Document:

<PAGE>

                                                                    Exhibit 10.4

     THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
     AMENDED.  IT MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
     REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE MAKER
     THAT SUCH REGISTRATION IS NOT REQUIRED.

                          SUBORDINATED PROMISSORY NOTE

                                                            New York, New York
As of December 1, 2000

          Section 1.  General.  FOR VALUE RECEIVED, McNAUGHTON APPAREL GROUP
                      -------
INC., a Delaware corporation (the "Maker"), hereby promises to pay to the order
of SCOTT SCHNEIDER (the "Payee"), at c/o Bruce A. Madnick, Friedman Alpren &
Green, LLP, 1700 Broadway, New York, New York 10019 (except that the Payee may
require that payments shall be made to the Payee at such other address as the
Payee shall from time to time designate in writing to the Maker), the principal
sum of SEVEN MILLION EIGHTY THOUSAND DOLLARS ($7,080,000), plus interest
thereon, in lawful money of the United States of America, which, subject to the
terms and conditions hereof, shall be payable to the Payee on the payment dates
and in the amounts set forth herein.

          Section 2.  Definitions.
                      -----------

          "Agreement of Purchase and Sale" shall mean the Agreement of Purchase
and Sale dated as of April 15, 1998, as amended, by and among JJ Acquisition
Corp. (now known as Jeri-Jo Knitwear, Inc.), Norton McNaughton, Inc. (now known
as McNaughton Apparel Group Inc.), Jeri-Jo Knitwear Inc. (now known as JJK II
Inc.), Jamie Scott, Inc. and the stockholders of Jamie Scott, Inc. (now known as
JJK III Inc.).

          "August Subordinated Promissory Notes" shall mean the Subordinated
Promissory Notes of the Maker dated August 29, 2000 issued to the Payee and the
Other Payees in the original aggregate principal amount of $10,000,000.

          "Bankruptcy Code" shall mean the Federal Bankruptcy Code, 11 U.S.C.
(S) 101 et seq.
        -- ---

          "Business Day" shall mean any day excluding Saturday, Sunday and any
day which shall be in The City of New York a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close.

          "Common Stock" shall mean common stock, $.01 par value, of the Maker.
<PAGE>

          "December Subordinated Promissory Notes" shall mean this Note and the
other Subordinated Promissory Notes of the Maker dated the date hereof issued to
the Other Payees.

          "Financing Agreement" shall mean the Second Amended and Restated
Financing Agreement dated as of November 29, 2000, among the Maker, Norton
McNaughton of Squire, Inc., Miss Erika, Inc., Jeri-Jo Knitwear, Inc., Banc of
America Commercial Corporation, The CIT Group/Commercial Services, Inc., Fleet
Capital Corporation and the other lenders from time to time party thereto,
(together with all other Loan Documents, as defined in such Second Amended and
Restated Financing Agreement), as any of such has been heretofore amended and as
any of such may be further supplemented, amended, modified, restated, renewed,
replaced, refinanced, substituted, extended or refunded, from time to time.

          "Indenture" shall mean the Indenture dated as of June 18, 1998, among
the Maker, Norton McNaughton of Squire, Inc., Norty's, Inc., Miss Erika, Inc.,
Jeri-Jo Knitwear, Inc. and United States Trust Company of New York, as
heretofore supplemented and as may be further supplemented, amended, modified,
restated, renewed, replaced, refinanced, substituted, extended or refunded, from
time to time.

          "Interest Rate" shall mean a rate equal to the interest rate payable
from time to time in respect of non-overadvance, non-term loan revolving credit
borrowings under Section 2.06(a) of the Financing Agreement.  The Interest Rate
shall change as of when the above interest rate changes, and shall be computed
on the same basis as the computation of the above interest rate.

          "Maker" shall have the meaning provided in Section 1.

          "Market Price Factor" shall mean the lower of (i) $13.00 (as such
number shall be adjusted for stock splits, stock dividends and similar events)
and (ii) the Market Value (determined on the basis of a 20-business day average)
of a share of Common Stock on the date of the occurrence of an Event of Default
(as defined in Section 9 hereof).

          "Market Value" shall mean, for any day, the last sales price for the
Common Stock on the principal securities exchange on which the Common Stock is
listed or admitted to trading, or, if not so listed or admitted to trading on
any securities exchange, the last sales price for the Common Stock on the Nasdaq
National Market, in each such case, averaged over a period of 20 consecutive
Business Days prior to the day as of which Market Value is being determined.

          "New Financing" shall mean the debt financing contemplated by the
Financing Agreement, as such may be supplemented, amended, modified, restated,
renewed, replaced, refinanced, substituted, extended, or refunded, from time to
time.

          "New Financing Advance" shall mean the principal portion of the New
Financing which are term loans to the Maker and/or its subsidiaries and/or which
are advances to the Maker and/or its subsidiaries in excess of 85% of the
eligible accounts receivable and 60% of the eligible inventory of the Maker and
its subsidiaries.
<PAGE>

          "Other Payees" shall mean the other payees of subordinated promissory
notes of the Maker dated the date hereof and aggregating (together with this
Note) $59,000,000.

          "Payee" shall have the meaning provided in Section 1.

          "Person" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any government or political subdivision or any agency, department or
instrumentality thereof.

          "Proceeding" shall have the meaning provided in Section 5.2.

          "Pro Rata Excess Proceeds" shall mean (x) the amount of cash proceeds
received by the Maker from the consummation of any underwritten public offering
of a Common Stock effected after the date hereof which are in excess of (i) all
underwriting commissions and discounts and all other costs and expenses of such
offering and (ii) all New Financing Advances, multiplied by (y) 40%.

          "Senior Debt" shall have the meaning provided in Section 5.8.

          "Senior Debt Agent" shall mean the Administrative Agent, as defined
under the Financing Agreement, and following the repayment in full of all
Obligations owing under, and as defined in, the Financing Agreement, any agent
or any trustee, in any case, for the holders of Senior Debt.

          "Senior Debt Documents" shall mean and include each of the documents,
instruments and other agreements, including the Financing Agreement and the
Indenture, evidencing, governing or securing, or otherwise relating to the
incurrence by the Maker and/or its subsidiaries of, the Senior Debt, as in
effect on the date hereof, and as the same may be entered into, supplemented,
amended, modified, restated, renewed, replaced, refinanced, substituted,
extended or refunded from time to time.

          "Senior Notice Office" shall mean the office of the Senior Debt Agent
at The CIT Group/Commercial Services, Inc., 1211 Avenue of the Americas, New
York, NY 10036, Attn: Charles Carbone, Vice President; with copies to Banc of
America Commercial Corporation 1372 Broadway, New York, NY  10018, Attn: Fred
Hoffmann, Vice President and United States Trust Company of New York, 114 West
47 Street, 25/th/ Floor, New York, NY 10036-1532, Attn: Corporate Trust
Administration.

          "Subordinated Debt" shall mean:

     (a)  all principal of and interest on this Note, including post-petition
interest (whether or not such post-petition interest is allowed as a claim under
the Bankruptcy Code);

     (b)  all other amounts (including all costs and expenses) payable under the
Subordinated Debt Document; and
<PAGE>

     (c)  any and all supplements, amendments, modifications, restatements,
renewals, replacements, refinancings, substitutions, extensions or refundings of
any of the amounts referred to in clauses (a) and (b) above.

          "Subordinated Debt Document" shall mean this Note, as supplemented,
amended, modified, restated, renewed, replaced, refinanced, substituted,
extended or refunded from time to time.

          "Subordinated Notice Office" shall mean the office of the Payee at c/o
Bruce A. Madnick, Friedman Alpren & Green, LLP, 1700 Broadway, New York, New
York 10019, or such other office as the Payee may designate to the Maker and to
the Senior Note Office in writing from time to time.

          "Written" or "in writing" shall mean any form of written communication
or a communication by means of telex, facsimile transmission, telegraph or
cable.

          Section 3.  Principal.  Subject to Section 7 hereof, until all
                      ---------
principal outstanding hereunder shall have been paid in full, the Maker shall
make quarterly payments of principal to the Payee on the first Business Day of
each fiscal quarter of the Maker commencing after the date hereof in the
principal amount of $300,000, or such lesser amount as may be at the time
outstanding hereunder; provided, that, all principal amounts outstanding
hereunder shall be due and payable in full on November 30, 2003.

          Section 4.  Interest. The Maker shall pay interest on the unpaid
                      --------
principal amount hereof from the date hereof until payment of the principal
amount hereof has been made in full, at the Interest Rate, payable monthly in
arrears commencing on January 2, 2001, and ending with the final payment of the
principal due hereunder.

          Section 5.  Subordination.
                      -------------

          5.1  Subordinated Debt Subordinate to Senior Debt.  The Maker
               --------------------------------------------
covenants and agrees, and, by the acceptance hereof,  the Payee covenants and
agrees, that, to the extent and in the manner hereinafter set forth in this
Section 5, the Subordinated Debt is hereby expressly made subordinate and
subject in right of payment to the prior indefeasible payment in full in cash of
all Senior Debt.  The provisions of this Section 5 shall be reinstated if at any
time any payment of any of the Senior Debt is rescinded or must otherwise be
returned by any holder of Senior Debt or any agent of such holder.  The lenders
and the agents under the Financing Agreement, the trustee under the Indenture
and any other holders of Senior Debt are third-party beneficiaries of the
provisions of this Note and are entitled to rely hereon and enforce the
provisions hereof.

          5.2  Payment Over of Proceeds Upon Dissolution.  In the event of (i)
               -----------------------------------------
any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith relative to the Maker, any of its subsidiaries, or to any of their
assets, (ii) any liquidation, dissolution or other winding up of the Maker or
any of its subsidiaries, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or (iii) any assignment for the benefit of
creditors or any other
<PAGE>

marshalling of assets and liabilities of the Maker or any of its subsidiaries
(any of the foregoing events in clauses (i), (ii) or (iii), a "Proceeding"),
then and in any such event:

          (a)  The holders of Senior Debt shall be entitled to receive
indefeasible payment in full in cash of all amounts due or to become due on or
in respect of all Senior Debt, before the Payee is entitled to receive any
payment on account of the Subordinated Debt; and

          (b)  Any payment or distribution of assets of the Maker or any of its
subsidiaries of any kind or character whether in cash, property or securities,
by set-off or otherwise, to which the Payee would be entitled but for the
provisions of this Note (other than in any event any payment or distribution in
the form of equity securities (including Common Stock) or subordinated
securities of the Maker or any successor obligor with respect to Senior Debt
provided for by a plan of reorganization or readjustment that, in the case of
any such subordinated securities are, subordinated in right of payment to all
Senior Debt that may at the time be outstanding to the same extent as, or to a
greater extent than, the Subordinated Debt is subordinate to the Senior Debt as
provided in this Note), shall be paid by the liquidating trustee or agent or
other Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
Senior Debt Agent, to be applied ratably according to the aggregate amounts
remaining unpaid on account of the principal of and interest and premium (if
any) on the Senior Debt, to the extent necessary to make indefeasible payment in
full in cash of all Senior Debt remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior Debt.

          (c)  In the event that, notwithstanding the foregoing provisions of
this Section 5.2, the Payee shall have received any such payment or distribution
of assets of the Maker or any of its subsidiaries of any kind or character,
whether in cash, property or securities  (but excluding any payment of the
character described in the parenthetical clause in the foregoing clause (b)),
before all Senior Debt is indefeasibly paid in full in cash, then and in such
event such payment or distribution shall be held in trust for the holders of the
Senior Debt and immediately paid over or delivered to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other Person making
payment or distribution of assets of the Maker or any of its subsidiaries for
application to the payment of all Senior Debt remaining unpaid, to the extent
necessary to indefeasibly pay all Senior Debt in full in cash, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.

          (d)  If the Payee shall have failed to file claims or proofs of claim
with respect to the Subordinated Debt in any Proceeding earlier than 30 days
prior to the deadline for any such filing, the Payee hereby appoints and
empowers the Senior Debt Agent (i) to file such claims or proofs of claim and/or
(ii) if the Payee shall fail to vote any such claim at least five Business Days
prior to the expiration of the time to vote such claim, to vote such claim;
provided that the Senior Debt Agent shall have no obligation to file and/or vote
any such claim.  Absent any such failure to file or vote, the Payee shall have
and continue to have full and absolute discretion over the filing and voting of
such claims in any manner and in substance as the Payee may determine in its
sole discretion.  If the Senior Debt Agent votes any such claim in accordance
with the provisions of this subsection, the Payee shall not be entitled to
modify, revoke or withdraw such vote.  The Payee shall execute and deliver, at
the expense of the holders
<PAGE>

of the Senior Debt, such agreements, instruments and documents as the Senior
Debt Agent may reasonably request to carry out the provisions of this
subsection.

          5.3  No Payment.  (a)  No payment of cash or other property shall be
               ----------
made by the Maker, or accepted, retained or demanded by the Payee, on account of
the Subordinated Debt unless and until the Senior Debt shall have been
indefeasibly paid in full in cash, except that (i) the Maker may pay and the
Payee may accept and retain cash payments of principal pursuant to Sections 3
and 6 hereof and of interest pursuant to Section 4 hereof, provided that no such
principal or interest payments shall be made by the Maker, or accepted, retained
or demanded by the Payee, after the occurrence and during the continuance of an
event of default under any of the Senior Debt Documents or which would result
from the making of any such payment (the Maker hereby agrees that,
notwithstanding such event of default, interest on the Note shall continue to
accrue), and (ii) the Maker may issue shares of Common Stock and the Payee may
accept and retain such shares of Common Stock pursuant to and in accordance with
the terms of Section 9(a)(i) hereof.

          (b)  In the event that, notwithstanding the foregoing, the Payee shall
have received any payment of cash or other property prohibited by the foregoing
provisions of this Section 5.3, then and in such event such payment shall be
held in trust for the holders of the Senior Debt and immediately paid over and
delivered forthwith to the Senior Debt Agent for application to the Senior Debt
remaining unpaid.

          (c)  The provisions of this Section 5.3 shall not apply to any payment
with respect to which Section 5.2 hereof would be applicable.

          5.4  Provisions Solely to Define Relative Rights.  The provisions of
               -------------------------------------------
this Section 5 are and are intended solely for the purpose of defining the
relative rights of the holder of the Subordinated Debt on the one hand and the
holders of Senior Debt on the other hand.  Without in any way limiting the
generality of the foregoing statement, nothing contained in this Note is
intended to or shall impair, as between the Payee and the Maker, the obligations
of the Maker, which are unconditional and absolute, to pay to the Payee all
obligations and liabilities under this Note as and when the same shall become
due and payable in accordance with their respective terms, or is intended to or
shall affect the relative rights of the Payee and any creditors of the Maker
(other than the holders of the Senior Debt in accordance with the subordination
provisions of this Note).

          5.5  No Waiver of Subordination Provisions.  No right of any present
               -------------------------------------
or future holder of any Senior Debt to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Maker or any of its subsidiaries or by any act or failure
to act by such holder under the Senior Debt Documents or hereunder, or by any
non-compliance by the Maker or any of its subsidiaries with the terms,
provisions and covenants of this Note, regardless of any knowledge thereof any
such holder may have or be otherwise charged with.  Without in any way limiting
the generality of the foregoing sentence, the holders of Senior Debt may, at any
time and from time to time, without the consent of or notice to the Payee,
without incurring responsibility to the Payee and without impairing or releasing
the subordination provided in this Note or the obligations hereunder of the
Payee to the
<PAGE>

holders of Senior Debt, do any one or more of the following: (a) supplement,
amend, modify, restate, replace, refinance, substitute, extend or refund the
Financing Agreement, the Indenture or any other agreement or instrument
evidencing or governing any Senior Debt, or change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, any Senior Debt or
any agreement or instrument evidencing or governing the same or any agreement
under which any Senior Debt is outstanding; (b) foreclose on, sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing any Senior Debt; (c) release any Person liable in any manner for the
collection of any Senior Debt; and (d) exercise or refrain from exercising any
rights against the Maker and any other Person.

          5.6  Reliance on Judicial Order or Certificate of Liquidating Agent.
               --------------------------------------------------------------
Upon any payment or distribution of assets of the Maker or any of its
subsidiaries, referred to in this Section 5, the Payee and the Senior Debt Agent
shall be entitled to rely upon any order or decree entered by any court of
competent jurisdiction in which such insolvency, bankruptcy, receivership,
liquidation, reorganization, dissolution, winding up or similar case or
proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other Person making such payment or distribution, delivered to the Payee for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Debt and other indebtedness of the Maker or
any of its subsidiaries the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Section 5.

          5.7  Restriction on Rights and Remedies.  Notwithstanding anything
               ----------------------------------
contained herein to the contrary, or in any Senior Debt Document, but without
limiting the Payee's sole and exclusive rights and remedies under Section 9(a)
hereof, the Payee shall not at any time (i) accelerate any portion of the
Subordinated Debt, (ii) initiate or join in any judicial proceeding (including a
Proceeding) or judicial or other action (whether or not in a judicial forum) to
collect any portion of the Subordinated Debt or (iii) otherwise initiate or join
in any judicial proceeding or judicial or other action in respect of the
Subordinated Debt against the Maker or any of its subsidiaries.

          5.8  Definition of Senior Debt.  "Senior Debt" shall mean:
               -------------------------

          (a)  all principal of and interest (including interest at the
applicable post-default interest rate) and premium (if any) on the Obligations
(as defined in the Financing Agreement), including post-petition interest
(whether or not such post-petition interest is allowed as a claim under the
Bankruptcy Code);

          (b)  all principal of and interest (including interest at the
applicable post-default interest rate) and premium (if any) on any loan or other
indebtedness under any New Financing, including post-petition interest (whether
or not such post-petition interest is allowed as a claim under the Bankruptcy
Code);

          (c)  all principal of and interest (including interest at the
applicable post-default interest rate) and premium (if any) on the Securities
(as defined in the Indenture),
<PAGE>

including post-petition interest (whether or not such post-petition interest is
allowed as a claim under the Bankruptcy Code);

          (d)  all other amounts (including all costs, expenses, indemnities,
commitment and other fees) payable under the Financing Agreement, the Factoring
Agreements (as defined in the Financing Agreement), the Indenture or the
agreements and instruments evidencing or governing any New Financing, or
otherwise payable to any of the holders of the Senior Debt under any of the
Senior Debt Documents; and

          (e)  any and all supplements, amendments, modifications, restatements,
renewals, replacements, refinancings, substitutions, extensions or refundings of
any of the amounts referred to in clauses (a), (b), (c) and (d) above.

The Senior Debt shall be considered outstanding whenever any commitment to
extend credit is outstanding under the Financing Agreement or under other
agreement or instrument evidencing or governing Senior Debt.

          5.9  Notices.  By its acceptance of the benefits of this Note, the
               -------
Payee and the holders of the Senior Debt and the Senior Debt Agent agree that
(a) all notices or communications to be given by the Payee under this Agreement
to the holders of Senior Debt or the Senior Debt Agent shall be given at the
Senior Notice Office and (b) all notices or communications to be given by the
holders of the Senior Debt or the Senior Debt Agent under this Agreement to the
Payee shall be given at the Subordinated Notice Office.

          5.10  Amendments.  This Section 5 may not be amended, changed, waived,
                ----------
discharged or terminated unless such amendment, change, waiver, discharge or
termination is in writing signed by the requisite Lenders under the Financing
Agreement and by the trustee under the Indenture, and no such amendment, change,
waiver, discharge or termination of this Section 5 shall require the consent of
the Maker.

          Section 6.  Prepayment.  (a) The Maker may at any time and from time
                      ----------
to time prepay the whole or any part of the unpaid principal amount of this
Note, without penalty or premium, but with interest accrued to the date fixed
for prepayment.  Any prepayment of this Note in part under this subsection (a)
shall be applied first to the amount of accrued and unpaid interest through the
date of such prepayment and second to principal payable hereunder on a pro rata
basis in the order of maturity.  It is understood and agreed by the Maker and,
by the acceptance hereof, the Payee that, notwithstanding Section 6(b) of the
August Subordinated Promissory Notes and notwithstanding the Agreement of
Purchase and Sale, no prepayment shall be made or required to be made on any of
the August Subordinated Promissory Notes with Pro Rata Excess Proceeds unless
and until the December Subordinated Promissory Notes shall have been paid in
full with Pro Rata Excess Proceeds.

          (b)  On the date on which the Maker consummates an underwritten public
of Common Stock for cash, the Maker shall apply any Pro Rata Excess Proceeds to
the prepayment of this Note, with any such prepayment first being applied to the
amount of accrued and unpaid
<PAGE>

interest through the date of prepayment and second to principal payable
hereunder in the reverse order of maturity.

          Section 7.  Payment Delays.  Notwithstanding anything to the contrary
                      --------------
contained herein, until such time as any and all New Financing Advances are
repaid in full, the quarterly payments of principal due pursuant to Section 3
hereof may be postponed, at the option of the Maker (without notice to the
Payee); after which time such quarterly payments shall be due and payable by the
Maker on the first Business Day of each fiscal quarter occurring immediately
following the repayment of such New Financing Advances and otherwise in
accordance with Section 3 hereof.

          Section 8.  Affirmative Covenants.  So long as any principal or
                      ---------------------
interest on this Note shall remain unpaid, Maker shall:

          (a)  Compliance with Laws. Comply, and cause its subsidiaries to
               ---------------------
comply, with all applicable material laws, rules, regulations and orders, such
compliance to include, without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits or upon any of its properties, except to
the extent contested in good faith by proper proceedings and with respect to
which adequate reserves have been set aside for the payment thereof.

          (b)  Preservation of Existence. Maintain and preserve, and cause each
               -------------------------
of its material subsidiaries to maintain and preserve, its existence, rights,
and privileges, and become or remain duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by them or
in which the transaction of their business makes such qualification necessary,
except where the failure to preserve its rights and privileges and to qualify
and be in good standing would not have a material adverse effect on the business
of the Maker and its subsidiaries taken as a whole.

          (c)  Keeping of Records and Books of Account. Keep, and cause its
               ---------------------------------------
subsidiaries to keep, adequate records and books of account, with entries made
in accordance with generally accepted accounting principles in the United States
of America as in effect from time to time.

          (d)  Maintenance of Insurance. Maintain for itself and its
               ------------------------
subsidiaries, with responsible and reputable insurance companies or
associations, insurance with respect to their properties and business, in such
amounts and covering such risks as is carried generally in accordance with sound
business practices by companies in similar businesses similarly situated.

          Section 9.  Events of Default and Remedies.  (a) Upon the occurrence
                      ------------------------------
and during the continuance of an Event of Default (as defined below), the Payee
shall have the right (together with an Elected Remedy (as defined below), as the
Payee's sole and exclusive remedy), upon written notice to the Maker, to declare
(a "Declaration") the entire amount under this Note due and owing and, following
such declaration, the Payee may (together with a Declaration, as the Payee's
sole and exclusive remedy), at its written election given to the Maker within 15
Business Days after the occurrence of such Event of Default, either (an "Elected
Remedy") (i)
<PAGE>

cause the Maker to issue a fraction of a share of Common Stock to the Payee for
each dollar in outstanding principal amount in default equal to one (1) divided
by the Market Price Factor and, in such case, this Note shall be deemed paid in
full or (ii) elect to have this Note remain outstanding and, subject to the
terms and conditions hereof, including without limitation Section 5 hereof, due
and payable, and, in such case, no shares of Common Stock shall be issued by the
Maker to the Payee; provided that the failure by the Payee to deliver such
written election to the Maker in a timely manner shall terminate the right of
the Payee to make such election and the Maker shall have the right to make such
election on behalf of the Payee.

          (b)  For purposes of Section 9(a) above, the occurrence and
continuance of each of the following shall constitute an "Event of Default"
under this Note:  (a) failure by the Maker to pay the principal of or interest
on this Note within five (5) Business Days' after the due date therefor, (b) any
Proceeding shall be instituted against the Maker and either such Proceeding
shall remain undismissed or unstayed for a period of 60 days or any of the
actions sought in such Proceeding shall occur, (c) the Maker shall voluntarily
institute any Proceeding, (d) acceleration of any of the Senior Debt, (e) in a
single or series of related transactions, the sale of all or substantially all
of the assets of the Maker or the sale by the holders thereof (whether by merger
or otherwise) of a majority of the voting capital stock of the Maker (determined
on a fully diluted basis) and (f) the occurrence and continuance of an event of
default under any of the subordinated promissory notes of the Maker dated the
date hereof to the Other Payees.  The Maker hereby agrees to notify the Payee of
the occurrence of an Event of Default.

          Section 10.  Governing Law.  This Note shall be governed by and
                       -------------
construed in accordance with the laws of the State of New York, without regard
to conflict of laws principles.

          Section 11.  Severability and Facsimile.  If any term of provision of
                       --------------------------
this Note shall be held invalid, illegal or unenforceable, the validity of all
other terms and provisions hereof shall in no way be affected thereby.  This
Note may be executed by the Payee by facsimile and by the Maker and the Payee in
counterparts.

                         *       *       *
<PAGE>

          IN WITNESS WHEREOF, this Note has been executed by the Maker hereof by
an officer duly authorized so to do.

                          McNAUGHTON APPAREL GROUP INC.

                          By:  /s/ Amanda J. Bokman
                               ---------------------------------
                               Name:  Amanda J. Bokman
                               Title:  Vice President and Chief Financial
                                       Officer

Acknowledged and agreed to foregoing,
including Section 5 hereof:

/s/ Scott Schneider
----------------------------
Scott Schneider<PAGE>   1

                                  AMENDMENT 001
                                       TO
                      IDEN INFRASTRUCTURE SUPPLY AGREEMENT
                                     BETWEEN
                                 MOTOROLA, INC.
                                       AND
                           NEXTEL INTERNATIONAL, INC.
                                       AND
                              [See schedule Item 1]

This Amendment 001, is between Motorola, Inc. a Delaware corporation
("Motorola"), [See schedule Item 1] ("Customer") and Nextel International, Inc.
("Nextel International") and amends the iDEN Infrastructure Supply Agreement
effective as of June 30, 2000, ("Supply Agreement")

WHEREAS, the parties have mutually agreed to enter into this Amendment 001 to
the Supply Agreement in order to encourage efforts to enhance the reputation of
iDEN in [See schedule Item 3] market place by establishing improvement plans for
Customer operations and Motorola support of Customers iDEN systems in [See
schedule Item 3]; and

WHEREAS, this Amendment, 001 sets forth the terms and conditions of the Rebate
Program under the Supply Agreement.

NOW THEREFORE, in consideration of their mutual promises set forth herein and
for other good and valuable consideration received by each of them the parties
agree to amend the Supply Agreement as follows:

1.   Existing Section 6.10 of the Supply Agreement is hereby deleted and
     replaced with the following new Section 6.10:

     6.10 Based on total shipments to the Nextel International entities
     identified in Exhibit I in any year exceeding minimum levels as defined in
     Exhibit I, the parties agree upon an Infrastructure Equipment rebate
     program as set forth in Exhibit I that establishes and allocates the
     benefits from greater than expected Infrastructure (i.e., FNE and IPL)
     volume and level loading on the factory. This rebate shall replace all
     previously negotiated infrastructure rebate or special discount
     Infrastructure programs between the parties that are based on the volume of
     Infrastructure purchases by Customer or Nextel International entities
     identified in Exhibit I.

2.   Existing Exhibit "I" to the Supply Agreement is hereby deleted and replaced
     with the new Exhibit I attached hereto.

                                       1

<PAGE>   2

3.   The iDEN Supply Agreement shall remain in full force and effect except as
     expressly amended hereby. This Amendment 001 is effective as of June 30,
     2000, but its terms apply [ * ] for all Infrastructure shipments occurring
     on or after [ * ].

     IN WITNESS WHEREOF, This Amendment 001 has been executed and delivered by
     the parties set forth below.

<TABLE>
<CAPTION>
MOTOROLA, INC.                                              NEXTEL INTERNATIONAL, INC.
<S>                                                         <C>
By:                                                         By:
            --------------------------------------------               ----------------------------------------------
            (Authorized Signatory)                                     (Authorized Signatory)

Name        Charles F. Wright                               Name
            --------------------------------------------               ----------------------------------------------
            Senior Vice President and
            General Manager
Title:      Network Solutions Sector                        Title:
            --------------------------------------------               ----------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                            [See schedule item 1]
<S>                                                         <C>
By:                                                         By:
            --------------------------------------------               ----------------------------------------------
                                                                       (Authorized Signatory)

Name        Robert E. Suastegui                             Name
            --------------------------------------------               ----------------------------------------------
            Global Account Manager
            Nextel International, Inc.
Title:      Network Solutions Sector                        Title:
            --------------------------------------------               ----------------------------------------------
</TABLE>

                                       2

* Confidential portions omitted and filed separately with the Securities and
Exchange Commission pursuant to an application for confidential treatment
pursuant to Rule 24b-2 under the Securities Act of 1934, as amended.

<PAGE>   3

                                   EXHIBIT "I"
                                TO IDEN EQUIPMENT
                               PURCHASE AGREEMENT
                                     BETWEEN
                                 MOTOROLA, INC.
                                       AND
                           NEXTEL INTERNATIONAL, INC.
                                       AND
                                    CUSTOMER

                       ANNUAL VOLUME INFRASTRUCTURE REBATE

     1.   Motorola shall give Nextel International an Infrastructure (i.e., FNE
          and IPL) rebate as set forth below based on the net Infrastructure
          equipment shipments (including all hardware, software and services) to
          Nextel International operating companies as defined below annually in
          excess of amounts shown below. Subject to meeting the minimum
          Infrastructure purchase levels shown below during the relevant year in
          aggregate the operating companies of Nextel International (Argentina,
          Brazil, Mexico, Peru, the Philippines and Chile, excluding Canada and
          Japan) ("NII Qualified Entities"), the amount of the Infrastructure
          rebate earned on Infrastructure shipments in excess of said annual
          thresholds shall be determined with reference to [ * ] set forth in
          the table below:

Infrastructure Rebate [ * ] Amount Earned on Motorola Calendar Year
Eligible Shipments to NII Qualified Entities:

<TABLE>
<CAPTION>
YEAR                            2000       2001        2002      2003
---------------------------------------------------------------------
<S>                             <C>       <C>         <C>       <C>
Infrastructure Rebate Amount    [ * ]     [ * ]       [ * ]      [ * ]
</TABLE>

NII is entitled to an infrastructure rebate equal to the percentage shown above
on all amounts purchased by the NII Qualified Entities in aggregate in the
applicable year over $230 million dollars. Schedule I-1 attached hereto is an
Example 2000 Infrastructure Rebate Credit Calculation.

     2.   In consideration of this rebate Nextel International agrees that:

          NII Qualified Entities will commit, in aggregate, to the following
          minimum iDEN Infrastructure shipments from Motorola as follows:

                       YEAR                                AMOUNT

                                       1

* Confidential portions omitted and filed separately with the Securities and
Exchange Commission pursuant to an application for confidential treatment
pursuant to Rule 24b-2 under the Securities Act of 1934, as amended.

<PAGE>   4

<TABLE>
                      <S>                     <C>
                        2000                    $230 million dollars
                        2001                    $230 million dollars
                        2002                    $230 million dollars
                        2003                    $230 million dollars
</TABLE>

          In the event the minimum amounts shown above are not purchased each
          year, Nextel International will pay a penalty in an amount equal to
          [ * ] up to the maximum penalty shown.

<TABLE>
<CAPTION>
                        YEAR             AMOUNT            MAXIMUM PENALTY
                        ----             ------            ---------------
                        <S>              <C>               <C>
                        2000             [ * ]             $[ * ]
                        2001             [ * ]             $[ * ]
                        2002             [ * ]             $[ * ]
                        2003             [ * ]             $[ * ]
</TABLE>

          The penalties above will be assessed and invoiced on a quarterly basis
          on year to date shipments. All payments shall be due Net [ * ] days.

          If at the end of March of each year iDEN Infrastructure shipments to
          NII Qualified Entities in aggregate are less than [ * ]% of the
          minimum shipments amounts shown above, the penalty will be assessed
          and involved based on the difference between actual shipments and
          [ * ]% of the minimum shipments.

          If at the end of June of each year iDEN Infrastructure shipments to
          NII Qualified Entities in aggregate are less than [ * ]% of the
          minimum shipments amounts shown above, the penalty will be assessed
          and involved based on the difference between actual shipments and
          [ * ]% of the minimum shipments.

          If at the end of September of each year iDEN Infrastructure shipments
          to NII Qualified Entities in aggregate are less than [ * ]% of the
          minimum shipments amounts shown above, the penalty will be assessed
          and involved based on the difference between actual shipments and
          [ * ]% of the minimum shipments

          Any penalties paid on a quarterly basis will be refunded within net 30
          days if subsequent quarterly milestones are achieved within the same
          calendar year.

3.   The parties agree that:

                                       2

* Confidential portions omitted and filed separately with the Securities and
Exchange Commission pursuant to an application for confidential treatment
pursuant to Rule 24b-2 under the Securities Act of 1934, as amended.

<PAGE>   5

          3.1 Within forty-five (45) days of receipt of Motorola's proposal, but
          no earlier than November 1st of each preceding year, the parties will
          agree as to the pricing and payment terms and order:
                 3.1.1  SMP on all existing equipment.
                 3.1.2  Field Support Personnel.
                 3.1.3  Hardware maintenance on all existing equipment.
                 3.1.4  Any Hardware or Software Special Programs agreed to by
                        the parties.

          3.2 There will be no new changes on Equipment, Software or Service
          pricing from the Agreement and Price Book, except for changes pursuant
          to Section [ * ] of the Agreement.

     4.   For the purpose of calculation of Infrastructure rebates under this
          Agreement shipments shall be measured based on the date Equipment
          leaves Motorola's dock for Equipment and Software shipments, and from
          the date services are invoiced for services.

     5.   The Infrastructure rebate shall be given in the form of credit for
          purchases of new iDEN infrastructure equipment and may be applied to
          any outstanding invoices.

     6.   This rebate is based upon shipments to current NII Qualified Entities
          and will be subject to modification if Nextel International acquires
          new properties or operating companies ("Additional NII Qualified
          Entities"). In the event of Additional NII Qualified Entities, the
          parties will negotiate in good faith the applicability of the terms
          herein to the Additional NII Qualified Affiliates.

                                       3

* Confidential portions omitted and filed separately with the Securities and
Exchange Commission pursuant to an application for confidential treatment
pursuant to Rule 24b-2 under the Securities Act of 1934, as amended.

<PAGE>   6

                                  SCHEDULE I-1

              EXAMPLE 2000 INFRASTRUCTURE REBATE CREDIT CALCULATION

     1.   The actual 2000 "payout" of the accrued earned infrastructure rebate
          will be paid quarterly, based on the ratio of infrastructure purchased
          by the NII Qualified Entities in the prior quarter to the Nextel
          International's markets yearly estimated purchases times the expected
          Nextel International infrastructure rebate. Motorola may adjust the
          infrastructure rebate payout downward if the estimated year end
          infrastructure rebate expected to be earned by NII appears to be less
          than the total expected infrastructure rebate payout shown in this
          Exhibit. At the end of each year, a true up will be calculated and
          Motorola will either grant NII an additional credit or NII shall pay
          Motorola the amount of the excess credit granted over the amount
          earned.

     2.   Based on the below assumptions, an example of this quarterly credit
          would be calculated as follows:

<TABLE>
<S>                                                                           <C>
     Nextel International's markets purchase contracts and shipments in 2000: $[ * ]

     Agreed upon Minimum Shipments:                                           $[ * ]

     Amount infrastructure rebate is calculated on:                           $[ * ]

     Estimated infrastructure Rebate ([ * ]):                                 $[ * ]

     Quarterly Infrastructure rebate:
</TABLE>

Nextel International's markets infrastructure purchases in prior quarter x
$[ * ] = Quarterly Infrastructure Rebate

     ----------------------------------------------------------------------
                                     $[ * ]

                                       4

* Confidential portions omitted and filed separately with the Securities and
Exchange Commission pursuant to an application for confidential treatment
pursuant to Rule 24b-2 under the Securities Act of 1934, as amended.

<PAGE>   7

                               Agreement Schedule

                                Amendment 001 to
                     iDEN(R) Infrastructure Supply Agreement

The following is a schedule of omitted information in the attached form of
agreement for each of the agreements being filed pursuant to Item 601(a),
Instruction 2 of Regulation S-K. The items below correspond to the omitted
portions of the agreements in brackets.

A.       Amendment 001 to iDEN Infrastructure Supply Agreement by and among
         Nextel International, Inc, Motorola, Inc. and Nextel Argentina S.R.L.

Item 1 -- Entity Name:       Nextel Argentina S.R.L.

Item 2 -- Local Address:     Not used

Item 3 -- Country:           Argentina

B.       Amendment 001 to iDEN Infrastructure Supply Agreement by and among
         Nextel International, Inc, Motorola, Inc. and Nextel Telecomunicacoes
         Ltda.

Item 1 -- Entity Name:       Nextel Telecomunicacoes Ltda.

Item 2 -- Local Address:     Not used

Item 3 -- Country:           Brazil

C.       Amendment 001 to iDEN Infrastructure Supply Agreement by and among
         Nextel International, Inc, Motorola, Inc. and Nextel de Mexico, S.A. de
         C.V.

Item 1 -- Entity Name:       Nextel de Mexico, S.A. de C.V.

Item 2 -- Local Address:     Not used

Item 3 -- Country:           Mexico

-----------------------------------
    (R) Registered U.S. Patent & Trademark Office.

<PAGE>   8

D.       Amendment 001 to iDEN Infrastructure Supply Agreement by and among
         Nextel International, Inc, Motorola, Inc. and Nextel del Peru, S.A.

Item 1 -- Entity Name:       Nextel del Peru, S.A.

Item 2 -- Local Address:     Not used

Item 3 -- Country:           Peru

E.       Amendment 001 to iDEN Infrastructure Supply Agreement by and among
         Nextel International, Inc, Motorola, Inc. and Nextel Communications
         Philippines, Inc.

Item 1 -- Entity Name:       Nextel Communications Philippines, Inc.

Item 2 -- Local Address:     Not used

Item 3 -- Country:           Philippines

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