<PAGE>
DONNKENNY, INC.
1411 BROADWAY
NEW YORK, NEW YORK 10018
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
June 25, 1998
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 9:30 a.m. local time, on
July 28, 1998, 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, 1998.
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 May 29, 1998, 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,
STUART S. LEVY
Secretary
<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 9:30 a.m. local time on July 28, 1998
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 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, and the Company may reimburse them
for their expenses in connection therewith.
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 discretion 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 which
entitle holders to vote 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 which entitle holders to vote thereat is required
for the adoption of such matters.
At the close of business on May 29, 1998, 14,169,540 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
May 29, 1998 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 on or about June
25, 1998.
<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
June 10, 1997, the Board of Directors adopted a resolution which established
the size of the Board of Directors at nine members effective on July 30,
1997. It is proposed to elect nine directors to serve until the Annual
Meeting of Stockholders in 1999 and until their respective successors have
been elected and qualified. All 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.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE DIRECTOR SINCE
--------------- --- --------------
<S> <C> <C>
Harvey A. Appelle .................................. 53 1989
Herbert L. Ash ...................................... 56 1997
Sheridan C. Biggs .................................. 64 1997
Robert H. Cohen .................................... 59 1997
James W. Crystal ................................... 60 1993
Harvey Horowitz .................................... 55 1994
Daniel H. Levy ...................................... 55 1997
Robert H. Martinsen ................................. 64 1997
Lynn Siemers-Cross ................................. 39 1997
</TABLE>
- -------------------
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 1983 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.
HERBERT L. ASH, a director of the Company, has been a partner at the law
firm of Hahn & Hessen, LLP, 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, a director of the Company, 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; he
was with that 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.
2
<PAGE>
ROBERT H. COHEN, a director of the Company, 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.
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.
HARVEY HOROWITZ, a director of the Company, has been a consultant to the
Company since February 28, 1998. From October 1, 1996 to February 28, 1998,
Mr. Horowitz was Vice President and General Counsel of the Company. Prior
thereto, for more than five years, he was a partner of the law firm Squadron,
Ellenoff, Plesent & Sheinfeld, LLP.
DANIEL H. LEVY, a director of the Company, 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 and Phar-Mor, Inc.
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 Secretary.
ROBERT H. MARTINSEN, a director of the Company, 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 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.
LYNN SIEMERS-CROSS, a director of the Company, became President and Chief
Operating Officer of the Company on April 14, 1997. Prior thereto, for more
than five years, she was President of the Oak Hill Division of the Company.
COMMITTEES OF THE BOARD; BOARD MEETINGS
The Board of Directors has standing Audit, Compensation and Nominating
Committees. 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 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 two occasions
during the fiscal year ended December 31, 1997 ("Fiscal 1997") and had
numerous informal conferences during such year. During Fiscal 1997, James W.
Crystal and Sidney Eagle served on the Audit Committee until July 30, 1997.
From that time forward, Herbert L. Ash, Sheridan C. Biggs and James W.
Crystal served on the Audit Committee.
3
<PAGE>
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 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 Compensation Committee met on
three occasions during Fiscal 1997. During Fiscal 1997, Messrs. Crystal and
Eagle served on the Compensation Committee until July 30, 1997. From that
date forward, Herbert L. Ash, James W. Crystal and Daniel H. Levy served on
the Compensation Committee.
The Nominating Committee investigates and reviews the qualifications of
candidates to serve on the Board of Directors and recommends nominees to the
Board of Directors. The Nominating Committee met on one occasion during
Fiscal 1997. During Fiscal 1997, Messrs. Harvey Appelle, Robert Martinsen and
Sheridan Biggs served on the Nominating Committee
During Fiscal 1997, the Board of Directors met on nine occasions. While
serving as a director, each member of the Board of Directors 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 April 30, 1998,
with respect to beneficial ownership of the Company's Common Stock by: (i)
each of the Company's directors, (ii) each of the Company's Named Executive
Officers, (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.
<TABLE>
<CAPTION>
NAME AND ADDRESS COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) PERCENTAGE OWNED
- ------------------- ---------------------- ----------------
<S> <C> <C>
Schaenen Fox Capital Management LLC
200 Park Avenue Suite 3900
New York, NY 10166 859,350(2) 5.7%
Putnam Investments, Inc.
1 Post Office Square
Boston, MA 02109 1,435,450(2) 9.5%
Pioneering Management Corporation
60 State Street Boston, MA 02109 890,000(2) 5.9%
Amber Arbitrage LDC
c/o Custom House Fund Management Limited
31 Kildare St. Dublin 2, Ireland 2,322,450(2) 15.4%
Harvey A. Appelle 427,100(3) 2.8%
Herbert L. Ash 15,500(4) *
Sheridan C. Biggs 18,000(5) *
Robert H. Cohen 20,000(6) *
James W. Crystal 28,500(7) *
Harvey Horowitz 25,000(8) *
Daniel H. Levy 20,000(9) *
Stuart S. Levy 105,000(10) *
Robert H. Martinsen 37,000(11) *
Lynn Siemers-Cross 334,700(12) 2.2%
All directors and executive officers as a group
(11 persons) 1,056,800 7.0%
</TABLE>
- --------------
* Less than 1%.
(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 Schedule 13G filed with the
Company.
(3) 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, which are currently exercisable.
Also includes 150,000 shares underlying options which have been
granted pursuant to Mr. Appelle's employment agreement, which is
summarized in this Proxy Statement under the caption "Executive
Compensation-Employment Agreements". Except with respect to 35,000
shares, such options are currently exercisable. Also includes 150,000
restricted shares which have been granted pursuant to Mr. Appelle's
employment agreement. Such restricted shares are currently not vested
and do not confer voting or investment power. Also includes 69,600
shares of stock issued as part of Fiscal 1997 compensation, as
described in this Proxy Statement under the caption "Executive
Compensation".
(4) Includes 15,000 shares underlying options which have been granted to
Herbert L. Ash pursuant to the Company's 1994 Non-Employee Director
Option Plan. Such options are currently exercisable.
5
<PAGE>
(5) Includes 15,000 shares underlying options which have been granted to
Sheridan C. Biggs pursuant to the Company's 1994 Non-Employee
Director Option Plan. Such options are currently exercisable.
(6) Includes 15,000 shares underlying options which have been granted to
Robert H. Cohen pursuant to the Company's 1994 Non-Employee Director
Option Plan. Such options are currently exercisable.
(7) Includes 27,500 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.
(8) 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.
(9) Includes 15,000 shares underlying options which have been granted to
Daniel H. Levy pursuant to the Company's 1994 Non-Employee Director
Option Plan. Such options are currently exercisable.
(10) 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". Currently
one-third of such options are exercisable.
(11) Includes 15,000 shares underlying options which have been granted to
Robert H. Martinsen pursuant to the Company's 1994 Non-Employee
Director Option Plan. Such options are currently exercisable.
Includes 7,000 shares owned by his spouse in which he disclaims
beneficial ownership.
(12) Includes 7,500 shares underlying options which have been granted on
April 19, 1996 to Lynn Siemers-Cross pursuant to the Company's 1992
Stock Option Plan and 150,000 shares underlying options which have
been granted pursuant to Ms. Siemers-Cross' employment agreement
which is summarized in this Proxy Statement under the caption
"Executive Compensation-Employment Agreements". Except with respect
to 42,500 shares, such options are currently exercisable. Also
includes 150,000 restricted shares which have been granted pursuant
to Ms. Siemers-Cross' employment agreement. Such restricted shares
are currently not vested and do not confer voting or investment
power. Also includes 25,000 shares of stock issued as part of Fiscal
1997 compensation as described in this Proxy Statement under the
caption "Executive Compensation."
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation paid for the fiscal years
ended December 31, 1997, December 31, 1996, and December 2, 1995, to those
persons who were, at December 31, 1997, (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
------------------------- ------------------------------ --------------
RESTRICTED SECURITIES ALL OTHER
STOCK AWARDS UNDERLYING COMPENSATION
SALARY BONUS (8) OPTIONS/SARS (1)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ------------------------------- ------ ---------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Harvey A. Appelle(2)
Chairman of the Board and 1997 $400,000 $174,000(6) 440,625 50,000 $ 2,880
Chief Executive Officer 1996 0
Harvey Horowitz(2)(5)
Vice President and General 1997 $405,000 -- -- -- $ 2,880
Counsel 1996 124,444
Stuart S. Levy(2)(3)
Vice President--Finance 1997 $361,667 $25,000 14,650 -- $11,000
and Chief Financial Officer 1996 31,667
Lynn Siemers-Cross(4)
President and Chief
Operating Officer 1997 $500,000 $212,500(7) 440,625 50,000 $ 660
</TABLE>
- --------------
(1) 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.
(2) This individual became an executive officer of the Company in 1996.
(3) On November 4, 1997, this individual's salary increased to $350,000 per
annum.
(4) This individual became an executive officer of the Company in 1997.
(5) This individual resigned his office as vice-president on February 28,
1998, and entered into a two-year consulting agreement with the
Company.
(6) Bonus paid in 69,600 shares of common stock.
(7) Bonus paid as follows: $150,000 cash payment and 25,000 shares of
common stock.
(8) As of December 31, 1997, there were outstanding awards of 394,600
shares of restricted stock pursuant to the 1996 Restricted Stock Plan.
7
<PAGE>
1997 STOCK OPTION AND SAR GRANTS
The Company strives to distribute stock option awards broadly throughout
the organization. Stock option awards are based on the individual's position
and contribution to the Company. The Company's long-term performance
ultimately determines compensation from stock options because stock option
value is entirely dependent on the long-term growth of the Company's common
stock price.
The following table sets forth certain information concerning options and
stock appreciation rights ("SARs") granted to the Chief Executive Officer and
the Named Executive Officers during Fiscal 1997, including information
concerning the potential realizable value of such options.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------ VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS/ PRICE APPRECIATION
SECURITIES SARS GRANTED EXERCISE OF FOR OPTION TERM (1)
UNDERLYING TO BASE PRICE ----------------------------------
OPTIONS/SARS EMPLOYEES IN (2) EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ----------- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Harvey A. Appelle . 150,000(3) 11.4% 2.9375 4/14/2007 277,107 702,243
50,000(4) 3.8% 2.9375 4/14/2002 92,369 234,081
Harvey Horowitz ... 25,000 1.9% 3.9375 7/30/2007 67,803 171,825
Stuart S. Levy ..... 100,000 7.6% 4.4375 1/28/2007 279,072 707,223
Lynn Siemers-Cross 150,000(3) 11.4% 2.9375 4/14/2007 277,107 702,243
50,000(4) 3.8% 2.9375 4/14/2002 92,369 234,081
</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) All options were granted at an exercise price equal to the market value
of the Company's common stock on the date of grant.
(3) Includes 150,000 shares underlying options which have been granted
pursuant to this individual's employment agreement, which is summarized
in this Proxy Statement under the caption "Executive
Compensation-Employment Agreements".
(4) Includes 50,000 SARs, which are an incentive cash bonus equal to the
appreciation over five years of 50,000 shares of stock. Such SARs vest
and become exercisable on March 31, 1999, unless earlier accelerated.
AGGREGATED 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 VALUE DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($)
ON EXERCISE REALIZED -------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey Appelle ..... 0 0 22,500 150,000 0 0
Harvey Horowitz ... 0 0 22,500 25,000 0 0
Stuart S. Levy ..... 0 0 33,333 66,667 0 0
Lynn Siemers-Cross 0 0 0 157,500 0 0
</TABLE>
- ------------
(1) All options were granted at an exercise price equal to market value of
the common stock on the date of grant.
8
<PAGE>
EMPLOYMENT AGREEMENTS
Harvey 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 his 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 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 her last annual salary
inclusive of performance bonus (but not incentive bonus).
Harvey Horowitz
On February 28, 1998, Mr. Horowitz entered into a two-year consulting
agreement with the Company, which agreement superseded Mr. Horowitz's
employment agreement with the Company dated September 5, 1996. Under the new
agreement, Mr. Horowitz agrees to provide certain consulting services to the
Company and its officers with respect to legal matters arising out of the
business affairs of the Company. The new agreement provides for monthly
payments to be made by the Company to Mr. Horowitz equal to $35,000 for March
1998, $30,000 per month thereafter for the balance of calendar year 1998, and
$25,000 per month throughout calendar year 1999. Mr. Horowitz will continue
to receive certain insurance and other benefits and the Company agrees to use
its best efforts to cause Mr. Horowitz to be nominated for election as a
member of its Board of Directors at the annual meeting of its shareholders to
take place during calendar year 1998.
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
$350,000, an annual bonus based on the performance of Mr. Levy and the
9
<PAGE>
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.
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
The Compensation Committee of the Board of Directors is responsible for
determining the compensation of executive officers of the Company, including
compensation awarded pursuant to the Company's 1992 Stock Option Plan and
1996 Restricted Stock Plan. Herbert L. Ash, James W. Crystal and Daniel H.
Levy presently serve on the Compensation 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 Compensation
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 Compensation Committee based on its subjective assessment of the
performance of each grantee. In determining the size and timing of option
grants, the Compensation 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 Compensation
Committee in awarding stock options is to increase the stock ownership of the
Company's management, the Compensation Committee does not, when determining
the amount of stock options to award, consider the amount of stock already
owned by an officer. The Compensation 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 Compensation 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.
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In determining the size of individual restricted stock grants, the
Compensation 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 Compensation Committee based on its
subjective assessment of the performance of each grantee. In determining the
size and timing of restricted stock awards, the Compensation 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 Compensation Committee in awarding restricted stock is
to increase the stock ownership of the Company's management, the Compensation
Committee does not, when determining the amount of restricted stock to award,
consider the amount of stock already owned by an officer. The Compensation
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.
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 1998. The Compensation Committee believes that the
compensation paid by the Company in Fiscal 1998 will not result in any
material loss of tax deductions for the Company.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER FOR FISCAL 1997
Harvey A. Appelle was appointed Chairman of the Board and Chief Executive
Officer of the Company on December 19, 1996. On June 12, 1997, Mr. Appelle
entered into a three-year employment agreement to serve in such capacities.
(See "Employment Agreements.") The terms of the employment agreement were
negotiated with the assistance of outside advisors and structured to
encourage Mr. Appelle to accept the challenges presented by the Company's
business, to motivate him to take the actions necessary and to reward him for
increased value to the shareholders. Pursuant to this agreement, Mr. Appelle
will receive an annual salary of $400,000 for the first two years of the
term, increasing to $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, 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.
As a performance bonus for 1997, the Compensation Committee awarded 69,600
shares of the Company's common stock to Mr. Appelle. The size of the award
was based on the Compensation Committee's subjective assessment of his
performance, which included the achievement of certain of the Company's
business objectives in 1997.
COMPENSATION COMMITTEE
----------------------
Herbert L. Ash
James W. Crystal
Daniel H. Levy
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DIRECTOR FEES
Each non-employee director of the Company receives a fee of $20,000 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
During the fiscal year ended December 31, 1997, the members of the
Compensation Committee were James W. Crystal and Sydney Eagle until July 30,
1997, after which Herbert L. Ash, James Crystal and Daniel H. Levy served
thereon.
Herbert L. Ash, Esq., is a partner at Hahn & Hessen, LLP, which provided
certain legal services to the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING 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
file. To the Company's knowledge, during Fiscal 1997, 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
Herbert L. Ash, Esq., is a partner at Hahn & Hessen, LLP, which provided
certain legal services to the Company.
12
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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, 1997 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 CUMULATIVE TOTAL RETURN*
FOR THE PERIOD FROM 6/17/93 THROUGH 12/31/97
AMONG DONNKENNY, INC., THE S&P 500 INDEX
AND THE S&P TEXTILES (APPAREL) INDEX
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[LINE CHART]
*$100 INVESTED ON 6/17/93 IN STOCK AND S & P 500 OR ON 5/31/93 IN
S & P TEXTILES (APPAREL) -- INCLUDING REINVESTMENT OF DIVIDENDS.
- --------------
(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, December
31, 1996 and December 31, 1997, 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, 1996 and 1997 Fiscal year-ends, respectively.
<TABLE>
<CAPTION>
TOTAL RETURN--DATA SUMMARY
CUMULATIVE TOTAL RETURN
------------------------------------------------------------------
6/17/93 12/04/93 12/03/94 12/02/95 12/31/96 12/31/97
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
DONNKENNY, INC. .......... 100 137 101 241 67 39
S & P 500 ................ 100 104 105 144 181 241
S & P TEXTILES (APPAREL) 100 83 87 89 105 113
</TABLE>
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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. Such
appointment was ratified by the Company's stockholders on July 30, 1997.
The appointment of Deloitte & Touche LLP as the independent auditors of
the Company for the fiscal year ending December 31, 1998 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,
1997 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 1999 Annual Meeting must be received by the
Company at its offices at 1411 Broadway, New York, New York 10018, no later
than February 25, 1999 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.
By Order of the Board of Directors
Stuart S. Levy
Secretary
New York, New York
June 25, 1998
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[PROXY CARD TO COME]
