<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------
                         ANNUAL REPORT ON FORM 10-K/A-1
(MARK ONE)

/X/        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                       OR

/_/         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
            SECURITIES EXCHANGE ACT OF 1934

                 FOR THE TRANSITION PERIOD FROM              TO
                                                ------------    ------------

                         COMMISSION FILE NUMBER 1-11805
                                   ----------
                         DONNA KARAN INTERNATIONAL INC.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                              13-3882426
(State or other jurisdiction of                                 (IRS Employer
 incorporation or organization)                              Identification No.)

           550 SEVENTH AVENUE                                       10018
           NEW YORK, NEW YORK                                     (zip code)
(Address of principal executive office)

      REGISTRANT'S TELEPHONE NUMBER, (INCLUDING AREA CODE): (212) 789-1500

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

                                                      NAME OF EACH EXCHANGE
   TITLE OF EACH CLASS                                 ON WHICH REGISTERED
   -------------------                                 -------------------
     Common Stock                                     New York Stock Exchange

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
                                   -----------

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X  No
                                             ---   ---

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this FORM 10-K. __

      The aggregate market value of Registrant's Common Stock held by
nonaffiliates as of March 28, 2001 was $101,872,962 based on 11,194,831 such
shares outstanding on such date and the closing sales price for the Common Stock
on such date of $9.10 as reported on the New York Stock Exchange. As of March
28, 2001, the Registrant had 22,253,254 shares of Common Stock outstanding.*

---------

*     Does not include 18 shares of Class A Common Stock, par value $.01 per
      share, and two shares of Class B Common Stock, par value $.01 per share,
      outstanding as of such date.


<PAGE>

Part III of the Company's Annual Report on Form 10-K for the year ended December
31, 2000 is hereby amended and, as so amended, is restated below in its
entirety.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information with respect to executive officers of the Company which is
called for by this Item 10 is incorporated herein by reference to the
information set forth under the heading "Executive Officers of the Registrant"
in Item 1 of this Annual Report on Form 10-K.

         The Board of Directors currently consists of three classes of
directors, as nearly equal in number as possible. Directors hold office for
staggered terms of three years (or less if they are filling a vacancy) and until
their successors are elected and qualified, or until their earlier resignation
or removal. One of the three classes, comprising approximately one-third of the
directors, is elected each year to succeed the directors whose terms are
expiring. The Company currently has seven directors, consisting of two Class I
Directors, two Class II Directors, and three Class III Directors. There is one
vacancy in each of Class I and Class II. Although the directors in Classes I,
II, and III are serving terms which would have expired at the Company's annual
meeting of stockholders to be held in 2003, 2001, and 2002, respectively, these
directors currently are expected to serve as directors until consummation of the
proposed Merger of the Company. If the Merger is not consummated for any reason,
the Company will promptly convene an annual meeting of stockholders at which
time Class II directors will be presented for a vote of reelection.

         The current directors of the Company are set forth below. The
information concerning each director has been furnished by him or her to the
Company.

         CLASS II DIRECTORS WHOSE TERMS EXPIRE IN 2001

         STEPHAN WEISS, 62, has served on the Board of Directors since April
1996 and as Vice Chairman since July 1996. From 1985 to 1992, Mr. Weiss served
as the Operating Principal of the Company and from 1993 through 1995 as the
Co-Chief Executive Officer of the Company. During that time, Mr. Weiss served
the Company in various capacities, including having direct supervisory
responsibility at various times for the legal department, licensing, new
business ventures, and developing the Creative Services Department. Since July
1997, Mr. Weiss has served the Company in an advisory capacity. Mr. Weiss is the
husband of Ms. Donna Karan, Chief Designer and a director of the Company.

          M. WILLIAM BENEDETTO, 59, a founder and principal of Benedetto,
Gartland & Company Inc., a New York-based private placement and investment
banking firm, has served as a director of the Company since July 1996. Before
founding this firm in 1988, Mr. Benedetto was a senior executive in the
investment banking industry. Mr. Benedetto is Chairman of the Board of Visitors
of the Georgetown University School of Medicine.

         CLASS III DIRECTORS WHOSE TERMS EXPIRE IN 2002

         DONNA KARAN, 52, founded the Company along with Stephan Weiss, Tomio
Taki, Frank R. Mori, and Takihyo Inc. in 1984 and has served as Chief Designer
of the Company from the date of its formation and Chief Executive Officer from
the date of the Company's formation until August 1997. Ms. Karan has served on
the Board of Directors of the Company since April 1996, and has served as
Chairman of the Board since July 1996. Immediately prior to the formation of the
Company, Ms. Karan was the head designer at Anne Klein & Company. Ms. Karan is a
member of the Board of Directors of the Council of Fashion Designers of America
("CFDA"), the Design Industries Foundation for AIDS, and the Martha

                                       2
<PAGE>

Graham Center of Contemporary Dance. Ms. Karan also serves as a member of the
Board of Governors of the Parsons School of Design, a division of The New
School. Ms. Karan was honored as the CFDA's Designer of the Year in 1985 and
1990, as its Menswear Designer of the Year in 1992, and as its Womenswear
Designer of the Year in 1996. Ms. Karan is the wife of Mr. Stephan Weiss, Vice
Chairman of the Company.

         ANN MCLAUGHLIN KOROLOGOS, 59, has served as a director of the
Company since January 1997. Ms. McLaughlin Korologos is senior advisor to
Benedetto, Gartland & Company Inc., a New York-based private placement and
investment banking firm. Ms. McLaughlin Korologos also is Chairman Emeritus of
The Aspen Institute, an international non-profit, educational, and public
policy organization dedicated to serving leaders throughout the world, of
which she was Chairman from October 1996 until August 2000 and served as Vice
Chairman of this organization since August 1993. From May 1990 to September
1995, Ms. McLaughlin Korologos served as President of the Federal City
Council, Washington, D.C., a non-profit, non-partisan organization. From 1987
to 1989, Ms. McLaughlin Korologos was the United States Secretary of Labor.
She also served as Chairman of the President's Commission on Aviation
Security and Terrorism from 1989 to 1990 and as Under Secretary of the
Department of the Interior from 1984 to 1987. Ms. McLaughlin Korologos is a
director of AMR Corporation and its subsidiary, American Airlines Inc.,
Microsoft Corporation, Fannie Mae, Host Marriott Corporation, Kellogg
Company, Nordstrom (from which she will retire in May 2001), Vulcan Materials
Company, and Harman International Industries, Inc.

         FRANK R. MORI, 60, has served as a director of the Company since
January 2000 and founded the Company along with Donna Karan, Stephan Weiss,
Tomio Taki, and Takihyo Inc. in 1984. Since 1986, Mr. Mori has served as
Co-Chief Executive Officer and President of Takihyo Inc., which has been a
financial holding company since July 1999. Prior to that time, Takihyo Inc.
owned the Anne Klein group of companies, a women's apparel company, including
Anne Klein & Company, of which Mr. Mori was President and Chief Executive
Officer from 1975 to July 1999. Mr. Mori also is a director of The Stride Rite
Corporation.

         CLASS I DIRECTORS WHOSE TERMS EXPIRE IN 2003

         JOHN D. IDOL, 42, joined the Company in July 1997 and has served as
Chief Executive Officer and a director of the Company since August 1997. Prior
to joining the Company, Mr. Idol was employed by Polo Ralph Lauren Corporation,
a publicly-traded apparel company, from 1984 through July 1997, most recently as
Group President, Product Licensing including Home Collection operations.

         JOHN EYLER, 53, has served as a director of the Company since April
1999. Since January 2000, Mr. Eyler has been President and Chief Executive
Officer and a director of Toys "R" Us, Inc., a worldwide retailer of children's
products. From June 1992 to January 2000, he was Chairman and Chief Executive
Officer of F.A.O. Schwarz, an upscale retailer of toys. From 1989 to 1992, Mr.
Eyler was the Chief Executive Officer of the retail subsidiary of Hartmarx
Corporation, a men's clothing manufacturer, and from 1983 to 1989 was
Chairman/Chief Executive Officer of MainStreet, a retail division of Federated
Department Stores.

CERTAIN VOTING ARRANGEMENTS

         Pursuant to a stockholders agreement, Ms. Karan, Mr. Weiss, The Stephan
Weiss and Donna Karan Alaska Community Property Trust, the 2000 Stephan Weiss
Revocable Trust and the KW Trust (as hereinafter defined) (collectively, the
"Karan/Weiss Group"), are entitled to designate one member to the Board of
Directors of the Company (in addition to Ms. Karan and Mr. Weiss) as long as the
combined ownership of the shares of common stock of the Company held by members
of the Karan/Weiss Group is

                                       3
<PAGE>

not less than 20% of the then outstanding common stock. Additionally, pursuant
to such stockholders agreement, Mr. Tomio Taki, Mr. Frank R. Mori, Takihyo Inc.,
and certain affiliates of Messrs. Taki and Mori (collectively, the "Takihyo
Group") are entitled to designate (a) two members of the Board of Directors
until such time as the Takihyo Group sells any shares of common stock of the
Company owned by it (other than shares distributed to stockholders of Takihyo
Inc.) and (b) thereafter, one member of the Board of Directors as long as the
Takihyo Group owns not less than 10% of the then outstanding common stock,
except that if either Mr. Taki or Mr. Mori is otherwise able to serve, and is
serving, as the one designee of the Takihyo Group, then such person shall be
entitled to continue to serve as a director as long as the Takihyo Group
continues to own not less than 5% of the then outstanding common stock. The
stockholders agreement provides that neither Mr. Mori, Mr. Taki, nor any other
affiliate of the Takihyo Group may serve as a director as long as the Takihyo
Group has an ownership interest in, or either of such person is an officer or
director of, Anne Klein & Company or any other competitor of the Company.
Pursuant to the stockholders agreement, the Karan/Weiss Group, on the one hand,
and the Takihyo Group, on the other hand, have agreed to vote the shares of
common stock of the Company owned by them for each other's designees (and, in
the case of the Takihyo Group, for Ms. Karan and Mr. Weiss) as directors. The
designee to the Board of Directors of the Karan/Weiss Group and the designees of
the Takihyo Group (other than Messrs. Taki or Mori) must be reasonably
satisfactory to the Company's Board of Directors. Mr. Mori currently is serving
on the Board as the designee of the Takihyo Group. Additionally, Ms. Karan and
Mr. Weiss, each of whom holds nine shares of Class A common stock, and Messrs.
Taki and Mori, each of whom holds one share of Class B common stock, have agreed
in writing that, if the holders of Class A common stock or Class B common stock
are entitled to vote separately as a class with respect to a matter, they will
vote their respective shares of Class A and Class B common stock as nearly as
possible in the same manner as the holders of a majority of the shares of common
stock vote their shares with respect to such matter.

         Concurrently with the Company entering into the Merger Agreement with
LVMH, the members of the Karan/Weiss Group, which collectively beneficially own
approximately 23.6% of the outstanding shares of common stock of the Company,
entered into a voting agreement with LVMH and the Company pursuant to which Ms.
Karan, Mr. Weiss and the other members of the Karan/Weiss Group have agreed to
vote their shares of common stock of the Company in favor of the Merger and
against certain other specified corporate actions which could have the effect of
preventing or delaying the consummation of the Merger. The Karan/Weiss Group
also granted to LVMH an irrevocable proxy to vote their shares of common stock
in the manner described. The Karan/Weiss Group further agreed not to transfer,
encumber, or otherwise dispose of their shares of common stock of the Company,
except in connection with the Merger and other certain limited exceptions.

         In addition, certain members of the Takihyo Group, including Frank R.
Mori, which own an aggregate of approximately 23.2% of the outstanding shares of
common stock of the Company, have entered into a voting agreement with LVMH
pursuant to which such stockholders have agreed to vote their shares of common
stock of the Company in favor of the Merger and against certain other specified
corporate actions which could have the effect of preventing or delaying the
consummation of the Merger. The Takihyo Group voting agreement is similar to the
voting agreement with the Karan/Weiss Group described above.

                                       4
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

         The following table sets forth certain information concerning the
compensation earned for services rendered in all capacities for the 2000, 1999,
and 1998 fiscal years by the Chief Executive Officer and the four most highly
compensated executive officers of the Company (the "Named Executive Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                                            LONG-TERM
                                                        ANNUAL                            COMPENSATION
                                                     COMPENSATION                             AWARDS
                                         --------------------------------------  ----------------------------
                                                                                                   SECURITIES
                                                                   OTHER ANNUAL  RESTRICTED STOCK  UNDERLYING       OTHER
      NAME AND PRINCIPAL        FISCAL    SALARY($)    BONUS       COMPENSATION       AWARDS        OPTIONS      COMPENSATION
           POSITION              YEAR     ---------     ($)           ($)(2)       ($)(3)(4)(5)      (#)(4)         ($)(7)
           --------              ----                   ---           ------       ------------    ----------       ------
<S>                               <C>    <C>            <C>             <C>     <C>             <C>              <C>
DONNA KARAN ...................   2000   $ 100,000(1)   $ 100,000        --          --             --             --
Chairman of the Board and         1999     438,461(1)     326,603        --          --             --             --
Chief Designer                    1998     500,000           --          --          --             --             --

JOHN D. IDOL ..................   2000     948,066        750,000        --     2,616,636           --          957,927(8)
Chief Executive Officer           1999     900,000        750,000        --       418,997           --            5,000
                                  1998     900,000        750,000        --          --          200,000(6)       4,228

JOSEPH B. PARSONS .............   2000     446,162        350,000        --       438,125           --           45,058(9)
Chief Financial and Operations    1999     348,654        350,000        --        75,421         35,000         40,054(9)
Officer and Treasurer             1998     315,000        207,500      64,707        --           18,000(6)      30,372(9)

LEE GOLDENBERG ................   2000     350,208        192,500        --       359,668           --           32,835(9)
Corporate Executive Vice          1999     350,186        250,833        --        75,421         25,000         34,621(9)
President, Worldwide Operations   1998     350,000        175,000        --          --           18,000(6)      30,920(9)

LYNN E. USDAN .................   2000     300,014        117,000        --        34,000           --           26,101(9)
Corporate Senior Vice             1999     294,230        165,000        --        37,711           --           27,961(9)
President, General Counsel,       1998     250,000         87,500        --          --            3,000(6)      21,675(9)
and Secretary
</TABLE>

-----------
(1)      In connection with and in support of the restructuring announced by the
         Company in November 1999, Ms. Karan agreed that for the balance of
         fiscal 1999 and for fiscal 2000 and fiscal 2001 her annual base salary
         would be reduced to $100,000, as adjusted for increases in the Consumer
         Price Index. See "Employment Agreements" below.

(2)      Except as indicated, the aggregate amount of perquisites and other
         personal benefits awarded to, earned by, or paid to each Named
         Executive Officer was less than either $50,000 or 10% of the total of
         the annual salary and bonus for that executive officer during each of
         these years. Includes for Mr. Parsons in fiscal 1998 a one-time payment
         of $48,032 for reimbursement of relocation expenses and an annual
         automobile allowance of $14,400.

(3)      Under the Company's Equity Grant Program, a restricted stock award was
         granted on February 22, 2001 and March 24, 2000 to each Named Executive
         Officer (other than Ms. Karan) as follows: Mr. Idol - 42,388 shares in
         2001 and 56,332 shares in 2000; Mr. Parsons - 7,667 shares in 2001 and
         10,140 shares in 2000; Mr. Goldenberg - 7,667 shares in 2001 and 10,140
         shares in

                                       5
<PAGE>

         2000; and Ms. Usdan - 3,724 shares in 2001 and 5,070 shares in 2000.
         These shares vest on the fifth anniversary of the date of grant or
         earlier in 20% increments if the common stock trades at specified price
         levels. Additionally, these shares will become fully vested upon a
         change in control of the Company (such as the Merger). The amounts
         in the table reflect the market value of such restricted stock
         awards (without consideration of the restrictions), based on the
         closing price of the common stock on the date of grant.

(4)      All of the options in the table (other than those held by Ms. Usdan)
         were cancelled effective March 3, 2000, pursuant to each Named
         Executive Officer's election under the 2000 Executive Officer Exchange
         Program. In connection therewith, restricted stock awards were granted
         as follows: 299,783 shares for Mr. Idol, with a market value on the
         date of grant (without consideration of the restrictions) of
         $2,229,636; 49,496 shares for Mr. Parsons, with a market value on the
         date of grant (without consideration of the restrictions) of $368,125;
         and 38,947 shares for Mr. Goldenberg, with a market value on the date
         of grant (without consideration of the restrictions) of $289,668. These
         shares vest on the third anniversary of the date of grant or earlier in
         20% increments if the common stock trades at specified price levels.
         Additionally, these shares will become fully vested upon a change in
         control of the Company (such as the Merger).

(5)      Based on the closing price of the common stock of $9.00 at the end of
         fiscal 2000, the total market value of restricted shares owned by the
         Named Executive Officer (without consideration of the restrictions) was
         as follows: Mr. Idol 548,503 shares valued at $4,936,527; Mr. Parsons
         67,303 shares valued at $605,727; Mr. Goldenberg 56,754 shares valued
         at $510,786; and Ms. Usdan 8,794 shares valued at $79,146.

(6)      Reflects for Mr. Idol grants made to him in accordance with his
         employment agreement, including a grant of stock options for 100,000
         shares of common stock made in March 1999 with respect to the Company's
         1998 fiscal year. Reflects for Mr. Goldenberg, Mr. Parsons, and Ms.
         Usdan the grant of stock options made in March 1999 with respect to the
         Company's 1998 fiscal year. See note (4) above with respect to the
         cancellation of certain of these options.

(7)      Unless otherwise noted, represents matching contributions under the
         Company's 401(k) Plan, which contributions vest after six years of plan
         service with the Company, as defined in the Plan.

(8)      Mr. Idol was entitled to receive a payment of $750,000, plus interest,
         on the third anniversary of his employment agreement. The total payment
         made in connection with this agreement was $952,677.

(9)      Includes contributions under the Company's deferred compensation
         plan, which contributions vest after the fifth anniversary of
         participation in the plan, in the following amounts: for the 2000
         fiscal year, $39,808 for Mr. Parsons; $27,135 for Mr. Goldenberg;
         and $20,851 for Ms. Usdan; for the 1999 fiscal year $34,933 for Mr.
         Parsons; $30,051 for Mr. Goldenberg; and $22,962 for Ms. Usdan; and
         for the 1998 fiscal year, $26,250 for Mr. Parsons; $26,125 for Mr.
         Goldenberg; and $16,875 for Ms. Usdan.

STOCK OPTIONS

         No stock options or stock appreciation rights were granted to the Named
Executive Officers in fiscal 2000. Additionally, no options were exercised in
fiscal 2000 by the Named Executive Officers.

                                       6
<PAGE>

AGGREGATED OPTION EXERCISES IN FISCAL 2000 AND FISCAL 2000 OPTION VALUES (1)

<TABLE>
<CAPTION>

                          NAME
                          -----                                        NUMBER OF                       VALUE OF UNEXERCISED
                                                                      UNEXERCISED                      IN-THE-MONEY OPTIONS
                                                            OPTIONS AT FISCAL YEAR-END (#)           AT FISCAL YEAR-END ($)(2)
                                                            ------------------------------           -------------------------
                                                            EXERCISABLE       UNEXERCISABLE       EXERCISABLE       UNEXERCISABLE
<S>                                                         <C>               <C>                 <C>               <C>
Donna Karan...........................................           --                 --                 --                 --
John D. Idol .........................................           --                 --                 --                 --
Joseph B. Parsons ....................................           --                 --                 --                 --
Lee Goldenberg........................................           --                 --                 --                 --
Lynn E. Usdan.........................................         8,250              1,000                   21,064        1,938
</TABLE>

---------

(1)      No options were exercised in Fiscal 2000.
(2)      The value of in-the-money options assumes the closing sales price of
         the common stock underlying the options as of December 31, 2000 ($9.00
         per share).

EMPLOYMENT AGREEMENTS

DONNA KARAN

         Donna Karan has an employment agreement with the Company that provides
for her employment as the Company's Chairman of the Board and Chief Designer.
The employment agreement had an initial three-year term through December 31,
1999 and is automatically renewable for successive three-year terms, unless
otherwise terminated. The employment agreement provides for an annual base
salary of $500,000, as adjusted annually for increases in the Consumer Price
Index, and an annual bonus of up to 100% of base salary based on the Company's
adjusted pre-tax profits. In connection with and in support of the restructuring
that the Company announced in November 1999, Ms. Karan agreed that for the
balance of fiscal 1999 and for fiscal 2000 and fiscal 2001, her annual base
salary would be reduced to $100,000, as adjusted for increases in the Consumer
Price Index.

         Ms. Karan may terminate her employment without reason with at least
four months' notice to the Company. The employment agreement also may be
terminated at any time by written notice by Ms. Karan for "good reason" if: (i)
Ms. Karan (without her prior written consent) is no longer Chairman of the Board
and the sole Chief Designer; (ii) Ms. Karan is assigned duties and
responsibilities inconsistent with the employment agreement (without her prior
written consent); (iii) the Company fails to pay Ms. Karan all amounts required
under the employment agreement; (iv) there is a material breach of the
employment agreement by the Company; (v) there is a change in control of the
Company, including as a result of certain changes in ownership of voting
securities, an acquisition by a third party of 30% of the voting securities of
the Company, mergers, sales of assets, and certain changes in the composition of
the Board of Directors; (vi) there are any fundamental changes to the business
or operations of the Company that are material (without her prior written
consent); or (vii) a physician of recognized skill confirms to the Board of
Directors in writing that Ms. Karan's continued employment with the Company
would have a material adverse impact on her health or have an adverse effect on
her ability to perform her duties to the Company. The employment agreement may
be terminated by the Company only for "cause."

         If Ms. Karan terminates her employment with the Company for "good
reason" or upon termination as a result of Ms. Karan's death or disability, the
Company will pay to Ms. Karan (or her estate), a lump sum cash payment equal to
the sum of her current base salary and incentive bonus from the prior year for
the greater of one year and the remaining term of the employment agreement. The

                                       7
<PAGE>

employment agreement also provides that for a period of one year following the
termination of Ms. Karan's agreement, Ms. Karan will not participate or engage
in, either directly or indirectly, any business activity that is directly
competitive with the Company's then current principal product lines and price
points and could reasonably be expected to have a material adverse effect on the
Company. The employment agreement further provides that Ms. Karan will have no
obligation to mitigate the Company's financial obligations in the event of her
termination.

         During the term of the employment agreement, Ms. Karan is obligated to
devote substantially all her business time and attention to the Company and,
except with regard to Gabrielle Studio (which was sold to LVMH in January 2001),
may not have an interest in or perform a service that is in direct competition
with the Company's principal product lines and price points, which activity
could reasonably be expected to have a material adverse effect on the Company.
Subject to the foregoing and provided there is no interference with Ms. Karan's
primary obligations to the Company, Ms. Karan may engage in certain activities
for her own personal benefit, such as personal endorsements and appearances;
motion pictures; television; writing; speaking and teaching engagements;
photography; the fine arts; designing for stage, film, and other media;
architectural, industrial, and interior design (exclusive of home furnishings)
and sales of limited edition products based on such designs; and consulting
services in connection with the foregoing.

STEPHAN WEISS

         Stephan Weiss has an employment agreement with the Company that
provides for his employment as Vice Chairman of the Company's board of
directors. The agreement is automatically renewable for successive one-year
terms, unless otherwise terminated. In 1997, Mr. Weiss' agreement was amended to
provide for the elimination of his duties and responsibilities set forth in his
employment agreement and his compensation, for so long as John D. Idol serves as
the Company's Chief Executive Officer. Mr. Weiss' employment agreement is in
other material respects relating to termination and non-competition similar to
Ms. Karan's employment agreement.

JOHN D. IDOL

         John D. Idol has an employment agreement with the Company that provides
for his employment as the Company's Chief Executive Officer until June 30, 2002.
The agreement also provides for an automatic renewal for an indefinite term
unless and until 12 months' notice of termination is given by Mr. Idol or the
Company. Pursuant to the employment agreement, Mr. Idol is entitled to receive
an annual base salary of $950,000 for the 2001 fiscal year; $475,000 for the
period from the beginning of the 2002 fiscal year through June 30, 2002 if the
employment agreement is not renewed; and $950,000 for each fiscal year
thereafter. Mr. Idol is also entitled to receive, commencing with the 1998
fiscal year, a performance bonus (the "Performance Bonus Award") of up to
$750,000 per year based on certain performance criteria and an incentive bonus
(the "Incentive Bonus Award") of up to $2 million per year based on the Company
attaining certain performance goals.

         The Performance Bonus Award is payable during each fiscal year during
the term of his employment agreement if: (i) the Company's net income before
taxes or extraordinary items ("Pre-Tax Income") increases by 10% or more over
the actual Pre-Tax Income for the prior fiscal year, or (ii) the Company
licensing revenues increase by 10% or more over the actual licensing revenues
for the prior fiscal year. Even if the foregoing performance targets are not
attained, Mr. Idol will be entitled to receive the Performance Bonus Award upon
the attainment of the following additional performance targets for: (i) the 1999
fiscal year, if Pre-Tax Income is at least $11.5 million or licensing revenues
are at least $8 million; (ii) the 2000 fiscal year, if Pre-Tax Income is at
least $13.25 million or licensing revenues are at least $9.25 million; and/or
(iii) the 2001 fiscal year, if Pre-Tax Income is at least $15.25 million or

                                       8
<PAGE>

licensing revenues are at least $10.25 million. The additional performance
targets for the 2002 fiscal year and years thereafter during the term of Mr.
Idol's employment agreement also will be based on Pre-Tax Income and licensing
revenues (as described in the prior sentence) with such targets increasing by
10% per year.

         In addition, any amounts attained in excess of any performance target
set forth for any fiscal year under the Performance Bonus Award may be applied
to the applicable performance target for the next succeeding fiscal year or
years. Moreover, if a performance target is not attained in a particular fiscal
year, the attainment of such performance target in a subsequent fiscal year on a
cumulative basis will result in the performance bonus being deemed earned for
such prior and current fiscal years. There will be no partial payments if
performance targets are not attained.

         The maximum performance bonus payable under the Performance Bonus Award
for any fiscal year to Mr. Idol is $750,000 (prorated for partial years) plus
any amount not earned in prior years with regard to the award, provided that, in
all cases, the maximum amount payable for any fiscal year will not exceed $3
million.

         Mr. Idol will be eligible to earn an Incentive Bonus Award calculated
as a percentage of Pre-Tax Income in excess of $30 million. For Pre-Tax Income
of (i) $30 million to $75 million, the Incentive Bonus Award will be 2% of
Pre-Tax Income; and (ii) $75 million to $100 million, the Incentive Bonus Award
will be $1.5 million plus 1.5% of Pre-Tax Income in excess of $75 million. For
Pre-Tax Income in excess of $100 million, the Incentive Bonus Award will be
$1.875 million plus 1.0% of Pre-Tax Income in excess of $100 million. In no
event will the Incentive Bonus Award for any fiscal year exceed $2 million.
There will be no partial payments if the minimum performance targets are not
met.

         Each of the Performance Bonus Award and the Incentive Bonus Award was
approved by the Company's stockholders and is intended to comply with the
requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended.

         In addition, Mr. Idol was entitled to receive $750,000, plus interest,
upon the earliest to occur of the third anniversary of his employment agreement,
termination of his employment, or a change in control of the Company (as
defined), which amount the Company agreed to pay Mr. Idol when he joined the
Company and was paid in fiscal 2000 on the third anniversary of his employment.
Pursuant to this employment agreement upon commencement of Mr. Idol's
employment, he was granted options to purchase 400,000 shares of common stock
under the Company's 1996 Stock Incentive Plan. Pursuant to his agreement, Mr.
Idol received options to purchase 100,000 shares of common stock in each of
August 1998 and March 1999 and is entitled to receive options to purchase
100,000 shares of common stock on or about April 1, 2000 and 2001, provided that
the Company has recorded income before income taxes and extraordinary items in
the prior fiscal year. On January 24, 2000, the Incentive Compensation
Subcommittee approved the 2000 Executive Officer Exchange Program (the "2000
Exchange Program") in order to, among other things, provide the Company's
executive officers with more meaningful equity-based incentives and further the
mutuality of interests between the Company and the Named Executive Officers. The
2000 Exchange Program permitted the Company's Named Executive Officers to elect
to have the Company cancel all of their existing options and receive an award of
restricted shares intended to have the same economic value as the options,
determined on a Black-Scholes basis.

         On March 3, 2000, Mr. Idol elected to have all of his vested and
unvested options (options to purchase an aggregate of 600,000 shares of common
stock) canceled and replaced with an award of 299,783 shares of restricted
stock. The restricted shares will vest on the third anniversary of the date of
grant or earlier in 20% increments if the common stock trades at price levels
ranging between $12 and $20 per share.

                                       9
<PAGE>

         In addition, Mr. Idol agreed that the option grants to be made on or
about April 1, 2000 and 2001 will be made in accordance with the terms of the
Executive Officer Restricted Share Grant Program (the "Equity Grant Program").
The Equity Grant Program provides that in lieu of option grants, Mr. Idol will
be entitled to receive a grant of restricted shares intended to have the same
economic value as the options. The restricted shares will vest on the fifth
anniversary of the date of grant or earlier in 20% increments if the common
stock trades as specified price levels. On March 24, 2000, Mr. Idol received a
grant of 56,332 shares of restricted stock under the 1999 Equity Grant Program.
On February 21, 2001, Mr. Idol received a grant of 42,388 shares of restricted
stock under the 2000 Equity Grant Program.

         Pursuant to this employment agreement, in 1997 the Company also granted
Mr. Idol 150,000 shares of restricted common stock, which shares vest on the
fifth anniversary of date of grant or earlier in 20% increments if the common
stock trades at price levels ranging between $16 and $24 per share. Mr. Idol is
entitled to participate in the Company's benefit plans and the Company has
agreed to maintain a term life insurance policy on the life of Mr. Idol in the
amount of $5 million payable to his beneficiaries.

         The employment agreement with Mr. Idol requires 60 days' notice of
intent to terminate by Mr. Idol and three months' written notice of intent to
terminate by the Company if Mr. Idol is terminated "without cause" (as defined)
(or for a shorter period of time if terminated for "cause" (as defined)). If Mr.
Idol is terminated by the Company "without cause" or he terminates his
employment for "good reason" (as defined) prior to June 30, 2002, Mr. Idol will
be entitled to receive the sum of 2.99 times his base salary plus two times his
total bonus compensation (including his performance bonus and incentive bonus)
for the immediately prior fiscal year, plus accrued obligations, payable 30 days
after the date of termination and all then unvested restricted stock and stock
options will be fully vested.

         If Mr. Idol is terminated "without cause" or he terminates his
employment for "good reason" during the 12-month period following a change in
control (such as the Merger), he will be entitled to receive (i) the sum of
three times his base salary plus three times his total bonus compensation for
the immediately prior fiscal year; (ii) continued health, long-term disability
and life insurance at the level then in effect for 36 months. However, if Mr.
Idol commences other full-time employment that offers substantially similar or
improved health, long-term disability and life insurance, this continued
coverage will cease; (iii) full vesting of all then unvested shares of
restricted common stock and stock options; and (iv) outplacement services, up to
$50,000, for a period of one year commencing on the date of termination, but in
no event beyond the date on which Mr. Idol commences other full-time employment.
If these payments and benefits, or any other payments or benefits, are subject
to the 20% excise tax under the Internal Revenue Code of 1986 as "excess
parachute payments," then Mr. Idol will be entitled to receive a tax gross-up so
that he is in the same after-tax position as if there were no such excise tax.

         Mr. Idol is entitled to receive a transaction bonus equal to $750,000,
payable in a lump sum within 10 days following the earliest to occur of the
following events: (i) expiration of the six-month period following a change in
control, provided that Mr. Idol is continuously employed by the Company or any
successor for that six-month period, unless Mr. Idol dies or becomes disabled
during that period; (ii) the termination of his employment "without cause" on or
after a change in control; or (iv) the termination of his employment for "good
reason."

         In addition, the employment agreement provides that Mr. Idol is also
entitled to a special performance bonus equal to $1,250,000 under circumstances
specified in a separate letter agreement. Mr. Idol is not entitled to receive
this bonus in connection with the Merger.

                                       10
<PAGE>

JOSEPH B. PARSONS

         Joseph B. Parsons has an employment agreement with the Company that
provides for his employment as the Company's Chief Financial and Operations
Officer until December 31, 2003. Under the employment agreement, Mr. Parsons
receives an annual base salary of $475,000 beginning on January 1, 2001 and
$500,000 beginning on January 1, 2002. After that, the Company will review Mr.
Parson's compensation annually and may, in the Company's sole discretion,
increase his base salary. Pursuant to his agreement, Mr. Parsons also is
entitled to receive a cash bonus with a target between 50% and 100% of his base
salary, determined in accordance with the Company's Executive Incentive Plan.
Additionally, Mr. Parsons is entitled to participate in the Company's annual
stock option program for executives (or successor plan thereto) and is entitled
to a contribution by the Company of 5% of his base salary and bonus under the
Company's deferred compensation program for executives (which amount increases
to 20% of his base salary and bonus commencing for fiscal 2001). Mr. Parsons may
elect to defer between 10% and 100% of bonus to which he is entitled. The
Employment agreement further provides that, in the event of his termination by
the Company "without reason" or his termination of the agreement for "good
reason," he will be entitled to receive an amount equal to his then current
annual salary plus the bonus he earned during the prior fiscal year.

         In addition, Mr. Parsons is entitled to receive $1,000,000, plus
accrued interest at an annual rate of 9% compounded monthly, payable in a single
lump sum in cash within 30 days of October 10, 2005. However, if there is a
future disposition of the Company's properties and business substantially in
their entirety by merger, consolidation, sale of assets or otherwise (such as
the Merger) or Mr. Parsons is terminated "without cause" within one year
following a change in control, which includes the merger, then the deferred
amount will be fully vested and payable in a single lump sum in cash within 30
days of the closing of the transaction or the date of termination, as
applicable. During his employment with the Company, one-fifth of the deferred
amount will vest as of October 10, 2000 and one-fifth will vest as of each of
the first four anniversaries of that date. If Mr. Parsons is terminated "without
cause" (as defined) or he terminates his employment for "good reason" (as
defined), he will forfeit the unvested portion of the deferred amount and
receive payment of the vested amount within 30 days after the effective date of
termination.

         In the event Mr. Parsons becomes subject to the 20% excise tax on
"excess parachute payments" under the Internal Revenue Code of 1986, then
payments to Mr. Parsons will be automatically reduced to one dollar less than
the amount that would subject Mr. Parsons to the excise tax.

LEE GOLDENBERG

         Lee Goldenberg has an employment agreement with the Company that
provides for his employment as the Company's Corporate Executive Vice President,
Worldwide Operations. Under the employment agreement, Mr. Goldenberg receives an
annual base salary of $350,000, subject to increase at the Company's discretion.
This agreement has an initial term through December 31, 2003 and is
automatically renewable for successive one-year terms, unless otherwise
terminated. Pursuant to this agreement, Mr. Goldenberg is entitled to a target
bonus of between 50% and 100% of his base salary, determined in accordance with
the Company's Executive Incentive Plan (or successor plan thereto).
Additionally, Mr. Goldenberg is entitled to participate in the Company's annual
stock option program for executives (or successor plan thereto) and is entitled
to a contribution by the Company of 5% of his base salary and bonus under the
Company's deferred compensation program for executives. Commencing for fiscal
1999, Mr. Goldenberg may elect to defer between 10% and 100% of bonus to which
he is entitled. Mr. Goldenberg may terminate the employment agreement upon 60
days' written notice to the Company. If the Company terminates Mr. Goldenberg's
employment agreement without "cause," he will be entitled

                                       11
<PAGE>

to receive his base salary for a one-year period, provided that he complies with
specified confidentiality and non-solicitation covenants during that period.

LYNN E. USDAN

         In connection with the continued employment of Lynn E. Usdan, the
Company's Senior Vice President and General Counsel, the Company agreed, in
January 2001, to pay Ms. Usdan a special bonus in the amount of $150,000 if a
change in control, which includes the Merger, occurs on or before June 30, 2001
or $225,000 if a change in control occurs on or after July 1, 2001 and before
December 31, 2001. These amounts are payable upon the change in control. If
there is no change in control in 2001, $150,000 is payable on June 30, 2001 and
$75,000 on December 31, 2001. In any event, $225,000 is payable immediately
if Ms. Usdan's employment is terminated without cause.

CHANGE IN CONTROL ARRANGEMENTS UNDER COMPANY BENEFIT PLANS

         The Company has a severance plan that covers certain executive officers
and key employees of the Company. In the event of a change in control, as
defined (including the Merger), each covered employee who is terminated without
cause during the one year period subsequent to, or 90 days prior to, the change
in control is entitled to receive, in addition to severance benefits payable
under such individual's employment contract or other severance benefits due, a
lump sum payment equal to the employee's then current annual base salary.
Messrs. Parsons and Goldenberg and Ms. Usdan are covered by this plan.

         The Company has an Executive Incentive Plan (the "EIP") whereby bonuses
are generally paid to certain executive officers and key employees, based on
pre-determined performance criteria. Under the terms of the EIP, in the event of
a change in control (including the Merger), the Company is obligated to make at
least a pro rata payment of each employee's target bonus for that plan year up
to the date of the change in control. However, the Company may elect to make an
additional payment of up to the employee's full bonus target for such plan year.
All payments made under this change in control provision will reduce the
employee's final award for such plan year. Messrs. Parsons and Goldenberg and
Ms. Usdan participate in this plan.

         The Company has a deferred compensation plan covering certain executive
officers and key employees, which is based on compensation, is dependent upon
the Company achieving profitability and vests after a five-year period of
participation. In addition, amounts under the deferred compensation plan will
become fully vested upon a change in control of the Company, as defined in the
plan (including the Merger), if the acquiring company does not assume and
continue the deferred compensation plan. Messrs. Parsons and Goldenberg and Ms.
Usdan are covered by this plan.

         Under the Company's equity plans, all granted options and restricted
stock awards will vest in full, to the extent not already vested, upon a change
in control of the Company, as defined in the plans (including the Merger). Each
of the Company's executive officers and directors (other than Ms. Karan and
Messrs. Weiss and Mori) hold options and/or restricted stock under these plans.

DIRECTOR COMPENSATION

          Directors who are employees of the Company receive no compensation, as
such, for service as members of the Board of Directors or its committees.

                                       12
<PAGE>

         Each director who is not an employee or officer of the Company or a
subsidiary thereof ("Eligible Directors") receives an annual retainer of $25,000
and $1,000 for each Board and Committee meeting attended. The chairman of each
Committee receives an additional retainer fee of $2,500 per annum.

         Each Eligible Director is eligible to receive options under the
Company's 1996 Non-Employee Directors Stock Option Plan (the "Directors' Plan").
The Directors' Plan provides that, on the date of initial election or
appointment to the Board, each Eligible Director is granted a non-qualified
option to purchase 7,500 shares of common stock. Thereafter, other than with
respect to the year in which an Eligible Director receives an initial grant of
options, as of the first day of the month following the annual meeting of
stockholders, each Eligible Director is entitled to receive a non-qualified
option to purchase 1,000 shares of common stock. The options have an exercise
price equal to the fair market value of the common stock on the date of grant,
vest on the first anniversary of the date of grant, and have a 10-year term. In
addition, options granted and not previously exercisable will become vested and
fully exercisable immediately upon a change in control of the Company (as
defined in the Directors' Plan). Neither Ms. Karan, Mr. Weiss nor Mr. Mori (nor
Mr. Taki, if he is serving as a director) is eligible to receive options under
the Directors' Plan. The Directors' Plan authorizes the issuance of up to
100,000 shares of common stock, subject to adjustments in certain circumstances.

         Each Eligible Director also will receive a grant of a restricted stock
award under the Company's 1998 Non-Employee Director Restricted Stock Plan. Each
Eligible Director will receive an award of 500 shares of common stock as of the
first day of the month following the annual meeting of stockholders, which award
will vest on the first anniversary of the date of grant. In addition, the
restricted stock award will become fully vested upon a change in control of the
Company (as defined in the plan). Neither Ms. Karan, Mr. Weiss nor Mr. Mori (nor
Mr. Taki, if he is serving as a director) is eligible to receive restricted
stock awards under the Non-Employee Director Restricted Stock Plan.

         Eligible Directors also will be eligible to participate in a Voluntary
Deferred Compensation Plan for Non-Employee Directors of the Company (the
"Deferred Compensation Plan"). Pursuant to the Deferred Compensation Plan, an
Eligible Director, upon his or her election, may defer payment of his or her
cash retainer and meeting fees for five years or until he or she ceases to be a
director. The deferred amounts, at the election of the director, during the
deferral period either (i) are credited with interest at prescribed rates or
(ii) are converted to the equivalent of that number of shares of the Company's
common stock (based on the market price at the time of the deferral) that could
be purchased with the deferred amounts. All payments under the Deferred
Compensation Plan are in the form of cash. The Deferred Compensation Plan
provides that lump-sum payments of all deferred compensation will be made as
soon as administratively feasible following the date that (i) the participating
director ceases to be a member of the Board of Directors or (ii) the Deferred
Compensation Plan is terminated. Neither Ms. Karan, Mr. Weiss nor Mr. Mori (nor
Mr. Taki, if he is serving as a director) is eligible to participate in the
Deferred Compensation Plan.

         In connection with serving on the special committee of the Board of
Directors (which, among other things, considered the terms of the Merger), the
members of the special committee, John H. Eyler, Ann McLaughlin Korologos and
Frank R. Mori, will each receive compensation of $50,000, plus fees of $1,000
for each meeting of the special committee attended. These amounts are payable
regardless of whether the Merger is consummated. The chairperson of the special
committee, M. William Benedetto, has received compensation of $250,000 for his
services and will receive an additional $250,000, which amount is payable
regardless of whether the Merger is consummated.


                                       13
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Compensation Committee is comprised of Mr. Benedetto, Mr. Eyler and
Ms. McLaughlin Korologos (Chairperson). Ms. Karan serves as an ex-officio member
of such committee. Ms. Karan is the Chairman of the Board and Chief Designer.
Also see "Item 13. Certain Relationships and Related Transactions," for
information with respect to certain members of the Board of Directors.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information set forth on the following table is furnished as of
April 3, 2001 with respect to any person or group who is known to the Company to
be the beneficial owner of more than 5% of any class of the Company's voting
securities, and as to those shares of the Company's equity securities
beneficially owned by each of the Company's directors and executive officers,
and all of the Company's directors and executive officers as a group.

         Donna Karan and Stephan Weiss are married to each other. There are no
other family relationships among the Company's directors and executive officers.


                                       14
<PAGE>

<TABLE>
<CAPTION>

                                                                                       AMOUNT AND
                                                                                       NATURE OF
                                                                                       BENEFICIAL         PERCENTAGE OF
NAME                                                                                    OWNERSHIP             CLASS
----                                                                                    OF SHARES             -----
                                                                                        ---------
<S>                                                                                      <C>                  <C>
PRINCIPAL STOCKHOLDERS
Donna Karan (1)                                                                          5,243,028            23.6%
Stephan Weiss (1)                                                                        5,243,028            23.6%
The Stephan Weiss and Donna Karan Alaska Community Property Trust (2)                    3,968,540            17.8%
Tomio Taki (3)                                                                           4,285,174            19.1%
Frank R. Mori (3)                                                                        4,059,448            18.2%
Takihyo Inc. (3)                                                                         3,183,881            14.3%
LVMH Moet Hennessy Louis Vuitton Inc. (4)                                               10,618,789            47.7%
H.R.H. Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud (5)                               1,501,350             6.7%

DIRECTORS AND EXECUTIVE OFFICERS
Donna Karan (1)                                                                          5,243,028            23.6%
Stephan Weiss (1)                                                                        5,243,028            23.6%
John D. Idol (6)                                                                           548,503             2.5%
M. William Benedetto (7)                                                                    13,500                *
John H. Eyler (8)                                                                           13,500                *
Ann McLaughlin Korologos (9)                                                                13,000                *
Frank R. Mori (3)                                                                        4,059,448            18.2%
Joseph B. Parsons (6)                                                                       67,303                *
Lee Goldenberg (10)                                                                         56,854                *
Lynn E. Usdan (11)                                                                          17,444                *
Directors and Executive Officers as a Group (10 persons)(12)                            10,032,580            45.1%
</TABLE>

--------------

*        Less than 1%

(1)      Based on Amendment No. 4 to a Schedule 13D filed on April 3, 2001 by
         Donna Karan, Stephan Weiss, The Stephan Weiss and Donna Karan Alaska
         Community Property Trust (the "KW Alaska Trust"), The 2000 Stephan
         Weiss Revocable Trust (the "SW Trust") and The Trust Under Trust
         Agreement Dated February 2, 1996 For Benefit of Lisa Weiss Keyes, Corey
         Weiss and Gabrielle Karan (the "KW Trust"). Includes 3,968,540 shares
         of common stock held by the KW Alaska Trust, 982,800 shares of common
         stock held by the SW Trust and 291,688 shares of common stock held by
         the KW Trust. Ms. Karan and Mr. Weiss each disclaims beneficial
         ownership of these shares. LVMH shares voting and investment power with
         respect to these shares to the extent provided in the voting agreement
         described above in "Item 10. Directors and Officers of the Registrant -
         Certain Voting Arrangements." Does not include shares of common stock
         held by members of the Takihyo Group, which shares are subject to the
         stockholders agreement described in "Item 10. Directors and Officers of
         the Registrant - Certain Voting Arrangements." Also does not include
         shares of Class B common stock held by each of Tomio Taki and Frank R.
         Mori, which shares are subject to this stockholders agreement. Also
         excludes nine shares of Class A common stock held by each of Ms. Karan
         and Mr. Weiss, which shares are also subject to this voting agreement,
         as well as the voting agreement with LVMH. The business address of Ms.
         Karan and Mr. Weiss is 550 Seventh Avenue, New York, New York 10018.

                                       15
<PAGE>

(2)      Based on Amendment No. 4 to a Schedule 13D filed on April 3, 2001 by
         Donna Karan, Stephan Weiss, the KW Alaska Trust, the SW Trust, and
         the KW Trust. Ms. Karan and Mr. Weiss each disclaims beneficial
         ownership of these shares. LVMH shares voting and investment power
         with respect to these shares to the extent provided in the voting
         agreement described in "Item 10. Directors and Officers of the
         Registrant - Certain Voting Arrangements." Does not include shares
         of common stock held by members of the Takihyo Group, which shares
         are subject to the stockholders agreement described in "Item 10.
         Directors and Officers of the Registrant - Certain Voting
         Arrangements." Also does not include shares of Class B common stock
         held by each of Tomio Taki and Frank R. Mori, which shares are
         subject to the voting agreement described in "Item 10. Directors and
         Officers of the Registrant - Certain Voting Arrangements." The
         business address of Ms. Karan and Mr. Weiss, the investment trustees
         of the KW Alaska Trust, is 550 Seventh Avenue, New York, New York
         10018.

(3)      The shares attributed to Messrs. Taki and Mori include shares held of
         record by Takihyo Inc. Each of Messrs. Taki and Mori has a pecuniary
         interest in only a portion of these shares, and each disclaims
         beneficial ownership except to the extent of his interest. All of these
         shares are subject to the voting agreement described in "Item 10.
         Directors and Officers of the Registrant - Certain Voting Arrangements"
         and the stockholders agreement described above in the same section.
         Each of Messrs. Taki and Mori has sole voting and investment power with
         respect to the shares he holds of record and shares voting and
         investment power with respect to the shares Takihyo Inc. holds of
         record, except that LVMH shares voting and investment power with
         respect to all of these shares to the extent provided in the parties'
         voting agreement. Does not include shares of common stock held by
         members of the Karan/Weiss Group, which shares are subject to the
         stockholders agreement described in "Item 10. Directors and Officers of
         the Registrant - Certain Voting Arrangements." Also does not include
         shares of Class A common stock held by each of Ms. Karan and Mr.Weiss,
         which shares are subject to this stockholders agreement. The total does
         not include one share of Class B common stock held by each of Messrs.
         Taki and Mori, which is subject to the voting agreement with LVMH and
         the voting agreement described in "Item 10. Directors and Officers of
         the Registrant - Certain Voting Arrangements." The business address of
         Messrs. Taki and Mori and Takihyo Inc. is 45 West 45th Street, New
         York, New York 10036.

(4)      Includes shares that LVMH has the shared power to vote and dispose of
         to the extent provided in the voting agreements described in "Item 10.
         Directors and Officers of the Registrant - Certain Voting
         Arrangements." Also includes 215,000 shares owned by Sofidiv S.A., an
         affiliate of LVMH. The business address of LVMH is 19 East 57th Street,
         Fifth Floor, New York, New York 10022.

(5)      According to a Schedule 13D filed on September 29, 1997 by His Royal
         Highness Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud, His Royal
         Highness is a citizen of the Kingdom of Saudi Arabia and has sole
         voting power and investment power with respect to the shares he holds
         of record. The business address of His Royal Highness is P.O. Box 8653,
         Riyadh, 11492, Kingdom of Saudi Arabia.

(6)      Represents shares subject to restricted stock awards.

(7)      Includes 1,000 shares jointly owned with Mr. Benedetto's wife, 500
         shares subject to restricted stock awards, and 10,000 shares, which may
         be acquired upon the exercise of options that are presently exercisable
         or that will become exercisable within 60 days. Does not include 14,143
         fully vested stock units held in stock accounts under the Deferred
         Compensation Plan, the value of which depends directly upon the market
         price of the common stock.

(8)      Includes 500 shares subject to restricted stock awards and 7,500 shares
         which may be acquired upon the exercise of options that are presently
         exercisable or that will become exercisable within 60 days. Does not
         include 10,596 fully vested stock units held in stock accounts under
         the Deferred

                                       16
<PAGE>

         Compensation Plan, the value of which depends directly upon the market
         price of the common stock.

(9)      Includes 500 shares subject to restricted stock awards and 9,500 shares
         which may be acquired upon the exercise of options that are presently
         exercisable or that will become exercisable within 60 days. Does not
         include 3,173 fully vested stock units held in stock accounts under the
         Deferred Compensation Plan, the value of which depends directly upon
         the market price of the common stock.

(10)     Includes 56,754 shares subject to restricted stock awards.

(11)     Includes 8,794 shares subject to restricted stock awards and 8,250
         shares which may be acquired upon the exercise of options that are
         presently exercisable or that will become exercisable within 60 days.

(12)     Includes or excludes (as the case may be), the shares described in
         footnotes 1 through 11 above.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

LICENSE AGREEMENT FOR PRINCIPAL TRADEMARKS

         Gabrielle Studio Inc. entered into a license agreement (the "License
Agreement") with the Company at the time of the Company's initial public
offering in July 1996. From that time until January 17. 2001, Gabrielle Studio
was wholly-owned by Ms. Karan, Mr. Weiss, and the KW Trust. On January 17, 2001,
Gabrielle Studio was acquired by a corporation owned by LVMH.

         The License Agreement provides for the grant of an exclusive license
throughout the world to use, and to sublicense the right to use, the trademarks
"Donna Karan," "Donna Karan New York," "DKNY," "DK," and all variations thereof
(collectively, the "Licensed Marks") and to use and to sublicense the right to
use the name, signature, and likeness of Ms. Karan (the "Name") in connection
with the design, manufacture, distribution, sale (both at retail and at
wholesale), advertising, marketing, and promotion of products of any kind,
nature, or description except for certain products and other matters, such as
food products, restaurants, toys, and games and in connection with the provision
of certain store services. At the time of the consummation of the Company's
initial public offering, Gabrielle Studio licensed the right to use such
trademarks in connection with such specified retained products and services to
Ms. Karan (the "Reserved Rights License"). In connection with the purchase of
Gabrielle Studio by LVMH, the Reserved Rights License agreement was canceled and
replaced with a new license between Gabrielle Studio and GD II, LLC, a limited
liability company controlled by Ms. Karan.

         The License Agreement continues in perpetuity unless earlier terminated
as provided therein. The License Agreement provides that it may be terminated by
Gabrielle Studio upon the failure of the Company to pay any amount due within 60
days of receipt of notice of such failure, or if the Company violates the
quality control provisions of the License Agreement and fails to initiate and
thereafter pursue appropriate corrective action within 60 days after a final
unappealable determination by an arbitration tribunal or court of competent
jurisdiction that such violation has occurred. The License Agreement may be
terminated by Gabrielle Studio upon the occurrence of, among other events, a
change in control of the Company, which includes certain changes in the
ownership of voting securities, an acquisition by a third party of 30% of the
voting securities of the Company, mergers, sales of assets, and changes in the
composition of the Board of Directors. Gabrielle Studio has agreed that
Gabrielle Studio will not engage in any activities other than those related to
the Gabrielle License and its license agreement with Ms. Karan's affiliate.
However, there is no restriction on the transferability of shares of Gabrielle
Studio. The Company is paying all costs in connection with the transfer of
record ownership of the Licensed Marks to Gabrielle Studio and all costs
associated with the registration, prosecution, and infringement of the Licensed
Marks.

                                       17
<PAGE>

         The License Agreement imposes certain obligations on the Company with
respect to the use of sales materials, protection of the Licensed Marks,
indemnification of Gabrielle Studio, the maintenance of public liability
insurance, and quality control of products bearing the Licensed Marks or the
Name. The License Agreement also limits the use of the Licensed Marks in certain
circumstances and in general prohibits any transfer or assignment of the rights
thereunder.

         The License Agreement provides that the Company will pay to Gabrielle
Studio an annual royalty equal to 1.75% of the first $250 million of net sales
(as defined in the License Agreement, which includes products and store
services) for such year, plus 2.5% of the next $500 million of net sales for
such year, plus 3% of the next $750 million of net sales for such year, plus
3.5% of all net sales for such year in excess of $1.5 billion. For purposes of
computing the annual royalty, "net sales" includes sales by the Company, its
affiliates, its subsidiaries, and its sublicensees of products bearing any of
the Licensed Marks or the Name. During fiscal 2000 and prior to the sale of
Gabrielle Studio to LVMH on January 17, 2001, the Company incurred royalty
expense of $30.6 million to Gabrielle Studio pursuant to the License Agreement,
of which amount $12.9 million was accrued in fiscal 2000 but will be paid in
fiscal 2001.

REGISTRATION RIGHTS AGREEMENT

         In connection with the Company's initial public offering, the Company,
members of the Takihyo Group, Ms. Karan, Mr. Weiss, the KW Trust, and Gabrielle
Studio entered into a registration rights agreement, pursuant to which the
Company granted to members of the Takihyo Group and the Karan/Weiss Group
certain demand and "piggyback" registration rights. In connection therewith, the
Company has agreed to pay certain expenses related to the registration of
securities under the registration rights agreement.

BOUTIQUE AGREEMENT

         On October 29, 1998, the Company and Urban Zen LLC ("Urban Zen"), an
entity of which Ms. Donna Karan is the sole member, entered into a boutique
license agreement granting Urban Zen the right to open and operate a DONNA KARAN
NEW YORK flagship-store in New York City, which is scheduled to open in 2001.
The boutique agreement has an initial five-year term, with two renewal periods
at Urban Zen's option assuming certain conditions are met. The agreement further
provides that the Company will provide Urban Zen with certain management
services in connection with the operation of the store, in exchange for an
annual fee equal to the greater of 1-1/2% of sales and $75,000 (which amount was
reduced in 2000 from the greater of 3% of sales and $150,000 because of the
elimination of certain services to be performed), and that Urban Zen will be
entitled to offer for sale certain non-Company products. In all other material
respects, the boutique license agreement is similar to the Company's other
boutique agreements for DONNA KARAN NEW YORK stores, including provisions for
the sale of Donna Karan merchandise to Urban Zen, minimum purchase requirements
and minimum advertising requirements. It is expected that Ms. Karan will devote
a portion of her time to the Collection Store. Since the boutique was not open
in fiscal 2000, no fees were incurred by Urban Zen under the boutique agreement.

         Additionally, in connection with lease for this store, the Company has
agreed to permit Gabrielle Studio, which at the time was wholly-owned by Donna
Karan, Stephan Weiss, and the KW Trust, to guarantee Urban Zen's obligations
under the lease.

         In connection with the purchase of Gabrielle Studio, LVMH agreed to
acquire the DONNA KARAN NEW YORK store, by September 15, 2001, from Urban Zen at
its documented costs and expenses. The DONNA KARAN NEW YORK flagship store is
expected to open later this year. It is further anticipated that the boutique
license agreement will be terminated upon consummation of the Merger.

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<PAGE>

OTHER AGREEMENTS AND TRANSACTIONS

         For a discussion of the voting arrangement between the members of the
Karan/Weiss Group and members of the Takihyo Group, see "Item 10. Directors and
Officers of the Registrant - Certain Voting Arrangements."

         In addition, in connection with the reorganization of the Company in
connection with its initial public offering, the Company agreed to indemnify the
Karan/Weiss Group and the Takihyo Group for certain obligations arising prior to
or as a result of the reorganization.

         The Company has requested that Ms. Karan and Mr. Weiss reimburse the
Company for purchases of Company products. At December 31, 2000, $220,983 was
outstanding. No interest is being charged on these outstanding amounts.

LITIGATION

         In December 2000, several putative class actions were filed in state
court in Delaware and New York in connection with LVMH's initial proposal to
acquire the Company's outstanding shares for a price of $8.50 per share. The
actions filed in Delaware Chancery Court (New Castle County) are captioned:
HARBOR FINANCE PARTNERS V. DONNA KARAN, ET AL., C.A. No. 18559-NC; DONNA
HOUGHTON V. DONNA KARAN, ET AL., C.A. 18566-NC; DANIEL ORINGER V. DONNA
KARAN, ET AL., C.A. No. 18567-NC; PHIL DORFMAN V. DONNA KARAN, ET AL., C.A.
No. 18568-NC; E. JANET ALLRED V. DONNA KARAN, ET AL., C.A. No. 18569-NC; and
FREDERICK V. MAUER V. DONNA KARAN, ET AL., C.A. No. 18574-NC. The actions
filed in New York Supreme Court are captioned: ALICE BERMAN V. DONNA KARAN
INTERNATIONAL INC., ET AL., Index No. 125465/00; HARBOR FINANCE PARTNERS V.
DONNA KARAN, ET AL., Index No. 605638/00; and ROLLING INVESTOR GROUP, INC. V.
DONNA KARAN INTERNATIONAL INC., ET AL., Index No. 600032/01. All of the
complaints name Donna Karan International, Donna Karan, Stephan Weiss and
John D. Idol as defendants. Two of the complaints also name the Company's
independent board members as defendants and three of the complaints also name
LVMH as a defendant.

         These actions allege that (1) the $8.50 price initially offered by LVMH
to purchase the Company's common stock is inadequate, (2) the individual
defendants breached their fiduciary duties to Donna Karan International
stockholders in connection with LVMH's proposal and (3) Donna Karan and
Stephan Weiss furthered their own interests, at the expense of Donna Karan
International's interests, in allegedly negotiating with LVMH concerning the
proposed sale of Donna Karan International to LVMH.

         Following the commencement of these actions, counsel for Donna Karan
International and the other defendants entered into the following stipulations:
(1) a stipulation with counsel for plaintiffs in the actions filed in New York
staying these actions and providing that the outcome of these actions will be
governed by the outcome of the actions filed in Delaware; and (2) a stipulation
with counsel for plaintiffs in the actions filed in Delaware providing that
these actions will be consolidated and that defendants need not respond to the
individual complaints pending the filing of a consolidated amended complaint. No
consolidated amended complaint has been filed and discovery has not commenced.

         Although the outcome of these matters could have a material adverse
effect on the Company's results of operations and cash flows in the period in
which the outcome is determined, in the Company's opinion, the results of
these matters are not expected to have a material effect on the Company's
financial position or results of operations.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership of such securities with the
Securities and

                                       19
<PAGE>

Exchange Commission and the New York Stock Exchange. Officers, directors and
greater than 10% beneficial owners are required by applicable regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely upon a review of the copies of the forms furnished to the Company, or
written representations from certain reporting persons that no Forms 5 were
required, the Company believes that all filing requirements applicable to its
executive officers, and directors, and greater than 10% beneficial owners
were complied with during the 2000 fiscal year, except Mr. Taki inadvertently
did not file, on a timely basis, a report for each of January and February
2000 covering six and two purchases of common stock, respectively.

                                       20
<PAGE>


                                 Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to the Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.


                                       DONNA KARAN INTERNATIONAL
                                       INC. (Registrant)

Date: April 30, 2001                   By: /s/ John D. Idol
                                           -------------------------------------
                                           John D. Idol, Chief Executive Officer



Dated: April 30, 2001                  By: /S/ Joseph B. Parsons
                                           -------------------------------------
                                           Joseph B. Parsons, Chief Financial
                                           and Operations Officer



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