<PAGE>
KENNETH COLE
NEW YORK
Kenneth Cole Productions, Inc.
152 West 57th Street
New York, NY 10019
April 22, 1998
To our Shareholders:
On behalf of the Board of Directors and management of Kenneth Cole
Productions, Inc., I cordially invite you to attend the Annual Meeting of
Shareholders on Thursday, May 28, 1998 at 10:00 A.M. at the Company's
administrative offices, 2 Emerson Lane, Secaucus, NJ 07094.
The principal matters of business will be the election of six members of the
Board of Directors and the ratification of Ernst & Young LLP as the Company's
independent auditors. Additional details about the meeting are contained in
the accompanying Notice of Annual Meeting and Proxy Statement. Certain
directors and executive officers of the Company will be present at the meeting
to respond to any questions that you may have. Accompanying the proxy
materials is the Company's Annual Report to Shareholders for the year ended
December 31, 1997. This report describes certain financial and operational
aspects of the Company.
It is important that your shares be represented whether or not you are able to
be present at the Annual Meeting. We are gratified by our shareholder's
continued interest in Kenneth Cole Productions, Inc. and urge you to complete,
sign and date the enclosed proxy card and return it promptly.
We look forward to seeing you at the meeting.
Sincerely,
Kenneth D. Cole
Chairman of the Board of Directors,
President and Chief Executive
Officer
<PAGE>
KENNETH COLE PRODUCTIONS, INC.
152 WEST 57TH STREET
NEW YORK, NY 10019
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------
MAY 28, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Kenneth Cole
Productions, Inc. (the "Company"), a New York corporation, will be held on
Thursday, May 28, 1998 at 10:00 A.M. at the Company's administrative offices,
2 Emerson Lane, Secaucus, NJ 07094 for the following purposes:
1. To elect six directors, two directors to be elected by the holders of the
Company's Class A Common Stock and four directors to be elected by the
holders of the Company's Class A Common Stock and the holder of the
Company's Class B Common Stock voting together as a single class, to serve
for a term of one year;
2. To ratify the appointment of Ernst & Young LLP as independent auditors of
the Company to serve for the 1998 fiscal year; and
3. To transact such other business as may properly be brought before the
meeting in connection with the foregoing or otherwise.
The Board of Directors set April 15, 1998, as the record date for the meeting.
This means that shareholders of record at the close of business on that date
are the only shareholders entitled to notice of and to vote at the meeting.
To assure your representation at the meeting, you are requested to fill in,
date and sign the enclosed proxy, which is solicited by the Company's Board of
Directors, and to mail it promptly in the envelope provided. Any shareholder
attending the meeting may vote in person even if he or she previously returned
a proxy.
By Order of the Board of Directors,
New York, New York Stanley A. Mayer
April 22, 1998 Secretary
IMPORTANT
A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED WITHIN THE UNITED STATES.
<PAGE>
KENNETH COLE PRODUCTIONS, INC.
152 WEST 57TH STREET
NEW YORK, NY 10019
----------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
----------------
MAY 28, 1998
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Kenneth Cole Productions, Inc., a New York corporation
(the "Company"), of proxies to be used at the Annual Meeting of Shareholders
(the "Annual Meeting"), to be held at the Company's administrative offices, 2
Emerson Lane, Secaucus, NJ 07094, on Thursday, May 28, 1998 at 10:00 A.M. and
at any adjournment or postponement thereof. The approximate date on which this
proxy statement, the foregoing notice and the enclosed proxy were first mailed
or given to shareholders was April 22, 1998.
The principal executive offices of the Company are located at 152 West 57th
Street, New York, New York 10019.
Shareholders who execute proxies retain the right to revoke them at any time
by notice in writing to the Secretary of the Company, by revocation in person
at the Annual Meeting or by presenting a later dated proxy. Unless so revoked,
shares represented by proxies received by the Company, where the shareholder
has specified a choice with respect to the election of directors or the other
proposals described in this proxy statement, will be voted in accordance with
the specification(s) so made. In the absence of such specification(s), the
shares will be voted FOR the election of all six nominees for the Board of
Directors and FOR ratification of the selection by the Board of Directors of
Ernst & Young LLP as the Company's auditors for the current year. Abstentions
and broker non-votes will not be included in vote totals and will not affect
the outcome of the vote.
The expenses of the solicitation of proxies for the Annual Meeting,
including the cost of preparing, assembling and mailing the enclosed form of
proxy and this proxy statement, will be paid by the Company. Such solicitation
may be made in person or by telephone by officers and employees of the
Company. In addition, the Company has retained Corporate Investor
Communications, Inc. to assist in the search for, and the distribution of
proxies to, beneficial owners of the Company's Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), held in street name or by other
nominees, and will pay such firm a fee of $850, plus reimbursement of direct,
out-of-pocket expenses incurred by such firm in such activity. Upon request,
the Company will reimburse brokers, dealers, banks and trustees, or their
nominees, for reasonable expenses incurred by them in forwarding material to
beneficial owners of shares of Class A Common Stock.
VOTING
On April 15, 1998 the Company had outstanding 7,519,470 shares of Class A
Common Stock, par value $.01 per share (the "Class A Common Stock") and
5,785,398 shares of Class B Common Stock, par value $.01 per share (the "Class
B Common Stock"). Only holders of record of the Class A Common Stock and the
Class B Common Stock at the close of business on that date are entitled to
notice of, and to vote at, the Annual Meeting. All of the Class B Common Stock
is owned by Kenneth D. Cole, President and Chief Executive Officer of the
Company.
Under New York law and the Company's By-Laws, the presence in person or by
proxy of a majority of the outstanding shares of the Class A Common Stock and
the Class B Common Stock, in the aggregate, is necessary
1
<PAGE>
to constitute a quorum at the Annual Meeting. For these purposes, shares which
are present or represented by proxy at the Annual Meeting will be counted
regardless of whether the holder of the shares or the proxy fails to vote on a
proposal ("abstentions") or whether a broker with authority fails to exercise
its authority with respect thereto (a "broker non-vote"). Abstentions and
broker non-votes will not be included, however, in the tabulation of votes
cast on proposals presented to shareholders. With regard to the election of
directors, votes may be cast in favor of or withheld from each nominee; votes
that are withheld (i.e., abstentions and broker non-votes) will have no
effect, as directors are elected by a plurality of votes cast. Except as
otherwise provided in the Company's Restated Certificate of Incorporation or
by law, the holders of the Class A Common Stock and the Class B Common Stock
vote together as a single class on all matters to be voted upon at the Annual
Meeting and any adjournment thereof, with each record holder of Class A Common
Stock entitled to one vote per share of Class A Common Stock, and each record
holder of Class B Common Stock entitled to ten votes per share of Class B
Common Stock. The Company's Restated Certificate of Incorporation provides
that the holders of the Class A Common Stock vote separately as a class to
elect 25% (not less than two directors) of the Company's Board of Directors.
The Board of Directors does not intend to bring any matter before the Annual
Meeting except as specifically indicated in the notice, nor does the Board of
Directors know of any matters which anyone else proposes to present for action
at the Annual Meeting. If any other matters properly come before the Annual
Meeting, however, the persons named in the enclosed proxy, or their duly
constituted substitutes acting at the Annual Meeting, will be authorized to
vote or otherwise act thereon in accordance with their judgment on such
matters.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 15, 1998 with
respect to the beneficial ownership of the Class A Common Stock and Class B
Common Stock, by (i) each beneficial holder of more than five percent of any
class of the Company's voting securities, (ii) each director and nominee for
director of the Company who owns shares of any class of the Company's voting
securities, (iii) the Company's Chief Executive Officer, and each of the
Company's four most highly compensated executive officers, other than the
Chief Executive Officer and (iv) all directors and executive officers of the
Company as a group. Except as otherwise indicated, each person listed has sole
voting power with respect to the shares beneficially owned by such person.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------------- ----------------------
NAME OF NUMBER NUMBER
BENEFICIAL OWNER OF SHARES PERCENT OF SHARES PERCENT
- ---------------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Kenneth D. Cole(1)............ 5,968,731(2) 44.9% 5,785,398 100%
Stanley A. Mayer (1).......... 181,950(3) 2.4
Paul Blum(1).................. 166,602(4) 2.2
Denis F. Kelly................ 82,500(5) 1.1
Robert C. Grayson............. 13,541(6) *
Jeffrey G. Lynn............... 13,334(7) *
Susan Q. Hudson (1)........... 3,667(8) *
Harry Kubetz (1).............. 0 *
Baron Capital Group........... 709,500(9) 9.4
State of Wisconsin Investment
Board........................ 700,000(10) 9.3
FMR Corp...................... 524,000(11) 7.0
All directors, nominees for
director and executive
officers as a group (8
persons)..................... 6,430,325 48.3% 5,785,398 100%
</TABLE>
2
<PAGE>
- --------
* Less than 1.0%
(1) The beneficial owner's address is c/o Kenneth Cole Productions, Inc., 152
West 57th Street, New York, NY 10019.
(2) Includes (a) 5,785,398 shares which Mr. Cole has the right to acquire
within 60 days upon the conversion of 5,785,398 shares of Class B Common
Stock held by Mr. Cole, (b) 100,000 shares held by The Kenneth Cole 1994
Charitable Remainder Trust, of which Mr. Cole is the sole trustee, (c)
50,000 shares held by the Kenneth Cole Foundation of which Mr. Cole is a
co-trustee with his wife and (d) 33,333 shares which Mr. Cole has the
right to acquire within 60 days upon the exercise of options granted to
him under the Company's 1994 Stock Option Plan.
(3) Includes (a) 29,000 shares which Mr. Mayer has the right to acquire within
60 days upon the exercise of options granted to him under the Company's
1994 Stock Option Plan and (b) an aggregate of 152,950 shares which Mr.
Mayer has the right to acquire within 60 days upon the exercise of options
granted to him pursuant to certain stock option agreements with the
Company.
(4) Includes 2,000 shares which Mr. Blum has the right to acquire within 60
days upon the exercise of options granted to him under the Company's 1994
Stock Option Plan.
(5) Includes 32,500 shares which Mr. Kelly has the right to acquire within 60
days upon the exercise of options granted to him under the Company's 1994
Stock Option Plan. Mr. Kelly's address is c/o Prudential Securities
Incorporated, One New York Plaza, New York, NY 10292.
(6) Includes 3,541 shares which Mr. Grayson has the right to acquire within 60
days upon the exercise of options granted to him under the Company's 1994
stock option plan. Mr. Grayson's address is Robert C. Grayson &
Associates, Inc., 1 Lafayette Place, Greenwich, CT 06830.
(7) Includes 13,334 shares which Mr. Lynn has the right to acquire within 60
days upon the exercise of options granted to him under the Company's 1994
Stock Option Plan. Mr. Lynn's Address is c/o Dunham's Athleisure Corp.,
5000 Dixie Highway, Waterford, Michigan 48329.
(8) Includes 3,667 shares which Ms. Hudson has the right to acquire within 60
days upon the exercise of options granted to her under the Company's 1994
Stock Option Plan.
(9) As reported on Schedule 13(g) as filed with the Securities and Exchange
Commission on February 18, 1998.
(10) As reported on Schedule 13(g) as filed with the Securities and Exchange
Commission on January 26, 1998.
(11) As reported on Schedule 13(g) as filed with the Securities and Exchange
Commission on February 9, 1998.
PROPOSAL ONE: ELECTION OF DIRECTORS
Six Directors are to be elected at the Annual Meeting to serve for a term of
one year and until their respective successors have been elected and shall
qualify. Each proxy received will be voted FOR the election of the nominees
named below unless otherwise specified in the proxy. If any nominee shall,
prior to the Meeting, become unavailable for election as a director, the
persons named in the accompanying form of proxy will vote in their discretion
for a nominee, if any, that may be recommended by the Board of Directors, or
the Board of Directors may reduce the number of directors to eliminate the
vacancy. At this time, the Board of Directors of the Company knows of no
reason why any nominee might be unable to serve. There are no arrangements or
understandings between any director or nominee and any other person pursuant
to which such person was selected as a director or nominee.
3
<PAGE>
NOMINEES FOR DIRECTOR
The Company's Board of Directors has nominated six directors to be elected
to the Board of Directors at the Annual Meeting, each of whom is currently a
Director of the Company: Kenneth D. Cole, Paul Blum, Stanley A. Mayer, Robert
C. Grayson, Denis F. Kelly and Jeffrey G. Lynn.
Denis F. Kelly and Jeffrey G. Lynn are the nominees for director for
election by the holders of the Class A Common Stock. The other nominees for
director will be elected by the vote of the holders of the Class A Common
Stock and the holder of the Class B Common Stock voting together as a single
class.
Certain information concerning the nominees is set forth below:
<TABLE>
<CAPTION>
YEAR BECAME
NAME AGE PRINCIPAL OCCUPATION A DIRECTOR
- ---- --- -------------------- -----------
<S> <C> <C> <C>
Kenneth D. Cole...... 44 President and Chief Executive Officer 1982
Paul Blum............ 38 Executive Vice President, Chief Operating Officer 1994
Stanley A. Mayer..... 50 Executive Vice President, Chief Financial Officer, 1994
Treasurer and Secretary
Robert C. Grayson.... 53 Management Consultant 1996
Denis F. Kelly....... 48 Managing Director, Prudential Securities Inc. 1994
Jeffrey G. Lynn...... 48 Chairman, President and Chief Executive Officer, 1995
Dunham's Athleisure Corp.
</TABLE>
Kenneth D. Cole has served as the Company's President and Chief Executive
Officer since its inception in 1982. Mr. Cole was a founder, and from 1976
through 1982, a senior executive of El Greco, Inc., a shoe manufacturing and
design company which manufactured Candie's women's shoes. Mr. Cole is on the
Boards of Directors of the American Foundation for AIDS Research ("AmFAR") and
H.E.L.P., a New York agency that provides temporary housing for the homeless.
In addition, Mr. Cole is a Director and President of each of the wholly-owned
subsidiaries of the Company.
Paul Blum was promoted to Chief Operating Officer in February 1998. He also
has served as Executive Vice President of the Company since May 1996 and as
Senior Vice President from August 1992 until May 1996. Mr. Blum joined the
Company in 1990. From 1982 until 1990, Mr. Blum served as Vice President and
was a principal shareholder of The Blum Co., a fashion accessory firm, the
assets of which were purchased in 1990 by the Company.
Stanley A. Mayer has served as Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of the Company since March 1988. From 1986
until joining the Company, Mr. Mayer held the position of Vice President--
Finance and Administration of Swatch Watch USA, Inc. Mr. Mayer was the
Controller of the Ralph Lauren and Karl Lagerfeld womenswear divisions of
Bidermann Industries, USA, Inc. from 1979 until 1986. In addition, Mr. Mayer
is the Vice President and Secretary of each of the wholly-owned subsidiaries
of the Company.
Robert C. Grayson is President of Robert C. Grayson & Associates, Inc. and
Vice Chairman of Berglass-Grayson, consulting firms. From 1992-1996, Mr.
Grayson served initially as an outside consultant to Tommy Hilfiger Corp., a
wholesaler and retailer of men's sportswear and boyswear, and later accepted
titles of Chairman of Tommy Hilfiger Retail, Inc. and Vice Chairman of Tommy
Hilfiger Corp. From 1970 to 1992, Mr. Grayson
4
<PAGE>
served in various capacities for Limited Inc., including President and CEO of
Lerner New York from 1985 to 1992, and President and CEO of Limited Stores
from 1983 to 1985.
Denis F. Kelly is a Managing Director and the head of the Mergers and
Acquisitions Department at Prudential Securities Incorporated since July 1993.
From 1991 until 1993, Mr. Kelly was President of Denbrook Capital Corp., a
merchant banking firm. Mr. Kelly was at Merrill Lynch from 1980 to 1991, where
he served as Managing Director, Mergers & Acquisitions from 1984 to 1986, and
then as a Managing Director, Merchant Banking, from 1986 to 1991. Mr. Kelly is
a director of MSC Industrial Direct, Inc.
Jeffrey G. Lynn has been the Chairman, President and Chief Executive Officer
of Dunham's Athleisure Corp., a specialty retailer of sportswear, since 1987.
Mr. Lynn joined Dunham's Athleisure Corp. in 1985 and served as president
until 1987. Prior to 1985, he served as Executive Vice President of the
Musicland Group, a specialty retailer of audio/video entertainment software.
Mr. Lynn is a director of English Gardens and Fairlane Florists, Inc. and SOL
Capital Management Company.
There are no family relationships among any directors or executive officers
of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES.
NAMED EXECUTIVE OFFICERS
Kenneth D. Cole, Stanley A. Mayer, Paul Blum, Harry M. Kubetz and Susan Q.
Hudson are the named executive officers of the Company. Mr. Blum and Ms.
Hudson have entered into employment agreements with the Company as described
under the caption "Executive Compensation--Employment Contracts".
Certain information regarding the named executive officers of the Company,
other than Mr. Kubetz and Ms. Hudson, is set forth above.
Harry M. Kubetz, age 45, has served as Senior Vice President of Operations
since joining the Company in April 1996. Prior to joining the Company, Mr.
Kubetz was President of "No Fear" Footwear, Inc. from 1994 until 1996. From
1992 until 1994 Mr. Kubetz was Executive Vice President of Asco General
Supplies, a Hong Kong company.
Susan Q. Hudson, age 38, was promoted to Senior Vice President--Kenneth Cole
Men's and Kenneth Cole Women's footwear divisions in October 1997. Ms. Hudson
had served as Divisional President--Men's Footwear since 1996 and as Vice
President in charge of men's footwear since 1990. Prior to joining the
Company, Ms. Hudson was at LA Gear, where she served as Regional Sales
Manager.
GOVERNANCE OF THE COMPANY
In accordance with applicable New York law, the business of the Company is
managed under the direction of its Board of Directors, which establishes the
overall policies and standards for the Company and reviews performance of
management. The directors are kept informed of the Company's operations at
meetings of the Board of Directors and committees of the Board and through
reports, analyses and discussions with management.
The Board of Directors meets quarterly. In addition, significant
communications between the directors and the Company occur apart from the
regularly scheduled meetings of the Board of Directors and its Committees.
During 1997 there were four regularly scheduled meetings of the Board of
Directors. All of the directors attended at least 75% of the aggregate number
of meetings of the Board of Directors.
5
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has standing Audit and Compensation
Committees; it does not have a standing Nominating Committee.
The Audit Committee, composed of Mr. Kelly, Mr. Lynn and Mr. Grayson,
represents the Board of Directors in discharging its responsibilities relating
to the accounting, reporting, financial and internal control practices of the
Company. The Committee has general responsibility for reviewing with
management the financial and internal controls and the accounting, audit, and
reporting activities of the Company. The Committee annually reviews the
qualifications and objectivity of the Company's independent auditors, makes
recommendations to the Board as to their selection, reviews the scope, fees
and results of their audit and is informed of their significant audit findings
and management's responses thereto. During 1997, the Audit Committee met two
times.
The Compensation Committee, composed of Mr. Kelly, Mr. Lynn and Mr. Grayson,
none of whom are current or former employees of the Company, is responsible
for approving salaries, bonuses and other compensation for the Company's Chief
Executive Officer and named executive officers, reviewing management
recommendations relating to new incentive compensation plans and changes to
existing incentive compensation plans, and for administering the Company's
1994 Stock Option Plan, including granting options and setting the terms
thereof pursuant to such plan (all subject to approval by the Board of
Directors). The Committee conducts an annual review of the performance of the
Company's Chief Executive Officer. The Committee is authorized to consult with
independent compensation advisors. During 1997, the Compensation Committee met
twice.
DIRECTOR COMPENSATION
Directors who are also employees of the Company are not paid any fees or
other remuneration, as such, for service on the Board or any of its
Committees.
Each non-employee director receives a retainer of $3,000 per quarter. In
addition, non-employee directors receive $1,000 for each regularly scheduled
quarterly Board meeting they attend. The Company's 1994 Stock Option Plan
provides that non-employee directors each receive (i) a grant of an option to
purchase 5,000 shares of Class A Common Stock upon agreeing to serve as a
director, pro rated based upon the number of months remaining until the next
annual meeting of shareholders and (ii) an annual grant of an option to
purchase 5,000 shares of Class A Common Stock to be made at the first meeting
of the Company's Board of Directors following each annual meeting of
shareholders. All options granted to non-employee directors are at an initial
per share option price equal to 100% of the fair market value of the Class A
Common Stock on the date of grant. The options granted to the non-employee
directors expire ten years from the date of grant and vest in 50% increments
on the first and second anniversaries of the grant. In addition, non-employee
directors are reimbursed by the Company for all expenses related to meetings.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of the filings furnished to the Company pursuant to Rule
16a-3(e) promulgated under the Securities Exchange Act of 1934 (the "Act") and
on written representations from its executive officers, directors and persons
who beneficially own more than 10% of the Class A Common Stock, the Company
believes that all filing requirements of Section 16(a) of the Act were
complied with during the year ended December 31, 1997.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation awarded to, earned
by or paid to the Company's Chief Executive Officer and to each of the
Company's four most highly compensated executive officers, other than the
Chief Executive Officer, who were serving as executive officers at December
31, 1997 (together, the "Named Executive Officers"), for services rendered in
all capacities to the Company and its subsidiaries for the years ended
December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
AWARDS
----------------------
ANNUAL COMPENSATION
------------------------------ RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS ($) OPTIONS (1) COMPENSATION (2)
- ------------------ ---- -------- -------- ------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth D. Cole 1997 $600,000 $245,000 50,000
President and 1996 500,000 50,000
Chief Executive 1995 500,000 $1,500
Officer
Paul Blum 1997 300,000 140,000 20,000 692
Executive Vice 1996 250,000 175,000 20,000 1,500
President & COO 1995 200,000 125,000 120,000 1,500
Stanley A. Mayer 1997 215,000 93,000 10,000 1,600
Executive Vice 1996 200,000 108,000 10,000 1,500
President & CFO 1995 175,000 125,000 1,500
Harry Kubetz 1997 200,000 20,000 10,000 633
Senior Vice 1996 124,658 50,000 5,000
President 1995
Susan Q. Hudson 1997 175,000 40,000 5,000 1,600
Senior Vice 1996 165,000 40,000 1,500
President 1995 155,000 30,000
</TABLE>
No stock appreciation rights, long-term incentive plan payouts or restricted
stock awards, as defined in the applicable regulations of the Securities and
Exchange Commission, were awarded to, earned by or paid to any of the Named
Executive Officers during any of the last three years.
- --------
(1) All per share amounts have been restated to reflect the October 1995 two-
for-one stock split, effected in the form of a stock dividend.
(2) Amounts represent the Company's matching contribution to the 401(k) plan.
OPTION GRANTS IN LAST YEAR
The following table sets forth certain information concerning options to
purchase Class A Common Stock ("Options") granted during 1997 to the Named
Executive Officers:
7
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
- ------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (2)
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED IN YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- ---------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Cole 50,000 31.9% $ 19.25 4-08-07 $ 605,311 $ 1,533,977
Paul Blum 20,000 12.8% $ 19.25 4-08-07 $ 242,124 $ 613,591
Stanley A. Mayer 10,000 6.4% $ 19.25 4-08-07 $ 121,062 $ 306,795
Harry Kubetz 5,000 1.9% $ 19.25 4-08-07 $ 60,531 $ 153,398
Susan Q. Hudson 2,000 1.9% $ 19.25 3-14-07 $ 24,212 $ 11,359
3,000 $13.8125 9-01-07 $ 26,060 $ 66,041
</TABLE>
- --------
(1) All options have a term of 10 years and were granted at a per share price
equal to the fair market value of the Class A Common Stock on the date of
grant. Option grants of 5,000 or greater are exercisable as to 10%, 30%,
60% and 100% of the shares underlying the options on the second, third,
fourth and fifth anniversaries of the date of grant, respectively. Option
grants of fewer than 5,000 are exercisable as to one-third of the shares
underlying the options on each of the first, second and third
anniversaries of the date of grant.
(2) The dollar amounts in these columns are the result of calculations at the
five and ten percent rates set by the Securities and Exchange Commission
and are not intended to forecast future appreciation of the Class A Common
Stock.
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUES
The following table sets forth information for the Named Executive Officers
regarding the exercise of Options during 1997 and the value of unexercised
options as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT YEAR END (#) AT YEAR END ($)(1)
ON EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Cole 0 0 33,333 66,667 0 0
Paul Blum 0 0 52,000 148,000 481,250 735,000
Stanley A. Mayer 0 0 180,950 20,000 2,403,932 13,125
Harry Kubetz 0 0 0 15,000 0 3,125
Susan Q. Hudson 0 0 6,000 5,000 60,375 6,750
</TABLE>
- --------
(1) The value of unexercised, in-the-money options, is the difference between
the exercise price of the options and the fair market value of the Class A
Common Stock at December 31, 1997 ($16.0625).
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors approves compensation decisions recommended
by the Compensation Committee. Kenneth D. Cole, Paul Blum and Stanley A.
Mayer, each of whom are executive officers and directors of the Company,
participated in the Board of Directors' deliberations regarding certain
executive
8
<PAGE>
compensation. Mr. Blum received salary and bonus for 1997 pursuant to his
employment agreement with the Company. See "Employment Agreements."
Employment Agreements
The Company presently does not have an employment agreement with Mr. Cole.
However, the Compensation Committee has established Mr. Cole's annual salary
for 1998 at $700,000. In addition, Mr. Cole is eligible to receive an annual
incentive bonus in accordance with the criteria established by the
Compensation Committee. See "Compensation Committee Report on Executive
Compensation."
In May 1996, the Company entered into an employment agreement with Mr. Blum.
The employment agreement provides for his employment as the Company's
Executive Vice President through May 30, 1999. Pursuant to this agreement, Mr.
Blum received annual compensation in 1997 in the amount of $300,000. In
addition, Mr. Blum is entitled to an annual bonus (up to $240,000 in 1997)
based on meeting specific personal and/or corporate objectives (33.33%
weighting) and (ii) the financial performance of the Company (66.67%
weighting) as determined by (a) the percentage increase in 1997 net sales over
1996 net sales (33.33%) and (b) the percentage increase in 1997 earnings per
share over 1996 earnings per share (33.33%). For the year ended December 31,
1997, Mr. Blum earned a bonus in the amount of $140,000.
In the event Mr. Blum's employment is terminated by the Company without
"cause," or by him for "Good Reason" (each as defined in the employment
agreement), he will be entitled to receive (i) his base salary through the end
of the term of the agreement, and (ii) an amount equal to one year's bonus
payable in 12 monthly installments. In addition, all outstanding options held
by Mr. Blum will immediately vest. In the event such termination occurs after
a "Change in Control" of the Company (as defined in the employment agreement),
he will receive an additional one year's salary and bonus. These payments are
subject to reduction, at the discretion of the Board of Directors, if
necessary to ensure that no portion of such compensation would not be
deductible for tax purposes by reason of Section 280G of the Internal Revenue
Code.
In October 1997, the Company entered into an employment agreement with Ms.
Hudson. The employment agreement, provides for her employment as President--
Men's Division for the Company. Pursuant to this agreement, Ms. Hudson's base
salary in 1997 was $175,000 and she is eligible to receive an annual salary
adjustment and bonus incentive in accordance with the criteria established by
the Compensation Committee. The employment agreement also provides for
severance payments to Ms. Hudson in the event that the Company terminates Ms.
Hudson's employment during the employment period for any reason other than
cause equal to 12 months' salary.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee ("Committee") is responsible for reviewing and
approving the Company's compensation policies and the compensation paid to its
executive officers, including the Chief Executive Officer and the other Named
Executive Officers. The Compensation Committee is comprised of non-employee
Directors who have no consulting arrangements or other significant
relationships with the Company.
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COMPENSATION PHILOSOPHY
The Compensation Committee's goal is to develop executive compensation
policies and practices that are consistent with and linked to the Company's
long term goal of maximizing shareholder value. The program is designed to
facilitate the long-term success and growth of the Company through the
attraction, motivation, and retention of outstanding executives.
The objectives of the Company's executive compensation programs are to:
[_]Attract and retain the highest quality executives;
[_]Inspire and motivate executive officers to increase Company performance;
[_]Align executive officers' financial interest with those of the Company's
long-term investors; and
[_]Reward executive officers for exceptional individual contributions to
the achievement of the Company's objectives.
COMPONENTS OF EXECUTIVE COMPENSATION
Executive compensation consists of three components: base salary, annual
incentive bonuses and long-term incentive awards (stock options). Each
compensation component is offered to executives in varying combinations,
structured in each case, to meet varying business objectives and to provide a
level of total compensation in the top fourth quartile of the range of
compensation offered by a comparative group.
The Committee determines base salary, annual incentive awards and stock
option awards for each of the Company's Named Executive Officers based upon
the Company's performance and individual performance. The Committee does not
apply any specific quantitative formulae in arriving at its compensation
decisions on base salary and long-term incentive awards. The Committee does
apply specific quantitative formulae, as described below, in arriving at
certain of its annual incentive award decisions.
BASE SALARY
The Compensation Committee reviewed and approved the 1997 base salaries for
the Chief Executive Officer and the other Named Executive Officers. Base
salaries for these executives are determined annually by evaluating the
responsibilities of the position and the Company's performance and the
individuals contribution to that performance.
Compensation levels of executives are analyzed by the Committee through an
assessment of prevailing compensation levels among the Company's competitors.
The Company's competitors, for this purpose, include selected companies with
revenues from $50 million to $500 million and with a market capitalization of
at least $50 million.
In determining a Named Executive Officer's annual base salary, including the
salary of the Chief Executive Officer, the Committee takes into account each
executive's success in achieving corporate, divisional, and individual
performance goals.
ANNUAL INCENTIVE BONUS
The annual bonus for 1997 for the Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer was based on achieving a combination of
personal and corporate objectives in accordance with a specific
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bonus formula developed by the Compensation Committee. The 1997 bonuses were
targeted at levels expressed as a percentage of base salary based on (i) the
individuals meeting specific personal and/or corporate objectives (33 1/3%
weighting) and (ii) the financial performance of the Company (66 2/3%
weighting) as determined by (a) the percentage increase in 1997 net sales over
1996 net sales and (b) the percentage increase in 1997 earnings per share
("EPS") over 1996 EPS. The Committee awarded the other Named Executive
Officers discretionary annual incentive bonus awards based upon their
individual performance and the Company's overall performance.
STOCK OPTIONS (LONG-TERM INCENTIVE AWARDS)
The Compensation Committee believes stock options are an effective long-term
award instrument because they focus management attention on long-term
shareholder return through stock price appreciation. Stock option awards are
granted in accordance with the Company's 1994 Stock Option Plan and are based
on Company and individual performance. The per share exercise price of options
granted is equal to the fair market value of Class A Common Stock on the date
of grant.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER FOR 1997
Kenneth D. Cole, the Company's President and Chief Executive Officer, is
eligible to participate in the same compensation plans available to the other
executive officers. For 1997, the Committee set Mr. Cole's base salary at
$600,000 after giving consideration to the continued growth of the Company,
Mr. Cole's leadership and management abilities and his ongoing efforts to
enhance the long-term value of the Company.
For 1997, the Committee awarded Mr. Cole an annual incentive award of
$240,000 based upon the annual incentive bonus formulae described above.
In March 1997, in lieu of bonus for 1996, Mr. Cole received 50,000 stock
options.
THE $1 MILLION CAP ON DEDUCTIBLE EXECUTIVE COMPENSATION
The Internal Revenue Code of 1986 prohibits the Company from taking a tax
deduction in any year for compensation paid the persons who would be named
executive officers in that year in excess of $1 million unless such
compensation is "performance-based compensation." The Company did not pay in
1997 any officer compensation which will be subject to the $1 million
deduction limitation. The Compensation Committee will take into consideration
the $1 million deduction limitation when structuring future compensation
packages for the Company's executive officers and, if appropriate and in the
best interests of the Company, will conform such packages to permit the
Company to take a deduction for the full amount of all compensation.
COMPENSATION COMMITTEE
Robert C. Grayson
Denis F. Kelly
Jeffrey G. Lynn
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STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Class A Common Stock during the period
beginning on June 3, 1994 (the date on which the Class A Common Stock began
trading on the New York Stock Exchange) and ending on December 31, 1997 with
the cumulative total return on the Standard & Poor's 500 Composite Index and
the Standard & Poor's Footwear Index. The comparison assumes that $100 was
invested on June 3, 1994 in the Class A Common Stock in the foregoing indices
and assumes the reinvestment of dividends.
GRAPH APPEARS HERE
[PLOT POINTS TO_COME]
CUMULATIVE
TOTAL RETURN
------------
Kenneth Cole Productions, Inc. Class A Common Stock................ $268
S & P 500 Composite Index.......................................... $231
S & P Footwear Index............................................... $182
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CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
During 1997, the Company made payments of approximately $69,000 to Miller
Aviation, Inc., in connection with the hire and use of an aircraft owned by
Cole Aeronautics, Inc., of which Kenneth D. Cole is the sole shareholder. All
transactions were made on similar terms and conditions that could have been
obtained with unrelated third parties.
PROPOSAL TWO: SELECTION OF AUDITORS
Ernst & Young LLP has been selected by the Board of Directors as the
independent auditors for the current year. Although shareholder ratification
of the Board of Directors' selection is not required, the Board of Directors
considers it desirable for the shareholders to pass upon the selection and, if
the shareholders disapprove of the selection, to consider the selection of
other independent certified public accountants for future years, since it
would be impracticable to replace the Company's independent auditors so late
in the current year.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting and will have the opportunity to make a statement if he desires
to do so and will be available to respond to appropriate questions from
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF THE INDEPENDENT AUDITORS.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Annual Meeting of
Shareholders in 1999 must be received by December 1, 1998 in order to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to that meeting. Shareholder proposals should be directed to the
Secretary of the Company, at the address of the Company set forth on the first
page of this proxy statement.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE TO EACH SHAREHOLDER, WITHOUT CHARGE AND UPON
WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K. ANY SUCH
WRITTEN REQUEST SHOULD BE DIRECTED TO INVESTOR RELATIONS, 2 EMERSON LANE,
SECAUCUS, NEW JERSEY 07094, OR [email protected].
Copies of the 1997 Annual Report to Shareholders are being mailed
simultaneously with this Proxy Statement. If you want to save the Company the
cost of mailing more than one Annual Report to the same address, the Company
will discontinue, at your request to the Secretary of the Company, mailing of
the duplicate copy to the account or accounts you select.
By Order of the Board of
Directors,
Stanley A. Mayer
Secretary
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