<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MCNAUGHTON APPAREL GROUP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
-------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
MCNAUGHTON APPAREL GROUP INC.
____________________
Notice of Annual Meeting of Stockholders
to be held March 13, 2000
____________________
New York, New York
February 18, 2000
To the Holders of Common Stock
of MCNAUGHTON APPAREL GROUP INC.:
The Annual Meeting of the Stockholders of MCNAUGHTON APPAREL GROUP INC.
(formerly Norton McNaughton, Inc., the "Company") will be held at the Company's
Showroom at 1407 Broadway, 26th Floor, New York, New York on Monday, March 13,
2000 at 9:00 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 an amendment to
the McNaughton Apparel Group Inc. 1998 Long Term Incentive Plan;
3. To consider and take action upon a proposal to approve an amendment to
the Certificate of Incorporation to increase the Company's authorized
number of shares of Common Stock from 20,000,000 shares to 30,000,000
shares;
4. To consider and take action upon a proposal to ratify the Board of
Director's selection of Ernst & Young LLP to serve as the Company's
independent accountants for the Company's fiscal year ending November 4,
2000; 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 1, 2000 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>
PROXY STATEMENT
This Proxy Statement, which will be mailed commencing on or about February
18, 2000 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 McNaughton Apparel Group Inc.
(formerly Norton McNaughton, Inc., the "Company") for use at the Annual Meeting
of Stockholders, to be held on March 13, 2000 (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 1, 2000, the record date stated in the
accompanying Notice, the Company had outstanding 7,472,395 shares of common
stock, $0.01 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 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. Adoption of proposal 3
will require the affirmative vote of a majority of the issued and outstanding
shares of Common Stock. 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>
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 1, 2000, each director,
each nominee for director, each executive officer of the Company named in the
Summary Compensation Table who owned beneficially shares of Common Stock as of
such date, and all directors, nominees for director 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>
Merrill Lynch & Co., Inc. 700,500(1) 9.37%
Buckingham Capital Management Incorporated 694,600(2) 9.30%
Brinson Partners, Inc. 632,000(3) 8.46%
Norton Sperling 622,232(4) 8.29%
Dimensional Fund Advisors Inc. 526,200(5) 7.04%
Lincluden Management Limited 517,800(6) 6.93%
Sanford Greenberg 815,617(7) 10.86%
Peter Boneparth 660,100(8) 8.17%
Stuart Bregman 370,000(9) 4.72%
Amanda J. Bokman 47,333(10) *
Bradley P. Cost 32,500(11) *
Robert C. Siegel 23,333(12) *
Ben Mayo 3,333(13) *
All Directors, Nominees and Executive Officers as a
Group (seven persons) 1,952,216(14) 22.77%
</TABLE>
_____________________
* Less than 1%.
(1) Information as to the holdings of Merrill Lynch & Co., Inc ("MLC"), on
behalf of Merrill Lynch Asset Management Group ("AMG"), and Merrill Lynch
Special Value Fund, Inc. ("SVF") is based upon a report on Schedule 13G
filed with the Securities and Exchange Commission on February 4, 1999.
Such report indicates that MLC, on behalf of AMG
2
<PAGE>
owns 700,500 shares with shared voting power and shared dispositive power
and SVF owns 700,500 shares with shared voting power and shared dispositive
power. Such report indicates that MLC is a parent holding company as
defined in the Securities Exchange Act of 1934, as amended, AMG is an
operational division of MLC consisting of MLC's indirectly owned asset
management subsidiaries and SVF is an investment adviser registered under
the Investment Advisers Act of 1940. MLC disclaims any beneficial ownership
interest in such shares. The address for MLC and AMG is 250 Vesey Street,
New York, New York 10381, and the address for SVF is 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
(2) Information as to the holdings of Buckingham Capital Management
Incorporated ("BCMI") and its affiliates is based upon a report on schedule
13G filed with the Securities and Exchange Commission on February 11, 1999.
Such report indicates that 694,600 shares are owned by BCMI and its
affiliates with sole voting power and sole dispositive power. Such report
indicates that BCMI is an investment advisor registered under the
Investment Advisers Act of 1940. The address for BCMI is 630 Third Avenue,
Sixth Floor, New York, NY 10017.
(3) Information as to the holdings of Brinson Partners, Inc. ("BPI") and UBS AG
("UBS") is based upon a report on Schedule 13G filed with the Securities
and Exchange Commission on February 16, 1999. Such report indicates that
each of BPI and UBS owns 632,000 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 UBS is a Bank, as
defined in Section 3(a)(b) under the Securities Exchange Act of 1934, as
amended (the "Act") pursuant to no action relief granted by the staff of
the Securities and Exchange Commission. The address for BPI is 209 South
LaSalle, Chicago, Illinois 60604. The address for UBS is Bahnhofstrasse 45
CH-8021, Zurich, Switzerland.
(4) Includes 35,000 shares issuable upon exercise of currently exercisable non-
qualified stock options held by Mr. Sperling. The address for Mr. Sperling
is 1025 Seawane Drive, Hewlett Harbor, New York 11557.
(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 on February 3, 2000. Such report
indicates that 526,200 shares are owned by DFA and its affiliates with sole
voting power and sole dispositive power. Such report indicates that DFA is
an investment adviser registered under the Investment Advisers Act of 1940,
and that DFA furnishes investment advice to four investment companies also
registered under the Investment Advisors Act of 1940. DFA also serves as
investment manager to certain other investment vehicles including
commingled group trusts. In its role as an investment advisor and
investment manager, DFA possesses both voting and investment power over the
shares of the Company. DFA disclaims any beneficial ownership interest in
the shares of the Company. The address for DFA is 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401.
3
<PAGE>
(6) Information as to the holdings of Lincluden Management Incorporated
("Lincluden") and its affiliates is based upon a report on Schedule 13G
filed with the Securities and Exchange Commission on February 16, 1999.
Such report indicates that Lincluden and its affiliates own 517,800 shares
with sole dispositive power. Such report indicates that 101,300 of the
shares owned by Lincluden and its affiliates are owned with sole voting
power and 416,500 are owned with shared voting power. Such report
indicates that Lincluden is an investment advisor registered under the
Investment Advisers Act of 1940. The address for Lincluden is 1275 North
Service Road West, Suite 607, Oakville, Ontario, Canada L6M 3G4.
(7) Includes 40,000 shares issuable upon exercise of currently exercisable non-
qualified stock options held by Mr. Greenberg.
(8) Includes 610,000 shares issuable upon exercise of currently exercisable
non-qualified stock options held by Mr. Boneparth.
(9) Consists of 370,000 shares issuable upon exercise of currently exercisable
non-qualified stock options held by Mr. Bregman.
(10) Consists of 47,333 shares issuable upon exercise of currently exercisable
non-qualified stock options held by Ms. Bokman.
(11) Includes 27,500 shares issuable upon exercise of currently exercisable non-
qualified stock options held by Mr. Cost.
(12) Includes 3,333 shares issuable upon exercise of currently exercisable non-
qualified stock options held by Mr. Siegel.
(13) Consists of 3,333 shares issuable upon exercise of currently exercisable
non-qualified stock options held by Mr. Mayo.
(14) Includes for all Directors, Nominees and Executive Officers an aggregate of
1,101,499 shares issuable upon exercise of currently exercisable non-
qualified stock options.
4
<PAGE>
To the Company's knowledge, there have been no significant changes in stock
ownership or control of the Company since February 1, 2000. The address for all
directors, nominees for director and executive officers of the Company is c/o
McNaughton Apparel Group Inc., 463 Seventh Avenue, New York, New York 10018.
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 of the nominees 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 59, has been Chairman of the Board and a director of
the Company since its founding in 1981. Mr. Greenberg served as Chief
Executive Officer of the Company since its founding in 1981 until June
1999.
PETER BONEPARTH, age 40, has been Chief Executive Officer of the Company
since June 1999, and 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 36, 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 62, 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.
BRADLEY P. COST, age 46, has been a partner in the law firm of Torys,
formerly Haythe & Curley, New York, New York, since January 1988. Mr. Cost
has been a director of the Company since December 1995.
5
<PAGE>
BEN MAYO, age 67, has been a consultant to misses and junior apparel
companies since May 1996. From 1977 to 1996, Mr. Mayo was employed by the
Corporate Division of May Department Stores and from 1985 to 1996, served
as Senior Vice President and General Merchandise Manager of Women's
Sportswear. From 1956 to 1977, Mr. Mayo served in a variety of
merchandising and management positions with various department and retail
stores. Mr. Mayo has been a director of the Company since March 1999.
ROBERT C. SIEGEL, age 63, has been the principal of Siegel Associates, a
consultant for the apparel, footwear and retail industries, since December
1998, and has been Managing Director of Branded Products for Kurt Salmon
Associates, Inc. since January 2000. From December 1993 to December 1998,
Mr. Siegel served as Chairman of the Board, President and Chief Executive
Officer of The Stride Rite Corporation. Previously, Mr. Siegel was
President of the Dockers and Menswear divisions of Levi Strauss & Co., an
apparel manufacturer and distributor, from 1964 to 1993. Mr. Siegel is a
director of The Bon Ton Stores and Joe Boxer Corporation. Mr. Siegel has
been a director of the Company since March 1999.
Meetings and Committees of the Board of Directors
- -------------------------------------------------
During the past fiscal year, the Board of Directors of the Company met
five times. Each of the persons named above who were directors during fiscal
1999 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 three standing committees: a
Compensation Committee whose members during the fiscal year ended November 6,
1999 were Messrs. Cost, Mayo and Siegel; a Stock Option Committee whose members
during the fiscal year ended November 6, 1999 were Messrs. Boneparth, Mayo and
Siegel; and an Audit Committee whose members during the fiscal year ended
November 6, 1999 were Messrs. Cost, Mayo and Siegel. 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 five times, the Audit
Committee met four times and the Stock Option Committee met six times, including
one time by unanimous written consent, during the fiscal year ended November 6,
1999.
6
<PAGE>
Executive Compensation
The following table sets forth information concerning the compensation
paid or awarded to the Chief Executive Officer and each of the three other most
highly compensated executive officers of the Company for the fiscal years ended
November 6, 1999, October 31, 1998 and November 1, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Name and Principal Fiscal ------------------------ All Other
Position Year Salary Bonus Compensation
-------- -------- ------ ----- ------------
<S> <C> <C> <C> <C>
Peter Boneparth..................... 1999 $621,962 $150,000 $ --
CEO, President and COO 1998 500,000 -- --
1997 250,000(1) -- 250,000(2)
Sanford Greenberg.................. 1999 $768,500(3) $150,000 $ 42,993(4)
Chairman of the Board 1998 758,000(3) -- 45,668(4)
1997 898,693(3) -- 53,488(4)
Stuart Bregman..................... 1999 $473,433 $751,309(5) $ --
CEO of Miss Erika, Inc. 1998 429,500 658,749(5) --
1997 36,708(6) -- --
Amanda J. Bokman................. 1999 $306,793 $ 50,000 $ --
Vice President, 1998 300,514 -- --
Chief Financial Officer, 1997 293,842 -- --
Secretary and Treasurer
</TABLE>
_____________________
(1) Represents salary for the fiscal year ended November 1, 1997 from the
commencement of Mr. Boneparth's prior employment agreement on April 30,
1997.
(2) Signing bonus paid to Mr. Boneparth in connection with the execution of his
prior employment agreement with the Company.
(3) Amounts include bonuses paid in connection with Mr. Greenberg's prior
employment agreement with the Company.
(4) 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 November 6, 1999, October 31, 1998
and November 1, 1997 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).
(5) Bonuses paid pursuant to Mr. Bregman's employment agreement with Miss
Erika. See "Employment Agreements" below.
7
<PAGE>
(6) Represents salary for the fiscal year ended November 1, 1997 from the
commencement of Mr. Bregman's employment agreement on September 30, 1997.
On October 19, 1999, the Compensation Committee adopted the Company's
Incentive Bonus Plan for Senior Officers. Pursuant to the Incentive Bonus Plan
for Senior Officers, for any fiscal year beginning with the year ending November
4, 2000, senior officers of the Company, selected by the Compensation Committee,
may receive bonuses based on the achievement of consolidated pre-tax income
targets for such fiscal year established by the Compensation Committee at the
beginning of such fiscal year. Mr. Boneparth and Ms. Bokman are the only
officers of the Company eligible to receive bonuses under this Plan for the 2000
fiscal year.
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 6, 1999. 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 1999
<TABLE>
<CAPTION>
% of Total Options Exercise
Granted To of Base Grant
Options Employees in Price Expiration Date Present
Name Granted Fiscal 1999 ($/Sh) Date Value ($)
---- ------- ------------------ -------- ---------- ------------
<S> <C> <C> <C> <C>
Peter Boneparth 100,000 6.15% $ 5.50 4/28/09 $3.821(1)
Sanford Greenberg 60,000 3.69% $ 5.50 4/28/09 $3.821(1)
Stuart Bregman 180,000 11.06% $7.625 11/05/09 $5.357(2)
Amanda J. Bokman 15,000 0.92% $8.688 9/16/09 $5.695(3)
</TABLE>
_____________________
The Company used the Black-Scholes option pricing model in determining grant
date present value. However, options will have no realizable value unless, and
then only to the extent that, the Common Stock price appreciates from the grant
date to the exercise date. The following key assumptions used in the valuation
are based upon historical experience and are not a forecast of future stock
price performance or volatility or of future dividend policy:
8
<PAGE>
(1) Grant Date: April 28, 1999
Dividend Yield: N/A
Volatility: 0.75
Average Risk-Free Rate of Return: 5.24%
Expected Exercise Period: Six years
(2) Grant Date: November 5, 1999
Dividend Yield: N/A
Volatility: 0.75
Average Risk-Free Rate of Return: 6.07%
Expected Exercise Period: Six years
(3) Grant Date: September 16, 1999
Dividend Yield: N/A
Volatility: 0.75
Average Risk-Free Rate of Return: 6.03%
Expected Exercise Period: Five years
The following table sets forth the number and value of options and
warrants held by the executive officers of the Company named in the Summary
Compensation Table at November 6, 1999. None of such executive officers
exercised options or warrants during the fiscal year ended November 6, 1999.
FISCAL YEAR END OPTION AND WARRANT VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-Money
Options and Warrants Options and Warrants
at 1999 Fiscal Year End(#) at 1999 Fiscal Year End ($)(1)
-------------------------- ------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter Boneparth 610,000 200,000 $1,290,000 $425,000
Sanford Greenberg 40,000 60,000 20,305 127,500
Stuart Bregman 370,000 -- 669,350 --
Amanda J. Bokman 47,333 67,667 46,166 44,139
</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.
9
<PAGE>
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. In addition, on April 15th of each
year, each non-employee director receives 5,000 ten-year options to purchase
Common Stock under the Company's Stock Option Plan for Non-Employee Directors.
These options have an exercise price of the fair market value of the Common
Stock on the date of grant and are exercisable in cumulative annual installments
of 50% of the shares covered thereby beginning one year from the date of grant.
Employment Agreements
- ---------------------
Norton McNaughton of Squire, Inc., a wholly owned subsidiary of the
Company ("Squire"), has Employment Agreements with Peter Boneparth, Sanford
Greenberg, Amanda J. Bokman and three other executives of Squire. Miss Erika,
Inc., a wholly owned subsidiary of the Company ("Miss Erika"), has Employment
Agreements with Stuart Bregman and Howard Zwilling and three other executives of
Miss Erika. Jeri-Jo Knitwear, Inc., a wholly owned subsidiary of the Company
("Jeri-Jo"), has Employment Agreements with Susan Schneider, Leslie Schneider
and Scott Schneider.
On June 7, 1999, Squire entered into an Amended and Restated
Employment Agreement with Mr. Boneparth to serve as Chief Executive Officer,
President and Chief Operating Officer of the Company. The Amended and Restated
Employment Agreement will terminate on November 1, 2003 and provides that Mr.
Boneparth will receive a base salary of $754,000 and is eligible to receive
annual bonuses as determined by the Compensation Committee of the Board of
Directors. See "Executive Compensation" above. In addition, the Amended and
Restated Employment Agreement provides that Squire will retain Mr. Boneparth as
a consultant for the one-year period following termination of the Amended and
Restated Employment Agreement, unless Squire has offered to extend the term for
at least one year prior to November 1, 2003 (other than in the case of
termination for Due Cause, as defined therein). Under this consulting
agreement, Mr. Boneparth would be entitled to receive consulting fees of (i)
$62,500 per month or (ii) the compensation rate per month in effect at the end
of the term of the Amended and Restated Employment Agreement if it shall have
been amended prior to effective time of the consulting agreement. Under Mr.
Boneparth's original employment agreement (entered into in April 1997), 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 vested
on December 10, 1998; an additional 250,000 options vested on December 10, 1999;
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.
10
<PAGE>
On June 7, 1999, Squire entered into an Amended and Restated
Employment Agreement with Mr. Greenberg to serve as Chairman of the Board of the
Company. The Amended and Restated Employment Agreement will terminate on
November 2, 2001 and provides that Mr. Greenberg will receive a base salary of
$754,000 and is eligible to receive annual bonuses as determined by the
Compensation Committee of the Board of Directors. The term of the Amended and
Restated Employment Agreement will be automatically extended until November 3,
2002, unless Mr. Greenberg shall have sold 195,000 or more shares of Common
Stock of the Company (a "Sale") prior to November 2, 2001. The term may also be
extended to November 3, 2002 upon 90 days written notice by Squire to Mr.
Greenberg prior to the expiration of the term. In addition, the Amended and
Restated Employment Agreement provides that Squire will retain Mr. Greenberg as
a consultant for the two-year period following termination of the Amended and
Restated Employment Agreement (other than in the case of termination for Due
Cause, as defined therein). Under this consulting agreement, Mr. Greenberg
would be entitled to receive consulting fees of (i) $75,000 per month or (ii)
the compensation rate per month in effect at the end of the term of the Amended
and Restated Employment Agreement if it shall have been amended prior to
effective time of the consulting agreement. Pursuant to this consulting
agreement, Squire has also agreed to (i) provide Mr. Greenberg and his
dependents medical insurance until his death, (ii) continue the payment of
premiums on Mr. Greenberg's life insurance policy until his death, (iii)
continue the payment of premiums on Mr. Greenberg's split-dollar insurance
policy until the payment of the twentieth annual premium and (iv) certain
registration rights regarding shares of Common Stock of the Company.
Squire is a party to an Employment Agreement with Ms. Bokman, Chief
Financial Officer, Vice President, Secretary and Treasurer of the Company. On
September 10, 1999, the Employment Agreement was amended to extend the
termination date to November 3, 2001 and to provide that Ms. Bokman would
receive an annual base salary of $335,000 during the fiscal year ending November
4, 2000 and $350,000 during the remainder of the term and to provide that Squire
would provide Ms. Bokman with disability insurance with a monthly disability
benefit of $15,000. Under the terms of her Employment Agreement, Ms. Bokman
will be eligible to receive annual bonuses as determined by the Compensation
Committee of the Board of Directors. See "Executive Compensation" above.
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 Squire for "due cause," Squire will pay to
such employee or the employee's legal representative the base salary (and, in
the case of Mr. 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 date of such death, disability or termination. If
Squire terminates the employee's employment without due cause, it will be
required to pay salary and bonuses until the earlier to occur of the expiration
date of the Employment Agreement or the death of the employee. Pursuant to
certain of the Employment Agreements, the executives have agreed that they will
not compete with the Company so long as
11
<PAGE>
they are employed by Squire and for a period ranging from six months to three
years thereafter, depending upon the circumstances.
Effective October 1, 1997, in connection with the acquisition of Miss
Erika, Miss Erika entered into Employment Agreements with Mr. Stuart Bregman
(Chief Executive Officer 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 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
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
and 140,000 shares of Common Stock of the Company at an exercise price of $3.63
per share, which was the fair market value of the Common Stock on the date of
grant. In accordance with the terms of their Employment Agreements, during the
fiscal year ended November 6, 1999, Miss Erika paid to each of Messrs. Bregman
and Zwilling a salary of $473,433. In accordance with the terms of their
Employment Agreements, based upon earnings attained by Miss Erika for the fiscal
year ended November 6, 1999, each of Messrs. Bregman and Zwilling will receive a
salary of approximately $504,500 in the fiscal year ending November 4, 2000.
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 Miss Erika for "due cause," Miss Erika 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 Miss Erika terminates the
employee's employment without due 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.
Miss Erika maintains a senior executive bonus plan (the "Miss Erika
Bonus Plan") for Messrs. Bregman, Zwilling and three 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 $6.0 million of EBITDA (as defined in the Miss Erika purchase agreement).
Each participant in the Miss Erika Bonus Plan is allocated a percentage of the
bonus pool and option pool pursuant to that
12
<PAGE>
participant's Employment Agreement. During the fiscal year ended November 6,
1999, Messrs. Bregman and Zwilling were allocated a cash bonus of $751,309 and
$751,309, respectively, and currently exercisable stock options to purchase an
aggregate of 180,000 and 180,000 shares of Common Stock, respectively, at an
exercise price per share of $7.63, the fair market value on the date of grant.
In June 1998, in connection with the acquisition of Jeri-Jo, Jeri-Jo
entered into Employment Agreements with Susan Schneider and Leslie Schneider,
each to serve as Co-Chief Executive Officer and Co-President, and Scott
Schneider to serve as Executive Vice President of Jeri-Jo, and providing for
base salaries of $400,000, $400,000 and $250,000, respectively, per annum. The
Employment Agreements will terminate in June 2000. As provided in the Employment
Agreements, the Company granted to these executives ten-year options to purchase
an aggregate of 546,429 shares of Common Stock at an exercise price equal to
$6.38 per share. These options are currently exercisable. The Employment
Agreements also include an option bonus plan for senior executives of Jeri-Jo
(the "Jeri-Jo Bonus Plan") which provides for the grant of options to purchase
an aggregate of 50,000 shares of Common Stock in the event that EBITDA (as
defined in the Jeri-Jo purchase agreement) attained by Jeri-Jo in either of the
twelve-month periods ended June 30, 1999 and June 30, 2000 is equal to or in
excess of $17.0 million and an aggregate of 30,000 shares of Common Stock for
each $1.0 million of EBITDA in excess of $17.0 million attained by Jeri-Jo in
either of the twelve-month periods ended June 30, 1999 or June 30, 2000. During
the 12 month period ended June 30, 1999, Susan Schneider, L. Schneider and Scott
Schneider were granted currently exercisable stock options under the Jeri-Jo
Bonus Plan to purchase an aggregate of 176,000, 176,000 and 88,000 shares of
Common Stock, respectively, at an exercise price per share of $9.00, the fair
market value on the date of grant. The Company also granted stock options to
Susan Schneider, L. Schneider and Scott Schneider to purchase 80,000, 80,000 and
40,000 shares of Common Stock, respectively, at an exercise price per share of
$5.50, the fair market value of the Common Stock on the date of grant. These
options will become exercisable on June 18, 2001.
The Jeri-Jo Employment Agreements provide for participation in all
employee benefit plans and programs offered by the Company to employees of
comparable seniority. The Employment Agreements also 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 Jeri-Jo for "due cause," Jeri-Jo will pay to such
employee or the employee's legal representative the base salary and, except in
the case of termination for due cause, a pro rata bonus amount and bonus
options. If Jeri-Jo terminates the employee's employment without due cause, it
will be required to continue to pay salary until the expiration date of the
Employment Agreement. Pursuant to the Employment Agreements, each executive
agrees that she or he will not compete with the Company so long as she or he is
employed by Jeri-Jo and for a period of two years thereafter.
Compensation Committee Interlocks
and Insider Participation
- ---------------------------------
The Compensation Committee of the Board of Directors consisted of
Bradley P. Cost, Ben Mayo and Robert C. Siegel during the fiscal year ended
November 6, 1999. Each of the current members of the Compensation Committee is
an independent director 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
13
<PAGE>
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 6, 1999, its
directors, executive officers and greater than ten percent stockholders complied
with all Section 16(a) filing requirements.
Certain Relationships and Related Transactions
- ----------------------------------------------
The Company made loans, as of November 5, 1993, in the principal
amount of $920,000 to Mr. Greenberg and certain other former executive officers
of the Company (each a "Management Investor"). 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 February 1, 2000, the
outstanding principal amount of the promissory note of Mr. Greenberg totaled
$887,700 and was secured by pledge of 250,000 shares of Common Stock.
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.
Research Data Group Total Return Worksheet
Begin: 10/31/94
Period End: 10/31/99
MCNAUGHTON APPAREL GROUP INC End: 10/31/99
<TABLE>
<CAPTION>
Beginning
Transaction Closing No. Of Dividend Dividend Shares Ending Cum. Tot.
Date* Type Price** Shares*** per Share Paid Reinvested Shares Return
----- ---- ------- --------- --------- ---- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
31-Oct-94 Begin 18.250 5.48 5.479 100.00
31-Jan-95 QuarterEnd 15.875 5.48 5.479 86.99
28-Apr-95 QuarterEnd 17.250 5.48 5.479 94.52
31-Jul-95 QuarterEnd 18.000 5.48 5.479 98.63
31-Oct-95 QuarterEnd 19.750 5.48 5.479 108.22
31-Jan-96 QuarterEnd 7.250 5.48 5.479 39.73
30-Apr-96 QuarterEnd 9.750 5.48 5.479 53.42
31-Jul-96 QuarterEnd 6.750 5.48 5.479 36.99
31-Oct-96 QuarterEnd 7.875 5.48 5.479 43.15
31-Jan-97 QuarterEnd 6.000 5.48 5.479 32.88
30-Apr-97 QuarterEnd 5.500 5.48 5.479 30.14
31-Jul-97 QuarterEnd 5.375 5.48 5.479 29.45
31-Oct-97 QuarterEnd 6.125 5.48 5.479 33.56
30-Jan-98 QuarterEnd 5.625 5.48 5.479 30.82
30-Apr-98 QuarterEnd 6.375 5.48 5.479 34.93
31-Jul-98 QuarterEnd 7.125 5.48 5.479 39.04
30-Oct-98 QuarterEnd 3.625 5.48 5.479 19.86
29-Jan-99 QuarterEnd 4.750 5.48 5.479 26.03
30-Apr-99 QuarterEnd 5.875 5.48 5.479 32.19
30-Jul-99 QuarterEnd 9.000 5.48 5.479 49.32
29-Oct-99 QuarterEnd 8.625 5.48 5.479 47.26
</TABLE>
* Specified ending dates or ex-dividends dates.
** All Closing Prices and Dividends are adjusted for stock splits and stock
dividends.
*** 'Begin Shares' based on $100 investment.
14
<PAGE>
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 Peter Boneparth, Sanford Greenberg and each of the executive
officers are determined pursuant to the terms of their Employment Agreements,
which were based on the foregoing considerations.
Bonuses. Bonuses for Mr. Boneparth, Mr. 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. Bonuses were awarded to Mr. Boneparth, Mr. Greenberg
and Ms. Bokman for the fiscal year ended November 6, 1999 in the amounts of
$150,000, $150,000 and $50,000, respectively. In addition, pursuant to his
Employment Agreement with Miss Erika, the Company awarded a bonus of $751,309 to
Stuart Bregman for the fiscal year ended November 6, 1999. See "Employment
Agreements" above.
On October 19, 1999, the Compensation Committee adopted the Company's
Incentive Bonus Plan for Senior Officers. Pursuant to the Incentive Bonus Plan
for Senior Officers, for any fiscal year beginning with the year ending November
4, 2000, senior officers of the Company, selected by the Compensation Committee,
may receive bonuses based on the achievement of consolidated pre-tax income
targets for such fiscal year established by the Compensation Committee at the
beginning of such fiscal year. Mr. Boneparth and Ms. Bokman are the only
officers of the Company eligible to receive bonuses under this Plan for the 2000
fiscal year.
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. Generally, 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.
15
<PAGE>
During the fiscal year ended November 6, 1999, the Company granted Mr.
Boneparth, Mr. Greenberg and Ms. Bokman an aggregate of 100,000, 60,000 and
15,000 options, respectively, at an exercise price of $5.50, $5.50 and $8.688,
respectively, per share. These options will become exerciseable in equal
amounts over a three-year period after the date of grant. In addition, during
the fiscal year ended November 6, 1999, pursuant to his Employment Agreement
with Miss Erika, the Company granted Mr. Bregman 180,000 currently exercisable
options at an exercise price per share of $7.63, the fair market value of the
Common Stock on the date of grant.
Other Compensation. The Company has entered into a split-dollar
-------------------
insurance arrangement with Mr. 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. 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. 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 Officer 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
Bradley P. Cost
Ben Mayo
Robert C. Siegel
16
<PAGE>
II. APPROVAL OF AN AMENDMENT TO THE
MCNAUGHTON APPAREL GROUP INC.
1998 LONG TERM INCENTIVE PLAN
On January 7, 2000, the Board of Directors unanimously approved an
amendment to the McNaughton Apparel Group Inc. 1998 Long Term Incentive Plan
(the "Plan") increasing from 300,000 to 700,000 the number of shares of Common
Stock available for options under the Plan. Such amendment was effected by
deleting the first two sentences of Section 4(a)(1) of the Plan and substituting
in place thereof the following sentences:
"The number of Common Shares available for granting Awards under the
Plan shall be 700,000, 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. 700,000 shares of Common Stock shall be reserved for
Awards hereunder."
The following discussion of the material features of the Plan is
qualified by reference to the Plan, a copy of which has been filed with the
Securities and Exchange Commission. Stockholders of the Company will be provided
with a copy of the Plan upon written request to the Company.
Shares Subject to the Plan. Under the Plan, as amended, 700,000
shares of Common Stock will be available for issuance of awards. Shares
distributed under the Plan may be either newly issued shares or treasury shares.
If any shares subject to the 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 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 Plan. The maximum number of awards which may
be granted to any participant under the Plan in any one year period shall not
exceed 150,000 shares of Common Stock.
The 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 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 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.
17
<PAGE>
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
Plan. Directors of the Company who are not employees are eligible for grants of
stock options under the Plan.
Administration. The Plan will be administered by the Stock Option
Committee (the "Committee") of the Board of Directors. Subject to the terms and
conditions of the 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 Plan, specify rules and regulations relating to the Plan, and make
all other determinations which may be necessary or advisable for the
administration of the 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 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 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 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 Plan and any applicable award agreement, performance goals
18
<PAGE>
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 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 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 Plan after June 30, 2008.
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 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 Plan upon such person's death, or otherwise if permitted
under Rule 16b-3 and by the Committee.
Awards under the 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 Plan, other
awards under other 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 Plan at any
time provided that, unless required by law, (i) the number of shares of Common
Stock available under the 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 Plan may, without a participant's
consent, adversely affect any rights already accrued under the Plan by the
participant. In addition, no amendment or modification shall, unless previously
approved by the stockholders (where such approval
19
<PAGE>
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 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 Plan or (v) materially increase the benefits to participants
under the Plan.
Unless earlier terminated by the Board of Directors, the Plan will
terminate when no shares remain available for issuance and the Company has no
further obligation with respect to any outstanding award.
The Plan is not subject to any provisions of ERISA, nor is the Plan a
qualified plan within the meaning of Section 401(a) of the Code.
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 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 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
20
<PAGE>
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.
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
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 Plan.
This summary does not address the effects of other federal taxes or taxes
imposed under state, local or foreign tax laws.
Stock options to purchase 300,000 shares of Common Stock are
outstanding under the Plan. None of the stock options granted under the Plan
have been exercised.
On February 1, 2000, the Company had approximately 400 full-time
employees. On February 1, 2000, the closing price per share of the Common Stock
as reported on the Nasdaq Stock Market was $8.75.
21
<PAGE>
The following table sets forth information with respect to Awards
granted under the Plan since its effective date (excluding, any options granted
subject to approval of the foregoing amendment to the Plan).
<TABLE>
<CAPTION>
Number of Shares Average
Covered by Options Exercise Price
Name of Grantee Granted Per Share
- --------------- ------- ---------
<S> <C> <C>
Peter Boneparth, Chief Executive -- --
Officer, President and Chief
Operating Officer
Sanford Greenberg, Chairman of the 60,000 $5.50
Board
Stuart Bregman, Chief Executive -- --
Officer of Miss Erika, Inc.
Amanda J. Bokman, Vice President, -- --
Chief Financial Officer, Secretary
and Treasurer
All current executive officers 60,000 $5.50
as a group
All current directors who are not -- --
executive officers as a group
All employees, including all current 300,000 $5.67
officers who are not executive
officers, as a group
</TABLE>
The Board of Directors believes that the future success of the Company
depends upon attracting and retaining qualified management and employees. The
amendment to the Plan will assist the Company in attracting and retaining
persons of superior ability and inspiring their efforts on behalf of the
Company. The Board of Directors believes that the amendment to the Plan is in
the best interests of the Company.
The Board of Directors recommends that the stockholders vote
FOR adoption of the amendment to the Plan.
22
<PAGE>
III. APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED COMMON STOCK
On January 7, 2000, the Board of Directors approved an amendment to
Article Fourth of the Certificate of Incorporation of the Company to increase
the authorized number of shares of Common Stock from 20,000,000 shares to
30,000,000 shares.
After taking into account the number of outstanding shares of Common
Stock and the number of shares of Common Stock reserved for issuance (i)
pursuant to the exercise of options granted and which may be granted under the
Company's stock option plans, (ii) pursuant to purchases under the Company's
1994 Employee Stock Purchase Plan, and (iii) pursuant to earn-out payments
payable during 2000 in connection with the Company's acquisitions of Miss Erika
and Jeri-Jo, the Board of Directors believes that the Company has an
insufficient number of shares of Common Stock available for future corporate
transactions.
The Company has no present plans, agreements or understandings for the
issuance of any shares of Common Stock (other than as described above). If the
proposed amendment is adopted, the additional shares of Common Stock to be
authorized would thereafter be subject to issuance from time to time by the
Board of Directors without stockholder approval, and without any preemptive
purchase rights by the stockholders. The issuance of such authorized shares of
Common Stock may have a dilutive effect on the equity interests of the Company's
then existing stockholders.
The overall effect of an issuance of additional shares of Common Stock
and the existence of certain provisions contained in the Company's Certificate
of Incorporation, By-laws and credit documentation may be to render more
difficult the accomplishment of any attempted merger, takeover or other change
in control affecting the Company and/or the removal of the Company's incumbent
Board of Directors and management. However, the Board of Directors does not view
the increase in Common Stock as an anti-takeover measure.
The Board of Directors of the Company believes that the proposed
increase in the number of authorized shares of Common Stock will be advantageous
to the Company and its stockholders by making available such securities for
various corporate purposes. The affirmative vote of the holders of a majority
of the votes entitled to be cast at the Meeting and held by the holders of the
issued and outstanding shares of Common Stock, voting as a single class, is
required to adopt the proposed amendment increasing the number of authorized
shares of Common Stock. If approved by the stockholders, the amendment will
become effective upon the filing of the amendment with the Secretary of the
State of the State of Delaware. The Board of Directors recommends that the
stockholders vote FOR the adoption of such amendment. It is the intention of the
persons
23
<PAGE>
named in the accompanying proxy to vote the shares represented thereby in favor
of adoption unless otherwise instructed therein.
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
November 4, 2000. 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 November 4, 2000.
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 herein in the election of directors, FOR the approval of the proposed
amendment to the Company's 1998 Long Term Incentive Plan, FOR the approval of
the proposed amendment to the Company's Certificate of Incorporation and FOR
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.
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
24
<PAGE>
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 November 4, 2000 must
be received by the Company by October 18, 2000 in order to be considered for
inclusion in the Company's Proxy Statement relating to such Meeting. In the
event that a stockholder fails to notify the Company by January 1, 2001 of an
intent to be present at the Annual Meeting of Stockholders of the Company for
the fiscal year ending November 4, 2000 (to be held in March 2001) in order to
present a proposal for a vote, the Company will have the right to exercise its
discretionary authority to vote against the proposal, if presented, without
including any information about the proposal in its proxy materials.
Amanda J. Bokman,
Secretary
New York, New York
February 18, 2000
25
<PAGE>
Appendix A
MCNAUGHTON APPAREL GROUP INC.
1998 LONG TERM INCENTIVE PLAN
SECTION 1. Purpose. The purposes of this McNaughton Apparel Group
Inc. 1998 Long Term Incentive Plan (the "Plan") are to encourage selected
employees, officers, directors and consultants of, and other individuals
providing services to, McNaughton Apparel Group 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.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated thereunder.
<PAGE>
"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 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.
2
<PAGE>
"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.
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
3
<PAGE>
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 700,000, 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. 700,000 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 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
4
<PAGE>
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 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.
5
<PAGE>
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 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 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
6
<PAGE>
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 (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.
7
<PAGE>
(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%) 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
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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 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
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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.
(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.
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(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.
(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:
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(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 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; 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.
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(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.
(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.
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(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.
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Proxy Card - Side #1:
MCNAUGHTON APPAREL GROUP INC.
PROXY - Annual Meeting of Stockholders - March 13, 2000
The undersigned, a stockholder of MCNAUGHTON APPAREL GROUP 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 McNaughton Apparel Group Inc. Showroom
at 1407 Broadway, 26th Floor, New York, New York on Monday, March 13, 2000 at
9:00 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, Amanda J. Bokman, Stuart Bregman,
Bradley P. Cost, Ben Mayo and Robert C. Siegel
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
2. Approval of an amendment to the McNaughton Apparel Group Inc. 1998 Long
Term Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------
3. Approval of an amendment to the Certificate of Incorporation of McNaughton
Apparel Group Inc. to increase the authorized number of shares of Common
Stock, $.01 par value, from 20,000,000 to 30,000,000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------
4. Ratification of appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending November 4, 2000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The Board of Directors favors a vote "FOR" each item.
<PAGE>
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: _______________________________________________, 2000
____________________________________________________________
Name
_____________________________________________________ (L.S.)
_____________________________________________________ (L.S.)
Stockholder(s) Sign Here
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
