Byline: Eric Wilson

NEW YORK — John Idol may not be able to collect his $12.2 million payout from Donna Karan, after all.
The former Donna Karan chief executive, who left the company in July with a mega-payout package, hasn’t yet seen a dime, and now he’s taking the company and its new owner to court.
In a filing this month in State Supreme Court, Idol has charged a breach of contractual complaint against his former employers and LVMH Moet Hennessy Louis Vuitton, which completed its acquisition of Donna Karan International last month. He’s still looking to receive severance payments totaling $12.2 million that were detailed in the companies’ merger agreements filed with the Securities and Exchange Commission, primarily $6.3 million from DKI and $5.9 million from LVMH.
“We believe that the public record, as clearly set forth in the security filings of Donna Karan International throughout 2001, reflects the amount due to Mr. Idol under his contracts with DKI and LVMH,” said Arthur Woodard, a partner at Kaye Scholer LLP, the law firm handling Idol’s complaint.
“The suit thus attempts only to recover what DKI and LVMH have publicly admitted they owe to Mr. Idol,” Woodard said.
Idol was unavailable for comment on Thursday and Woodard said he could not identify any reasons LVMH may have cited in not making the payments.
A spokesman for LVMH, however, said the dispute with Idol concerns “his performance under his contract,” but declined to elaborate. “We expect to resolve this matter through the appropriate legal means,” the spokesman said.
This latest, unexpected twist in LVMH’s takeover of the Donna Karan company and its trademarks caps a year-long process that has been marred by shareholder lawsuits, insider complaints that the designer’s company wasn’t in such great shape at the time of the takeover and, ultimately, an LVMH-led restructuring last week that included 140 layoffs.
According to Idol’s complaint, LVMH has refused to make its payment of $6.3 million and also did not honor its plans to purchase his 548,503 shares of common stock at the agreed price, which would have totaled $5.9 million.
While Idol’s four-year tenure at DKI helped turn the company around from one with significant quarterly losses into one with consistent earnings growth and a complex system of licenses that helped offset royalties paid directly to the designer, the charismatic and young executive has frequently been criticized for some of the deals he has struck, both for licensing and distribution, to help get it there. And its latest financial outlooks have not been so rosey.
In its final quarterly report as a public company two weeks ago, Donna Karan reported a substantial third-quarter loss and reductions in bonuses.
For the three months ended Sept. 30, the loss was $53.7 million, or $2.48 a diluted share, against $14 million in income, or 63 cents, in the same year-ago quarter. Sales declined by 13 percent, to $177.2 million from $203.7 million.
The company said second- and third-quarter operations were below forecast and are expected to continue below expectations for the balance of the year. In August, the company entered into an agreement with Gabrielle Studio Inc., an LVMH affiliate since earlier this year, for the deferment, until June 30, 2002, of the payment of royalties owed by the company for the second, third and fourth quarters of 2001.
It was also then learned that DKI doesn’t plan to pay out bonuses that were promised employees, many of them made by Idol to divisional heads whom he had brought on board.
According to a proxy filed on Oct. 26, LVMH doesn’t plan to pay any bonuses following fiscal 2000 and until the time of the merger to any DKI directors, officers or employees, past or present. The proxy also noted that LVMH had reduced the amount paid to its directors and counsel in connection with the merger.
In an interview last week, Giuseppe (Pino) Brusone, who replaced Idol, said the company would be taking a serious look at Donna Karan’s businesses in an effort to improve the image of its labels, stressing that the elimination of sales to discount chains would be a top priority. That may infringe on the distribution of some licensed product that was developed under Idol’s tenure, and sources at the company said it was this sort of legacy that may have inspired the unusual action of withholding his severance.
The move is also surprising, considering LVMH had already said it would pay Idol in its SEC filings on the acquisition.
From the moment Donna Karan and LVMH announced the intended deal last December, it was clear that Idol wasn’t part of the package. Even though he was rumored to be talking to a number of companies about other jobs, Idol maintained he was focused at Donna Karan on the logistics of the acquisition.
However, in May, the company made an unusual move in naming a successor to Idol, several months before he was intended to be replaced. DKI tapped Brusone to take over as ceo upon the completion of the merger, which was then expected to take place around September.
But Idol didn’t end up sticking around that long, working out an earlier exit in July, when he became chief executive of Kasper ASL, which owns the Anne Klein labels. Brusone took over officially at that point and completed the acquisition in November.
Idol, who had been ceo of Donna Karan since 1997, said at the time that he had discussed his earlier-than-expected departure from the firm with its board and was able to leave without affecting his compensation package. He had been brought on board from Polo Ralph Lauren specifically to help turn around Karan’s business at a time when the brand was spending huge amounts on product development — with little return — and had been badly punished by Wall Street.
As reported, Idol’s base salary was around $950,000, plus performance bonuses. His contract, which would have expired in June 2002, stipulated that a change in control of the company resulting in his termination would entitle Idol to three times his base salary, plus three times his total bonus compensation for the immediately preceding fiscal year. According to a filing with the SEC, as a result of the proposed merger, he also was to receive a $750,000 transaction bonus, provided certain conditions were met, as well as a special performance bonus of $1.25 million.
His overall compensation, including stock payouts, was estimated to approach $13 million, which would rank among the highest of the past decade. When R.H. Macy merged with Federated Department Stores in 1994, Myron E. Ullman left as chairman and ceo of Macy’s with a severance of $13 million, while Roger Farah, president and chief operating officer of the chain for just three months, left with a $14 million golden parachute.
Under Idol’s direction, Donna Karan continued to develop its full-price freestanding store business. It also embarked on an ambitious licensing campaign that resulted in deals for DKNY Jeans and City DKNY with Liz Claiborne, fragrances with Estee Lauder and watches with Fossil.
While Idol’s tenure indeed saw a return to the black, it had its bumpier times too. Most notable were occasional reports of intense friction between Idol and Karan — resulting in split loyalties within the company, as well as some heated board meetings.
Karan had personally avoided licensing her name in the early days of her company and even attempted to build a beauty business in-house after the company went public in 1996. Its costly failure and the resulting impact on DKI stock was one of the reasons Idol was brought into the company.

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