COLE KENNETH PRODUCTIONS INC

On June 28, 2012, the Board of Directors, acting on the recommendation of its compensation committee, approved an amendment (the "Amendment") to the Company's Non-Qualified Deferred Compensation Plan (as amended, the "Compensation Plan") covering amounts deferred prior to October 5, 2004 and the related Non-Qualified Deferred Compensation Plan Trust Agreement (the "Trust Agreement") that the Company originally adopted for Mr. Cole on October 25, 1994. The Amendment was made effective on June 28, 2012.

Under the Compensation Plan (as amended), Mr. Cole is required to be paid 50% of his deferred compensation balance on December 1, 2012, 50% of the remainder of such deferred compensation balance (as adjusted for notional investment gains and losses) on December 1, 2017, and 100% of the remainder of such deferred compensation balance (as adjusted for notional investment gains and losses) on December 1, 2022. However, any unpaid portion of such deferred compensation balance will be paid in a lump sum following the earliest to occur of Mr. Cole's death, disability or separation from service or a change in control event with respect to the Company or its successors (as such term is defined for purposes of applicable Internal Revenue Service regulations). Prior to the adoption of the Amendment, the full amount of such deferred compensation would have been payable upon a "change in control" of the Company, as defined in the Compensation Plan, which would have been deemed to occur upon Mr. Cole's proposed acquisition of the Company. The Amendment will be effective regardless of whether or not the proposed merger announced by the Company on June 6, 2012 is completed.

As a result of this amendment to the plan, the Company reclassified $15.1 million as of June 30, 2012 from long-term deferred compensation to short-term deferred compensation assets and liabilities, respectively, within the Condensed Consolidated Balance Sheet.

STORE CLOSING, WAREHOUSE TRANSITION, OTHER PROFESSIONAL SERVICE AND SEVERANCE CHARGES: During the six months ended June 30, 2012, the Company incurred $2.5 million of professional service costs in connection with the proposal of the Company's Chairman of the Board, Mr. Cole, to acquire all of the Company's outstanding Class A Common Stock. Further, approximately $0.4 million of severance was recorded during the six months ended June 30, 2012 compared to $5.5 million during the six months ended June 30, 2011. The Company also closed two stores during the six months ended June 30, 2012 that incurred nominal costs to close the stores compared to closing nine full-priced retail stores and one outlet during the six months ended June 30, 2011 for approximately $7.0 million in net costs from contract lease terminations and other related costs to close the stores. In addition, in April 2012, one of the Company's third-party logistics vendors notified the Company it would cease its warehousing and distribution operations.  The Company replaced this logistics vendor and transitioned to a new distribution center.  The Company incurred certain additional charges of $1.9 million to transition to the new distribution center and mitigate disruption to its business in the second quarter of 2012.

Item 1. Legal Proceedings. On February 24, 2012, the Company had announced that it had received Mr. Cole's non-binding proposal to acquire all shares of Class A Common Stock that he does not already own or control for $15.00 per share in cash. Within five days of the Company's announcement of Mr. Cole's proposal, four purported shareholders of the Company filed putative class actions in New York state court against the Company, Mr. Cole and the members of the Board of Directors. On June 6, 2012, the Company announced that it had entered into a definitive merger agreement under which Mr. Cole would acquire all Class A shares that he does not already own or control for $15.25 per share in cash (the "Proposed Transaction"). Following the June 6, 2012 announcement, two more putative class actions were filed in New York state court by purported shareholders of the Company. On July 9, 2012, the court consolidated all six actions into a single action captioned In re Kenneth Cole Productions, Inc. Shareholder Litigation, Index No. 650571/2012. On July 11, 2012, the plaintiffs filed a consolidated amended complaint against the Company, Mr. Cole, the members of the Board of Directors, Marlin Equities VII, LLC, and KCP Holdco, Inc. and KCP Mergerco, Inc., two entities formed by Mr. Cole for the purpose of engaging in the Proposed Transaction. The consolidated amended complaint alleges that Mr. Cole and the members of the Board of Directors breached their fiduciary duties to the Company's public shareholders in connection with the Proposed Transaction, and that Marlin Equities VII, LLC, KCP Holdco, Inc. and KCP Mergerco, Inc. aided and abetted those alleged breaches of fiduciary duties. All of the defendants have filed notices with the court stating that they intend to file motions to dismiss the consolidated amended complaint in its entirety.