<PAGE>
DONNKENNY, INC.
1411 BROADWAY
NEW YORK, NEW YORK 10018
---------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------------
June 27, 1997
TO THE STOCKHOLDERS OF
DONNKENNY, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Donnkenny, Inc. (the "Company") will be held at The Princeton Club of New York,
15 West 43rd Street, New York, New York at 10:00 a.m. local time, on July 30,
1997, for the following purposes:
1. To elect the Board of Directors to serve until the next
subsequent annual meeting.
2. To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as the independent auditors of the Company
for the fiscal year ending December 31, 1997.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
All stockholders are invited to attend the meeting. Only stockholders
of record at the close of business on June 23, 1997, the record date fixed by
the Board of Directors, are entitled to notice of, and to vote at, the meeting.
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. IF YOU
ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
By Order of the Board of Directors,
HARVEY HOROWITZ
Secretary
New York, New York
June 27, 1997
<PAGE>
DONNKENNY, INC.
1411 BROADWAY
NEW YORK, NEW YORK 10018
(212) 730-7770
---------------------------
PROXY STATEMENT
---------------------------
The accompanying proxy is solicited by the Board of Directors of
Donnkenny, Inc. (the "Company") for use at the Annual Meeting of Stockholders
(the "Annual Meeting"), to be held at 10:00 a.m. local time on July 30, 1997
at The Princeton Club of New York, 15 West 43rd Street, New York, New York and
any postponement or adjournment thereof. At the Annual Meeting, stockholders of
the Company will be asked to approve each of the proposals listed in the Notice
of Annual Meeting of Stockholders. This Proxy Statement contains details on
these matters and we urge you to give it your attention.
VOTING OF PROXIES
The Company will bear the cost of solicitation of proxies. In addition
to the solicitation of proxies by mail, certain officers and employees of the
Company, without extra remuneration, may also solicit proxies by telefax, by
telephone, and in person. In addition to mailing copies of this material to
stockholders, the Company may request persons, and reimburse them for their
expenses in connection therewith, who hold stock in their names or custody or
in the names of nominees for others to forward such material to those persons
for whom they hold stock of the Company and to request the authority for
execution of the proxies.
When a proxy is received, properly executed, prior to the meeting, the
shares represented thereby will be voted at the meeting in accordance with the
terms thereof and the instructions, if any, given therein. If no instructions
are provided in a proxy, it will be voted FOR the Board's nominees for
director, FOR ratification of the appointment of Deloitte & Touche LLP as
independent auditors of the Company, and in accordance with the proxy-holder's
best judgment as to any other matters raised at the Annual Meeting.
A stockholder who has executed a proxy may revoke it at any time prior
to its exercise by giving written notice of such revocation to the Secretary of
the Company, executing and delivering to the Company a later dated proxy
reflecting contrary instructions, or appearing at the Annual Meeting and taking
appropriate steps to vote in person. The approval of a plurality of shares
present in person or represented by proxy at the meeting and entitled to be
voted thereat is required for election of the nominees as directors. In all
matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to be voted thereat is required for the adoption of such matters.
At the close of business on June 23, 1997, 14,069,940 shares of the
Company's Common Stock, $.01 par value per share (the "Common Stock"), were
outstanding and eligible for voting at the meeting. Each stockholder of record
is entitled to one vote for each share held on all matters that come before the
meeting. Only stockholders of record at the close of business on June 23, 1997
are entitled to notice of and vote at the meeting. The holders of a majority of
the outstanding shares of common stock of the Company entitled to vote at the
meeting, whether present in person or represented by proxy, shall constitute a
quorum.
This proxy material is first being mailed to stockholders commencing
on or about June 27, 1997.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The by-laws of the Company provide for a Board of Directors of not
fewer than two nor more than ten members. The specific number of directors is
set by a resolution adopted by a majority of the entire Board of Directors. On
March 9, 1995, the Board of Directors adopted a resolution which established
the size of the Board of Directors at five members effective on April 19, 1995.
On June 10, 1997, the Board of Directors adopted a resolution which established
the size of the Board of Directors at nine members effective on the date of the
Annual Meeting. It is proposed to elect nine directors to serve until the
Annual Meeting of Stockholders in 1998 and until their respective successors
have been elected and qualified. Four of the nominees currently serve on the
Board of Directors.
The persons named in the accompanying proxy intend to vote for the
election as directors of the nine nominees listed herein, unless contrary
instructions are given. All of the nominees have consented to serve if elected.
The Board of Directors has no reason to believe that any of the nominees will
not serve if elected, but if any of them should become unavailable to serve as
a director, and if the Board of Directors designates a substitute nominee, the
persons named as proxies will vote for the substitute nominee designated by the
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF EACH NOMINEE
FOR ELECTION AS DIRECTOR.
The following table sets forth certain information with respect to
each person nominated and recommended to be elected by the Board of Directors
of the Company and is based on the records of the Company and information
furnished to it by the nominees. Reference is made to "Security Ownership of
Certain Beneficial Owners and Management" for information pertaining to stock
ownership by the nominees.
NAME OF NOMINEE AGE DIRECTOR SINCE
- --------------- --- --------------
Harvey A. Appelle...................... 52 1992
James W. Crystal....................... 59 1993
Harvey Horowitz........................ 54 1994
Lynn Siemers-Cross..................... 38 1997
Herbert L. Ash......................... 55 --
Sheridan C. Biggs...................... 63 --
Robert H. Cohen........................ 58 --
Daniel H. Levy......................... 54 --
Robert H. Martinsen ................... 63 --
- --------------
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
HARVEY A. APPELLE, a director of the Company, was appointed Chairman
of the Board and Chief Executive Officer of the Company on December 19, 1996.
Mr. Appelle has been the President of HarGil Capital Associates Ltd., a private
investment firm, since 1994. From 1985 to 1993, he was a Managing Director of
the Investment Banking Division of Merrill Lynch Pierce Fenner & Smith Inc. and
a Senior Vice President of Merrill Lynch Interfunding Inc.
JAMES W. CRYSTAL, a director of the Company, has been President since
1978, and Chairman of the Board since 1989, of Frank Crystal & Co., Inc.,
international insurance brokers.
2
<PAGE>
HARVEY HOROWITZ, a director of the Company, became Vice President and
General Counsel of the Company on October 1, 1996. Prior thereto he was a
partner of the law firm Squadron, Ellenoff, Plesent & Sheinfeld, LLP, for more
than the past five years.
LYNN SIEMERS-CROSS, a director of the Company, became President and
Chief Operating Officer of the Company on April 14, 1997. Prior thereto she was
President of the Oak Hill Division of the Company. Ms. Siemers-Cross was
continuously employed by the Oak Hill Division for more than five years.
HERBERT L. ASH has been a partner at the law firm of Hahn & Hessen,
Attorneys, since 1972. Mr. Ash has been a director of Hampton Industries, Inc.,
a manufacturer of apparel, since 1994. He is also a Trustee of the National
Jewish Medical and Research Center, Denver, Colorado.
SHERIDAN C. BIGGS is Executive-in-Residence at the Graduate Management
Institute at Union College. Prior to that, he was a senior partner of Price
Waterhouse, the accounting and consulting firm, for thirty-one years until his
retirement in 1994. During his career at Price Waterhouse, Mr. Biggs served as
a Vice Chairman and member of the firm's management committee.
ROBERT H. COHEN is the founder, President and Chief Executive Officer
of Recharge Corporation of America, a recycling company formed on July 1, 1995.
He has also been Chief Executive Officer of R.J.C. Development Corporation, a
real estate company, since 1987. For several years prior to founding Recharge
Corporation of America, Mr. Cohen invested for his own account, having retired
in 1996 as President and Chief Executive Officer of Craftex Creations, Inc., a
manufacturer of intimate apparel, and in 1993 of Shamrock Outlet Stores, Inc.
From 1987 to 1992, Mr. Cohen served on the board of the Intimate Apparel
Council of the American Apparel Manufacturers' Association.
DANIEL H. LEVY has been a principal of and consultant to LBK
Consulting Inc., a retail consulting business, since January, 1997 and during
the period from 1994 to April, 1996. From April, 1996 through January, 1997, he
served as Chairman of the Board and Chief Executive Officer of Best Products,
Inc., a retail sales company which filed for bankruptcy in September, 1996.
From 1993 through 1994, Mr. Levy served as Chairman of the Board and Chief
Executive Officer of Conran's, a retail home furnishings company. From 1991 to
1993, he was Vice Chairman and Chief Operating Officer of Montgomery Ward, a
retail sales company. Mr. Levy is a director of Marks Bros. Inc. Jewelers.
ROBERT H. MARTINSEN worked at Citicorp/Citibank for thirty-eight years
until his retirement in 1995. At that point, he was Chairman of Credit Policy.
Prior to that, he was Executive Vice President in charge of corporate business
in Asia. Prior to that, he was Chairman and President of Citibank's asset based
finance subsidiary, Citicorp Industrial Credit.
STUART S. LEVY has been Vice President-Finance and the Chief Financial
Officer of the Company since November 4, 1996. From January 1993 to July 1996,
Mr. Levy was Vice President of Finance and Chief Financial Officer of Xpedite
Systems, Inc., a publicly-held provider of enhanced fax services. From August
1996 through October 1996, Mr. Levy provided services to Xpedite Systems, Inc.,
in connection with the completion and integration of international
acquisitions. Prior thereto, he was a financial consultant to an investment
group since 1988. He also serves as the Company's Assistant Secretary. Mr. Levy
is 55 years old.
COMMITTEES OF THE BOARD--BOARD MEETINGS
The Board of Directors has standing Audit, Compensation, and Stock
Option Committees. The Board of Directors does not have a Nominating Committee.
Generally, the members of each committee are appointed by the Board of
Directors for a term beginning with the first regular meeting of the Board of
Directors
3
<PAGE>
following the Annual Meeting and until their respective successors are elected
and qualified. The Board of Directors, however, may change the composition of
any committee at any time.
The Audit Committee has such powers as may be assigned to it by the
Board of Directors from time to time. It has the responsibility for
recommending annually to the Board of Directors the independent auditors to be
retained by the Company and reviewing with the officers of the Company and its
outside auditors the adequacy of the structure of the Company's financial
organization, the implementation of its financial and accounting policies, and
results of the audit. The Audit Committee met formally on four occasions during
Fiscal 1996 and had numerous informal conferences during such year. During
Fiscal 1996, Messrs. Appelle, Crystal, Eagle and Horowitz served on the Audit
Committee until October 1, when Mr. Horowitz resigned from the Audit Committee
in connection with his employment with the Company, after which the Committee
consisted of Messrs. Appelle, Crystal and Eagle. On December 19, Mr. Appelle
resigned from the Committee in connection with his employment with the Company,
after which the Committee consisted of Messrs. Crystal and Eagle.
The Compensation Committee has responsibility for reviewing and
approving remuneration arrangements for directors and executive officers and
for allocating bonuses and recommending new executive compensation plans in
which the officers and directors are eligible to participate. The Compensation
Committee met on one occasion during Fiscal 1996. During Fiscal 1996, Messrs.
Appelle, Crystal, Eagle and Horowitz served on the Compensation Committee until
October 1, when Mr. Horowitz resigned from the Compensation Committee in
connection with his employment with the Company, after which the Compensation
Committee consisted of Messrs. Appelle, Crystal and Eagle. On December 19, Mr.
Appelle resigned from the Compensation Committee in connection with his
employment with the Company, after which the Compensation Committee consisted
of Messrs. Crystal and Eagle.
The Stock Option Committee makes recommendations to the Board of
Directors regarding the Company's stock option and restricted stock plans and
has sole authority to set the terms of and grant options pursuant to the
Company's 1992 Stock Option Plan and 1996 Restricted Stock Plan. The Stock
Option Committee met once during Fiscal 1996. During Fiscal 1996, Messrs.
Appelle, Crystal, Eagle and Horowitz served on the Stock Option Committee until
October 1, when Mr. Horowitz resigned from the Stock Option Committee in
connection with his employment with the Company, after which the Stock Option
Committee consisted of Messrs. Appelle, Crystal and Eagle. On December 19, Mr.
Appelle resigned from the Stock Option Committee in connection with his
employment with the Company, after which the Stock Option Committee consisted
of Messrs. Crystal and Eagle.
During Fiscal 1996, the Board of Directors met on seven occasions and
acted on three occasions by unanimous written consent. While serving as a
director, each member of the Board of Directors who is standing for reelection
attended more than 75% of the total number of meetings of the Board of
Directors and of all committees of the Board of Directors on which he was
serving during the periods that he served as a director.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 31,
1997, with respect to beneficial ownership of the Company's Common Stock by:
(i) each of the Company's directors and nominees, (ii) each of the Company's
Named Executive Officers (as hereinafter defined), (iii) each person who is
known by the Company beneficially to own more than 5% of the Company's Common
Stock, and (iv) all directors and executive officers of the Company as a
group. All information in the table below with respect to the Common Stock of
the Company has been restated to reflect the two-for-one stock split paid to
all holders of Common Stock of record on December 4, 1995.
NAME AND ADDRESS COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENTAGE OWNED
- ------------------- --------------------- ----------------
Richard Rubin 479,640(2) 3.41%
920 Park Avenue
New York, NY 10028
Schaenen Fox Capital 859,350(3) 6.11%
Management LLC
200 Park Avenue
Suite 3900
New York, NY 10166
Pax Clearing Company 1,199,200(4) 8.52%
Limited Partnership
440 South LaSalle Street
Suite 3100
Chicago, IL 60605
Putnam Investments, Inc. 1,087,300(5) 7.73%
1 Post Office Square
Boston, MA 02109
Pioneering Management
Corporation 730,000(6) 5.19%
60 State Street
Boston, MA 02109
Edward T. Creevy 6,000(7) *
11 Nappa Drive
Westport, CT 06886
Ronald Hollandsworth 0(8) *
190 Brookhaven Drive
Wytheville, VA 24382
Harvey A. Appelle 47,500(9) *
James W. Crystal 23,500(10) *
Sidney Eagle 19,300(11) *
Harvey Horowitz 22,500(12) *
Lynn Siemers-Cross 7,500(13) *
Herbert L. Ash 0 *
Sheridan C. Biggs 1,500(14) *
Robert H. Cohen 0 *
Daniel H. Levy 5,000 *
Robert H. Martinsen 5,000 *
Stuart S. Levy 5,000(15) *
All directors and officers
as a group (11 persons) 136,800 *
* Less than 1%.
5
<PAGE>
(1) Except as otherwise indicated, the information as to securities owned by
directors, nominees and executive officers was furnished to the Company by
such directors, nominees and executive officers.
(2) Based on information contained in a Form 4 filed with the Securities and
Exchange Commission on September 10, 1996 and accounting for the forfeit
of 75,000 shares of restricted stock, as described elsewhere herein.
(3) As reported on a Schedule 13G dated February 14, 1997, Schaenen Fox
Capital Management, LLC, a registered investment advisor, was the
beneficial owner of 859,350 shares, representing approximately 5.9% of the
total shares outstanding on that day. Schaenen Fox Capital Management, LLC
possesses the sole power to vote, direct the vote, dispose of and direct
the disposition of all 859,350 shares. Of the 859,350 shares, Emanon
Partners, L.P., a partnership whose investments are managed by Schaenen
Fox, holds 795,050 shares. The remainder of such shares are held by
several managed accounts to which Schaenen Fox serves as investment
advisor.
(4) As reported on a Schedule 13D dated January 27, 1997, Pax Clearing Company
Limited Partnership, a clearing firm, was the beneficial owner of
1,199,200 shares, representing approximately 8.54% of the total shares
outstanding on that day.
(5) As reported on a Schedule 13G dated January 27, 1997, Putnam Investments,
Inc., an investment advisor and parent holding company, was the beneficial
owner of 1,087,300 shares, representing approximately 7.7% of the total
shares outstanding on that day. The 1,087,300 shares include 85,000 shares
beneficially owned by its subsidiary, Putnam Investments Management, Inc.
and Putnam Advisory Company, Inc. Putnam Investments, Inc. and Putnam
Advisory Company, Inc. have shared voting power for 535,000 of the shares.
(6) As reported on a Schedule 13G dated January 14, 1997, Pioneering
Management Corporation was the beneficial owner of 730,000 shares,
representing approximately 5.20% of the total shares outstanding on that
day.
(7) Based on information contained in a Form 4 filed with the Securities and
Exchange Commission on August 9, 1996 and accounting for the forfeit of
15,000 shares of restricted stock, as described elsewhere herein.
(8) Based on information contained in a Form 4 filed with the Securities and
Exchange Commission on June 4, 1996 and accounting for the forfeit of
9,000 shares of restricted stock, as described elsewhere herein.
(9) Includes 22,500 shares underlying stock options which have been granted to
Harvey A. Appelle pursuant to the Company's 1994 Non-Employee Director
Option Plan. Such options are currently exercisable.
(10) Includes 22,500 shares underlying stock options which have been granted to
James W. Crystal pursuant to the Company's 1994 Non-Employee Director
Option Plan. Such options are currently exercisable.
(11) Includes 17,500 shares underlying stock options which have been granted to
Sidney Eagle pursuant to the Company's 1994 Non-Employee Director Option
Plan. Such options are currently exercisable.
(12) Includes 22,500 shares underlying stock options which have been granted to
Harvey Horowitz pursuant to the Company's 1994 Non-Employee Director
Option Plan. Such options are currently exercisable.
(13) Includes 7,500 shares underlying stock options which have been granted to
Lynn Siemers-Cross pursuant to the Company's 1992 Stock Option Plan. Such
options are currently exercisable.
(14) Includes 500 shares held by Mr. Biggs' wife, as to which he has no voting
or investment power and disclaims beneficial ownership.
(15) Shares issued pursuant to Mr. Levy's employment agreement of January 28,
1997, which is summarized in this Proxy Statement under the caption
"Executive Compensation-Employment Agreements".
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation paid for the fiscal years
ended December 31, 1996, December 2, 1995 and December 3, 1994, to those
persons who were, at December 31, 1996 (i) the chief executive officer and (ii)
the other most highly compensated executive officers of the Company, who are,
or were, the only other executive officers of the Company (collectively, the
"Named Executive Officers"). The information in the following tables with
respect to the number of shares of Common Stock underlying options, option
exercise prices and the number of shares of Common Stock acquired upon the
exercise of options has been retroactively restated to reflect the two-for-one
stock split paid to all holders of Common Stock of record on December 4, 1995
(the "Stock Split").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
------------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------------------------------------------------------
SECURITIES
FISCAL OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) STOCK AWARDS OPTIONS/SARS COMPENSATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard Rubin 1996 $604,167 $ 0 $60,574(2) $1,354,688(8) 25,000 $ 72,233(3)
President and Chief 1995 500,000 1,500,000 57,249(4) 50,000 51,950(3)
Executive Officer until 1994 500,000 1,750,000 62,506(5) 0 46,908(3)
December 18, 1996
Edward T. Creevy 1996 $196,667 $ 0 $88,220 $ 270,938(8) 10,000 $ 1,740(6)
Chief Financial Officer, 1995 190,000 205,000 59,696 20,000 1,740(6)
V.P. until November 4, 1994 188,750 200,000 0 20,000 1,020(6)
1996
Ronald Hollandsworth 1996 $140,652 $ 100,000 $67,520 $ 162,563(8) 5,000 $ 488(6)
Corporate Controller until 1995 120,000 100,000 63,435 10,000 409(6)
November 4, 1996 1994 118,628 100,000 0 20,000 339(6)
Harvey A. Appelle(7) 1996 0 0 0 0 2,500(9) 0
Chairman of the Board and
Chief Executive Officer
Harvey Horowitz(7) 1996 124,444 0 0 0 2,500(9) 960(6)
Vice President and General
Counsel
Stuart S. Levy(7) 1996 31,667 0 0 0 0 470
Vice President - Finance and
Chief Financial Officer
</TABLE>
- -------------------
(1) Includes only items which are, in the aggregate, greater than or equal to
the lesser of $50,000 or 10% of the total annual salary and bonus.
(2) This amount represents a car allowance of $17,800, health insurance
premiums of $19,924 and disability insurance premiums of $22,850.
(3) Represents insurance premiums paid by, or on behalf of, the Company during
the covered fiscal year with respect to term and whole life insurance for
the benefit of the Named Executive Officer.
(4) This amount represents a car allowance of $17,904, health insurance
premiums of $19,782 and disability insurance premiums of $19,563.
(5) This amount represents a car allowance of $19,619, health insurance
premiums of $16,651 and disability insurance premiums of $26,236.
(6) Represents insurance premiums paid by, or on behalf of, the Company during
the covered fiscal year with respect to term life insurance for the
benefit of the Named Executive Officer.
(7) This individual became an executive officer of the Company in 1996.
(8) On April 19, 1996, pursuant to the terms of the Company's 1996 Restricted
Stock Plan, Mr. Rubin was granted 75,000 shares, Mr. Creevy was granted
15,000 shares and Mr. Hollandsworth was granted 9,000 shares of restricted
stock. The closing price of the Company's common stock on April 19, 1996
was $18.0625. As at December 31, 1996, all of these restricted stock
awards had been forfeited under the terms of their grants.
(9) Represents options granted pursuant to the Company's 1994 Non-Employee
Director Option Plan.
7
<PAGE>
1996 STOCK OPTION GRANTS
The Company strives to distribute stock option awards broadly
throughout the organization. Stock option awards are based on the individual's
position and contribution to the Company. The Company's long term performance
ultimately determines compensation from stock options because stock option
value is entirely dependent on the long-term growth of the Company's common
stock price.
The following table sets forth certain information concerning options
granted to the Chief Executive Officer and the Named Executive Officers during
Fiscal 1996, including information concerning the potential realizable value of
such options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
--------------------------------------------------------- -----------------------
NUMBER OF % OF TOTAL #
SECURITIES OF OPTIONS
UNDERLYING GRANTED TO
OPTION EMPLOYEES EXERCISE
GRANTED IN FISCAL PRICE (4) EXPIRATION
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ------------ --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard Rubin 25,000(2) 11.83% $18.125 4/19/2006 $284,968 $722,165
Edward T. Creevy 10,000(2) 4.73% 18.125 4/19/2006 113,987 288,866
Ronald Hollandsworth 5,000(2) 2.37% 18.125 4/19/2006 56,994 144,433
Harvey A. Appelle 2,500(3) 1.18% 18.125 4/19/2006 28,497 72,216
Harvey Horowitz 2,500(3) 1.18% 18.125 4/19/2006 28,497 72,216
Stuart S. Levy 0 0.00% N/A N/A N/A N/A
</TABLE>
- -------------------
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the SEC and, therefore, are not intended to
forecast possible future appreciation, if any, of the Company's stock
price.
(2) These options expired as of March 31, 1997.
(3) Represents options granted to Messrs. Appelle and Horowitz as directors
pursuant to the Company's 1994 Non-Employee Director Option Plan. These
options are exercisable at any time from the date of grant until the
earlier of (i) ten years, and (ii) one year from the grantee's termination
as a director.
(4) All options were granted at an exercise price equal to the market value of
the Company's common stock on the date of grant.
8
<PAGE>
AGGREGATE OPTION
EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED DECEMBER 31, 1996 DECEMBER 31, 1996(2)
ON EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard Rubin(3) 0 $ 0 75,000 0 $ 0 $ 0
Edward T. Creevy(3) 14,000 88,220 4,800 49,200 0 0
Ronald Hollandsworth(3) 8,000 67,520 7,200 37,800 0 0
Harvey A. Appelle 0 0 22,500 0 0 0
Harvey Horowitz 0 0 22,500 0 0 0
Stuart S. Levy N/A N/A N/A N/A N/A N/A
</TABLE>
- -------------------
(1) All options were granted at an exercise price equal to market value of the
common stock on the date of grant.
(2) Amount reflects the market value of the underlying shares of common stock
at the closing sales price reported on the Nasdaq National Market on
December 31, 1996 ($4.625 per share, which amount has been retroactively
adjusted to reflect the Stock Split) less the exercise price of each
option.
(3) These options expired as of March 31, 1997.
EMPLOYMENT AGREEMENTS
Harvey A. Appelle
On June 12, 1997, Mr. Appelle entered into a three-year employment
agreement with the Company to serve as its Chairman of the Board and Chief
Executive Officer. The agreement provides for a base annual salary of $400,000
for the first two years of the term and of $500,000 for the third year of the
term, as well as a discretionary performance bonus based on the achievement of
goals to be set annually by the Compensation Committee of the Board, as well as
certain insurance and other benefits.
In addition, in connection with the execution of the employment
agreement, the Compensation Committee granted to Mr. Appelle 150,000 restricted
shares and options to purchase an aggregate of 150,000 additional shares at a
price equal to the closing price of the Common Stock on the date of grant. The
agreement further provides for an incentive cash bonus equal to the
appreciation over five years of 50,000 shares of stock. The restricted shares,
options and right to receive the incentive cash bonus will vest over the term
of the agreement, subject to acceleration in the event of a change in control
of the Company.
The agreement provides that in the event Mr. Appelle's employment is
terminated (except in certain limited circumstances) following a change in
control of the Company, Mr. Appelle will have the right to receive severance
benefits equal to three times the sum of the last annual salary inclusive of
performance bonus (but not incentive bonus).
Lynn Siemers-Cross
On June 12, 1997, Ms. Siemers-Cross entered into a four-year
employment agreement with the Company to serve as its President and Chief
Operating Officer. The agreement provides for a base annual salary of $500,000,
a discretionary performance bonus based on the achievement of goals to be set
annually by the Compensation Committee, but not less than $150,000 for fiscal
1997, as well as certain insurance and other benefits.
In addition, in connection with the execution of the employment
agreement, the Compensation Committee granted to Ms. Siemers-Cross 150,000
restricted shares and options to purchase an aggregate of 150,000 additional
shares at a price equal to the closing price of the Common Stock on the date of
grant. The agreement further provides for an
9
<PAGE>
incentive cash bonus equal to the appreciation over five years of 50,000 shares
of stock. The restricted shares, options and right to receive the incentive
cash bonus will vest over the term of the agreement, subject to acceleration in
the event of a change in control of the Company.
The agreement provides that in the event Ms. Siemers-Cross' employment
is terminated (except in certain limited circumstances) following a change in
control of the Company, Ms. Siemers-Cross will have the right to receive
severance benefits equal to three times the sum of the last annual salary
inclusive of performance bonus (but not incentive bonus).
Harvey Horowitz
On September 5, 1996, Mr. Horowitz entered into a three-year
employment agreement with a subsidiary of the Company to serve as Vice
President, General Counsel and Director of Operations. The agreement provides
for a base annual salary of $400,000, with an annual increase of 5% for each
subsequent year, a non-discretionary performance bonus based on achievement of
certain pre-tax profit goals, a discretionary performance bonus based on
achievement of pre-tax profits in excess of $30,000,000, as well as certain
insurance and other benefits.
In the event the Company does not renew the agreement, it will pay to
Mr. Horowitz compensation for a period of one year following the end of the
term of employment.
Stuart S. Levy
On January 28, 1997, Mr. Levy entered into a two year employment
agreement with the Company to serve as Chief Financial Officer, Vice
President-Finance and Assistant Secretary. The agreement provides for an annual
salary of $335,000, which will increase on November 4, 1997 to $350,000, an
annual bonus based on the performance of Mr. Levy and the Company, as well as
certain insurance and other benefits.
The Agreement provides for a grant of 5,000 restricted shares of
Common Stock, and options to purchase 100,000 shares of Common Stock at a price
of $4.43 per share, vesting over three years.
The Agreement provides for severance payments to be based on the
current year's salary and the preceding year's bonus and to continue for the
longer of the remaining term under the Agreement or six months after
termination.
10
<PAGE>
COMPENSATION AND STOCK OPTION COMMITTEES REPORT TO STOCKHOLDERS
The Compensation Committee of the Board of Directors is responsible
for determining the compensation of executive officers of the Company, other
than compensation awarded pursuant to the Company's 1992 Stock Option Plan and
1996 Restricted Stock Plan, which are administered by the Stock Option
Committee of the Board of Directors. Messrs. Crystal and Eagle comprise the
Compensation Committee.
The Stock Option Committee is responsible for granting and setting the
terms of stock options and grants of restricted stock under the Company's 1992
Stock Option Plan and the 1996 Restricted Stock Plan. Messrs. Crystal and Eagle
comprise the Stock Option Committee.
GENERAL POLICIES REGARDING COMPENSATION OF EXECUTIVE OFFICERS
The Company's executive compensation policies are intended (1) to
attract and retain high quality managerial and executive talent and to motivate
these individuals to maximize shareholder returns, (2) to afford appropriate
incentives for executives to produce sustained superior performance, and (3) to
reward executives for superior individual contributions to the achievement of
the Company's business objectives. The Company's compensation structure
consists of base salary, annual cash bonuses, stock options and restricted
stock awards. Together, these components link each executive's compensation
directly to individual and Company performance.
Salary. Base salary levels reflect individual positions,
responsibilities, experience, leadership and potential contribution to the
success of the Company. Actual salaries vary based on the Compensation
Committee's subjective assessment of the individual executive's performance and
the Company's performance.
Bonuses. Executive officers are eligible to receive cash bonuses based
on the Compensation Committee's subjective assessment of each respective
executive's individual performance and the performance of the Company. In its
evaluation of executive officers and the determination of incentive bonuses,
the Compensation Committee does not assign quantitative relative weights to
different factors or follow mathematical formulae. Rather, the Compensation
Committee makes its determination in each case after considering the factors it
deems relevant, which may include consequences for performance that is below
expectations.
Stock Options. Stock options are granted at the fair market value of
the Common Stock on the date of grant. The stock options are intended to
provide employees with sufficient incentive to manage from the perspective of
an owner with an equity stake in the business.
In determining the size of individual option grants, the Stock Option
Committee considers the aggregate number of shares available for grant, the
number of individuals to be considered for an award of stock options, and the
range of potential compensation levels that the option awards may yield. The
number and timing of stock option grants to executive officers are decided by
the Stock Option Committee based on its subjective assessment of the
performance of each grantee. In determining the size and timing of option
grants, the Stock Option Committee weighs any factors it considers relevant and
gives such factors the relative weight it considers appropriate under the
circumstances then prevailing. While an ancillary goal of the Stock Option
Committee in awarding stock options is to increase the stock ownership of the
Company's management, the Stock Option Committee does not, when determining the
amount of stock options to award, consider the amount of stock already owned by
an officer. The Stock Option Committee believes that to do so could have the
effect of inappropriately or inequitably penalizing or rewarding executives
based upon their personal decisions as to stock ownership and option exercises.
Restricted Stock. Restricted stock awards are granted at prices (or
for no consideration) as determined by the Stock Option Committee. The
restricted stock awards are intended to attract and retain the services or
advice of quality employees, officers, agents, consultants and independent
contractors and to provide added incentive to them by encouraging stock
ownership in the Company.
In determining the size of individual restricted stock grants, the
Stock Option Committee considers the aggregate number of shares available for
grant, the number of individuals to be considered for an award of restricted
stock, and the range of potential compensation levels that the restricted stock
awards may yield. The number and timing of restricted stock grants to executive
officers are decided by the Stock Option Committee based on its subjective
assessment of the performance of each grantee. In determining the size and
timing of restricted stock awards, the Stock Option Committee weighs any
factors it considers relevant and gives such factors the relative weight it
considers appropriate under the circumstances then prevailing. While an
ancillary goal of the Stock Option Committee in awarding restricted stock is to
increase the stock ownership of the Company's management, the Stock Option
Committee does not, when determining the amount of restricted stock to award,
consider the amount of stock already owned by an officer. The Stock Option
Committee believes that to do so could have the effect of inappropriately or
inequitably penalizing or rewarding executives based upon their personal
decisions as to stock ownership and option exercises.
11
<PAGE>
In 1993, the Internal Revenue Code was amended to limit the
deductibility of certain compensation expenses in excess of $1 million. These
changes in the tax laws will apply to the compensation to be paid to executive
officers of the Company in Fiscal 1997. The Compensation Committee believes
that the compensation paid by the Company in Fiscal 1997 will not result in any
material loss of tax deductions for the Company.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER FOR FISCAL 1996
Mr. Rubin's base salary for Fiscal 1996 was determined by the terms of
his employment agreement with a wholly-owned subsidiary of the Company, dated
as of November 30, 1995. Mr. Rubin was not granted any bonus for Fiscal 1996.
The Stock Option Committee granted to Mr. Rubin in 1996, pursuant to the
Company's 1992 Stock Option Plan, options to purchase 25,000 shares of Common
Stock at the then-market price of $18.125 per share. These options expired as
of March 31, 1997. On April 19, 1996, pursuant to the terms of the Company's
1996 Restricted Stock Plan, Mr. Rubin was granted 75,000 shares of restricted
stock. These shares were forfeited as of December 31, 1996 under the terms of
their grant.
On December 18, 1996, Mr. Rubin resigned from all positions with the
Company. On such date, Mr. Rubin and the Company entered into a settlement
agreement in settlement of any claims which Mr. Rubin may have had in
connection with his employment agreement. Such employment agreement was
scheduled to run through December 1, 1998. Pursuant to the settlement
agreement, the Company agreed to make payments to Mr. Rubin for the period of
time from January 1, 1997 through December 31, 1997, totalling $660,000, plus a
$15,000 non-accountable expense allowance. The Company also agreed, for a
limited period of time, to provide to Mr. Rubin certain benefits, including
certain life, health, dental, medical, hospitalization and disability insurance
benefits. In consideration for such payments and benefits, Mr. Rubin agreed to
provide consulting services to the Company during the aforementioned period.
On December 19, 1996, Harvey A. Appelle was appointed Chief Executive
Officer of the Company. Mr. Appelle did not receive compensation as the
Company's Chief Executive Officer in Fiscal 1996.
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE
---------------------- ----------------------
James W. Crystal James W. Crystal
Sidney Eagle Sidney Eagle
DIRECTOR FEES
Each non-employee director of the Company receives a fee of $15,000
per year for serving as director, as well as reimbursement for out-of-pocket
expenses incurred in connection with his services. Pursuant to the 1994
Non-Employee Director Stock Option Plan, each non-employee director is issued
an option to purchase 15,000 shares of Common Stock upon becoming a director of
the Company, and an option to purchase 5,000 additional shares each successive
year in which such director is re-elected to the Board of Directors. Such
options are granted each year on the date of the Company's annual meeting at an
exercise price equal to the closing sale price of the Common Stock on the
Nasdaq National Market on such date. Although it is the Board of Directors'
current policy that such options should not be exercised for at least six
months from the date of grant, by their terms such options are exercisable
immediately after their grant. Directors who are also executive officers of the
Company receive no additional compensation from the Company for services
rendered in their capacity as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Crystal served on the Compensation Committee for the entirety of
Fiscal 1996. Mr. Crystal is President and Chairman of Frank Crystal & Co.,
Inc., which provides insurance brokerage services to the Company. Frank Crystal
& Co., Inc. received approximately $154,000 in commissions during 1996 for
services rendered to the Company.
Mr. Horowitz served on the Compensation Committee until October 1,
1996. Until such date, Mr. Horowitz was the managing partner of Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, which performs legal services for the
Company. During 1996, the Company paid approximately $494,000 in fees and
disbursement reimbursement to Squadron, Ellenoff, Plesent & Sheinfeld, LLP. Mr.
Horowitz is a party to an employment agreement with a subsidiary of the
Company.
SECTION 16(A) - BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and the other equity securities of the
Company. Officers, directors, and greater-than-ten-percent stockholders are
required by the regulations of the Securities and Exchange Commission to
furnish the Company with copies of all Section 16(a) forms they
12
<PAGE>
file. To the Company's knowledge, during Fiscal 1996, all Section 16(a) filing
requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See section captioned "Compensation Committee Interlocks and Insider
Participation."
13
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative stockholder return of the
Company from the Company's initial public offering on June 17, 1993 through
December 31, 1996 to the cumulative stockholder return of (a) the S&P 500
Composite Index and (b) the S&P Textiles Index based on an assumed investment
of $100 on June 17, 1993 and in each case assuming reinvestment of all
dividends, if any. The information in the following table reflects the
two-for-one stock split paid to all holders of Common Stock of record on
December 4, 1995 (the "Stock Split").
COMPARISON OF 42-MONTH CUMULATIVE TOTAL RETURN
DONNKENNY, INC., THE S&P 500 INDEX AND THE S&P TEXTILES INDEX
[GRAPHIC OMITTED]
- -------------------
(1) With respect to the S&P Textiles Index, which is produced on a month end
basis, the points on the graph reflect the value of the index on May 31,
1993, November 30, 1993, November 30, 1994, November 30, 1995 and November
30, 1996, the dates of the last day of the month preceding the date of the
initial public offering date and the dates of the 1993, 1994, 1995 and
1996 Fiscal year end, respectively.
<TABLE>
<CAPTION>
TOTAL RETURN - DATA SUMMARY
CUMULATIVE TOTAL RETURN
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/17/93 12/04/93 12/03/94 12/02/95 12/31/96
DONNKENNY, INC. 100 137 101 241 67
S & P 500 100 104 105 144 181
S & P TEXTILES (APPAREL) 100 83 87 89 105
</TABLE>
14
<PAGE>
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On November 4, 1996, the Company's then auditors, KPMG Peat Marwick
LLP ("KPMG"), informed the Company that they were resigning. They informed the
Company that they would no longer be able to rely on representations of
financial management and that they did not have access to sufficient, credible
information from others within the Company to enable them to continue as
auditors. KPMG had expressed no disagreement with the Company during the two
most recent fiscal years and subsequent interim period on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which disagreements, if not resolved to KPMG's satisfaction,
would have caused them to make reference in connection with its reports to the
subject matter of disagreement. In addition, KPMG's reports on the Company's
financial statements for such fiscal periods contained no adverse opinion or
disclaimers of opinion nor were such reports qualified or modified as to
uncertainty of audit scope or accounting principles.
On December 17, 1996, on the recommendation of its Audit Committee,
the Company engaged Deloitte & Touche LLP to serve as its new auditors to
examine the Company's consolidated financial statements for the fiscal years
1994 through 1997 and to render other professional services as required.
The appointment of Deloitte & Touche LLP as the independent auditors
of the Company for the fiscal year ending December 31, 1997 is being submitted
to stockholders for ratification.
Representatives of Deloitte & Touche LLP will be present at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF
DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS OF THE COMPANY, WHICH IS
DESIGNATED AS PROPOSAL NO. 2 ON THE ENCLOSED PROXY CARD.
ANNUAL REPORT
The Annual Report of the Company for the fiscal year ended December
31, 1996 is being mailed to stockholders with this proxy statement.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered for inclusion in the
proxy statement for presentation at the 1998 Annual Meeting must be received by
the Company at its offices at 1411 Broadway, New York, New York 10018, no later
than February 28, 1998 in order to be included in the proxy statement and form
of proxy relating to such meeting. All proposals must comply with applicable
Securities and Exchange Commission rules and regulations.
OTHER MATTERS
The Board of Directors is not aware of any other matter other than
those set forth in this proxy statement that will be presented for action at
the meeting. If other matters properly come before the meeting, the persons
named as proxies intend to vote the shares they represent in accordance with
their best judgment in the interest of the Company.
THE COMPANY UNDERTAKES TO PROVIDE ITS STOCKHOLDERS WITHOUT CHARGE A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES FILED THEREWITH. WRITTEN REQUESTS FOR SUCH REPORT
SHOULD BE ADDRESSED TO DONNKENNY, INC., 1411 BROADWAY, NEW YORK, NEW YORK
10018. ATTENTION: CORPORATE SECRETARY
15
<PAGE>
PROXY
DONNKENNY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS JULY 30, 1997
The undersigned hereby appoints Harvey A. Appelle and Harvey Horowitz, or
either of them, proxies with full power of substitution in each of them,
in the name, place and stead of the undersigned to vote as proxy all the
stock of the undersigned in Donnkenny, Inc.
(TO BE SIGNED ON REVERSE SIDE)
FOLD AND DETACH HERE
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR PLEASE MARK [X]
PROPOSALS 1 AND 2 IF NO INSTRUCTION TO THE CONTRARY YOUR VOTES AS
IS INDICATED, OR IF NO INSTRUCTION IS GIVEN. INDICATED IN THIS
EXAMPLE
1. Election of the following nominees, as set forth in the proxy statement.
FOR the nominees WITHHELD
listed below (except as AUTHORITY to vote for
marked to the contrary all nominees listed
below) below
[ ] [ ]
Harvey A. Appelle, James W. Crystal, Harvey Horowitz, Lynn Siemers-Cross,
Herbert L. Ash, Sheridan C. Biggs, Robert H. Cohen, Daniel H. Levy and
Robert H. Martinsen
For, except vote withheld from the following nominees(s)
- --------------------------------------------------------
2. To consider and act upon a proposal to approve ratification of Deloitte &
Touche LLP as independent auditors of the Company for the fiscal year
ending December 31, 1997
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, to act upon such other matters as may properly
come before the meeting or adjournment thereof.
Please mark, sign, date and return this proxy in the enclosed envelope.
(Note: Please sign exactly as your name appears hereon. Executors,
Administrators, Trustees, etc. should so indicate when signing, giving
full title as such. If signer is a corporation, execute in full corporate
name by authorized officer. If shares held in the name of two or more
persons, all should sign.)
Date:
------------------------------------------------------------
- -----------------------------------------------------------------
Signature
Date:
------------------------------------------------------------
- -----------------------------------------------------------------
Signature
FOLD AND DETACH HERE
<PAGE>
[LOGO - DONNKENNY, INC.]
Dear Shareholders:
This is my first letter to you as Chairman. I assumed this position on
December 19, 1996 in an atmosphere of crisis for our Company. In August of
1996, the Company received a letter from the Securities and Exchange
Commission indicating an informal inquiry into Donnkenny's financial
reporting. The outside directors undertook an internal investigation to
determine what if any wrongdoing or irregularities had occurred. A New York
law firm and a big six accounting firm assisted in the investigation. As
reported in the enclosed Form 10-K, the investigation eventually revealed
accounting irregularities and errors dating back to 1994. This set off a
series of steps that resulted in the separation from Donnkenny of certain
officers, including its Chief Executive Officer, Chief Financial Officer and
Controller.
The reporting irregularities led to a formal investigation by the
Securities and Exchange Commission, class action lawsuits and a NASDAQ
delisting review (the later of which has been favorably resolved). Moreover,
these developments caused Donnkenny's lending institutions to reduce their
maximum exposure and even question their willingness to continue to support
the Company. We also experienced a reduction in trade support as factors and
other suppliers reviewed their respective credit exposure. Finally, in
September, Donnkenny had closed on the Fashion Avenue acquisition. The cash
that was to be paid for that acquisition would have further drained the
Company's reduced resources and when coupled with Fashion Avenue's inherent
seasonality, would have exacerbated future financing requirements.
Given all of these problems, your management is gratified to report that
it believes that the immediate financial crisis has been satisfactorily
resolved. As announced, our lending institutions have granted the Company a
two year credit agreement, increasing credit availability to $101 million.
Further, CIT Factors, sophisticated lenders to the apparel industry, recently
joined the lending syndicate on a pari passu basis, with the other lenders.
As of this writing, Donnkenny is well ahead of the business plan submitted
to its banks and has ample available credit under its credit agreement. In
addition, we have almost completely restored normal relationships with our
trade suppliers and their factors. We also rescinded the Fashion Avenue
acquisition at a relatively modest cost to the Company. Further, we maintain
good relationships with our dedicated staff and our customers. We have
achieved this through the following:
PARTNERING: We have adopted a policy of straightforward, direct
communication with our lenders, licensors, customers, vendors and other
commercial constituencies, which we believe is essential given recent events
and this will be our practice going forward. In the future, we may make
errors in judgement or fail to meet stated objectives, but our policy will be
to be open and direct in facing and disclosing our shortcomings.
CONTROLS: With the help of outside consultants, we have carefully produced
an operating plan that could be endorsed by our lenders. We installed a
forecasting system and a series of financial controls focusing on cash flow
but with particular emphasis on asset management. We have imposed greater
inventory management discipline which is vital to a company that has become a
major importer. These disciplines include firmly encouraging our divisions to
clear out their surplus inventory positions in season, as opposed to holding
them over. We are also selling off older surplus inventory at little or no
margin in 1997. Some of these disciplines will negatively effect this year's
earnings, but together with added financial controls will result in a
stronger company in the long run.
EXPENSE REDUCTION: We are in the process of reviewing each area of our
businesses with an eye to reducing costs wherever possible. We have reduced
staff by over 100 individuals to date. We are reviewing real estate
requirements, the distribution process, product sourcing and corporate staff
for possible operating savings. This continuous review process is a key
component of our business plan.
<PAGE>
However, like most companies, we will not save our way to prosperity. The
key to our ultimate success is continued robust sales which results from a
product that is well designed, well made, well sourced and well priced,
excellent merchandising, and a system that gets that product to our customers
on time and in store ready condition. In addition, we must become better at
paying attention to the myriad of detail necessary to avoid errors in
operations from design all the way to distribution.
MANAGEMENT. In the last six months or so, Donnkenny has added a new chief
financial officer, controller, assistant controller, vice president of
sourcing and operations, a divisional president and, most significantly, a
chief operating officer: Lynn Siemers-Cross. Lynn is one of the outstanding
merchants in this business; she is sharpening the Company's focus and
bringing a distinct point of view to our product lines. Her management
oversight has been crucial to knitting together disparate organizations and
in bringing order to our operations. Under Lynn's guidance, we have
undertaken a strategy of centralizing many of our functions, including
distribution, sourcing and manufacturing.
As the accompanying proxy materials indicate, we are recommending
prominent business leaders as new outside members of the Board of Directors
to make additional resources and oversight available to us.
We expect that 1997 will continue to be a transitional year for Donnkenny.
During the year we will focus on asset management and on forging a strong,
professional organization which can take advantage of the significant market
opportunities which are available to the Company. Your new management
believes that the events that contributed to the 1996 crisis are largely
behind us and that our ongoing efforts will produce greater cost
efficiencies, more effective sourcing and improved customer service. Thanks
to the efforts of our employees and management and the allegiance of our long
time suppliers, customers and credit sources we are looking forward to
further strengthening and growing the Company in the years to come.
Sincerely,
/s/ Harvey A. Appelle
Harvey A. Appelle
Chairman of the Board
and Chief Executive Officer
June 27, 1997
<PAGE>
DONNKENNY, INC.
ANNUAL REPORT 1996
<PAGE>
DONNKENNY, INC.
[THE ANNUAL REPORT SENT TO STOCKHOLDERS CONSISTS OF A COMPLETE COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K WHICH WAS PREVIOUSLY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1997]
