Prepared by MERRILL CORPORATION

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KbuRyQ5hEh2rcH/1h8hcCjC3v5SFBR+YnTpvW0RYQq00zV9KPanQfyoqSWDhB3wB GsoxWf5wvK+Kw8bOsHd7fw== 0000912057-01-514806.txt : 20010514 0000912057-01-514806.hdr.sgml : 20010514 ACCESSION NUMBER: 0000912057-01-514806 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: K2 INC CENTRAL INDEX KEY: 0000006720 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 952077125 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04290 FILM NUMBER: 1631031 BUSINESS ADDRESS: STREET 1: 4900 S EASTERN AVE STREET 2: SUITE 200 CITY: LOS ANGELES STATE: CA ZIP: 90040 BUSINESS PHONE: 3237242800 MAIL ADDRESS: STREET 1: 4900 S EASTERN AVE STREET 2: SUITE 200 CITY: LOS ANGELES STATE: CA ZIP: 90040 FORMER COMPANY: FORMER CONFORMED NAME: ANTHONY INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ANTHONY POOLS INC DATE OF NAME CHANGE: 19720317 10-Q 1 a2048653z10-q.htm 10-Q Prepared by MERRILL CORPORATION
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

For the Quarter Ended March 31, 2001

Commission File No. 1-4290

K2 INC.
(exact name of registrant as specified in its charter)

DELAWARE (State of incorporation)		95-2077125 (I.R.S. Employer Identification No.)
4900 South Eastern Avenue Los Angeles, California (Address of principal executive offices)		90040 (Zip Code)

Registrant's telephone number, including area code (323) 724-2800

Former name, former address and former fiscal year, if changed since last report:
Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /x/

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of April 30, 2001.

Common Stock, par value $1

17,938,076 Shares

FORM 10-Q QUARTERLY REPORT

PART 1 — FINANCIAL INFORMATION

ITEM 1 Financial Statements

STATEMENTS OF CONSOLIDATED INCOME (condensed)
(Thousands, except per share figures)

		Three months ended March 31
		2001			2000
		(Unaudited)
Net sales		$	173,213		$	184,992
Cost of products sold			122,530			130,752

	Gross profit		50,683			54,240
Selling expenses			28,463			30,144
General and administrative expenses			14,554			14,577

	Operating income		7,666			9,519
Interest expense			3,263			4,566
Other income, net			(167	)		(80	)

	Income before income taxes		4,570			5,033
Provision for income taxes			1,417			1,711

	Income from continuing operations		3,153			3,322
	Discontinued operations, net of taxes		—			416

	Net income	$	3,153		$	3,738

Basic earnings per share:
	Continuing operations	$	0.18		$	0.19
	Discontinued operations		—			0.02

	Net income		0.18			0.21

Diluted earnings per share:
	Continuing operations	$	0.17		$	0.18
	Discontinued operations		—			0.02

	Net income		0.17			0.20

Basic shares outstanding			17,943			17,949
Diluted shares outstanding			18,076			17,992

See notes to consolidated condensed financial statements.

CONSOLIDATED BALANCE SHEETS (condensed)
(Thousands, except number of shares)

			March 31 2001			December 31 2000
			(Unaudited)
Assets
Current Assets
	Cash and cash equivalents		$	2,081		$	3,174
	Accounts receivable, net			132,550			107,933
	Inventories, net			176,831			176,628
	Deferred taxes and income taxes receivable			7,826			8,963
	Prepaid expenses and other current assets			8,532			6,573

		Total current assets		327,820			303,271
Property, plant and equipment				170,285			167,216
Less allowance for depreciation and amortization				97,399			95,221

				72,886			71,995
Intangibles, principally goodwill, net				41,912			40,301
Other				3,963			3,717

		Total Assets	$	446,581		$	419,284

Liabilities and Shareholders' Equity
Current Liabilities
	Bank loans		$	19,036		$	25,767
	Accounts payable			66,740			46,732
	Accrued payroll and related			20,639			19,539
	Other accruals			23,881			22,145
	Current portion of long-term debt			4,587			4,594

		Total current liabilities		134,883			118,777
Long-term debt				81,336			69,836
Deferred taxes				3,423			3,423
Commitments and Contingencies
Shareholders' Equity
	Preferred Stock, $1 par value, authorized 12,500,000 shares, none issued Common Stock, $1 par value, authorized 40,000,000 shares, issued shares—18,673,646 in 2001 and 2000			18,674			18,674
	Additional paid-in capital			143,331			143,331
	Retained earnings			94,980			91,827
	Employee Stock Ownership Plan and stock option loans			(1,590	)		(1,645	)
	Treasury shares at cost, 747,234 shares in 2001 and 738,676 in 2000			(9,109	)		(9,045	)
	Accumulated other comprehensive loss			(19,347	)		(15,894	)

		Total Shareholders' Equity		226,939			227,248

		Total Liabilities and Shareholders' Equity	$	446,581		$	419,284

See notes to consolidated condensed financial statements.

STATEMENTS OF CONSOLIDATED CASH FLOWS (condensed)
(Thousands)

			Three months ended March 31
			2001			2000
			(unaudited)
Operating Activities
	Income from continuing operations		$	3,153		$	3,322
	Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
		Depreciation and amortization		3,594			3,093
		Deferred taxes		1,137			914
		Changes in noncash current assets and current liabilities		(2,834	)		18,751

Net cash provided by operating activities				5,050			26,080
Investing Activities
	Property, plant & equipment expenditures			(3,626	)		(1,576	)
	Disposals of property, plant & equipment			—			3
	Purchase of business			(4,581	)		—
	Change in accumulated other comprehensive loss			(3,453	)		(4,904	)
	Other items, net			755			(724	)

Net cash used in investing activities				(10,905	)		(7,201	)
Financing Activities
	Borrowings under long-term debt			35,000			31,790
	Payments of long-term debt			(23,507	)		(14,000	)
	Net decrease in short-term bank loans			(6,731	)		(36,948	)

Net cash provided by (used in) financing activities				4,762			(19,158	)

Net decrease in cash and cash equivalents from continuing operations				(1,093	)		(279	)
Discontinued operations
	Income from discontinued operations			—			416
	Adjustments to reconcile income to net cash provided by discontinued operations:
		Depreciation and amortization		—			713
		Capital expenditures		—			(109	)
		Other items, net		—			(415	)

Cash provided by discontinued operations				—			605
Net increase (decrease) in cash and cash equivalents				(1,093	)		326
Cash and cash equivalents at beginning of year				3,174			9,421

Cash and cash equivalents at end of period			$	2,081		$	9,747

See notes to consolidated condensed financial statements.

K2 INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001

NOTE 1—Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001.

The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the Consolidated Financial Statements and Notes to Financial Statements included in K2 Inc.'s ("K2's") Annual Report on Form 10-K for the year ended December 31, 2000.

NOTE 2—Summary of Significant Accounting Policies

Accounts Receivable and Allowances

Accounts receivable are net of allowances for doubtful accounts of $6,618,000 at March 31, 2001 and $6,969,000 at December 31, 2000.

Inventories

The components of inventory consisted of the following:

	March 31 2001		December 31 2000
	(Thousands)
Finished goods	$	136,277	$	137,733
Work in process		11,767		13,164
Raw materials		28,787		25,731

	$	176,831	$	176,628

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. Freight billed to customers ("freight recovery") is reported in net sales rather than netted against freight expense and the related freight costs incurred by K2 are reflected primarily in selling expenses. The amount of freight recovery reclassified to net sales for the quarter ended March 31, 2000 was $869,000. The amount of freight expense incurred by K2 reclassified to selling expenses from net sales for the quarter ended March 31, 2000 was $2,311,000. For the quarter ended March 31, 2000, the amount of outgoing freight expense reflected in selling expense amounted to $3,819,000. These reclassifications were not material to previously reported gross profit and had no impact on quarterly operating income or net income as previously reported in the 2000 first quarter.

NOTE 3—Borrowings and Other Financial Instruments

Covenants contained in K2's $75 million credit line and accounts receivable financing arrangement, among other things, restrict amounts available for payment of cash dividends and stock repurchases by K2. As of March 31, 2001, $11.9 million of retained earnings were free of such restrictions.

At March 31, 2001, $54.4 million of accounts receivable were sold under K2's $75 million domestic accounts receivable purchase facility, with no amounts sold under the $20 million facility available in Germany.

NOTE 4—Accumulated Other Comprehensive Loss

The components of other comprehensive loss are as follows:

	Currency Translation Adjustments			Derivative Financial Instruments Gains		Total
	(Thousands)
Balance at December 31, 2000	$	(16,366	)	$	472	$	(15,894	)
Change in cumulative translation adjustment		(3,779	)				(3,779	)
Change in unrealized gain on derivatives					326		326

Balance at March 31, 2001	$	(20,145	)	$	798	$	(19,347	)

Total comprehensive loss was $0.3 million and $1.2 million for the three months ended March 31, 2001 and 2000, respectively. Total comprehensive loss includes the net change in accumulated other comprehensive loss for the period.

NOTE 5—Earnings Per Share Data

Basic earnings per share ("EPS") is determined by dividing net income by the weighted average number of shares outstanding during the period. Diluted EPS reflects the potential dilutive effects of stock options, using the treasury stock method. The March 31, 2001 computation of diluted EPS included the dilutive effects of 133,000 stock options and excluded 946,000 stock options outstanding since their inclusion would have been antidilutive. The March 31, 2000 computation of diluted EPS included the dilutive effects of 43,000 stock options and excluded 1,057,000 stock options since their inclusion would have been antidilutive.

NOTE 6—Segment Information

The segment information presented below is as of March 31:

	Net Sales to Unaffiliated Customers				Intersegment Sales				Operating Profit (Loss)
	2001		2000		2001		2000		2001			2000
	(Millions)
Sporting goods	$	132.2	$	141.2	$	11.1	$	9.7	$	6.4		$	7.1
Other recreational		10.5		9.8		0.4		0.1		(0.7	)		(0.7	)
Industrial		30.5		34.0		0.3		0.5		3.8			4.8

Total segment data	$	173.2	$	185.0	$	11.8	$	10.3		9.5			11.2

Corporate expenses, net										(1.6	)		(1.6	)
Interest expense										3.3			4.6

Income from continuing operations before provision for income taxes									$	4.6		$	5.0

NOTE 7—Contingencies

K2 is subject to various legal actions and proceedings in the normal course of business. While the ultimate outcome of these matters cannot be predicted with certainty, management does not believe these matters will have a material adverse effect on K2's financial statements.

K2 is one of several named potentially responsible parties ("PRP") in three Environmental Protection Agency matters involving discharge of hazardous materials at old waste sites in South Carolina and Michigan. Although environmental laws technically impose joint and several liability upon each PRP at each site, the extent of the K2's required financial contribution to the cleanup of these sites is expected to be limited based upon the number and financial strength of the other named PRPs and the volume and types of waste involved which might be attributable to K2.

Environmental and related remediation costs are difficult to quantify for a number of reasons including the number of parties involved, the difficulty in determining the extent of the contamination, the length of time remediation may require, the complexity of environmental regulation and the continuing advancement of remediation technology. K2's environmental engineers, consultants and legal counsel have developed estimates based upon cost analyses and other available information for this particular site. K2 accrues for these costs when it is probable a liability has been incurred and the amount can be reasonably estimated. At March 31, 2001 and December 31, 2000, K2 had recorded an estimated liability of approximately $817,000 and $762,000, respectively, and made no provision for any expected insurance recovery.

The ultimate outcome of these matters cannot be predicted with certainty, however, management does not believe these matters will have a material adverse effect on K2's financial statements.

ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations

Comparative First Quarter Results of Operations

Net sales from continuing operations for the three months ended March 31, 2001 decreased to $173.2 million from $185.0 million in the year-earlier period. Income from continuing operations for the first quarter of 2001 declined to $3.2 million, or $.17 per diluted share, from $3.3 million, or $.18 per diluted share, in the first quarter of 2000. Net income decreased to $3.2 million, or $.17 per diluted share, from $3.7 million, or $.20 per diluted share, in the prior year quarter.

Net Sales. In the sporting goods segment, net sales decreased 6.4% to $132.2 million from $141.2 million in the 2000 first quarter. Growth in sales of K2 Kickboard scooters, skis and Stearns marine products partially offset declines in in-line skate and worldwide fishing tackle sales, resulting in the overall decrease of sales in the segment. The increase in Kickboard scooter sales was due to strong demand in the European market following a successful introduction of the Kickboard in 2000. In a seasonally slow quarter, double-digit sales increases of skis were reported reflecting the success of the MOD technology and a favorable late winter season in North America. New products at Stearns fueled sales increases primarily in children's flotation devices, outdoor water products and raingear. Shakespeare fishing tackle and in-line skate sales declined due to the unfavorable weather conditions throughout much of North America and Europe. Also contributing to the decline in in-line skate sales was the decline in European exchange rates against the dollar as compared to the 2000 first quarter, resulting in lower translated sales for the current year period.

In the other recreational products segment, net sales of $10.5 million represented a 7.1% increase from the year ago period of $9.8 million. Sales of skateboard shoes and apparel increased substantially over the prior year, however, the improvement was partially offset by lower apparel sales to the advertising specialty market in continued sluggish market conditions.

Net sales of the two businesses in the industrial products group declined 10.3% to $30.5 million from $34.0 million in the prior year's quarter. The decline was due to the slowdown and consolidation of customers in the paperweaving industry and lower sales of composite light poles sold to utilities.

Gross profit. Gross profits for the first quarter of 2001 decreased 6.5% to $50.7 million, or 29.3% of net sales, as compared with $54.2 million, or 29.3% of net sales, in the year ago quarter. The decline in gross profit dollars for the quarter was attributable to the decline in sales volume for the 2001 first quarter. Gross profit as a percentage of net sales was comparable with the prior year's quarter. Reduced products costs associated with the China manufacturing facility were offset by the impact of selling products with higher costs in Europe, as a result of the weakening European currency.

Costs and Expenses. Selling expenses decreased 5.3% to $28.5 million, from $30.1 million in the prior year's first quarter and was comparable as a percentage of net sales at 16.4%. The dollar decrease is attributable to the decline in sales volume for the quarter as compared to the prior year. General and administrative expenses were comparable at $14.6 million for the quarter but increased a percentage of net sales from 7.9% to 8.4% for the 2001 first quarter.

Operating Income. Operating income for the first quarter was $7.7 million, or 4.4% of net sales, as compared to operating income of $9.5 million, or 5.1% of net sales, a year ago. The decline in operating income was due to lower sales during the current year quarter, partially offset by reductions in selling expenses.

Interest Expense. Interest expense declined $1.3 million to $3.3 million in the first quarter of 2001 compared to $4.6 million in the year-earlier period. Lower average borrowings and lower interest rates reduced interest expense by $1,059,000 and $244,000, respectively. Lower average borrowings were the result of cash generated from operations and from the sale of the discontinued operation in 2000. The interest rate decrease was due to a decrease in the LIBOR variable rate as compared to the prior year.

Liquidity and Sources of Capital

The Company's continuing operating activities provided $5.1 million of cash in the current year's first quarter compared to $26.1 million in the 2000 first quarter. During the current quarter, the Company's sales of receivables declined by $18.7 million as compared to a prior year's increase of $13.6 million. Excluding the impact of the sale of receivables, cash from operations increased $11.2 million due to improvements in cash provided from increases in accounts payable and accrued liabilities.

Net cash used for investing activities increased $3.7 million to $10.9 million in the current first quarter, compared to $7.2 million in the 2000 first quarter. The 2001 first quarter reflected the purchase of the assets of an industrial business for a net $4.6 million in cash. Additionally, capital expenditures in the 2001 period were $2.1 million higher compared to the 2000 first quarter. The current year quarter also reflected a decrease of $1.4 million in accumulated other comprehensive loss over the prior year quarter. There were no material commitments for capital expenditures at March 31, 2001.

Net cash provided by financing activities was $4.8 million in the 2001 first quarter compared with $19.2 million used in the corresponding year-ago quarter. The year-to-year increase of $24.0 million of cash provided by financing activities was due to net borrowings of debt compared to net repayments of debt in the prior year quarter.

The Company anticipates its remaining cash needs in 2001 will be provided from operations and borrowings under existing credit lines.

Statement Regarding Forward-Looking Disclosure

This Form 10-Q contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent K2's expectations or beliefs concerning future events, including, but not limited to, the following: statements regarding weather, sales and earnings, market trends and conditions, economic conditions, foreign exchange fluctuations, product cost reduction efforts, debt reduction, inventory levels at retail, expense control efforts, product acceptance and demand, product development efforts, success of new product introductions and overall market trends which involve substantial risks and uncertainties. K2 cautions these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, economic conditions, product demand, competitive pricing and the impact of foreign exchange on product costs, and other risks described in K2's Annual Report on Form 10-K filed with the Securities and Exchange Commission.

ITEM 3 Quantitative and Qualitative Disclosures of Market Risk

K2's earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. K2 manages its exposures to changes in foreign currency exchange rates on certain firm purchase commitments and anticipated, but not yet committed purchases, by entering into some foreign currency forward contracts. K2's risk management objective is to reduce its exposure to the effects of changes in exchange rates on the cost of products sold over quarterly time horizons. Foreign currency exchange rate movements also affect K2's competitive position, as exchange rate changes may affect business practices and/or pricing strategies of non-U.S. based competitors and may affect the profitability and pricing strategies of K2 as well. K2's foreign currency risk policies entail entering into foreign currency derivative instruments only to manage risk of currency fluctuations over a given period of time, not for speculative investments.

Considering both the anticipated cash flows from firm purchase commitments and anticipated purchases for the next quarter and the foreign currency derivative instruments in place, a hypothetical 10% weakening of the U.S. dollar relative to other currencies would not materially adversely affect expected second quarter 2001 earnings or cash flows. This analysis is dependent on actual purchases during the next quarter occurring within 90% of budgeted forecasts. The effect of the hypothetical change in exchange rates ignores the effect this movement may have on other variables including competitive risk. If it were possible to accurately quantify this competitive impact, the results could well be different than the sensitivity effects shown above. In addition, it is unlikely currencies would uniformly strengthen or weaken relative to the U.S. dollar. In reality, some currencies may weaken while others may strengthen.

PART II—OTHER INFORMATION

ITEM 4 Submission of Matters to Vote of Security Holders

(c)

At the Annual Meeting of the Stockholders of K2 held May 3, 2001, the following actions were taken:

(1): Three directors were elected:

Wilford D. Godbold, Jr.—16,541,318 votes for and 273,253 votes withheld;
Lou Holtz—16,445,444 votes for and 369,128 votes withheld;
Richard M. Rodstein—16,419,259 votes for and 395,312 votes withheld.
(3): The selection by the Board of Directors of Ernst & Young LLP as K2's independent auditors for the year 2001 was ratified as follows:

16,696,875 votes for, 35,775 votes against and 81,921 votes abstained.

ITEM 6 Exhibits and Reports on Form 8-K

(a): Exhibits

10.1		Employment agreement dated May 8, 2001 between the Company and Richard M. Rodstein.
10.2		Employment agreement dated May 8, 2001 between the Company and John J. Rangel.

(b): Reports on Form 8-K filed in the first quarter ended March 31, 2001

None

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	K2 INC. (registrant)
Date: May 11, 2001	By:	/s/ RICHARD M. RODSTEIN Richard M. Rodstein President and Chief Executive Officer
Date: May 11, 2001	By:	/s/ JOHN J. RANGEL John J. Rangel Senior Vice President—Finance

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FORM 10-Q QUARTERLY REPORT PART 1 — FINANCIAL INFORMATION
K2 INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS March 31, 2001
EX-10.1 2 a2048653zex-10_1.htm EXHIBIT 10.1 Prepared by MERRILL CORPORATION
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EXHIBIT 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is entered into on May 8, 2001 by and between Richard M. Rodstein, an individual (the "Executive"), and K2 Inc., a Delaware corporation (the "Company").

W I T N E S S E T H

WHEREAS, the Executive is currently the President and Chief Executive Officer of the Company, and has been serving in such position without an employment agreement; and

WHEREAS, the Company and the Executive mutually desire that an employment agreement be entered into setting forth their mutual rights and obligations in respect of the Executive's employment;

NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties do hereby agree as follows:

A G R E E M E N T

1. EMPLOYMENT BY THE COMPANY AND TERM.

(a) POSITION AND REPORTING. Subject to the terms set forth herein, the Company agrees to employ the Executive as President and Chief Executive Officer and the Executive hereby accepts such employment. During the term of the Executive's employment, the Executive will report solely and directly to the Board of Directors of the Company (the "Board"). During the term of the Executive's employment, the Company will nominate and recommend the Executive for re-election as a director at each annual meeting of stockholders coinciding with the expiration of his term as a director.

(b) FULL TIME AND BEST EFFORTS. During the term of his employment with the Company, the Executive will devote substantially all of his business time and use his best efforts to advance the business and welfare of the Company, except for sick leave, vacations and approved leaves of absence. During the term of the Executive's employment, he will not engage in any other employment or business activities that would be directly harmful or detrimental to, or that may compete with, the business and affairs of the Company, or that would interfere with his duties hereunder. However, the foregoing will not prevent the Executive from devoting a reasonable amount of time to personal investment, civic and charitable activities.

(c) DUTIES. The Executive will perform such duties as are customarily associated with his position in a corporation of the size and nature of the Company, consistent with the Bylaws of the Company and as reasonably required by the Board.

(d) COMPANY POLICIES. The employment relationship between the parties will be governed by the general employment policies and practices of the Company, including but not limited to those relating to protection of confidential information and assignment of inventions, except that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or practices, this Agreement will control.

(e) TERM. The term of this Agreement will begin as of May 8, 2001 and end on May 7, 2004 (such three-year period, the "Employment Term"), unless extended and subject to the provisions for termination set forth herein. This Agreement shall automatically be extended for a period of one year following the Employment Term or any extension thereof unless the Company shall have notified the Executive, in writing, of its election not to extend this Agreement not less than 120 nor more than 150 days prior to the expiration of this Agreement.

2. COMPENSATION AND BENEFITS.

(a) SALARY. The Executive will receive for services to be rendered hereunder a base salary at the annual rate of $400,000 payable at least as frequently as monthly and subject to payroll deductions as may be necessary or customary in respect of the Company's salaried employees (the "Base Salary"). The Base Salary will be subject to review at least annually and to increase at such times and in such amounts as the Board may approve.

(b) PARTICIPATION IN BENEFIT PLANS. During the term of the Executive's employment, the Executive will be entitled to participate in any insurance, hospitalization, medical, dental, health, accident, disability or similar plan or program of the Company now existing or established hereafter to the extent that he is eligible under the general provisions thereof. The Company may, in its sole discretion and from time to time, amend, eliminate or establish additional benefit programs as it deems appropriate. The Executive will also participate in all fringe benefits offered by the Company to any of its senior executives.

3. INCENTIVE, BONUS AND OPTION PLANS.

During the Executive's employment, the Executive will be entitled to participate, on terms and conditions that are appropriate to his position and responsibilities at the Company and are no less favorable than those applying to other senior executives of the Company, in any incentive, bonus, deferred compensation, retirement, stock option and other compensation plans of the Company currently or hereafter made available by the Company to senior executives of the Company.

4. PERQUISITES, VACATIONS AND REIMBURSEMENT OF EXPENSES.

During the term of the Executive's employment:

(a) The Company will furnish the Executive with, and the Executive will be allowed full use of, office facilities, automobiles, secretarial and clerical assistance and other Company property and services commensurate with his position and of at least comparable quality, nature and extent to those made available to other senior executives of the Company from time to time;

(b) The Executive will be allowed vacations and leaves of absence with pay on a basis no less favorable than that applying to other senior executives of the Company;

(c) The Company will reimburse the Executive for all monies which he has expended for purposes of the Company's business, such reimbursement to be effected in accordance with Company reimbursement policies and procedures from time to time in effect.

5. TERMINATION OF EMPLOYMENT.

(a) DEFINITIONS. The following definitions will apply to Sections 5 and 6 as applicable:

(i) CAUSE. The term "Cause" means: (A) conviction of a felony involving moral turpitude, or (B) willful gross neglect or willful gross misconduct in carrying out Executive's duties under this Agreement, resulting in material economic harm to the Company, unless Executive believed in good faith that such conduct was in, or not contrary to, the best interests of the Company.

(ii) DISABILITY. The term "Disability" means the inability of the Executive due to illness (mental or physical), accident, or otherwise, to perform his duties for any period of 180 consecutive days, as determined by an independent physician selected by the Company and reasonably acceptable to the Executive or his legal representative. Any return to work from a period of disability must be authorized by the Executive's physician.

(iii) GOOD REASON. The term "Good Reason" means: (A) a material breach of this Agreement by the Company; (B) without the Executive's prior written consent, assignment to the Executive of duties materially inconsistent in any respect with his position or any other action by the Company that results in a material diminution in the Executive's position, authority, duties or responsibilities, it being expressly understood that a change in the Executive's reporting responsibility so that he does not report directly and solely to the Board will constitute "Good Reason"; (C) any transaction in which the Company becomes a subsidiary of another corporation or which is described in clause (iii) or (iv) of the definition of "Change in Control" in Section 6(a) below; (D) reduction, without the Executive's prior written consent, of the Executive's Base Salary, or his bonus or other cash incentive compensation opportunity, for any reason other than in connection with the termination of his employment or in connection with, and proportionate to, a Company-wide pay reduction; (E) any material reduction of fringe benefits provided to the Executive for any reason other than in connection with the termination of the Executive's employment or in connection with any change to the Company's benefit programs applicable to all Company employees generally made in the normal course of business; (F) assignment of the Executive, without his prior written consent, to a Company office located more than 20 miles from the Executive's current office location; (G) election by the Company not to extend the term of this Agreement in accordance with Section 1(e) hereof; or (H) the Company's failure to obtain an agreement from any successor or assign of the Company to assume and to agree to perform this Agreement. A change in the formula, methodology or factors considered in determining incentive cash incentive compensation shall not by itself constitute a reduction of the Executive's incentive compensation opportunity for purposes of clause (D) above.

(iv) NOTICE OF TERMINATION. The term "Notice of Termination" means a notice which indicates the specific termination provision in this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. Any purported termination of employment by the Company or by the Executive must be communicated by written Notice of Termination to the other party hereto in accordance with Section 11(a) hereof. With respect to any termination of employment by the Executive for Good Reason, the Executive will have 120 days following the occurrence of any event described in Section 5(a)(iii) to provide the Company with Notice of Termination, and may not do so thereafter.

(v) SEVERANCE TERM. The term "Severance Term" means the remaining period of the Employment Term as of a Termination Date or two full years, whichever is longer.

(vi) TERMINATION DATE. The term "Termination Date" means: (i) if the Executive terminates his employment for Good Reason, the date that is 60 days after Notice of Termination is given and (ii) if the Executive's employment is terminated by the Company other than for Cause, death or Disability, the date that is 30 days after Notice of Termination is given.

(b) TERMINATION BY THE COMPANY FOR CAUSE. The Board may terminate the Executive's employment with the Company at any time for Cause, immediately upon notice to the Executive of the circumstances leading to such termination for Cause. In the event that the Executive's employment is terminated for Cause, the Executive will receive payment for all accrued salary and vacation time through the Termination Date, which in this event will be the date upon which Notice of Termination is given. The Company will have no further obligation to pay severance of any kind whether under this Agreement or otherwise nor to make any payment in lieu of notice.

gives written notice specifying the occurrence constituting Good Reason and, PROVIDED that if such occurrence is curable, the Company fails to correct it within 10 days after the receipt of the applicable notice.

(d) TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD REASON. In the event that the Executive's employment is terminated by the Company (other than pursuant to Section 5(b)) or such employment is terminated by the Executive for Good Reason (and in either such case the Executive is not entitled to benefits pursuant to Section 6(b)), the Company agrees to pay or provide to the Executive as termination compensation the following:

(i) A single lump sum payment, payable in cash within five days of the Termination Date, equal to the sum of:

(A) the accrued portion of any Base Salary and vacation through the Termination Date; plus

(B) an amount representing bonus and all other cash incentive compensation for such period determined by multiplying:

(I) the average of such bonus and other cash incentive compensation accrued for each of the three preceding full years, by

(II) the fraction of the year of termination elapsed prior to the Termination Date; plus

(I) the Executive's Base Salary in effect upon the Termination Date for the Severance Term, plus

(II) incentive compensation for the Severance Term, based upon the Executive's average bonus and all other cash incentive compensation accrued for each of the three preceding full years,

less standard withholdings for tax and social security purposes. For the purpose of determining present value, future payments will be discounted at an interest rate equal to the short-term borrowing rate of the Company.

(ii) All stock options, restricted stock or other equity awards then held by Employee will automatically be deemed amended, without further action on the part of the Company or the Executive, so that (A) all options will be fully vested and not subject to forfeiture or expiration by reason of the Executive's termination, and will be subject to exercise in full for one year from the Termination Date; and (B) all restricted stock or other equity awards will be fully vested and all restrictions thereon will lapse.

(iii) Continuation of benefits as follows:

(A) All benefits provided under Section 2(b) will continue for the remaining period of the Severance Term. Notwithstanding the foregoing, to the extent any such benefit cannot be provided through the applicable plan of the Company, the Company will provide such benefit outside of the plan or will provide a cash lump sum payment equal to the value of such additional benefit.

(B) The Company shall meet its obligation under (A) above, in connection with its group medical/dental plan for the period ending on the earlier to occur of: (i) the end of the Severance Term or (ii) the date the Executive ceases to be eligible for continuation coverage under the Company's group medical/dental plan pursuant to the provisions of COBRA, by

providing the continuation of such coverage at Company expense, contingent upon the Executive's timely election of such coverage under COBRA.

(C) To the extent required to avoid adverse tax consequences under Section 105(h) of the Internal Revenue Code of 1986 (the "Code"), the Company's payments under this Section 5(d)(iii) will be recognized by the Executive in his taxable income and the Executive will receive, in addition, a "gross-up" payment covering the tax liability attributable to such recognized income consistent with principles of paragraph 6(c)(v), below.

(iv) Additional credited service for retirement benefits under all retirement plans, including supplemental retirement plans (if any), equivalent to the Severance Term.

(e) TERMINATION BY REASON OF DEATH OR DISABILITY. This Agreement will terminate upon the death of the Executive; and the Executive's employment hereunder may be terminated by the Executive or the Company, at either of their election, upon the Executive's Disability. In the event the Executive's employment is terminated as the result of death or Disability, except as set forth in the following sentence, the Executive, or his estate or legal representative, will be entitled to receive the accrued portion of any Base Salary and vacation through the Termination Date, plus any unreimbursed business expenses, plus for the remainder of the Employment Term: (i) periodically not less frequently than monthly in accordance with the Company's normal payroll practice, payments at the rate of his then Base Salary; and (ii) at the normal and customary time for payment of bonuses and all other cash incentive compensation, amounts equal to the average of such payments accrued for each of the three full preceding years; in each case subject to any applicable withholdings for tax and social security purposes. The payments provided in this Section 5(e) will be reduced by the amount of any payments made to the Executive pursuant to any disability or life insurance policy provided by the Company for this purpose, which insurance policy is in addition to any other insurance benefits provided to the Executive as a benefit hereunder.

6. BENEFITS UPON CHANGE OF CONTROL.

(a) DEFINITIONS. In addition to the definitions provided in Section 5, the following definition will apply to this Section 6:

CHANGE IN CONTROL. The term "Change in Control" means the occurrence of any of the following events after the date of this Agreement: (i) the acquisition by any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a "Person"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors ("Voting Securities"); PROVIDED, HOWEVER, that the following acquisitions will not constitute a Change in Control: (A) any acquisition by the Company, (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (C) any acquisition by the Executive (or a group including the Executive); (ii) a change in the composition of a majority of the Board within a three-year period, which change has not been approved by a majority of the persons then surviving as Directors who also comprised the Board immediately prior to the commencement of such period; or (iii) the consummation of any reorganization, merger or consolidation other than a reorganization, merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such reorganization, merger or consolidation; or (iv) the consummation of a plan of complete liquidation of the Company or of an agreement for the sale

or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company's assets.

(b) ELIGIBILITY FOR BENEFITS. The Company agrees to pay to the Executive the benefits specified in Section 6(c) hereof if (i) there is a Change in Control during the term of this Agreement and (ii) within the period commencing on the date of the Change in Control, or (if earlier) the date of any agreement by the Company to enter into the transaction resulting in such Change in Control, and ending two years after the Change in Control (A) the Company terminates the employment of the Executive for any reason other than Cause, death or Disability or (B) the Executive voluntarily terminates employment with the Company for Good Reason. A Change of Control will be deemed to have occurred during the term of this Agreement, for purposes of this paragraph 6(b), if an agreement is entered into during the term of this Agreement for a transaction resulting in a Change of Control, notwithstanding that the Change of Control transaction is not completed until after the term of this Agreement.

(c) BENEFITS UPON TERMINATION OF EMPLOYMENT. If the Executive is entitled to benefits pursuant to Section 6(b) hereof, in lieu of any payments and benefits provided in Section 5 the Company agrees to pay or provide to the Executive as termination compensation the following:

(i) A single lump sum payment, payable in cash within five days of the Termination Date, equal to the sum of:

(A) the accrued portion of any Base Salary and vacation through the Termination Date; plus

(B) an amount representing bonus and all other cash incentive compensation for such period determined by multiplying:

(I) the average of such bonus and other cash incentive compensation accrued for each of the three preceding full years, by

(II) the fraction of the year of termination elapsed prior to the Termination Date; plus

(I) the Executive's Base Salary in effect upon the Termination Date plus

(II) the Executive's average bonus and all other cash incentive compensation accrued for each of the three preceding full years.

(ii) All stock options, restricted stock or other equity awards then held by Employee will automatically be deemed amended, without further action on the part of the Company or the Executive, so that (A) all options will be fully vested and not subject to forfeiture or expiration by reason of the Executive's termination, and will be subject to exercise in full for the remainder of their stated term; and (B) all restricted stock or other equity awards will be fully vested and all restrictions thereon will lapse.

(iii) Continuation of benefits as follows:

(B) The Company shall meet its obligation under (A) above, in connection with its group medical/dental plan for the period ending on the earlier to occur of: (i) the end of the

Severance Term or (ii) the date the Executive ceases to be eligible for continuation coverage under the Company's group medical/dental plan pursuant to the provisions of COBRA, by providing the continuation of such coverage at Company expense, contingent upon the Executive's timely election of such coverage under COBRA.

(C) To the extent required to avoid adverse tax consequences under Section 105(h) of the Internal Revenue Code of 1986 (the "Code"), the Company's payments under this Section 6(c)(iii) will be recognized by the Executive in his taxable income and the Executive will receive, in addition, a "gross-up" payment covering the tax liability attributable to such recognized income consistent with principles of paragraph 6(c)(v), below.

(iv) Additional credited service for retirement benefits under all retirement plans, including supplemental retirement plans (if any), equivalent to the remaining period of the Employment Term.

(v) In the event that any amount or benefit that may be paid or otherwise provided to the Executive by the Company or any affiliated company, whether pursuant to this Agreement or otherwise (collectively, "Covered Payments"), is or may become subject to the tax imposed under Code Section 4999 ("Excise Tax"), the Company will pay to the Executive a "Reimbursement Amount" equal to the total of: (A) any Excise Tax on the Covered Payments, plus (B) any Federal, state, and local income taxes, employment and excise taxes (including the Excise Tax) on the Reimbursement Amount (but without reduction for any Federal, state, or local income or employment taxes on such Covered Payments), plus (C) the product of any deductions disallowed for Federal, state or local income tax purposes because of the inclusion of the Reimbursement Amount in the Executive's adjusted gross income multiplied by the highest applicable marginal rate of Federal, state, and local income taxation, respectively, for the calendar year in which the Reimbursement Amount is to be paid. For purposes of this Section 6(c)(v), the Executive will be deemed to pay (Y) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Reimbursement Amount is to be paid and (Z) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which such Reimbursement Amount is to be paid, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Executive's adjusted gross income).

(d) CHANGES TO BENEFITS. In the event the Board desires to approve a merger to be accounted for as a "pooling of interests," the Executive will, in good faith, negotiate with the Company concerning such changes in the foregoing payments and benefits (if any) as may be necessary in order to achieve such accounting treatment. The parties acknowledge that the Executive's obligation to negotiate in good faith hereunder will not require him to accept a material reduction in the net after tax benefits provided to him hereunder or in any alternative agreement or arrangement.

7. NO OBLIGATION TO MITIGATE DAMAGES.

In the event of a termination of the Executive's employment for any reason, the Executive will not be required to seek other employment or to mitigate any of the Company's obligations under this Agreement, and no amount payable hereunder will be reduced (a) by any claim the Company may assert against the Executive or (b) by any compensation or benefits earned by the Executive as a result of employment by another employer, self-employment or from any other source after such termination of employment with the Company; PROVIDED, HOWEVER, that the benefits provided pursuant to Sections 5(d)(iii) and 6(c)(iii)(A) will terminate at such time as the Executive becomes eligible for comparable benefits as the result of employment by another Person.

8. PROPRIETARY INFORMATION OBLIGATIONS.

During the Executive's employment pursuant to this Agreement, the Executive will have access to and become acquainted with confidential and proprietary information of the Company and its subsidiaries, including, but not limited to, information or plans regarding customer relationships, personnel, or sales, marketing, and financial operations and methods; trade secrets; formulas; devices; secret inventions; processes; and other compilations of information, records, and specifications (collectively, "Proprietary Information"). The Executive will not disclose any such Proprietary Information directly or indirectly, or use it in any way, either during the Executive's employment pursuant to this Agreement or at any time thereafter, except as required in the course of his employment for the Company or as authorized in writing by the Company. All files, records, documents, computer-recorded information, drawings, specifications, equipment and similar items relating to the business of the Company or its subsidiaries, whether prepared by the Executive or otherwise coming into his possession, will remain the exclusive property of the Company or its subsidiaries, as the case may be, and may not be removed from the premises of the Company under any circumstances whatsoever without the prior written consent of the Company, except when (and only for the period) necessary to carry out the Executive's duties hereunder, and if removed must be immediately returned to the Company upon any termination of his employment; PROVIDED, HOWEVER, that the Executive may retain copies of documents reasonably related to his interest as a shareholder and any documents that were personally owned, which copies and the information contained therein the Executive agrees not to use for any business purpose. Notwithstanding the foregoing, Proprietary Information will not include (a) information which is or becomes generally public knowledge or public except through disclosure by the Executive in violation of this Agreement and (b) information that may be required to be disclosed by applicable law.

9. NON-INTERFERENCE.

While employed by the Company and for a period of one year after termination of this Agreement, the Executive agrees not to interfere with the business of the Company or any subsidiary of the Company by directly or indirectly soliciting, attempting to solicit, or otherwise inducing, any employee of the Company or any subsidiary of the Company to terminate his or her employment in order to become an employee, consultant or independent contractor to or for any other employer.

10. NON-COMPETITION.

The Executive agrees that, during the Employment Term, he will not, without the prior consent of the Company, directly or indirectly, have an interest in, be employed by, or be connected with, as an employee, consultant, officer, director, partner, stockholder or joint venturer, in any person or entity owning, managing, controlling, operating or otherwise participating or assisting in any business which is in competition with the business of the Company, in any location, unless the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason; PROVIDED, HOWEVER, that the foregoing will not prevent the Executive from being a stockholder of less than 1% of the issued and outstanding securities of any class of a corporation listed on a national securities exchange or designated as national market system securities on an interdealer quotation system by the National Association of Securities Dealers, Inc.

11. MISCELLANEOUS.

(a) NOTICES. Any notices provided hereunder must be in writing and will be deemed effective upon the earlier of two days following personal delivery (including personal delivery by telecopy or telex), or the fourth day after mailing by first class mail to the recipient at the address indicated below:

To the Company:

K2 Inc.
4900 South Eastern Avenue
Los Angeles, CA 90040
Attn: Secretary
Telecopier No: (213) 724-0667

With a copy to:

Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Andrew E. Bogen, Esq.
Telecopier: (213) 229-7520

To the Executive:

RICHARD RODSTEIN
K2 Inc.
4900 South Eastern Avenue
Los Angeles, CA 90040

or to such other address or to the attention of such other person as the recipient party will have specified by prior written notice to the sending party.

(b) SEVERABILITY. Any provision of this Agreement which is deemed invalid, illegal or unenforceable in any jurisdiction will, as to that jurisdiction and subject to this Section be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant will be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable.

(c) ENTIRE AGREEMENT. This document constitutes the final, complete, and exclusive embodiment of the entire agreement and understanding between the parties related to the subject matter hereof and supersedes and preempts any prior or contemporaneous understandings, agreements, or representations by or between the parties, written or oral.

(d) COUNTERPARTS. This Agreement may be executed on separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same agreement.

(e) SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the benefit of and be enforceable by the Executive and the Company, and their respective successors and assigns, except that the Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the prior written consent of the Company.

(f) AMENDMENTS. No amendments or other modifications to this Agreement may be made except by a writing signed by both parties. No amendment or waiver of this Agreement requires the

consent of any individual, partnership, corporation or other entity not a party to this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any third person any rights or remedies under or by reason of this Agreement.

(g) CHOICE OF LAW. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of California without giving effect to principles of conflicts of law.

12. ARBITRATION.

(a) Any disputes or claims arising out of or concerning the Executive's employment or termination by the Company, whether arising under theories of liability or damages based upon contract, tort or statute, will be determined exclusively by arbitration before a single arbitrator in accordance with the employment arbitration rules of the American Arbitration Association, except as modified by this Agreement. The arbitrator's decision will be final and binding on both parties. Judgment upon the award rendered by the arbitrator may be entered in any court of competent jurisdiction. In recognition of the fact that resolution of any disputes or claims in the courts is rarely timely or cost effective for either party, the Company and the Executive enter this mutual agreement to arbitrate in order to gain the benefits of a speedy, impartial and cost-effective dispute resolution procedure.

(b) Any arbitration will be held in the Executive's place of employment with the Company. The arbitrator must be an attorney with substantial experience in employment matters, selected by the parties alternately striking names from a list of five such persons provided by the American Arbitration Association (AAA) office located nearest to the place of employment, following a request by the party seeking arbitration for a list of five such attorneys with substantial professional experience in employment matters. If either party fails to strike names from the list, the arbitrator will be selected from the list by the other party.

(c) Each party will have the right to take the deposition of one individual and any expert witness designated by the other party. Each party will also have the right to propound requests for production of documents to any party and the right to subpoena documents and witnesses for the arbitration. Additional discovery may be made only where the arbitrator selected so orders upon a showing of substantial need. The arbitrator will have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and will apply the standards governing such motions under the Federal Rules of Civil Procedure.

(d) The Company and the Executive agree that they will attempt, and they intend that they and the arbitrator should use their best efforts in that attempt, to conclude the arbitration proceeding and have a final decision from the arbitrator within 120 days from the date of selection of the arbitrator; PROVIDED, HOWEVER, that the arbitrator will be entitled to extend such 120-day period for one additional 120-day period. The arbitrator will deliver a written award with respect to the dispute to each of the parties, who must promptly act in accordance therewith.

(e) The Company will pay any and all reasonable fees and expenses incurred by the Executive in seeking to obtain or enforce any rights or benefits provided by this Agreement, including all reasonable attorneys' and experts' fees and expenses, accountants' fees and expenses, and court costs (if any) that may be incurred by the Executive in pursuing a claim for payment of compensation or benefits or other right or entitlement under this Agreement, PROVIDED that the Executive is successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement.

(f) In a contractual claim under this Agreement, the arbitrator must act in accordance with the terms and provisions of this Agreement and applicable legal principles and will have no authority to add, delete or modify any term or provision of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date it is last executed below by either party.

		/s/ RICHARD RODSTEIN Richard Rodstein
		K2 INC.
		By:		/s/ JOHN J. RANGEL John J. Rangel Senior Vice President-Finance

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EMPLOYMENT AGREEMENT
W I T N E S S E T H
A G R E E M E N T
EX-10.2 3 a2048653zex-10_2.htm EXHIBIT 10.2 Prepared by MERRILL CORPORATION
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EXHIBIT 10.2

EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is entered into on May 8, 2001 by and between John J. Rangel, an individual (the "Executive"), and K2 Inc., a Delaware corporation (the "Company").

W I T N E S S E T H

WHEREAS, the Executive is currently the Senior Vice President—Finance of the Company; and

WHEREAS, the Company and the Executive mutually desire that an employment agreement be entered into setting forth their mutual rights and obligations in respect of the Executive's employment;

A G R E E M E N T

1. EMPLOYMENT BY THE COMPANY AND TERM.

(a) POSITION AND REPORTING. Subject to the terms set forth herein, the Company agrees to employ the Executive as Senior Vice President—Finance and Chief Financial Officer and the Executive hereby accepts such employment. During the term of the Executive's employment, the Executive will report solely and directly to the Chief Executive Officer of the Company.

2. COMPENSATION AND BENEFITS.

(a) SALARY. The Executive will receive for services to be rendered hereunder a base salary at the annual rate of $240,000 payable at least as frequently as monthly and subject to payroll deductions as may be necessary or customary in respect of the Company's salaried employees (the "Base Salary").

The Base Salary will be subject to review at least annually and to increase at such times and in such amounts as the Board may approve.

3. INCENTIVE, BONUS AND OPTION PLANS.

4. PERQUISITES, VACATIONS AND REIMBURSEMENT OF EXPENSES.

During the term of the Executive's employment:

(b) The Executive will be allowed vacations and leaves of absence with pay on a basis no less favorable than that applying to other senior executives of the Company;

5. TERMINATION OF EMPLOYMENT.

(a) DEFINITIONS. The following definitions will apply to Sections 5 and 6 as applicable:

Reason"; (C) any transaction in which the Company becomes a subsidiary of another corporation or which is described in clause (iii) or (iv) of the definition of "Change in Control" in Section 6(a) below; (D) reduction, without the Executive's prior written consent, of the Executive's Base Salary, or his bonus or other cash incentive compensation opportunity, for any reason other than in connection with the termination of his employment or in connection with, and proportionate to, a Company-wide pay reduction; (E) any material reduction of fringe benefits provided to the Executive for any reason other than in connection with the termination of the Executive's employment or in connection with any change to the Company's benefit programs applicable to all Company employees generally made in the normal course of business; (F) assignment of the Executive, without his prior written consent, to a Company office located more than 20 miles from the Executive's current office location; (G) election by the Company not to extend the term of this Agreement in accordance with Section 1(e) hereof; or (H) the Company's failure to obtain an agreement from any successor or assign of the Company to assume and to agree to perform this Agreement. A change in the formula, methodology or factors considered in determining incentive cash incentive compensation shall not by itself constitute a reduction of the Executive's incentive compensation opportunity for purposes of clause (D) above.

(v) SEVERANCE TERM. The term "Severance Term" means the remaining period of the Employment Term as of a Termination Date or one full year, whichever is longer.

(c) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive will have the right, at his election, to terminate his employment with the Company by written notice to the Company to that effect for a period of 120 days following any occurrence constituting Good Reason; PROVIDED, HOWEVER, that termination for Good Reason will not be effective until the Executive gives written notice specifying the occurrence constituting Good Reason and, PROVIDED that if such occurrence is curable, the Company fails to correct it within 10 days after the receipt of the applicable notice.

Reason (and in either such case the Executive is not entitled to benefits pursuant to Section 6(b)), the Company agrees to pay or provide to the Executive as termination compensation the following:

(i) A single lump sum payment, payable in cash within five days of the Termination Date, equal to the sum of:

(A) the accrued portion of any Base Salary and vacation through the Termination Date; plus

(B) an amount representing bonus and all other cash incentive compensation for such period determined by multiplying:

(I) the average of such bonus and other cash incentive compensation accrued for each of the three preceding full years, by

(II) the fraction of the year of termination elapsed prior to the Termination Date; plus

(I) the Executive's Base Salary in effect upon the Termination Date for the Severance Term, plus

(II) incentive compensation for the Severance Term, based upon the Executive's average bonus and all other cash incentive compensation accrued for each of the three preceding full years,

(iii) Continuation of benefits as follows:

(iv) Additional credited service for retirement benefits under all retirement plans, including supplemental retirement plans (if any), equivalent to the Severance Term.

6. BENEFITS UPON CHANGE OF CONTROL.

(a) DEFINITIONS. In addition to the definitions provided in Section 5, the following definition will apply to this Section 6:

have occurred during the term of this Agreement, for purposes of this paragraph 6(b), if an agreement is entered into during the term of this Agreement for a transaction resulting in a Change of Control, notwithstanding that the Change of Control transaction is not completed until after the term of this Agreement.