<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Kenneth Cole Productions, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
Kenneth Cole
New York
Kenneth Cole Productions, Inc.
152 West 57th Street
New York, NY 10019
April 22, 1999
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 27, 1999 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, to amend the Company's employee stock option plan to
increase by 500,000 the number of shares authorized for issuance, to approve
the Kenneth Cole Productions, Inc. 1999 Bonus Plan, 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, 1998. 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,
/s/ Kenneth D. Cole
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 27, 1999
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 27, 1999 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 amend the Kenneth Cole 1994 Employee Stock Option Plan to increase by
500,000 the number of shares authorized for issuance thereunder;
3. To approve the Kenneth Cole Productions, Inc. 1999 Bonus Plan;
4. To ratify the appointment of Ernst & Young LLP as independent auditors of
the Company to serve for the 1999 fiscal year; and
5. 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, 1999 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, 1999 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 27, 1999
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 27, 1999 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, 1999.
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, FOR the amendment of the Company's employee stock option plan to
increase by 500,000 the number of shares authorized for issuance, FOR the
approval of the Kenneth Cole Productions, Inc. 1999 Bonus Plan 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 for 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, 1999 the Company had outstanding 7,287,568 shares of Class A
Common Stock, par value $.01 (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 Company's
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.
1
<PAGE>
Under applicable 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 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, 1999 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.
2
<PAGE>
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
-------------------------- -----------------------
Name of Number of Number of
Beneficial Owner Shares Percent Shares Percent
- - ---------------- ------------ --------- ------------- ---------
<S> <C> <C> <C> <C>
Kenneth D. Cole (1)........ 5,997,898(2) 45.9 5,785,398 100%
Paul Blum (1).............. 212,602(3) 2.9
Stanley A. Mayer (1)....... 154,000(4) 2.1
Denis F. Kelly............. 87,500(5) 1.2
Robert C. Grayson.......... 19,583(6) *
Jeffrey G. Lynn............ 18,334(7) *
Susan Q. Hudson (1)........ 6,333(8) *
Harry M. Kubetz (1)........ 2,500(9) *
FMR Corp................... 794,000(10) 10.9
Baron Capital Group........ 745,500(11) 10.2
Lord Abbett & Co........... 659,260(12) 9.0
State of Wisconsin
Investment Board.......... 500,000(13) 6.9
All directors, nominees for
director and executive
officers as a group (8
persons).................. 6,430,325 49.7 5,785,398 100%
</TABLE>
- - --------
* 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) 62,500 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 48,000 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.
(4) Includes (a) 34,000 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 120,000 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.
(5) Includes 37,500 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 9,583 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 18,334 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 6,333 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.
3
<PAGE>
(9) Includes 2,500 shares which Mr. Kubetz has the right to acquire within 60
days upon the exercise of options granted to him under the Company's 1994
Stock Option Plan.
(10) As reported on Schedule 13(g) as filed with the Securities and Exchange
Commission on February 1, 1999.
(11) As reported on Schedule 13(f).
(12) As reported on Schedule 13(g) as filed with the Securities and Exchange
Commission on February 12, 1999.
(13) As reported on Schedule 13(g) as filed with the Securities and Exchange
Commission on January 16, 1999.
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 Annual 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.
Nominees for Director
The Company's Board of Director 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......... 45 President and Chief Executive Officer 1982
Paul Blum............... 39 Executive Vice President, Chief Operating Officer 1994
Stanley A. Mayer........ 51 Executive Vice President, Chief Financial Officer, 1994
Treasurer and Secretary
Robert C. Grayson....... 54 Management Consultant 1996
Denis F. Kelly.......... 49 Managing Director, Prudential Securities Inc. 1994
Jeffrey G. Lynn......... 49 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
4
<PAGE>
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 has served as Chief Operating Officer since 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 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 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.
5
<PAGE>
Harry Kubetz, age 46, 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 39, has served as Senior Vice President--Wholesale
Footwear since June 1998. 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 1998 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.
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 Audit Committee has general responsibility for reviewing with
management the financial and internal controls and the accounting, audit, and
reporting activities of the Company. The Audit Committee annually reviews the
qualifications and objectivity of the Company's independent auditors, makes
recommendations to the Board of Directors 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 1998, 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 Compensation Committee conducts an annual review of the
performance of the Company's Chief Executive Officer. The Compensation
Committee is authorized to consult with independent compensation advisors.
During 1998, the Compensation Committee met two times.
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 of Directors or any of
its Committees.
6
<PAGE>
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, 1998.
7
<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, 1998 (together, the "Named Executive Officers"), for services rendered in
all capacities to the Company and its subsidiaries for the years ended
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------------------ ---------------------
Restricted Securities
Name and Other Annual Stock Underlying Other
Principal Position Year Salary Bonus Compensation Awards ($) Options Compensation (1)
- - ------------------ ---- -------- -------- ------------ ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth D. Cole......... 1998 $700,000 $504,000 75,000
President and Chief 1997 600,000 245,000 50,000
Executive 1996 500,000 50,000
Paul Blum............... 1998 400,000 240,000 40,000 $7,866
Executive Vice 1997 300,000 140,000 20,000 692
President & COO 1996 250,000 175,000 20,000 1,500
Stanley A. Mayer........ 1998 250,000 120,000 20,000 1,600
Executive Vice 1997 215,000 93,000 10,000 1,600
President & CFO 1996 200,000 108,000 10,000 1,500
Susan Q. Hudson......... 1998 225,000 67,000 10,000 1,600
Senior Vice President 1997 175,000 40,000 5,000 1,600
1996 165,000 40,000 1,500
Harry Kubetz............ 1998 220,000 66,000 10,000 654
Senior Vice President 1997 200,000 20,000 10,000 633
1996 124,658 50,000 5,000
</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) Amounts represent the Company's matching contribution to the 401(k) plan
and for Mr. Blum, it includes a car allowance of $7,200.
8
<PAGE>
Option Grants in Last Year
The following table sets forth certain information concerning options to
purchase Class A Common Stock ("Options") granted during 1998 to the Named
Executive Officers:
<TABLE>
<CAPTION>
Potential Realizable
Value At Assumed
Rates of Stock Price
Appreciation for
Individual Grants (1) Option Term (2)
- - --------------------------------------------------------------- ---------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted in Year ($/Share) Date 5% 10%
- - ---- ---------- ------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Cole 75,000 22.3% $17.375 2-28-08 $ 819,528 $ 2,076,845
Paul Blum 40,000 11.9% $17.375 2-28-08 $ 437,082 $ 1,107,651
Stanley A. Mayer 20,000 6.0% $17.375 2-28-08 $ 218,541 $ 553,825
Harry Kubetz 10,000 3.0% $17.375 2-28-08 $ 109,270 $ 276,913
Susan Q. Hudson 10,000 3.0% $17.375 2-28-08 $ 109,270 $ 276,913
</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%
50%, 70%, and 100% of the shares underlying the options on the first,
second, third, fourth and fifth anniversaries of the date of grant,
respectively.
(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 1998 and the value of unexercised
options as of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money
Acquired Value Options at Year End (#) At Year-End ($)(1)
On Exercise Realized ------------------------- -------------------------
Name (#) ($) Unexercisable Exercisable Unexercisable
- - ---- ----------- -------- Exercisable ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Cole 0 0 33,333 141,667 $ 84,166 $145,209
Paul Blum 76,000 960,238 2,000 162,000 8,000 904,000
Stanley A. Mayer 32,950 710,828 149,000 39,000 2,348,500 63,500
Harry M. Kubetz 0 0 1,000 24,000 3,000 40,750
Susan Q. Hudson 3,000 36,927 4,667 13,333 43,188 23,625
</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, 1998 ($18.75).
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
9
<PAGE>
directors of the Company, participated in the Board's deliberations regarding
certain executive compensation. Mr. Blum received salary and bonus for 1998
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 1999 at $700,000. In addition, Mr. Cole is eligible to receive an annual
incentive bonus in accordance with the Kenneth Cole Productions, Inc. 1999
Bonus Plan. See "Compensation Committee Report on Executive Compensation."
In June 1998, the Company amended its employment agreement with Mr. Blum.
The employment agreement provides for his employment as the Company's Chief
Operations Officer through December 31, 1999. Pursuant to this agreement, Mr.
Blum received annual compensation in 1998 in the amount of $400,000. In
addition, Mr. Blum is eligible to an annual bonus based on the Company's
attainment of varying levels of pre-tax earnings. For the year ended December
31, 1998, Mr. Blum earned a bonus in the amount of $240,000.
In the event Mr. Blum's employment is terminated by the Company without
"cause," or by him for "Good Reason," (each as defined in his 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 will 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. Pursuant to this agreement, Ms. Hudson is eligible to receive an
annual salary adjustment and bonus incentive in accordance with the criteria
established by the Compensation Committee. The employment agreement contains
non-compete provisions and 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 of the Board of Directors which consists of three
independent outside directors, establishes and administers the policies that
govern the compensation of all executive officers of the company. The
Committee considers the performance of the executive officers and makes
recommendations concerning their compensation levels. All decisions by the
Committee relating to the compensation for the Company's executive officers
are reviewed and approved by the full Board of Directors.
The Company's compensation policies aim to align the financial interests of
the Company's management with those of its shareholders. The Company's
executive compensation philosophy also seeks to recognize individual
initiative and achievements and assist in attracting, motivating and retaining
a group of high-performing executives.
10
<PAGE>
Compensation for the executive officers, including the Named Executive
Officers, consists of the following elements: base salary, annual incentive
bonus, options granted under the 1994 employee stock option plan and other
benefits typically offered to corporate executives.
SECTION 162 (M) OF THE INTERNAL REVENUE CODE OF 1986
It is the Compensation Committee's policy to seek to qualify executive
compensation for deductibility under Section 162(m) of the Internal Revenue
Code of 1986. The Compensation Committee has reviewed the company's executive
compensation structure in light of the current tax law. The Compensation
Committee believes that compensation resulting from grants made under the
Kenneth Cole 1994 Employee Stock Option Plan will be fully deductible when an
option is exercised. The Compensation Committee also believes that payments
under the 1999 Bonus Plan will be fully deductible. Withdrawals under the
Company's deferred compensation plan may not be fully deductible to the extent
that compensation related to base salary for a particular executive exceeds
the $1.0 million limit in any tax year.
Executive Officers' 1998 Compensation
Salary
Base salaries for executive officers are initially determined by competitive
requirements to recruit the executive. Salaries are then reviewed annually
with the recommended adjustments made based upon the individual performance of
each executive officer and his/her contribution in achieving the company's
goals.
Annual Incentive Bonus
The Company's Annual Incentive Bonus Plan is designed to allow management to
share in the Company's success based on the company's attainment of varying
levels of pre-tax earnings. At the beginning of each year, the Committee
determines the incentive awards payable at varying levels of pre-tax earnings
achieved by the company. Such awards are expressed as a percentage of year-end
base salary and are payable in cash bonuses after year-end pursuant to this
formula. Potential awards for 1999 range from 0% to 100% of executive officers
base salaries, based on the actual level of pre-tax earnings achieved each
year relative to the targeted goal, as well as the position of the executive
officer. The performance based component of the award may range from 75% to
100% of the total award, as determined by the Committee at the beginning of
each year.
During 1998, the plan provided for awards to executive officers that, at the
targeted pre-tax earnings goal, ranged from 20% to 60% of base salary, with an
ability to double the awards based upon actual company performance. The 1998
bonus was 100% performance based with no discretionary component. During 1998
the Company exceeded its targeted pre-tax earnings goal, resulting in a range
of executive bonuses from 24% to 72% of base salaries.
Stock Options
The Company's 1994 Employee Stock Option Plan was established to align the
financial interests of the Company's shareholders and the executive officers
by providing incentives that focus management's attention on the successful
long-term strategic management of the business and appreciation in shareholder
value as well as to help recruit, motivate and retain a high-performing group
of senior and middle managers.
11
<PAGE>
All stock option awards are granted with an exercise price that is the fair
value of the Company's Class A Common Stock on the date of grant. These awards
provide value to the executive officers only when and to the extent that the
value of the Company's common stock appreciates over the value of the date of
grant. All employee stock option awards made in 1998 to executive officers
have a term of ten years and vest annually over a five year period.
Compensation of the Chief Executive Officer for 1998
Kenneth D. Cole is the President and Chief Executive Officer of the Company.
For 1998, the Compensation Committee established Mr. Cole's base salary at
$700,000 after considering his contribution to the continued growth,
profitability and strategic direction of the Company. The annual incentive
bonus portion of Mr. Cole's compensation was based on the Company's
achievement of targeted pre-tax earnings, as established by the Committee.
During 1998, the Company exceeded its targeted pre-tax earnings goal,
resulting in a bonus for Mr. Cole of $504,000, which equaled 72% of his base
salary. During 1998, Mr. Cole received 75,000 options with an exercise price
of $17.375, the market price of the Class A Common Stock on the date of grant.
The equity grant made to Mr. Cole was based primarily on his past and expected
future contributions to the achievement of the Company's strategic objectives.
Mr. Cole's 1999 performance-based compensation will be determined in
accordance with the Kenneth Cole 1999 Bonus Plan, which was adopted by the
Company in March 1999 and put forth to Shareholder approval at the 1999 Annual
Meeting of Shareholders. (See Proposal Three: "Kenneth Cole Productions, Inc.
1999 Bonus Plan.")
The Compensation Committee believes that the total fiscal year 1998
compensation payable to Mr. Cole is consistent with the Company's executive
compensation philosophy described above. The Committee also noted that, as
depicted by the graph that follows this report, the cumulative total return
achieved by the Company's shareholders since the Company's initial public
offering exceeds the return for the general and industry-specific indices.
Compensation Committee
Robert C. Grayson
Denis F. Kelly
Jeffrey G. Lynn
12
<PAGE>
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, 1998 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.
COMPARISON OF 55 MONTH CUMULATIVE TOTAL RETURN*
AMONG KENNETH COLE PRODUCTIONS, INC., THE S & P 500 INDEX
AND THE S & P FOOTWEAR INDEX
KENNETH COLE
PRODUCTIONS, INC. S & P 500 S & P FOOTWEAR
6/3/94 100 100 100
6/94 94 98 99
9/94 163 102 104
12/94 175 102 120
3/95 213 112 117
6/95 278 123 121
9/95 293 133 146
12/95 313 141 163
3/96 298 148 184
6/96 329 155 230
9/96 315 160 267
12/96 258 173 270
3/97 350 178 285
6/97 272 209 271
9/97 272 224 253
12/97 268 231 182
3/98 335 263 204
6/98 431 272 220
9/98 299 245 161
12/98 313 297 178
*$100 INVESTED ON 6/3/94 IN STOCK OR ON 5/31/94
IN INDEX, INCLUDING REINVESTMENT OR DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
<TABLE>
<CAPTION>
Cumulative
Total Return
------------
<S> <C>
Kenneth Cole Productions, Inc. Class A Common Stock................ $
S & P 500 Composite Index.......................................... $
S & P Footwear Index............................................... $
</TABLE>
13
<PAGE>
CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
During 1998, the Company made payments of approximately $186,000 to two
companies in connection with the hire and use of an aircraft owned by Cole
Aeronatics, Inc., whereby 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: AMENDMENT OF STOCK OPTION PLAN
The Kenneth Cole 1994 Stock Option Plan, (the "Plan") authorizes the
issuance of an aggregate of up to 1,500,000 Class A Common Shares to
employees, officers and directors of the Company.
As of December 31, 1998, 1,367,583 options, net of forfeitures, were granted
under the Plan, of which 342,145 have been exercised. As of December 31, 1998,
241,986 of the outstanding options granted had vested and were exercisable and
132,417 shares were available for future grants under the Plan.
In March 1999, the Board of Directors of the Company amended the Plan to
increase by 500,000 the number of Class A Common Shares authorized for
issuance in connection with options granted to employees, officers and
Directors of the Company. The Plan as amended is subject to the approval of
the Company's shareholders at the Annual Meeting.
Set forth below is a description of the general terms and conditions of the
Plan and certain federal income taxes consequences of Plan participation.
Purpose and Eligibility
The primary purpose of the Plan is to induce key employees, consultants and
members of the Board of Directors who are neither employees nor officers of
the Company ("Non-Employee Directors") to remain in the services of the
Company, to attract new key employees, consultants, and Non-Employee Directors
and to encourage such key employees, consultants and Non Employee Directors to
acquire stock ownership in the Company. The Plan contemplates the issuance of
options that qualify as "incentive stock options." ("Incentive Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
options that do not qualify as "incentive stock options" ("Non Qualified
Options") under Section 422 of the Code (collectively, "Options") or a
combination thereof, as determined by a committee of the Board of Directors of
the Company (the "Committee"). Options may be granted to key employees,
consultants or Non Employee Directors (collectively, "Eligible Persons").
However, Incentive Options may only be granted to key employees. In accordance
with certain provisions of the Plan, Incentive Options may be granted to an
Employee who owns immediately after such option is granted ten percent (10%)
or more of either the outstanding voting shares of the Company or the value of
all classes of stock of the Company ("10% Shareholder") as defined in Sections
422 and 424 of the Code. At present, the approximate number of Eligible
Persons is one thousand.
The aggregate number of Class A Common Shares with respect to which Options
may be granted under the Plan is 2,000,000. The aggregate number of Class A
Common Shares with respect to which Options may be granted to any Eligible
Person in any fiscal year is 100,000. As of the date of the Proxy Statement,
approximately 615,000 Class A Common Shares remain available for issuance
under the Plan and approximately 1,015,000 Class A Common Shares remain
subject to outstanding Options under the Plan.
14
<PAGE>
Administration
The Plan is administered by the Committee, which consists of not less than
two Non-Employee Directors. To the extent the composition of the Board of
Directors permits, the members of the Committee must be both "non-employee
directors" for purposes of Rule 16b-3 under the Exchange Act and "outside
directors" for purposes of Section 162(m) of the Code. The members of the
Committee are appointed by the Board of Directors and serve at the pleasure of
the Board of Directors. The Committee, in its sole discretion, has the
authority, among other things: to interpret the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; to determine the terms and
provisions of the respected option agreements or certificates; to determine
the Eligible Persons to whom Options will be granted ("Participants") and the
time or times and prices at which grants will be made and become exercisable
and forfeitable; to determine the number of Class A Common Shares covered by
an Option and whether such Option shall be an Incentive Option or a Non
Qualified Option; and to make all other determinations necessary or advisable
for the administration of the Amended Stock Plan; provided, however that Non
Employee Directors who are members of the Committee shall only be granted
Options in accordance with Section 6B of the Plan (relating to the "Non
Employee Directors' Formula Options" (as defined below)). All determinations
and interpretations made by the Committee are final, binding and conclusive on
all Participants and on their legal representatives and beneficiaries.
Non Employee Directors' Formula Options
Pursuant to the terms of the Plan, each Non Employee Director will be
granted an Option (a "Non Employee Director's Formula Option") to purchase a
certain number of Class A Common Shares at an initial per share option price
equal to the fair market value on the date of grant, provided that the initial
per share option price of a Non Employee Director's Formula Option granted
upon the effective date of the Company's first registration statement under
the Securities Act of 1993, shall be equal to the initial public offering
price in the offering made under such registration statement. Each Non
Employee Director's Formula Option has a term of ten years from the date of
grant and vests in fifty percent (50%) increments on the first and second
anniversaries of the grant.
Terms and Conditions of Options
In no event will the initial per share option price of the Class A Common
Shares covered by an Incentive Option be less than 100% of the fair market
value of each share on the date of grant. The initial per share option price
of the shares subject to an Incentive Option granted to a 10% Shareholder will
not be less than 110% of the fair market value of such shares at the time the
Incentive Option is granted. The initial per share option price of the Class A
Common Shares covered by a Non Qualified Option (other than a Non Employee
Director's Formula Option) shall not be less than 85% of the fair market value
of each share on the date of grant. In the event the fair market value of the
Class A Common Shares declines below the option price set forth in any Option,
the Committee may, at any time, adjust, reduce, cancel and regrant any
unexercised Option or take any similar action it deems to be for the benefit
of the Participant in light of the declining fair market value of the Class A
Common Shares, provided, however, that none of the above actions may be taken
without prior approval of the Board of Directors and none of the above actions
may be taken with respect to a Non Employee Director's Formula Option.
The Committee may, in its discretion, provide for the exercisability of any
Option, other than Non Employee Directors' Formula Options, at the time of
grant. If the Committee does not so provide, then a Participant shall
15
<PAGE>
become entitled to exercise one-third of the Class A Common Shares subject to
such Option on the second anniversary of the date of grant, another one-third
of such shares on the third anniversary of the date of grant and the remaining
one-third of such shares on the fourth anniversary of the date of grant. The
Committee may, in its discretion, permit any Option other than a Non Employee
Directors' Formula Option, to be exercised, in whole or in part, prior to the
time when it would otherwise be exercisable. The term of each Option cannot
exceed ten years from the date of grant. However, any Incentive Option granted
to a 10% Shareholder cannot be exercisable after the expiration of five years
from the date the Incentive Option is first granted, of the Class A Common
Shares subject to such Incentive Option which may become exercisable for the
first time by any Employee during any calendar year exceeds $100,000, such
excess shall be treated as a Non Qualified Option.
An Option may be exercised only by a written notice of intent to exercise
such Option, with respect to a specific number of Class A Common Shares, and
payment to the Company of the amount of the option price for the number of
Class A Common Shares so specified; provided, however that all or a portion of
such payment may be made in kind by the delivery of Class A Common Shares
which the Participant has held for at least six months at the time of
exercise, having a fair market value equal to the portion of the option price
so paid; provided, further, however, that subject to the requirements of
Regulation T under the Exchange Act, the Committee may implement procedures to
allow a Participant's broker to make payment of all or any portion of the
option price payable upon the exercise of an Option and receive, on behalf of
the Participant, all or any portion of the Class A Common Shares issuable upon
such exercise.
Termination of Employment
Unless otherwise determined by the Committee, if a Participant ceases to be
an employee, consultant or Non Employee Director of the Company for any reason
other than death or his retirement on or after his 65th birthday, his Option
shall terminate on the date he ceases to be an employee, consultant or Non
Employee Director, unless by its terms it expires sooner. In the event a
Participant ceases to be an employee, consultant or Non Employee Director by
reason of his death or retirement on or after his 65th birthday, his Option
shall become immediately exercisable in full and shall, to the extent not
exercised, terminate upon the earlier of (a) three months after the date of
the qualification of a representative of his estate or his retirement, (b) one
year after the date of death or (c) the expiration date of such Option.
Adjustment of Number of Shares
In the event that a dividend, payable in Class A Common Shares, is declared
upon the Class A Common Shares, the number of Class A Common Shares then
subject to any Option, the number of the Class A Common Shares reserved for
issuance under the Plan but not yet subject to an Option, and the number of
shares set forth in Sections 6B and 9B of the Plan, shall be adjusted by
adding to each share the number of shares which would be distributable thereon
if such shares had been outstanding on the date fixed for determining the
shareholders entitled to receive such stock dividend. In the event that the
outstanding Class A Common Shares are changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation, whether through reorganization, recapitalization,
stock split-up, combination of shares, sale of assets, merger or consolidation
in which the Company is the surviving corporation, then each Class A Common
Share subject to any Option, each Class A Common Share reserved for issuance
under the Plan but not yet subject to an Option and each Class A Common Share
referred to in Sections 6B and 9B of the Plan shall be substituted for the
number and kind of shares of stock or other securities into which each
outstanding Class A Common Share is being exchanged. In the event of any other
material change in the capital structure of the Company, the Committee, in its
sole discretion, may make an equitable or proportionate adjustment of the
terms
16
<PAGE>
of any Option, and its decision thereon will be final, binding and conclusive.
In the event of the dissolution of liquidation of the Company, or a merger,
reorganization or consolidation in which the Company is not the surviving
corporation, then except as provided on Section 13 of the Plan, each Option,
to the extent not exercised, will terminate.
Termination or Amendment
The Board of Directors may terminate the Plan at any time, provided that any
Option outstanding under the Amended Stock Plan at the time of termination of
the Plan will remain in effect until such Option is exercised or expires in
accordance with its terms. Unless previously terminated, the Plan will
terminate on the business day preceding the tenth anniversary of its effective
date. The Board of Directors may at any time amend the Plan as it deems
advisable. However, no such action may, without approval of a majority of the
shareholders of the Company present in person or by proxy at any special or
annual meeting of shareholders, increase the number of shares as to which
Options may be granted under the Plan of increase the number of shares with
respect to which Options may be granted to any Eligible person as provided in
Section 9B of the Plan. No termination or amendment of the Amended Stock Plan
shall deprive a Participant of his rights under outstanding Options, without
his consent.
Withholding of Taxes
The Company, in its discretion, may require that a Participant pay to the
Company, at the time of exercise, such amount as the Company deems necessary
to satisfy its obligations to withhold federal, state, or local income or
other taxes incurred by reason of the exercise of an Option or the transfer of
shares thereupon. Procedures and permissible methods for satisfying
withholding obligations will be arranged by the Participant with the Company.
Federal Income Tax Consequences
The following is a brief discussion of the Federal income tax consequences
of transactions under the Plan based on the Code, as in effect as of the date
hereof. The Plan is not qualified under Section 401(a) of the Code. This
discussion is not intended to be exhaustive and does not describe the state or
local tax consequences.
Incentive Options. No taxable income is realized by the Participant upon the
grant or exercise of an Incentive Option. If Class A Common Shares are issued
to a Participant pursuant to the exercise of an Incentive Option, and if no
disqualifying disposition of such shares is made by such Participant within
two years after the date of grant or within one year after the transfer of
such shares to such Participant, then (1) upon sale of such shares, any amount
realized in excess of the exercise price will be taxed to such Participant as
a long-term capital gain and any loss sustained will be long-term capital
loss, and (2) no deduction will be allowed to the Participant's employer for
Federal income tax purposes.
If the Class A Common Shares acquired upon the exercise of an Incentive
Option is disposed of prior to the expiration of either holding period
described above, generally (1) the participants will realize ordinary income
in the year of disposition in an amount equal to the excess (if any) of the
fair market value of such shares at exercise (or, if less, the amount realized
on the disposition of such shares) over the exercise price paid for such
shares, and (2) the Participant's employer will be entitled to deduct such
amount for Federal income tax purposes if the amount represents an ordinary
and necessary business expense. Any further gain (or loss) realized by the
Participant will be taxed as short-term or long-term capital gain (or loss),
as the case may be, and will not result in any deduction by the employer.
17
<PAGE>
Non Qualified Options. Except as noted below, with respect to Non Qualified
Options, (1) no income is realized by the Participant at the time the Non
Qualified Option is granted; (2) generally, at exercise, ordinary income is
realized by the Participant in an amount equal to the difference between the
exercise price paid for the shares and the fair market value of the shares, if
unrestricted, on the date of exercise, and the Participant's employer is
generally entitled to a tax deduction in the same amount subject to applicable
tax withholding requirements; and (3) at sale, appreciation (or depreciation)
after the date as of which amounts are includable in income is treated as
either short-term or long-term capital gain (or loss) depending on how long
the shares have been held.
New Plan Benefits
Inasmuch as Options to all Participants under the Plan will be granted at
the sole discretion of the Committee, such benefits under the Plan are not
determinable. Compensation paid and other benefits granted in respect of the
1998 fiscal year to the named executive officers are set forth in the Summary
Compensation Table.
The affirmative vote of a majority of the shares voting, in person or by
proxy, on the proposal at the Annual Meeting is required to approve the
amendment of the Plan.
The Board of Directors recommends a vote "FOR" Proposal Two.
PROPOSAL THREE: KENNETH COLE PRODUCTIONS, INC. 1999 BONUS PLAN
The Board of Directors has adopted and hereby submits to the stockholders
for approval the Kenneth Cole Productions, Inc. 1999 Bonus Plan (the "Bonus
Plan"). The Board of Directors believes that it is in the best interest of the
Company and the stockholders to adopt a plan which provides for incentive
compensation in the form of an annual bonus to key executives responsible for
the success of the Company. Compensation payable under the Bonus Plan is based
on annual corporate performance and is tied to an increase in stockholder
value. The Bonus Plan is designed so that, if approved by the Company's
stockholders, all compensation payable thereunder will be fully deductible by
the Company under Section 162(m) of the Code.
In prior years, the Company properly disclosed the performance criteria as
required under the Internal Revenue Code. However, the Board of Directors did
not seek Shareholder approval. Since the amounts paid for performance under
the plan did not exceed $1.0 million, the compensation was deductible. As part
of the proposal, the Board of Directors seeks approval of the Shareholders for
the prior year's plans.
The following is a summary of the material features of the Bonus Plan. A
full copy of the Bonus Plan has been filed with the Securities and Exchange
Commission.
Eligibility
Participation in the Bonus Plan will be limited to the Chief Executive
Officer and other executive officers of the Company designated by the
Compensation Committee. Currently, only the Chief Executive Officer has been
designated by the Compensation Committee for participation in the Bonus Plan.
Employees who have not been designated for participation in the Bonus Plan may
be entitled to incentive compensation at the discretion of the Compensation
Committee.
Plan Administration
The Bonus Plan will be administered by the Compensation Committee, which has
full power and authority to determine which key executives of the Company will
receive awards under the Bonus Plan, to set performance goals and bonus
targets as of the commencement of any fiscal year, to interpret and construe
the terms of the
18
<PAGE>
Bonus Plan, and to make all determinations it deems necessary in the
administration of the Bonus Plan, including the determination with respect to
the achievement of performance goals and the application of such achievement
to the bonus targets.
Performance Criteria; Bonus Awards
For each plan year, the Compensation Committee will select the performance
criteria to be used for that plan year. The permissible performance criteria
under the Bonus Plan are: (I) pre-tax earnings; (ii) earnings per share, (iii)
operating income; (iv) net sales; (v) licensing revenue; and (vi) net revenue.
Performance goals may be based upon any one or a combination of performance
criteria. The Compensation Committee will also determine the appropriate
weight to be given to any applicable performance criteria for a plan year. The
Compensation Committee will establish one or more performance goals not later
than ninety (90) days following the commencement of each fiscal year for which
annual bonus awards may be earned. At such time, the Compensation Committee
will also establish a target bonus for each participant for each plan year,
expressed as either a fixed dollar amount or as a percentage of a
participant's base salary. Actual bonus awards may be less than, equal to or
greater than the participant's target bonus, depending on the level of
attainment of performance criteria.
Bonus Payouts
At the end of every fiscal year for which bonus amounts can be earned, the
Compensation Committee will make a written determination with respect to each
participant as to the level of achievement of the performance goals. The
percentage of achievement will then be applied to the bonus targets to
determine the amount of bonus to be paid to each participant. However, the
maximum bonus amount that any individual may earn for any fiscal year is
$2,500,000.
Termination and Amendment
The Board of Directors may amend or terminate the Bonus Plan at any time,
provided that no amendment will be effective prior to approval by the
Company's stockholders to the extent such approval is required by Section
162(m) of the Code or otherwise required by law.
New Plan Benefits
Because the payment of an annual bonus under the Bonus Plan for any fiscal
year is contingent on the achievement of the performance goals as of the end
of the fiscal year, the Company cannot determine the amounts that will be
payable or allocable for fiscal year 1999 or in the future. Consequently, the
amount listed in the table below is based on Company performance for fiscal
year 1998, determined as if the Compensation Committee's designated criteria
and targets for 1999 had been in place during 1998.
<TABLE>
<CAPTION>
Name and Position Dollar Value(1) Number of Units
----------------- --------------- ---------------
<S> <C> <C>
Kenneth Cole $700,000 N/A
</TABLE>
- - --------
(1) This amount is based on the achievement of approximately 100% of the 1999
performance goals set by the Compensation Option Committee, based on the
Company's performance in 1998.
The Board unanimously recommends a vote "FOR" approval of Proposal Three.
19
<PAGE>
PROPOSAL FOUR: 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 2000 must be received by December 1, 1999 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 1998 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
20
<PAGE>
KENNETH COLE PRODUCTIONS, INC.
1999 BONUS PLAN
---------------
1. Purposes.
--------
The purposes of the Kenneth Cole Productions, Inc. 1999 Bonus Plan
(the "Plan") are to attract and retain highly-qualified executives by providing
appropriate performance-based short-term incentive awards and to serve as a
qualified performance-based compensation program under Section 162(m) of the
Code, in order to preserve the Company's tax deduction for compensation paid
under the Plan to Covered Employees.
2. Definitions.
-----------
The following terms, as used herein, shall have the following
meanings:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Bonus" shall mean any annual incentive bonus award granted pursuant to
the Plan, the payment of which shall be contingent upon the attainment
of Performance Goals with respect to a Plan Year.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(d) "Committee" shall mean the Compensation Committee of the Board.
(e) "Company" shall mean Kenneth Cole Productions, Inc., a corporation
organized under the laws of the State of Delaware, or any successor
corporation.
(f) "Covered Employee" shall have the meaning set forth in Section
162(m)(3) of the Code (or any successor provision).
(g) "Executive Officer" shall mean an officer of the Company who, as of the
beginning of a Plan Year, is an "executive officer" within the meaning
of Rule 3b-7 promulgated under the Securities Exchange Act of 1934, as
amended.
(h) "Participant" shall mean the chief executive officer and any other
Executive Officer selected by the Committee to participate in the Plan.
(i) "Performance Goals" shall mean the criteria and objectives that must be
met during the Plan Year as a condition of the Participant's receipt of
payment with respect to a Bonus, as described in Section 3 hereof.
(j) "Plan" shall mean the Kenneth Cole Productions, Inc. 1999 Bonus Plan,
as amended from time to time.
(k) "Plan Year" shall mean the Company's fiscal year.
<PAGE>
(l) "Stock" shall mean the Class A common stock of the Company, par value
$0.01 per share.
(m) "Subsidiary" shall mean any subsidiary of the Company that is
designated by the Board or the Committee to have an Executive Officer
participate in the Plan.
3. Performance Goals.
-----------------
Performance Goals for each Plan Year shall be established by the
Committee not later than March 30 of such year. Such Performance Goals may be
expressed in terms of one or more of the following: (i) Pretax Earnings; (ii)
Earnings Per Share; (iii) Operating Income; (iv) Net Sales; (v) Licensing
Revenue; and/or (vi) Net Revenue. To the extent applicable, any such
Performance Goal shall be determined in accordance with the Company's audited
financial statements and generally accepted accounting principles and reported
upon by the Company's independent accountants. In any event, such Performance
Goals shall be established so that a third party having knowledge of the
relevant facts could determine whether such Performance Goals are met.
Performance Goals may include a threshold level of performance below which no
Bonus payment shall be made, levels of performance at which specified
percentages of the target Bonus shall be paid, and a maximum level of
performance above which no additional Bonus shall be paid. The Performance
Goals established by the Committee may be (but need not be) different for each
Plan Year and different Performance Goals may be applicable to different
Participants.
4. Bonuses.
-------
(a) In General. For each Plan Year commencing with the Plan Year ending
----------
December 31, 1999, the Committee shall, no later than the time specified in
paragraph 3 hereof, specify the Performance Goals applicable to such Plan Year
and the amount of the target Bonus for each Participant with respect to such
Plan Year. A Participant's target Bonus for each Plan Year shall be expressed as
a dollar amount or as a percentage of such Participant's base salary for such
Plan Year, provided that, if expressed as a percentage of a Participant's base
salary, the amount of such base salary for purposes of the Plan may not be
increased for such Plan Year after the date on which the target Bonus is so
established. Payment of a Bonus for a particular Plan Year shall be made only if
and to the extent the Performance Goals with respect to such Plan Year are
attained and, unless otherwise provided by the Committee in its discretion in
connection with terminations of employment, only if the Participant is employed
by the Company or one of its Subsidiaries on the last day of such Plan Year. The
actual amount of a Bonus payable under the Plan shall be determined as a
percentage of the Participant's target Bonus, which percentage may vary
depending upon the extent to which the Performance Goals have been attained and
may be lesser than, greater than, or equal to 100%. The Committee may, in its
discretion, reduce or eliminate the amount payable to any Participant, in each
case based upon such factors as the Committee may deem relevant, but shall not
increase the amount payable to any Covered Employee for any Plan Year.
(b) Limitation on Bonuses. Notwithstanding anything to the contrary
---------------------
contained in this Plan, the maximum Bonus which may be earned by any Participant
under the Plan in respect of any Plan Year (prior to giving effect to any
election to defer receipt of all or any portion thereof) shall not exceed
$3,000,000.
(c) Time of Payment. Unless otherwise determined by the Committee, or
except as provided in Section 6(e) hereof, all payments in respect of Bonuses
granted under this Section
C-2
<PAGE>
4 shall be made no later than a reasonable period after the end of the Plan
Year. In the case of Participants who are Covered Employees, unless otherwise
determined by the Committee in connection with terminations of employment and
except as provided in Section 6(e) hereof, such payments shall be made only
after achievement of the Performance Goals has been certified by the Committee
in writing.
(d) Form of Payment. Payment of a Participant's Bonus for any Plan Year
---------------
shall be made in cash.
(e) Deferral Elections. The Company may give each Participant the right,
------------------
in accordance with rules and regulations to be established by the Committee, to
elect to defer the receipt of any or all of such Participant's Bonus under the
Plan in respect of any Plan Year.
5. Administration.
--------------
The Plan shall be administered by the Committee. The Committee shall
have the authority in its sole discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Bonuses; to determine the persons to whom and
the time or times at which Bonuses shall be granted; to determine the terms,
conditions, restrictions and performance criteria relating to any Bonus; to make
adjustments in the Performance Goals in response to changes in applicable laws,
regulations, or accounting principles to the extent not inconsistent with
Section 162(m) of the Code and the regulations thereunder; to the extent
provided in Section 4(a) hereof, to reduce the compensation payable upon
attainment of Performance Goals; to construe and interpret the Plan and any
Bonus; to prescribe, amend and rescind rules and regulations relating to the
Plan, including but not limited to rules and regulations referred to in Sections
4(d) and 4(e) hereof; and to make all other determinations deemed necessary or
advisable for the administration of the Plan.
The Committee shall consist of two or more persons each of whom is an
"outside director" within the meaning of Section 162(m) of the Code. The
Committee may appoint a chairperson and a secretary and may make such rules and
regulations for the conduct of its business as it shall deem advisable, and
shall keep minutes of its meetings. All determinations of the Committee shall
be made by a majority of its members either present in person or participating
by conference telephone at a meeting or by unanimous written consent. The
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, the Participant (or any person claiming any rights under
the Plan from or through any Participant) and any shareholder.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Bonus
granted hereunder.
6. General Provisions.
------------------
C-3
<PAGE>
(a) Compliance with Legal Requirements. The Plan and the granting of
----------------------------------
Bonuses, and the other obligations of the Company under the Plan shall be
subject to all applicable federal and state laws, rules and regulations, and to
such approvals by any regulatory or governmental agency as may be required.
(b) No Right To Continued Employment. Nothing in the Plan or in any Bonus
--------------------------------
granted shall confer upon any Participant the right to continue in the employ of
the Company or any of its Subsidiaries or to be entitled to any remuneration or
benefits not set forth in the Plan or to interfere with or limit in any way the
right of the Company to terminate such Participant's employment.
(c) Withholding Taxes. The Company or Subsidiary employing any Participant
-----------------
shall deduct from all payments and distributions under the Plan any taxes
required to be withheld by federal, state or local governments.
(d) Amendment and Termination of the Plan. The Board may at any time and
-------------------------------------
from time to time alter, amend, suspend, or terminate the Plan in whole or in
part; provided, however, that no amendment which requires stockholder approval
in order for the Plan to continue to comply with Code Section 162(m) shall be
effective unless the same shall be approved by the requisite vote of the
shareholders of the Company. Additionally, the Committee may make such
amendments as it deems necessary to comply with other applicable laws, rules and
regulations. Notwithstanding the foregoing, no amendment shall affect adversely
any of the rights of any Participant, without such Participant's consent, under
any Bonus theretofore granted under the Plan.
(e) Participant Rights. No Participant shall have any claim to be granted
------------------
any Bonus under the Plan, and there is no obligation for uniformity of treatment
among Participants.
(f) Unfunded Status of Bonuses. The Plan is intended to constitute an
--------------------------
"unfunded" plan for incentive compensation. With respect to any payments which
at any time are not yet made to a Participant pursuant to a Bonus, nothing
contained in the Plan or any Bonus shall give any such Participant any rights
that are greater than those of a general creditor of the Company.
(g) Governing Law. The Plan and the rights of all persons claiming hereunder
-------------
shall be construed and determined in accordance with the laws of the State of
Delaware without giving effect to the choice of law principles thereof.
(h) Effective Date. The Plan shall first be effective with respect to the
--------------
1999 Plan Year, but only if the Plan shall have been approved at the 1999 annual
meeting by the requisite vote approval of the shareholders of the Company.
(i) Interpretation. The Plan is designed and intended to comply with Section
--------------
162(m) of the Code, to the extent applicable, and all provisions hereof shall be
construed in a manner to so comply.
(j) Term. No Bonus may be granted under the Plan with respect to any Plan
----
Year after the Plan Year ending December 31, 2003. Bonuses made with respect to
the Plan Year ending December 31, 2003 or prior years, however, may extend
beyond the Plan Year ending December 31, 2003 and the provisions of the Plan
shall continue to apply thereto.
C-4
<PAGE>
KENNETH COLE PRODUCTIONS, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1999
Solicited on Behalf of the Board of Directors
The undersigned hereby authorizes Kenneth D. Cole and Stanely A. Mayer,
and each of them individually, with power of substitution, to vote and otherwise
represent all of the shares of Class A Common Stock of Kenneth Cole
Productions, Inc., (the "Company"), held of record by the undersigned, at the
Annual Meeting of Shareholders of the Company to be held at the Company's
administrative offices, 2 Emerson Lane, Secaucus, N.J. 07094, on Thursday, May
27, 1999 at 10:00 a.m. local time, and any adjournment(s) thereof, as indicated
on the reverse side hereof.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement dated in each case, April 22, 1999. All other
proxies heretofore given by the undersigned to vote shares of the Company's
Class A Common Stock are expressly revoked.
The shares represented by this proxy will be voted as described on the
reverse hereof by the Shareholder. If not otherwise directed, this proxy will
be voted FOR the election as directors of all nominees nominated in Item 1 and
FOR proposals 2, 3 and 4.
(Continued and to be dated and signed on the reverse side.)
KENNETH COLE PRODUCTIONS, INC.
P.O. BOX 11397
NEW YORK, N.Y. 10203-0397
<PAGE>
[_]
1. Election of Directors FOR all nominees WITHHOLD AUTHORITY *EXCEPTIONS
listed below to vote for all
nominees listed below.
Nominees: Paul Blum, Kenneth D. Cole, Robert C. Grayson, Denis F. Kelly, Jeffrey
G. Lynn, Stanley A. Mayer
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions ___________________________________________________________________
2. To amend the Kenneth Cole 1994 Employee Stock Option Plan to increase by
500,000 the number of shares authorized for issuance thereunder.
FOR [_] AGAINST [_] ABSTAIN [_]
3. To approve the Kenneth Cole Productions, Inc. 1999 Bonus Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
4. To ratify the selection by the Board of Directors of Ernst & Young LLP as
independent public accountants for the Company for the fiscal year ending
December 31, 1999.
FOR [_] AGAINST [_] ABSTAIN [_]
Change of Address or
Comments Mark Here [_]
Please sign exactly as the name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation please
sign in full corporate name by President
or other authorized officer and affix
corporate seal. If a partnership, please
sign in partnership name by general
partner.
Dated: _________________________. 199__
_______________________________________
Signature
_______________________________________
Signature
Votes must be indicated
(x) in Black or Blue ink. X
(Please sign, date and return this proxy
in the enclosed postage prepaid envelope.)
