date the
Plan is approved by the Board; provided, however, that the Plan and any Awards
granted under the Plan shall be void, if the stockholders of the Company shall
not have approved the adoption of the Plan within twelve (12) months after the
effective date, by a majority of votes cast thereon at a meeting of stockholders
duly called and held for such purpose.
<PAGE> 48
Exhibit B
NORTON MCNAUGHTON, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
PURPOSE
This Stock Option Plan for Non-Employee Directors (the "Plan") is
designed to advance the interest of Norton McNaughton, Inc. (the "Company") and
its stockholders by providing an incentive to each member of the Board of
Directors of the Company (the "Board"), who is not a full-time or part-time
employee of the Company or its parent or subsidiary corporations ("Non-Employee
Director"), to continue in the service of the Company and by creating a direct
interest of the Non-Employee Directors in the future success of the Company's
operations by granting to such persons options to acquire shares of the common
stock of the Company, par value $.01 per share (the "Common Stock"). As used
herein, "parent" shall mean a "parent corporation" as defined in Section 424(e)
of the Internal Revenue Code of 1986, as amended (the "Code"), and "subsidiary"
shall mean a "subsidiary corporation" as defined in Section 424(f) of the Code.
ARTICLE II
ADMINISTRATION
The Plan shall be administered by the Stock Option Committee of the
Board or such other committee as may be appointed by the Board from among its
members to administer the Plan (the "Committee"). The Committee shall consist of
not less than two Non-Employee Directors who are "disinterested persons" within
the meaning of Rule 16b-3(c)(2)(i) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Committee shall have authority to adopt such
rules and regulations and to make such determinations as are not inconsistent
with the Plan and are necessary or desirable for its implementation and
administration. All decisions, determinations and interpretations of the
Committee shall be final and binding on all optionees.
It is intended that the Plan be nondiscretionary for purposes of Rule
16b-3 under the Exchange Act, and the powers of the Committee under the Plan
shall be limited to ministerial and nondiscretionary acts which do not affect
the status of the Plan as nondiscretionary.
<PAGE> 49
2
ARTICLE III
STOCK
The shares to be optioned under the Plan ("Option Shares") shall be
shares of authorized but unissued Common Stock of the Company. The total number
of shares of Common Stock subject to awards of non-qualified stock options
("Options") granted under the Plan shall not exceed in the aggregate 100,000,
except as such number of shares shall be adjusted in accordance with the
provisions of Article X hereof. The Options granted under the Plan are not
intended to qualify as incentive stock options under Section 422 of the Code. If
an Option should expire, terminate or become unexercisable for any reason
without having been exercised in full, the unpurchased Option Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for the grant of other Options under the Plan.
ARTICLE IV
ELIGIBILITY OF PARTICIPANTS
Each Non-Employee Director shall be eligible to receive Options in
accordance with the provisions of the Plan.
ARTICLE V
ANNUAL AWARDS
On April 15th of each year (or the next business day following April
15th, if April 15th is not a business day), commencing on April 15, 1998, each
Non-Employee Director shall be granted an Option to purchase 5,000 shares of
Common Stock, subject to adjustment as provided in Article X below (the "Annual
Award"). In the event that the number of shares of Common Stock available for
grants under the Plan is insufficient to grant the number of Options determined
as provided above, Options for the remaining number of shares of Common Stock
available for grant under the Plan shall be granted in equal amounts to each
Non-Employee Director. Notwithstanding the foregoing, any Non-Employee Director
may elect (1) to decline an Annual Award, or (2) to revoke a previous election
to decline an Annual Award, in either event, at any time prior to the date such
Annual Award would otherwise be made. A Non-Employee Director who elects to
decline an Annual Award will receive no compensation in lieu of such Annual
Award (either at the time of such election or at any time thereafter).
<PAGE> 50
3
Upon the grant of each Annual Award, the Company shall deliver a stock
option certificate to each Non-Employee Director, which shall specify the date
of grant and the Option Price, as defined herein, and shall include or
incorporate by reference the substance of all of the provisions set forth in
Articles VI through IX below and such other provisions consistent with the Plan
as the Committee may determine. The Committee shall have no discretion to select
the Non-Employee Directors who will receive Annual Awards or to determinate the
number of Option Shares covered by such Annual Award, the Option Price per
Option Share, the circumstances under which an Annual Award may be granted, or
the period within which Options granted pursuant to Annual Awards may be
exercised or to alter any other terms or conditions in the Plan with respect to
Annual Awards to Non-Employee Directors, except for administering the Plan
subject to the express provisions of the Plan.
TIMING OF GRANTING ANNUAL AWARDS
Grants of Annual Awards shall be made automatically under this Article
without any action by the Committee.
ARTICLE VI
OPTION PRICE
The per share Option exercise price (the "Option Price") for all
Options granted under the Plan shall be the fair market value of the Common
Stock of the Company on the date the Annual Award is granted, subject to
adjustments as provided in Article X. If the Common Stock is listed for trading
on any national securities exchange, then the "fair market value" shall be the
closing sale price of the Common Stock on such exchange on the date of grant. If
the Common Stock is not listed for trading on a national securities exchange but
is traded on The NASDAQ Stock Market, then the "fair market value" shall be the
last sale price reported by The NASDAQ Stock Market on the date of grant. If the
Common Stock is neither traded on any national securities exchange nor traded on
The NASDAQ Stock Market, but is traded in the over-the-counter market, then the
"fair market value" shall be the average closing bid and asked prices on the
date of grant provided by any market maker in the Common Stock selected by the
Company to provide quotations for this purpose. If there is no market maker in
the Common Stock, the fair market value shall be the last sale price of the
Common Stock on the date of grant. In the event that on any date of the grant of
Options there is no sale of at least 100 shares of Common Stock, the sale price
or the bid and asked prices on the last day on which there was a sale of at
least 100 shares of Common Stock shall be used to determine "fair market value."
<PAGE> 51
4
ARTICLE VII
EXERCISE AND TERM OF OPTIONS
An Option shall not be exercisable unless: (a) the Option has become
exercisable as provided below; (b) the person exercising the Option has been at
all times during the period beginning with the date of grant of the Option and
ending on the date of exercise of the Option, a Non-Employee Director, except
that in the event (i) a Non-Employee ceases to be a Non-Employee Director for
any reason, such person may exercise any of such persons's outstanding Options
that are exercisable on the date such person ceases to be a Non-Employee
Director at any time within two years after such date, subject to earlier
termination of any such Option as provided herein, at the end of which two-year
period any such Option that has not been fully exercised shall terminate, and
(ii) an optionee shall die holding any outstanding Options that are exercisable
on the date of such person's death, such person's executors, administrators,
heirs or distributees, as the case may be, may exercise any such Option at any
time within two years after the date of such optionee's death, even if such
two-year period extends beyond the two-year period described in the preceding
clause (i), but subject to any other earlier termination of any such Option as
provided herein, at the end of which two-year period any such Option that has
not been fully exercised shall terminate; (c) payment in full is made for the
shares of Common Stock being acquired thereunder at the time of exercise in
United States dollars by cash or check or by shares of Common Stock having a
"fair market value" equal to the aggregate Option Price in respect of Options
being exercised; and (d) payment in full is made for any withholding obligation
as provided in Article VIII below.
Options granted under the Plan shall become exercisable as to one-half
(1/2) of the Options subject to a particular grant beginning one year from the
date of grant and as to all of the Options subject to a particular grant
beginning two years from the date of grant, in either case if on such date the
Non-Employee Director to whom any such Option was granted remains a Non-Employee
Director. In the event a Non-Employee Director ceases to be a Non-Employee
Director, any of such persons's then outstanding Options that have not become
exercisable as provided herein shall terminate immediately.
In addition, in the event of a merger or consolidation in which the
Company is not the surviving entity, or any other capital reorganization
(including a merger) in which more than 50% of the then outstanding shares of
Common Stock are exchanged, or the sale by the Company of all or substantially
all of its assets to another entity, any outstanding Option that was granted
under the Plan more than three months prior to the date of the Company's
adoption of a plan or definitive agreement in respect of such merger,
consolidation, reorganization or asset sale, as the case may be, shall become
exercisable in full as of such date. Ten business days following the
effectiveness of such merger, consolidation, reorganization or asset sale, as
the case may be, any then outstanding Option shall terminate.
<PAGE> 52
5
Any other provision of the Plan notwithstanding, each Option shall
terminate on the tenth anniversary of the date of grant of such Option subject
to earlier termination as provided herein.
ARTICLE VIII
PAYMENT OF SHARES
Payment of the Option Price for Option Shares shall be made in full
upon exercise of the Option. Any rights of the Non-Employee Director to exercise
an Option shall be conditioned upon the Non-Employee Director forwarding to the
Company, in addition to the Option Price of the Option Shares, payment of an
amount equal to the amount the Company is required by law or regulation of any
governmental authority, whether federal, state or local, domestic or foreign, to
withhold in connection with such exercise of the Option, as determined by the
Committee in its discretion. The amount of such payment shall be communicated to
the Non-Employee Director as soon as practicable following receipt by the
Company of the Non-Employee Director's notice of exercise.
ARTICLE IX
NON-TRANSFERABILITY OF OPTION
No Option under the Plan shall be transferable except by will or the
laws of descent and distribution. During the lifetime of the optionee, an Option
shall be exercisable only by the optionee.
ARTICLE X
ADJUSTMENT FOR CHANGES IN CAPITALIZATION
Subject to Article VII hereof, if the number of issued and outstanding
shares of Common Stock as a whole are increased, decreased or changed into, or
exchanged for, a different number or kind of shares or securities of the
Company, whether through merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, combination of
shares, exchange of shares, change in corporate structure or the like, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares subject to this Plan and in the number, kind, and per share Option Price
of shares subject to outstanding Options or portions thereof granted prior to
any such change. Any such adjustment in an outstanding Option, however, shall be
made without a change in the total price applicable to the unexercised portion
of the Option, but with
<PAGE> 53
6
a corresponding adjustment in the price for each share covered by the Option. No
fractional shares of Common Stock shall be issued under the Plan on account of
any adjustment specified above.
ARTICLE XII
NO OBLIGATION TO EXERCISE OPTION, ETC.
The granting of an Option shall impose no obligation on the recipient
to exercise such Option or to remain as a Non-Employee Director.
ARTICLE XIII
RIGHTS AS A STOCKHOLDER
An optionee or a permitted transferee of an Option shall have no right
as a stockholder with respect to any Option Shares covered by an Option until
such person shall have become the holder of such Option Shares, and such person
shall not be entitled to any dividends or distributions of other rights in
respect of such Option Shares for which the record date is prior to the date on
which such person shall have become the holder of record thereof.
ARTICLE XIV
REGULATORY MATTERS
Every Option under the Plan is granted upon the express condition that
the inability of the Company to comply with, or any delay in complying with, any
laws, rules or regulations governing the issuance of Option Shares necessary to
satisfy such Option (including but not limited to complying with the Securities
Act of 1933, as amended (the "Act") and all rules and regulations thereunder),
the fulfillment of which condition is deemed necessary by counsel for the
Company to the lawful issuance or transfer of any such shares, shall relieve the
Company of any liability for the non-issuance or non-transfer, or any delay in
the issuance or transfer of such shares. Further, it is the intention of the
Company that the Plan comply in all respects with Rule 16b-3 under the Exchange
Act ("Rule 16b-3"). If any Plan provision is found not to be in compliance with
Rule 16b-3, the provision shall be deemed null and void.
<PAGE> 54
7
ARTICLE XV
AMENDMENTS OR DISCONTINUANCE OF THE PLAN
The Plan may be amended at any time and from time to time by the Board
as the Board shall deem advisable; provided, however that except as provided in
Article X above, the Board may not, without further approval by the stockholders
of the Company, increase the maximum numbers of shares of Common Stock as to
which Options may be granted under the Plan, extend the period during which
Options may be granted or exercised under the Plan, or change the class of
persons eligible to receive Options under the Plan. No amendment of the Plan
shall materially and adversely affect any right of any Non-Employee Director
with respect to any Option theretofore granted without such Non-Employee
Director's written consent. Notwithstanding the foregoing, the Plan may not be
amended to change the amount, price or timing of the Annual Award until at least
six months (or such longer or shorter period required by Rule 16b-3) after the
date of the last preceding amendment, except to comport with changes in the
Code, the Exchange Act, the Act, the Employee Retirement Income Security Act, or
the rules and regulations promulgated thereunder.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
Except as expressly provided for in the Plan, no Non-Employee Director
or other person shall have any claim or right to be granted an Option under the
Plan. The expenses of the Plan shall be borne by the Company.
ARTICLE XVII
TERMINATION
This Plan shall terminate upon the adoption of a resolution of the
Board terminating the Plan. No termination of the Plan shall materially and
adversely affect any of the rights or obligations of any person, without written
consent, under any Option theretofore granted under the Plan, except that upon
the dissolution or liquidation of the Company, this Plan and the Options issued
hereunder shall terminate.
ARTICLE XVIII
EFFECTIVENESS
The Plan shall become effective upon approval by the Company's
stockholders.
<PAGE> 55
Proxy Card - Side #1:
NORTON MCNAUGHTON, INC.
PROXY - ANNUAL MEETING OF STOCKHOLDERS - APRIL 6, 1998
The undersigned, a stockholder of NORTON MCNAUGHTON, INC., does hereby
appoint Sanford Greenberg and Peter Boneparth, or either of them, with full
power of substitution, the undersigned's proxies, to appear and vote all shares
of Common Stock which the undersigned is entitled to vote at the Annual Meeting
of Stockholders to be held at the Norton McNaughton, Inc. Showroom at 1407
Broadway, 26th Floor, New York, New York on Monday, April 6, 1998 at 10:00 a.m.,
local time, or at any adjournment thereof, upon such matters as may properly
come before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby instructs said proxies or their substitutes to
vote as specified below on each of the following matters and in accordance with
their best judgment on any other matters which may properly come before the
Meeting.
1. Election of Directors [ ] FOR all the nominees listed (except
as marked to the contrary below).
[ ] WITHHOLD AUTHORITY to vote for the
nominees listed below.
Sanford Greenberg, Peter Boneparth, David M. Blumberg, Amanda J. Bokman,
Stuart Bregman, Bradley P. Cost and Jerald S. Politzer
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- ------------------------------------------------------------------------------
2. Approval of the Norton McNaughton, Inc. 1998 Long Term Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- ------------------------------------------------------------------------------
3. Approval of the Norton McNaughton, Inc. Stock Option Plan for
Non-Employee Directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- ------------------------------------------------------------------------------
4. Ratification of appointment of Ernst & Young LLP as independent
auditors for the fiscal year ending October 31, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Board of Directors favors a vote "FOR" each item.
<PAGE> 56
Proxy Card - Side #2:
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION
IS INDICATED AS TO ANY OF THE ITEMS, THEY WILL BE VOTED IN FAVOR OF THE ITEM(S)
FOR WHICH NO DIRECTION IS INDICATED.
IMPORTANT: Before returning this proxy,
please sign your name or names on the
line(s) below exactly as shown thereon.
Executors, shareholders, trustees, guardians
or corporate officers should indicate their
full titles when signing. Where shares are
registered in the name of joint tenants or
trustees, such joint tenants or trustees
should sign.
Dated: , 1998
--------------------------------
--------------------------------------------
Name
(L.S.)
--------------------------------------
(L.S.)
--------------------------------------
Stockholder(s) Sign Here
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
