10-K405

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

ANNUAL REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Year Ended December 31, 2001 Commission File No. 1-4290

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $1	New York Stock Exchange
	Pacific Exchange
Series A Preferred Stock Purchase Rights	New York Stock Exchange
	Pacific Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

        Indicate by an "X" whether the registrant 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 has been subject to such filing requirements for the past 90 days. Yes /x/

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

        The aggregate market value of the voting stock of the registrants held by nonaffiliates was approximately $116,603,994 as of March 8, 2002.

        Indicate the number of shares outstanding of each of the issuer's classes of common stock as of March 22, 2002.

Common Stock, par value $1                                      17,939,076 Shares

Documents Incorporated by Reference

        Portions of the proxy statement for the Annual Meeting of Shareholders to be held May 3, 2001 are incorporated by reference in Part III.

FORM 10-K ANNUAL REPORT

PART I

ITEM 1. BUSINESS:

General

        K2 Inc. ("K2") is a premier, branded consumer products company with a primary focus on sporting goods and other recreational products as well as certain niche industrial products. The Company offers a diverse portfolio of products used primarily in individual sports activities such as alpine skiing, snowboarding, in-line skating, mountain and BMX biking, fishing and watersport activities. K2's sporting goods include several name brand lines such as K2 and Olin alpine skis, K2, Ride, Liquid, 5150 and Morrow snowboards, boots and bindings, K2 in-line skates, K2 bikes, Shakespeare and Pflueger fishing rods and reels, Stearns personal flotation devices, rainwear, and outdoor products and K2 backpacks. K2's other recreational products include Hilton corporate casual apparel, Planet Earth skateboards and apparel and Adio and Hawk shoes. K2's industrial products consist primarily of Shakespeare monofilament line used in weed trimmers, in paper mills and industrial applications, and Shakespeare fiberglass and composite marine antennas, and composite utility and decorative light poles. Founded in 1946, K2 has grown to approximately $600 million in annual sales through a combination of internal growth and strategic acquisitions. For segment and geographic information, see Note 14 to Notes to Consolidated Financial Statements. Registered and other trademarks and tradenames of Company products are italicized in this Form 10-K.

        In recent years, K2 has aggressively expanded into several new sporting goods markets in the United States, Europe and Japan, including in-line skates, snowboards, footwear and fishing tackle reels and kits and combos. Management believes these newer products have benefited from the brand strength, reputation, distribution, and the market share positions of other K2 products, several of which are now among the top brands in their respective markets. For example, management believes K2 has the #1 market position in worldwide performance in-line skates, and the #2 market position in worldwide snowboard products. Management also believes Stearns has the #1 U.S. market position in personal flotation devices and that Shakespeare leads the U.S. market in fishing rods, and kits and combo sales, while the Ugly Stik is the top selling line of moderately priced fishing rods.

        In 1998, K2 adopted a plan to sell its Simplex building products division ("Division"). As a result, K2 reclassified the Division as a discontinued operation in 1998 and similarly reclassified prior years' operations (see Note 3 to Notes to Consolidated Financial Statements for further discussion). On June 30, 2000, K2 completed the sale of the assets and business. Consequently, the discussion which follows focuses on the continuing operations of K2.

        K2's common stock was first offered to the public in 1959 and is currently traded on the New York and Pacific Stock Exchanges (symbol: KTO).

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Sporting Goods Products

        Net sales for sporting goods products were $445.2 million in 2001, $509.6 million in 2000 and 480.6 million in 1999. The following table lists K2's principal sporting good products and the brand names under which they are sold.

Product	Brand Name
Alpine skis	K2, Olin
Snowboards and accessories	K2, Ride, 5150, Liquid, Morrow
In-line skates	K2
Fishing rods, reels and fishing kits	Shakespeare, Ugly Stik, Pflueger
Active water sports outdoor products	Stearns
Mountain and BMX bikes	K2
Backpacks	K2, Dana Design

        Alpine Skis.    K2 sells its alpine skis under the names K2 and Olin in the 3 major ski markets of the world—the United States, Europe and Japan. While participation rates for alpine skiing have been relatively flat during the past several years, K2 believes that industry retail sales have declined in the domestic market during the same period. In particular, K2 believes poor weather conditions in certain markets, the high cost of skiing, the opportunity to participate in alternative activities such as snowboarding, and the increased use of rental or demo skis further contributed to a decline in retail sales. K2 skis, however, have benefited in recent years from their increasing popularity among retail purchasers, resulting from recent innovations including performance enhancing MOD technology, attractive graphics and creative marketing. K2's new Axis ski line has been well received by dealers and customers, especially in the United States market.

K2 and Olin skis are manufactured by K2 primarily in its facility in China, after moving its remaining domestic ski production to K2's China facility in late 2001. The skis and accessories, such as helmets, are sold to specialty retail shops and sporting goods chains in the U.S. by independent sales representatives and in Europe and Japan through independent and Company-owned distributors. K2 and Olin alpine skis are marketed to skiers ranging from beginners to top racers using youthful and fun advertising. Within each brand, K2 offers various styles of skis to meet the performance, usage and terrain requirements of the consumer. From a pricing perspective, K2 positions the brands in the mid-level and premium price points, reflecting the quality of the product and the continual incorporation of technological innovations. To assist in its marketing efforts, K2 sponsors amateur and professional skiers.

        Snowboards.    K2 sells snowboards, boots, bindings and snowboard outerwear under the K2, Ride, Morrow, 5150 and Liquid brands. K2 also sells strapless snowboard bindings and compatible snowboard boots under the K2 Clicker brand. Back country accessories, including backpacks for carrying snowboards and other gear when hiking into the back country are being marketed under the K2 Brand. The snowboard market, which has been highly fragmented, has been consolidating in favor of the larger, better established brands. K2 manufactures most of its own snowboards in its manufacturing facility in China. K2 believes its manufacturing capability and ability to innovate provide a competitive advantage. Like its alpine skis, K2 snowboards are of high quality, have innovative features and attractive graphics and are creatively marketed.

        K2's innovations in its snowboarding line include the Clicker, an advanced step-in binding system for snowboards, the Ride M2 construction featuring the edge contact system which results in a better turning board, and the Fatbob board, an extra-wide snowboard for people with large feet. The Clicker was among the first commercially available step-in binding systems for snowboards.

        K2's snowboard brands are sold to specialty retail shops and sporting goods chains in the U.S. by independent sales representatives and in Europe and Japan through independent and Company-owned

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distributors. Like K2 skis, K2, Ride and Morrow snowboard products are marketed using youthful and fun advertising, and K2 sponsors professional and amateur snowboarders.

        In-Line Skates.    K2 introduced its K2 soft boot in-line skates in 1994. The in-line skate market in the U.S. grew dramatically as K2's sales of this product went from $10 to $117 million in four years. The worldwide market, however, has declined in recent years with the sharpest decline occurring in 2001.

        K2's in-line skates target the enthusiast and are priced at the mid to upper end of the industry's price points. K2 skates are attractive and of high quality and have innovative features such as a soft mesh and leather upper designed for improved comfort, with a rigid plastic cuff for support. K2's skates incorporate several innovations, including K2's new Slip-Fit technology, a soft boot skate with no laces. The patented product line is designed for performance as well as superior comfort and support. K2 also sells women's-specific skates and adjustable-size, softboot skates for children.

K2 in-line skates are manufactured to Company specifications and primarily assembled by a vendor in China. They are sold to specialty retail shops and sporting goods chains in the U.S. by independent sales representatives and in Europe and Japan through independent and Company-owned distributors. During 2001, sales of in-line skates in Europe amounted to approximately 58% of total in-line skate sales.

        Fishing Rods, Reels and Fishing Kits and Combos.    K2 sells fishing rods, reels and fishing line throughout the world. K2 believes Shakespeare's Ugly Stik models have been the best selling fishing rods in the U.S. over the past 20 years. The success of these fishing rods has allowed K2 to establish a strong position with retailers and mass merchandisers, thereby increasing sales of new rods, reels and kits and combos and allowing K2 to introduce new products such as expansion of its Pflueger product line and tackle boxes. Shakespeare rods and reels are manufactured principally in China. Shakespeare products are sold directly by K2 and through independent sales representatives to mass merchandisers and sporting goods retailers in the United States and in Europe and Australia through independent and company-owned distributors.

        Active Water Sports Products.    K2 sells Stearns flotation vests, jackets and suits ("personal flotation devices"), cold water immersion products, wet suits, waders, outdoor products, rainwear and inflatable and towable water products in the United States and in certain foreign countries. In the United States, occupants of boats are required by law either to wear or have available personal flotation devices meeting Coast Guard standards. Stearns personal flotation devices are manufactured to such standards and are subject to rigorous testing for certification by Underwriters Laboratories. Stearns manufactures most of its personal flotation devices in the U.S. and sources its other products from Asia. Stearns products are sold principally through an in-house marketing staff and independent sales representatives to mass merchandisers, specialty shops and chain stores and to the off-shore oil industry, commercial fishermen and other commercial users through independent sales representatives.

        Mountain and BMX Bikes.    K2 designs and distributes high quality full-suspension mountain bikes, front suspension mountain bikes, road bikes and BMX bikes and accessories under the K2 name in the United States and internationally. Performance and comfort are provided by mountain bikes which have shock absorbing elements for either front and rear wheels or front wheels only, thereby improving climbing ability and decreasing rider fatigue and off-road vibration. K2 entered the high-end, full-suspension mountain bike business in 1993 through its acquisition of Girvin and in late 1998, introduced several new products to reposition its product line at more popular price points.

        The bikes are manufactured and assembled to K2's specifications by vendors and are marketed by an in-house marketing staff and are sold by independent sales representatives to independent bicycle dealers and other K2 retailers in the U.S. and through distributors internationally.

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        Backpacks.    Dana Design, which was acquired by K2 in 1995, manufactures and distributes high-end backpacks in the U.S. Dana Design products are known for their comfort, high quality and innovative features, such as custom fitting. The line also includes a series of "activity specific" packs marketed by K2 ski, bike and snowboard. Dana Design and K2 backpacks are primarily manufactured to K2's specifications by vendors internationally for sale by independent sales representatives to specialty retailers primarily in the United States.

Other Recreational Products

        Net sales for other recreational products were $39.8 million in 2001, $42.2 million in 2000 and $42.8 million in 1999. The following table lists K2's principal other recreational products and brand names under which they are sold.

Product	Brand Name
Imprinted Corporate Casuals	Hilton
Skateboard apparel	Planet Earth
Snowboard apparel	Planet Earth
Skateboard shoes	Adio and Hawk

        Corporate Casuals.    K2 manufactures and distributes jackets, shirts and other active wear under the Hilton and USA brand names. The products are sold in the United States to either corporate buyers or advertising specialty distributors, embroiderers and screen printers who in turn sell imprinted items, including garments, principally to corporate buyers. Hilton and USA apparel, which are sourced from offshore vendors, are sold through catalogs, by a direct sales force and by independent sales representatives.

        Skateboard and snowboard apparel and skateboard shoes.    Skateboard and snowboard apparel and skateboard shoes are sold in the U.S., Canada, Europe and Japan. Suppliers, primarily located in Asia, manufacture these products to K2's specifications. The products are sold by independent sales representatives to retailers in the domestic market and through Company-owned and independent distributors in Europe and Asia. K2's skateboard shoes are designed with significant assistance from a group of well-known professional skateboarders. With favorable demographic trends, skateboarding has been enjoying a significant resurgence in popularity, principally among pre-teen and early teen boys. Skateboard shoes are marketed under the Adio and Hawk brand names, and models are named after the specific skateboarder who aided in the design. The Hawk brand of shoes has been designed and introduced in cooperation with Tony Hawk, the best known professional skateboarder in the world.

Industrial Products

        Net sales of industrial products were $110.5 million in 2001, $119.0 million in 2000 and $122.6 million in 1999. The following table lists K2's principal industrial products and the brand names under which they are sold.

Product	Brand Name
Monofilament Line	Shakespeare
Composite Utility and Decorative Light Poles	Shakespeare
Fiberglass Marine Radio Antennas	Shakespeare

        Monofilament Line.    Nylon and polyester monofilament line is domestically manufactured and sold by K2 in a variety of diameters, tensile strengths and softness. Monofilament is used in various applications including the manufacture of woven mats for use by paper producers in the United States, Europe and South America and for use as line in weed trimmers in the United States and is sold directly to paperweavers and distributors of cutting line and to others through independent sales

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representatives. Monofilament sold in Europe for woven mats is manufactured primarily in K2's U.K. facility. Shakespeare monofilament also manufactures various products for industrial applications.

        Composite Utility and Decorative Light Poles.    K2 produces and directly sells composite utility and decorative light poles under the Shakespearename in the United States, principally to public and private utilities and developers for specialty and unique applications.

        Marine Radio Antennas.    K2 manufactures fiberglass radio antennas in the United States for marine, citizen band and military application under the Shakespeare name. The products are sold primarily in the United States. K2 also distributes marine radios and other marine electronics under the Shakespeare name which are manufactured in Asia to K2's specifications. The antennas, radios and other marine electronics are sold by an in-house sales department and independent sales representatives to specialty marine dealers.

Competition

        K2's competition varies among its business lines. The sporting goods markets and recreational products markets are generally highly competitive, with competition centering on product innovation, performance and styling, price, marketing and delivery. Competition in these products (other than snowboards and active wear) consists of a relatively small number of large producers, some of whom have greater financial and other resources than K2. A relatively large number of companies compete in snowboards and active wear. While K2 believes its well-recognized brand names, established distribution networks and reputation for developing and introducing innovative products have been key factors in the successful introduction of its sporting goods products, there are no significant technological or capital barriers to entry into the markets for many sporting goods and recreational products. These markets face competition from other leisure activities, and sales of leisure products are affected by changes in consumer tastes, which are difficult to predict.

        K2 believes its industrial products segment competes based on product quality, service and delivery, however, K2's industrial products are, in most instances, subject to price competition, ranging from moderate in marine antennas and monofilament line to intense for commodity-type products. Composite utility and light poles compete with products made of other materials, such as wood and aluminum. Certain industrial competitors have greater financial and other resources than K2.

Manufacturing, Foreign Sourcing and Raw Materials

        K2 believes that for the products within its core categories, it is of strategic importance to develop the capability to source and manufacture high-quality, low cost products. As a result, K2 currently manufactures products in the People's Republic of China, including most of its fishing rods and reels, snowboards, skis, shells for flotation devices and marine antennas. Additionally, K2 currently purchases in-line skates from a vendor in China. Certain other products are sourced from various vendors in Asia, Latin America and Europe. The remaining products are manufactured by K2 in its United States factories and in England.

        K2 has not experienced any substantial difficulty in obtaining raw materials, parts or finished goods inventory for its sporting goods and other recreational products businesses, although the cost of certain raw materials has fluctuated. Certain components and finished products, however, are manufactured or assembled abroad and therefore could be subject to interruption as a result of local unrest, currency exchange fluctuations, increased tariffs, trade difficulties and other factors. K2's sporting goods products are manufactured in the People's Republic of China which trades with the United States under Normal Trade Relations ("NTR") status. Timely supply from its factories and suppliers in China is dependent on uninterrupted trade with China. Should there be an interruption in trade with China, it could have a significant adverse impact on sales and earnings. Additionally, the gross margins on K2's products

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manufactured or sourced in the U.S. or in Asia and distributed in Europe will depend on the relative exchange rates between the U.S. dollar and the Euro.

        K2 has not experienced any substantial difficulty in obtaining raw materials for its industrial products segment, although the cost of certain raw materials has fluctuated throughout the year.

Seasonality and Cyclicality; Backlog

        Sales of K2's sporting goods are generally highly seasonal and in many instances are dependent on weather conditions. K2's industrial products are mildly seasonal. This seasonality causes K2's financial results to vary from quarter to quarter, and K2's sales and earnings are usually lower in the first and fourth quarters. In addition, the nature of K2's ski, snowboard, bike, in-line skate, fishing and water sports products businesses requires that in anticipation of the selling season for these products, it make relatively large investments in inventory. The primary selling season, in the case of skis and snowboards runs from August through December, in the case of bikes runs from October through April, in the case of in-line skates runs primarily from October through May and in the case of fishing tackle and water sports products runs primarily from January through June. Relatively large investments in receivables consequently exist during and after such seasons. The rapid delivery requirements of K2's customers for its sporting goods products and other recreational products also result in investment in significant amounts of inventory. K2 believes another factor in its level of inventory investment is the shift by certain of its sporting goods customers from substantial purchases of pre-season inventories to deferral of deliveries until the products' retail seasons and ordering based on rates of sale.

        Sales of sporting goods and other recreational products depend to a large extent on general economic conditions including the amount of discretionary income available for leisure activities, consumer confidence and favorable weather conditions. Sales of K2's industrial products are dependent to varying degrees upon economic conditions in the container and paper industries, and are subject to threat from vertical integration and consolidation among its customers.

        As a result of the nature of many of K2's businesses, backlog is generally not significant, except for the in-line skate business. The backlog of in-line skate sales as of February 28, 2002 and 2001 was approximately $21.2 million and $44.7 million, respectively. The backlog may be subject to cancellation or other adjustments and is not necessarily indicative of future sales.

Customers

        K2 believes that its customer relationships are excellent, and no one customer of K2 accounted for 10% or more of its consolidated annual net sales or 5% of its operating income in 2001 or 2000.

Research and Development

        Consistent with K2's business strategy of continuing to develop innovative brand name products and improving the quality, cost and delivery of products, K2 maintains decentralized research and development departments at several of its manufacturing centers, which are engaged in product development and the search for new applications and manufacturing processes. Expenditures for research and development activities totaled approximately $12.2 million in 2001, $13.3 million in 2000 and $12.1 million in 1999 and were expensed as a part of general and administrative expenses in the year incurred.

Environmental Factors

        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

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each PRP at each site, the extent of 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 December 31, 2001 and 2000, K2 had recorded an estimated liability of approximately $745,000 and $762,000, respectively, for such liability and made no provision for expected insurance recovery.

Employees

        K2 had approximately 2,000 and 2,900 employees at December 31, 2001 and 2000, respectively. K2 believes its relations with employees generally have been good.

Patents and Intellectual Property Rights

        While product innovation is a highly important factor in K2's sporting goods and other recreational products segments and many of K2's innovations have been patented, K2 does not believe the loss of any one patent would have a material effect on it, however, the loss of the in-line skate patent could result in increased competition and reduced sales and margins. Certain of its brand names, such as K2, Olin, Ride, Morrow, Shakespeare, Ugly Stik, Pflueger, Stearns and Dana Design are believed by K2 to be well-recognized by consumers and therefore important in the sales of these products. Registered and other trademarks and tradenames of Company products are italicized in this Form 10-K.

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ITEM 2. PROPERTIES

        The table below provides information with respect to the principal production and distribution facilities utilized by K2 for continuing operations as of December 31, 2001.

			Owned Facilities		Leased Facilities
Location		Type of Facility	No. of Locations	Square Footage	No. of Locations	Square Footage
Sporting Goods
	Minnesota	Distribution and production	1	275,000	2	88,000
	South Carolina	Distribution and production	1	100,000	1	39,000
	Washington	Distribution and production	1	160,000	1	150,000
	Foreign	Distribution and production	1	15,000	21	932,000
			4	550,000	25	1,209,000
Other Recreational Products
	Alabama	Distribution	2	160,000
	California	Distribution			2	67,000
	Illinois	Distribution			1	85,000
			2	160,000	3	152,000
Industrial Products
	Florida	Production			1	12,000
	South Carolina	Distribution and production	2	512,000	2	81,000
	Foreign	Distribution and production	1	33,000
			3	545,000	3	93,000

        The corporate headquarters of K2 is located in 6,000 square feet of leased office space in Los Angeles, California. The terms of K2's leases range from one to ten years, and many are renewable for additional periods. The termination of any lease expiring during 2002 would not have a material adverse effect on K2's operations.

        K2 believes, in general, its plants and equipment are adequately maintained, in good operating condition and are adequate for K2's present needs. K2 regularly upgrades and modernizes its facilities and equipment and expands its facilities to meet production and distribution requirements.

ITEM 3. LEGAL PROCEEDINGS

        Certain of K2's products are used in relatively high risk recreational settings and from time to time K2 is named as a defendant in lawsuits asserting product liability claims relating to its sporting goods products. To date none of these lawsuits has had a material effect on K2, and K2 does not expect any lawsuit now pending to have such an effect. K2 maintains product liability, general liability and excess liability insurance coverages. No assurances can be given such insurance will continue to be available at an acceptable cost to K2 or such coverage will be sufficient to cover one or more large claims, or that the insurers will not successfully disclaim coverage as to a pending or future claim.

        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 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.

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        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 accrues for liabilities of this nature when it is probable a liability has been incurred and the amount can be reasonably estimated. At December 31, 2001 and 2000, K2 had recorded an estimated liability of approximately $745,000 and $762,000, respectively, for environmental liabilities and made no provision for expected insurance recovery.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

EXECUTIVE OFFICERS OF K2

Name	Position	Age
Richard M. Rodstein	President and Chief Executive Officer	47
John J. Rangel	Senior Vice President—Finance	48
J. Wayne Merck	Executive Vice President—Operations	42
David G. Cook	Vice President; President of Stearns	64
Timothy C. Cronin	Vice President; President of Hilton Corporate Casuals	51
David H. Herzberg	Vice President; President of Shakespeare Industrial Products Group	59
James A. Vandergrift	Vice President	51
David Y. Satoda	Vice President	36
Diana C. Crawford	Secretary	34

        Mr. Rodstein has been President of K2 since 1990 and Chief Executive Officer for more than the past five years.

        Mr. Rangel, a CPA, has been Senior Vice President-Finance of K2 for more than the past five years.

        Mr. Merck has been Executive Vice President—Operations of K2 since July 2000. Mr. Merck was Vice President of K2 from January 1, 1996 to July 2000 and president of Shakespeare Composites & Electronics since June 1996. Mr. Merck was president of K2's former Anthony Pools business from February 1994 to June 1996.

        Mr. Cook has been a Vice President of K2 and president of Stearns for more than the past five years.

        Mr. Cronin has been a Vice President of K2 since January 1, 1996 and president of Hilton Corporate Casuals since November 1996. Mr. Cronin was Executive Vice President of Hilton Corporate Casuals from October 1992 to October 1996.

        Mr. Herzberg has been president of Shakespeare Industrial Products Group since July 2000 in addition to being a vice president of K2 for more than the past five years. Prior to his election to president of Shakespeare Industrial Products Group, Mr. Herzberg was the president of Shakespeare Monofilament for more than the previous five years.

        Mr. Vandergrift has been a Vice President of K2 since January 1, 1996 and Vice President of Product Development of K-2 Corporation for more than the past five years.

        Mr. Satoda has been a Vice President of K2 Inc. since May 2001, and Director of Taxes since August 2000. Prior to joining K2, Mr. Satoda was a Senior Manager with Ernst & Young LLP for more than five years previous to that.

        Ms. Crawford has been Secretary of K2 since December 2000 and K2 Corporate Controller since July 1999. Prior to joining K2, Ms. Crawford was Controller of Kent H. Landsberg Company from January 1996 to June 1999, and an Audit Manager with Ernst & Young LLP for more than a year prior.

        Officers of K2 are elected for one year by the directors at their first meeting after the annual meeting of shareholders and hold office until their successors are elected and qualified.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER

MATTERS

Principal Markets

        K2's Common Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange under the symbol "KTO." At March 8, 2002 there were 2,007 holders of record of Common Stock of K2.

Common Stock Prices and Dividends

        The following table sets forth, for the quarters indicated, the reported high, low and closing sales prices of K2's Common Stock, as reported by the New York Stock Exchange during K2's two most recent fiscal years, and the cash dividends per share declared by K2 during those years:

		Stock Prices
					Cash Dividends Per Share
		High	Low	Close
2001
	Fourth	8.74	5.31	7.21	—
	Third	11.99	5.40	5.98	—
	Second	11.43	7.80	11.43	—
	First	9.75	7.75	8.75	—
2000
	Fourth	9.75	7.38	8.00	—
	Third	11.38	8.38	8.94	—
	Second	8.81	7.00	8.31	—
	First	8.00	6.75	7.94	—

Dividends

        K2 has paid no cash dividends since May, 1999. K2 is subject to credit agreements which limit its ability to pay cash dividends. As of December 31, 2001, no retained earnings were free to pay dividends. See Note 6 of Notes to Consolidated Financial Statements for further description of K2's credit facilities.

Transfer Agent, Registrar and Dividend Disbursing Agent for Common Stock

Computershare Trust Co., Inc.
12039 West Alameda Parkway Suite Z-2
Lakewood, Colorado 80228

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ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

			Year Ended December 31(a)
			2001 (b)			2000			1999 (c)			1998 (d)			1997 (e)
			(Thousands, except per share figures)
Income Statement Data:
	Net sales		$	595,466		$	670,786		$	645,990		$	583,969		$	566,010
	Cost of products sold (f)			429,338			462,242			462,033			418,950			391,860
	Gross profit			166,128			208,544			183,957			165,019			174,150
	Selling expenses			109,635			113,498			106,659			96,848			86,812
	General and administrative expenses (f)			43,028			42,952			40,341			39,030			38,303
	Research and development expenses			12,184			13,271			12,113			12,391			11,979
	Operating income			1,281			38,823			24,844			16,750			37,056
	Interest expense			13,631			14,814			12,741			12,163			10,560
	Other income, net			(375	)		(191	)		(413	)		(236	)		(619	)
	Income (loss) from continuing operations before provision (credit) for income taxes			(11,975	)		24,200			12,516			4,823			27,115
	Provision (credit) for income taxes			(4,271	)		7,502			4,005			955			7,815
	Income (loss) from continuing operations			(7,704	)		16,698			8,511			3,868			19,300
	Discontinued operations, net of taxes (g)			—			(119	)		1,332			975			2,600
	Net Income (loss)		$	(7,704	)	$	16,579		$	9,843		$	4,843		$	21,900
	Basic earnings per share:
		Continuing operations	$	(0.43	)	$	0.93		$	0.50		$	0.23		$	1.17
		Discontinued operations		—			(0.01	)		0.08			0.05			0.16
		Net income (loss)	$	(0.43	)	$	0.92		$	0.58		$	0.28		$	1.33
	Diluted earnings per share:
		Continuing operations	$	(0.43	)	$	0.93		$	0.50		$	0.23		$	1.15
		Discontinued operations		—			(0.01	)		0.08			0.06			0.16
		Net income (loss)	$	(0.43	)	$	0.92		$	0.58		$	0.29		$	1.31
	Dividends:
		Cash—per share	$	—		$	—		$	0.11		$	0.44		$	0.44
	Basic shares			17,940			17,949			16,880			16,554			16,541
	Diluted shares			17,940			18,040			16,883			16,637			16,713
Balance Sheet Data:
	Total current assets		$	304,813		$	305,132		$	345,809		$	335,570		$	305,048
	Total assets			421,038			424,110			491,442			456,454			422,401
	Total current liabilities			100,965			121,742			162,187			130,597			118,215
	Long-term debt			97,828			69,836			107,280			110,724			88,668
	Shareholders' equity			214,657			227,248			218,520			202,119			202,885

(a)

Certain income statement and balance sheet accounts have been restated to reflect the Simplex building products division as discontinued operations. See Note 3 to Notes to Consolidated Financial Statements. In addition, freight expenses billed to customers have been reclassified from selling expenses to net sales, and freight expenses incurred by K2 for outgoing shipments to customers have been reclassified to selling expenses from net sales. See Note 1 to Notes to Consolidated Financial Statements.

(b)

Gross profit, operating income and net income are $181,778, $19,281, and $3,996, respectively before downsizing costs totaling $18,000 ($11,700 net of taxes). See Note 2 to Notes to Consolidated Financial Statements.

(c)

Gross profit, operating income, income from continuing operations and net income are $194,457, $35,344, $15,651, and $16,983, respectively, before restructuring costs totaling $6,500 ($4,420 net of taxes) and downsizing costs totaling $4,000 ($2,720 net of taxes). See Note 2 to Notes to Consolidated Financial Statements.

(d)

Gross profit, operating income, income from continuing operations and net income are $175,519, $31,250, $13,293 and $14,268, respectively, before charges totaling $14,500 ($9,425 net of taxes). See Note 2 to Notes to Consolidated Financial Statements.

(e)

Operating income, income from continuing operations and net income are $39,456, $20,860 and $23,460, respectively, before restructuring costs of $2,400 ($1,560 net of taxes). See Note 2 to Notes to Consolidated Financial Statements.

(f)

For 2001, cost of products sold includes a $15,650 charge and general and administrative expenses includes a $2,350 charge, both recorded in the third quarter. For 1999, cost of products sold includes a $10,500 charge recorded in the fourth quarter. For 1998, cost of products sold includes a $10,500 charge and general and administrative expenses includes a $4,000 charge both recorded in the third quarter. See Note 2 to Notes to Consolidated Financial Statements.

(g)

See Note 3 to Notes to Consolidated Financial Statements.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        K2 is a leading designer, manufacturer and marketer of brand name sporting goods and other recreational products, and is also a manufacturer and supplier of selected industrial products. The sporting goods segment represents $445.2 million, or 74.8%, of K2's 2001 consolidated net sales, and other recreational products represent $39.8 million, or 6.7% in 2001 net sales. Industrial products had sales of $110.5 million, or 18.5% of net sales in 2001.

        During 1999, K2 began to reduce the cost structure of its ski and snowboard operations by restructuring and downsizing its Seattle manufacturing operation in favor of lower cost manufacturing and sourcing opportunities. During 2001, in ongoing cost reduction moves, K2 completed the move of its remaining ski production to China, closing the Washington ski manufacturing facility during the 2001 third quarter. In addition, three other smaller manufacturing facilities which serviced the Stearns and Hilton operations were shut down in Minnesota and Alabama, with most of the production also moving overseas. In addition to the factory closures, K2 experienced a substantial industry-wide slowdown of sales of small-wheeled products in 2001, necessitating a downsizing of K2's small-wheeled products operation. Consequently, the factory closures and downsizing activities have resulted in 2001 charges to cost of products sold and general and administrative expenses for restructuring and downsizing costs of $15.6 million and $2.4 million, respectively. Approximately $5.0 million of the total amount was a charge to earnings that resulted in or will result in a cash payment. These costs are associated with the reduction of personnel, the write down of facilities and equipment, and the reduction in the net carrying value of small-wheeled products inventory.

        In 1998, K2 adopted a plan to dispose of its Simplex building products division. As a result, K2 reclassified Simplex as a discontinued operation in 1998 and similarly reclassified prior years' operations. On June 30, 2000, K2 completed the sale of the assets and business of Simplex to Ludlow Building Products, a subsidiary of Tyco International Ltd. (see Note 3 of Notes to Consolidated Financial Statements). The discussion that follows focuses on the continuing operations of K2.

        Certain amounts included in prior years' net sales and selling expense have been reclassified to conform to the current year presentation (see Note 1 to Notes to Consolidated Financial Statements for details). The following discussion reflects the effects of such changes.

Review of Operations: Comparison of 2001 to 2000

        Net sales from continuing operations declined to $595.5 million from $670.8 million in the prior year. The net loss for 2001 was $7.7 million, or $.43 per diluted share, as compared to net income of $16.6 million, or $.92 per diluted share, in the prior year. The net loss for 2001 included $11.7 million, or $.65 per diluted share, in after-tax charges for restructuring and downsizing.

        Net sales.    In the sporting goods segment, net sales for 2001 totaled $445.2 million as compared with $509.6 million in 2000. The overall decline in sales was attributable to a decline in scooter sales, primarily in the European market, and a reduction in worldwide in-line skate sales. The scooter market experienced explosive growth in 2000, however, orders for scooters abruptly stopped early in the 2001 first quarter. Orders for in-line skates began to decline in the 2001 second quarter in response to higher than expected retail inventory levels. Orders for in-line skates remained soft throughout the remainder of the year, however, the rate of decline diminished by the 2001 fourth quarter as retail inventory levels improved. Partially offsetting these declines were increases in sales of K2 skis, Stearns outdoor water products, and domestic sales of Shakespeare Fishing Tackle products. Sales of K2 skis improved in 2001 despite historically low reorder sales caused by the economy and poor snow conditions, reflecting gains in market shares in the North American market fueled by the success of the ski line that featured MOD technology. Fishing tackle sales improved, led by the growth of reels, kits and combos and accessories reflecting new product introductions and increased market share. Sales of

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Stearns products improved due to higher sales of drywear, industrial and cordage products. Partially offsetting these increases was a modest decline in snowboard sales due to the sluggish economy and poor snow conditions.

        In the other recreational products segment, net sales for 2001 were $39.8 million as compared with $42.2 million in the prior year. The growth in skateboard shoes, particularly the Adio and Hawk brands, partially offset the recession-related decline of sales in the corporate casuals business.

        In the industrial products group, net sales declined to $110.5 million from $119.0 million in 2000. The sales decline reflected a soft demand for paperweaving monofilaments, composite light poles and marine antennas.

        Gross profit.    Gross profit for the year was $166.1 million, or 27.9% of net sales in 2001, as compared with $208.5 million, or 31.1% of net sales in 2000. Gross profit for 2001 included charges for restructuring and downsizing of $15.6 million (a discussion regarding an additional $2.4 million which was charged against general and administrative expenses is included below). During the 2001 third quarter, K2 closed the Washington ski manufacturing facility and moved more production to China. K2 also shut down three other smaller manufacturing facilities in Minnesota and Alabama which serviced the Stearns and Hilton operations, with most of the production also moving overseas. In addition to the factory closures, K2 experienced an industry-wide slowdown in sales of small-wheeled products, necessitating a downsizing of K2's small-wheeled products operation. The downsizing of the small- wheeled products business, the shutdown of the domestic manufacturing facilities and additional cost reduction measures resulted in charges to cost of products sold of $15.6 million primarily related to severance, the write down of facilities and equipment, and the reduction in the net carrying value of small-wheeled products inventory. As a result, the decline in gross profit dollars and margins for 2001 was attributable to the restructuring and downsizing charges discussed above, higher sales of reduced margin products, including close-out sales of in-line skates in Europe, and an unfavorable mix of products sold. This decline was partially offset by reduced product costs obtained from selling products manufactured in China.

        Costs and expenses.    Selling expenses decreased 3.4% to $109.6 million, or 18.4% of net sales as compared with $113.5 million, or 16.9% of net sales, in 2000. The increase as a percentage of sales reflects the decline in sales volume for 2001, without a corresponding decrease in expenses. Expenses did not decline at a corresponding rate due to the initiation of certain sales and marketing programs early in 2001before there was indication of a market contraction in small-wheeled products.

        General and administrative expenses for 2001 were $43.0 million, or 7.2% of net sales, compared with $43.0 million, or 6.4% of net sales, in 2000. Expenses for 2001 included downsizing charges of $2.4 million, primarily for severance and the write down of facilities associated with the downsizing of the small-wheeled products operation. The increase in expenses as a percentage of sales was attributable to the downsizing charges discussed above, partially offset by cost reduction measures initiated during 2001. Research and development expenses declined 8.3% to $12.2 million from $13.3 million in 2000.

        Operating income.    Operating income was $1.3 million, or 0.2% of net sales, as compared to operating income of $38.8 million, or 5.8% of net sales, in 2000. The decrease in earnings for the period was attributable to the $18.0 million of restructuring and downsizing charges discussed above, and to a decline in small-wheeled products sales and earnings, partially offset by improved operating results for skis, snowboards, bikes, fishing tackle and Stearns outdoor products, and decreased selling, general and administrative expenses.

        Interest expense.    Interest expense declined $1.2 million to $13.6 million in 2001. Lower average borrowings resulted in interest savings of $1.9 million, which was offset by $0.7 million of additional interest as the result of higher average interest rates. The average interest rate increase was due to

14

lesser receivables sold under the accounts receivable purchase facility in 2001, which has lower average interest rates than K2's other long-term liquidity facilities and an increase in borrowing costs beginning in the fourth quarter.

        Other income.    Other income, which includes royalties, interest income and other miscellaneous income, increased to $.4 million from $.2 million in 2000.

        Income taxes.    The income tax rate for 2001 decreased due to the tax benefit recognized in 2001 from the recording of carrybacks and benefits from carryforward of tax losses in the United States and Germany.

        Segment information.    Total segment operating profit (before interest, corporate expenses and income taxes) declined to to $5.5 million from $42.3 million in 2000. In the sporting goods segment, operating loss was $0.2 million as compared with an operating profit of $32.3 million in 2000. The current year decline was attributable to $16.3 million of restructuring and downsizing costs, discussed above, and an overall decline in sales and margins of small wheeled products as compared to the prior year.

        In the other recreational products segment, an operating loss of $5.9 million was reported in 2001 as compared with an operating loss of $2.7 million in 2000. The increase in the loss was attributable to $1.5 million of restructuring costs associated with plant closures in 2001, and the decline in corporate apparel sales due to continued sluggish market conditions. This decline was partially offset by improved sales volume of skateboard shoes and apparel.

        In the industrial products segment, operating profit declined to $11.6 million from $12.7 million in 2000. The decline was due to reduced sales volume of monofilament line used in the paper industry, marine antennas and composite light poles.

Review of Operations: Comparison of 2000 to 1999

        Net sales from continuing operations increased to $670.8 million from $646.0 million in the prior year. Income from continuing operations for 2000 was $16.7 million, or $.93 per diluted share in 2000 as compared to $8.5 million, or $.50 per diluted share, in the prior year. Net income improved to $16.6 million, or $.92 per diluted share, from $9.8 million, or $.58 per diluted share, in the prior year.

        Net sales.    In the sporting goods segment, net sales increased 6.0% to $509.6 million from $480.6 million in 1999. The increase was attributable to strong demand during the year for most of the products in the segment. Snowboard products, Kickboard scooters, fishing tackle and Stearns marine products registered double-digit growth. The increase in shipments of snowboard products reflected strong demand for K2 and Ride products and from the full year benefit of the 1999 Ride acquisition. Sales of the innovative K2 Kickboard scooter increased mainly due to strong demand in the European market. Fishing tackle sales improved, led by growth of new packaged rods and reels and other new products such as a line of fishing reels. New product introductions at Stearns fueled sales increases primarily in children's flotation devices and outdoor water products. Offsetting these increases were declines in sales of skis, in-line skates and bikes. The decline in skis sales, despite an increase in U.S. shipments, was due to a decline in international ski shipments for the year reflecting the higher price of dollar denominated US-produced skis. In-line skate sales declined due to softness in the European market, and due to lower translated European sales resulting from the weakness of the Euro compared to the prior year. Bike sales declined due to the repositioning of the bike business.

        In the other recreational products segment, net sales declined to $42.2 million from $42.8 million in the prior year. Sales of skateboard shoes and apparel for the year increased substantially over the prior year, however, declines in sales to the advertising specialty market more than offset K2's strength in the skateboard business.

15

        In the industrial products group, net sales declined 2.9%, to $119.0 million from $122.6 million in 1999. The sales decline reflected a slowdown and consolidation in the paperweaving industry. Partially offsetting this decline were improved sales of composite light poles.

        Gross profit.    Gross profit for the year increased to $208.5 million, or 31.1% of net sales in 2000, from $184.0 million, or 28.5% of net sales in 1999. For the year ended 1999, gross profit was net of a $10.5 million charge. In the fourth quarter of 1999, K2 announced a strategic initiative to significantly reduce the cost structure of its ski and snowboard operations by restructuring and downsizing the Seattle manufacturing operation to take advantage of lower cost manufacturing and sourcing opportunities in Asia, Europe and the United States. This resulted in a charge to cost of products sold for restructuring costs of $6.5 million and related downsizing costs of $4.0 million. Excluding the impact of the charge in 1999, gross profit as a percentage of sales for 1999 was 30.1%. The improvement in gross profit percentage in the current year reflects the benefits from K2's global cost reduction initiatives partially offset by the product cost impact of weak European currencies and declining margins in the manufacture of monofilaments.

        Costs and expenses.    Selling expenses increased 6.4% to $113.5 million, or 16.9% of net sales as compared with $106.7 million, or 16.5% of net sales in 1999. The increase was attributable to increased sales volume in the sporting goods segment along with increased selling expenses related to a full year of Ride Snowboard operations, an acquisition made in the 1999 fourth quarter.

        General and administrative expenses increased 6.7% to $43.0 million, or 6.4% of net sales, compared with $40.3 million, or 6.2% of net sales in 1999. The increase was attributable to increased expenses related to a full year of Ride Snowboard operations, an acquisition made in the 1999 fourth quarter. In addition, declining sales in the industrial products group resulted in an increase as a percentage of sales for certain fixed expenses. Research and development expenses increased to $13.3 million from $12.1 million in 1999.

        Operating income.    Operating income from continuing operations improved 56% to $38.8 million, or 5.8% of net sales, from $24.8 million, or 3.8% of net sales, in 1999. Excluding 1999 restructuring and downsizing costs totaling $10.5 million, operating income from continuing operations for the year ended December 31, 1999 was $35.3 million, or 5.5% of sales. The improvement is attributable to increased sales volume and an improvement in gross margins over the prior year.

        Interest expense.    Interest expense increased $2.1 million to $14.8 million in 2000. Lower average borrowings resulted in interest savings of $1.9 million, which was offset by $4.0 million of additional interest as the result of higher average interest rates. The interest rate increase was due to an increase in the LIBOR variable rate as compared to the prior year and the refinancing of variable debt into higher cost long-term fixed debt at the end of 1999.

        Other income.    Other income, which includes royalties, interest income and other miscellaneous income, decreased to $.2 million from $.4 million in 1999.

        Income taxes.    The income tax rate for 2000 decreased due to the impact of net operating loss benefits on foreign earnings.

        Segment information.    Total segment operating profit or loss (before interest, corporate expenses and income taxes) improved to $42.3 million from $30.6 million in 1999. In the sporting goods segment, operating profit increased to $32.3 million from $15.0 million in 1999. Excluding the $10.5 million charge for restructuring and downsizing costs in 1999, segment operating profit was $25.5 million. The improvement in 2000 was attributable to the increases in sales volume and improved margins over the prior year.

16

        In the other recreational products segment, an operating loss of $2.7 million was reported in 2000 as compared with an operating loss of $1.9 million in 1999. The increase in the loss was attributable to the decline in corporate apparel sales due to continued sluggish market conditions. This decline was partially offset by improved sales volume of skateboard shoes and apparel.

        In the industrial products segment, operating profit declined to $12.7 million from $17.5 million in 1999. The decline was due to reduced sales volume of monofilament line used in the paper industry and from declining gross margins.

Liquidity and Sources of Capital

        Principally as the result of the factory closures and downsizing costs incurred in 2001 and the prolonged slowdown which occurred in the small-wheeled products segment, K2 was unable to comply with financial covenants contained in its principal bank credit facility and two long-term notes. In addition, K2's asset securitization facility expired by its terms on November 15, 2001. K2 engaged in extended negotiations with its lenders concerning appropriate amendments to these credit facilities and sought a replacement asset securitization facility, while operating under a series of short-term waivers and extensions. Pursuant to these short-term arrangements, K2 incurred increased interest and other financing charges aggregating approximately $400,000 during the fourth quarter of 2001, and its borrowing capacity was severely constrained. Amendments to the credit facilities and notes were finally completed in March 2002, and a new asset securitization facility was entered into in the same month. Pursuant to the amendments borrowing costs and other fees will increase by up to $1.6 million based upon increases to interest rates and other borrowing related fees and K2 has granted security interests in substantially all of its assets to secure the outstanding indebtedness. K2 believes that the credit availability under the amended credit facilities and funding under the new asset securitization facility, together with cash flow from operations, will be sufficient for K2's business needs during 2002. The grant of security to K2's lenders, however, could adversely affect K2's ability to arrange debt financing from other sources if such additional financing should become necessary.

        K2's continuing operations provided $15.6 million of cash flow down from the $50.8 million provided in 2000. During 2001, K2 sold $21.3 million fewer receivables under its accounts receivable purchase facility as compared with the prior year. Excluding the impact of the sale of receivables, cash provided by operating activities for 2001 increased to $36.9 million, from $27.7 million in 2000. The increase in cash provided from operations was attributable to decreases in accounts receivable and inventory, partially offset by the reduction in operating income.

        Net cash used in investing activities from continuing operations was $15.9 million, as compared to $13.7 million in 2000. Partially offsetting the decrease in cash used in 2001 was the purchase of the assets of an industrial business for $4.6 million in cash. Net capital expenditures in 2001 were $1.4 million lower than in 2000. No material commitments for capital expenditures existed at year end.

        Cash provided by financing activities was $8.5 million as contrasted with cash used of $68.6 million in 2000. The cash provided by financing activities as compared to cash used in the prior year was due to the overall decrease in cash provided from operations in 2001, resulting in net borrowings in 2001 compared to net repayments in 2000.

        K2's principal long-term borrowing facility, as amended (see discussion above), is a $75 million Credit Line ("Credit Line"), secured by certain of the assets of K2, which becomes due on December 31, 2003. Additionally, as of March 2002, K2 has a new five year, $75 million accounts receivable purchase facility ("Purchase Facility"). At December 31, 2001, $26.5 million was outstanding under the Credit Line and $51.8 million of accounts receivable had been sold under the old Purchase Facility. Under the amended Credit Line, K2 is subject to an agreement which, among other things, currently prohibits amounts available for payment of cash dividends and stock repurchases by K2 until certain financial covenants are met. K2 also had $13.4 million of 8.89% secured senior notes due

17

through 2004, payable in three remaining equal principal payments, and $50.0 million of 9.01% secured notes due through 2009, payable in seven equal principal payments commencing in 2003. At December 31, 2001, K2 had $18.8 million outstanding under foreign lines of credit.

        The following summarizes the outstanding borrowings and long-term contractual obligations of K2 at December 31, 2001 and the effects such obligations are expected to have on liquidity and cash flow in future periods.

Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
	(Thousands)
Long-term debt	$	103,714	$	5,886	$	50,527	$	11,587	$	35,714
Operating leases		11,559		4,246		3,684		2,746		883
Total contractual cash obligations	$	115,273	$	10,132	$	54,211	$	14,333	$	36,597

        For further information regarding K2's borrowings, see Note 6 to Notes to Consolidated Financial Statements.

Environmental Matters

        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 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 accrues for liabilities of this nature when it is probable a liability has been incurred and the amount can be reasonably estimated. At December 31, 2001 and 2000, K2 had recorded an estimated liability of approximately $745,000 and $762,000, respectively, for environmental liabilities and made no provision for expected insurance recovery.

        The ultimate outcome of this matter cannot be predicted with certainty, however, and taking into consideration reserves provided, management does not believe this matter will have a material adverse effect on K2's financial statements.

Newly Adopted Accounting Standards

        During 2001, K2 adopted the new requirements of "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities", for sales of receivables that occurred during 2001. The impact of the adoption on the financial statements was immaterial.

        In July 2001, the FASB issued "Business Combinations," and "Goodwill and Other Intangible Assets." The Business Combination changes requires the purchase method of accounting for business combinations initiated after June 30, 2001, and eliminates the pooling-of interests method. The changes to goodwill are effective for fiscal years beginning after December 15, 2001, requiring that goodwill and indefinite-lived intangible assets no longer be amortized to earnings, but instead reviewed annually for impairment. In addition, the standard includes provisions, upon adoption, for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. For existing goodwill and other

18

intangibles, K2 will adopt this pronouncement on January 1, 2002. K2 is currently assessing the impact adoption will have on the consolidated financial statements. Amortization expense arising from goodwill and other intangible assets that will no longer be amortized under the provisions of the new rules was approximately $2.6 million and $2.4 million in 2001 and 2000, respectively.

        In August 2001, the FASB issued "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001. K2 is currently assessing the impact, if any on its consolidated financial position, results of operations and cash flows.

        In 2000 and 2001, the FASB Emerging Issues Task Force issued several changes to GAAP for the accounting for incentives to customers principally effective for year beginning after December 15, 2001. The impact of the adoption of these changes on K2's financial statements is expected to be immaterial.

Critical Accounting Policies

        K2's discussion and analysis of its financial condition and results of operations are based upon K2's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires K2 to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.

        K2 believes the following critical accounting policies affect its more significant estimates and judgments used in the preparation of its consolidated financial statements.

Revenue Recognition

        K2 recognizes revenue from product sales upon shipments to its customers. Under this guidance revenue is recognized when persuasive evidence of an arrangement exists, the price to the customer if fixed or determinable, and collectibility is reasonably assured. In addition, reserves are established for future product returns based upon historical return rates. These reserves are recorded as a reduction of revenue. If the historical data used to calculate these reserves does not reflect future return rates, these estimates could be revised.

Warranty

        K2 records the cost of product warranties at the time revenue is recognized. K2's warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from estimates, revisions to the estimated warranty liability would be required.

Allowance for Doubtful Accounts

        K2 evaluates the collectibility of accounts receivable based on a combination of factors. In circumstances where there is knowledge of a specific customer's inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the net recognized receivable to the amount that is reasonably believed to be collected. For all other customers, reserves are established based on historical bad debts, customer payment patterns and current economic conditions. The establishment of these reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. If the financial condition of K2's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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Inventories

        Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method, including material, labor and factory overhead. K2 records adjustments to its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from expectations.

Income Taxes

        Income taxes are recorded using the liability method. K2 estimates actual current tax exposure together with temporary differences that result from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities. K2 then assesses the likelihood that deferred tax assets will be recovered from future taxable income and to the extent that recovery is unlikely, a valuation allowance must be established. A significant portion of K2's deferred tax assets relate to net operating loss carryforwards for both domestic and foreign purposes. The realization of these assets is based upon estimates of future taxable income. In those jurisdictions where the realization of these carryforwards is not likely, a valuation allowance has been established. At December 31, 2001, the balance of the valuation allowance was $8.6 million. If actual results are less favorable than those projected by management, additional income tax expense may be required.

Pensions

        As described in Note 9 of Notes to Consolidated Financial Statements, K2 sponsors several trusteed noncontributory defined benefit pension plans covering most of its domestic employees. Pension costs and liabilities are actuarially calculated. These calculations are based on assumptions related to the discount rate, projected compensation increases and expected return on assets. A variance in the discount rate, expected return on plan assets and rate of compensation increase could have a significant impact on the pension costs recorded.

Receivable Sales

        During 2001, 2000 and 1999, K2 sold trade receivables under a domestic accounts receivable securitization facility, in which K2 retained servicing responsibilities. The purchasers of the receivables had no recourse to K2's other assets for failure of customers to pay when due. The costs incurred by K2 associated with sales under the facility for the years ended December 31, 2001, 2000 and 1999 totaled $2,816,000, $3,995,000 and $2,849,000, respectively. The expenses are included in interest expense. For further discussion see Note 6 to Notes to Consolidated Financial Statements.

Foreign Currency Translation

        The functional currency for most foreign operations is the local currency. The financial statements of foreign subsidiaries have been translated into United States dollars. Asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Revenue and expense accounts have been translated using the average exchange rate for the year. The gains and losses associated with the translation of the financial statements resulting from the changes in exchange rates from year to year have been reported in the other comprehensive income or loss account in shareholders' equity. To the extent assets and liabilities of the foreign operations are realized or the foreign operations pay back intercompany debt, amounts previously reported in other comprehensive income or loss account would be included in net income or loss in the period in which the transaction

20

occurs. Transaction gains or losses, other than intercompany debt deemed to be of a long-term nature, are included in net income or loss in the period in which they occur.

Euro Conversion

        On January 1, 1999, 11 of the 15 member countries of the European Union established fixed conversion rates between their existing currencies (legacy currencies) and one new common currency—the Euro. The transition period for the introduction of the Euro extends through 2002. Beginning in January 2002, new Euro-denominated bills and coins have been issued. K2 has evaluated, and will continue to evaluate, the effects on its operations of the conversion to the Euro. The costs to prepare for this conversion, including the costs to adapt information systems, have not been and are not expected to be material to K2's results of operations, financial position or cash flows. K2 does not currently expect the introduction and use of the Euro to have a material effect on its foreign exchange and hedging activities. While K2 does not expect the Euro conversion to have a material effect on its operations, some uncertainty exists as to the effect that the conversion to the Euro will have on the markets for K2's products. Accordingly, the effect on K2's operations cannot be predicted with certainty.

Impact of Inflation and Changing Prices

        The inflation rate, as measured by the Consumer Price Index, has been relatively low in the last few years, and therefore, pricing decisions by K2 have largely been influenced by competitive market conditions. Depreciation expense is based on the historical cost to K2 of its fixed assets, and therefore, is considerably less than it would be if it were based on current replacement cost. While buildings, machinery and equipment acquired in prior years will ultimately have to be replaced at significantly higher prices, it is expected this will be a gradual process over many years.

Statement Regarding Forward Looking Disclosure

        This Annual Report on Form 10-K contains "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. These represent K2's beliefs concerning future events, including, but not limited to, the following: statements regarding market trends of products sold by K2, foreign exchange fluctuations, debt reduction, inventory levels at retail, product acceptance and demand, growth efforts, cost reduction efforts, margin enhancement efforts, product development efforts, success of new product introductions, and overall market trends. All such forward looking statements involve substantial risks and uncertainties.

        Actual results could differ materially by reason of a number of factors, many of which are outside of K2's control. Among such factors are the following:

•

Recent Economic Developments. The three principal markets for K2 products are North America, Europe and Asia, and significant portions of these products sold are manufactured in China. Adverse developments affecting the general economy in any of such regions could lead to a reduction in discretionary spending for consumer products. Sales of K2 products could suffer as the result. Additionally, higher energy costs coupled with a potential decline in sales, could result in lower earnings for K2.



•

Financial Condition of Customers. A large portion of K2 sales are to sporting goods retailers. Many of K2's smaller retailers and some larger retailers are not strongly capitalized. Adverse conditions in the sporting goods retail industry can adversely impact the ability of retailers to purchase K2 products, except on credit terms which would involve significant risks of nonpayment.

21

•

Changes in currency exchange rates. Approximately 32% of K2 sales are denominated in foreign currencies and are subject to exchange rate fluctuation risk. Although K2 engages in hedging activities to reduce foreign exchange transaction risk, changes in the exchange rates between the United States dollar and the currencies of Europe and Asia could make K2 products less competitive in foreign markets, and could reduce the sales and earnings represented by foreign currencies. Additionally, fluctuations of the dollar against foreign currencies could result in an increase in cost of products sold in foreign markets reducing margins and earnings.



•

Unexpected delays and increased manufacturing capacity in China. K2 has continued to increase its manufacturing capacity in China and to shift production from the United States. Failure to complete the transition efficiently could result in late deliveries, lower sales and earnings, and unanticipated costs.



•

Unfavorable political developments. K2's business is dependent on international trade, both for sales of finished goods and low-cost sourcing of products. Any political developments adversely affecting trade with Europe or Asia, including China, could severely impact K2 results of operations.



•

Competitive developments and initiatives by K2's competitors. New product introductions, financial incentives to retailers, the affects of excess industry capacity and other initiatives by K2 competitors could weaken the market position of K2 products.



•

Rapid changes in marketing strategies, product design, styles and tastes. Consumer demand for recreational products is strongly influenced by matters of taste and style. Further, development of the internet is leading to dramatic changes in product marketing and distribution. K2's success is dependent, in significant part, on its ability to keep abreast of, and lead, such changes.



•

Weather. Sales of K2's recreational products are strongly influenced by the weather. Poor snow conditions in the winter or summer conditions unfavorable to outdoor sports can adversely affect sales of important K2 products. Also, adverse weather conditions and a poor economy could negatively affect K2's sales and earnings due to its dependence on reorders.



•

Small-wheeled product inventories. As the result of severe weakness in the market for small-wheeled products, K2 continued to have excess inventories of these products at year-end. Dispositions of these inventories could have an adverse impact on marketing for new products in these categories, and delays in divesting the excess inventories could limit working capital available to support more profitable manufacturing and sales activities.



•

Increased financing costs. Amended financing arrangements entered into in the first quarter of 2002 have involved the grant of security interests in substantially all of K2's available assets to its lenders and have increased interest rates which result in increased borrowing costs. As the result, K2's additional borrowing capacity is strictly limited and profit margins may be adversely affected. For further information, see Note 6 to Notes to Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

22

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 at year end, a hypothetical 10% weakening of the U.S. dollar relative to other currencies would not materially adversely affect expected first quarter 2002 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 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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

K2 INC.

STATEMENTS OF CONSOLIDATED OPERATIONS

		Year ended December 31
		2001			2000			1999
		(Thousands, except per share figures)
Net sales		$	595,466		$	670,786		$	645,990
Cost of products sold			429,338			462,242			462,033
	Gross profit		166,128			208,544			183,957
Selling expenses			109,635			113,498			106,659
General and administrative expenses			43,028			42,952			40,341
Research and development expenses			12,184			13,271			12,113
	Operating income		1,281			38,823			24,844
Interest expense			13,631			14,814			12,741
Other income, net			(375	)		(191	)		(413	)
	Income (loss) from continuing operations before provision for income taxes		(11,975	)		24,200			12,516
Provision (credit) for income taxes			(4,271	)		7,502			4,005
	Income (loss) from continuing operations		(7,704	)		16,698			8,511
Discontinued operations, net of taxes			—			(119	)		1,332
Net income (loss)		$	(7,704	)	$	16,579		$	9,843
Basic earnings per share:
	Continuing operations	$	(0.43	)	$	0.93		$	0.50
	Discontinued operations		—			(0.01	)		0.08
	Net income (loss)	$	(0.43	)	$	0.92		$	0.58
Diluted earnings per share:
	Continuing operations	$	(0.43	)	$	0.93		$	0.50
	Discontinued operations		—			(0.01	)		0.08
	Net income (loss)	$	(0.43	)	$	0.92		$	0.58
Basic shares outstanding			17,940			17,949			16,880
Diluted shares outstanding			17,940			18,040			16,883

See notes to consolidated financial statements

24

K2 INC.

CONSOLIDATED BALANCE SHEETS

			December 31
			2001			2000
			(Thousands, except number of shares)
Assets
Current Assets
	Cash and cash equivalents		$	11,416		$	3,174
	Accounts receivable, net			99,803			107,933
	Inventories, net			169,969			176,628
	Deferred taxes and income taxes receivable			15,019			10,824
	Prepaid expenses and other current assets			8,606			6,573
		Total current assets		304,813			305,132
Property, Plant and Equipment
	Land and land improvements			1,641			1,641
	Buildings and leasehold improvements			30,241			31,935
	Machinery and equipment			134,831			127,514
	Construction in progress			3,462			6,126
				170,175			167,216
	Less allowance for depreciation and amortization			101,771			95,221
				68,404			71,995
Other Assets
	Intangibles, principally goodwill, net			41,068			40,301
	Other			6,753			6,682
		Total Assets	$	421,038		$	424,110
Liabilities and Shareholders' Equity
Current Liabilities
	Bank loans		$	5,016		$	25,767
	Accounts payable			46,015			46,732
	Accrued payroll and related			18,041			19,539
	Other accruals			26,007			25,110
	Current portion of long-term debt			5,886			4,594
		Total current liabilities		100,965			121,742
Long-term Debt				97,828			69,836
Deferred taxes and income taxes payable				7,588			5,284
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—18,676,146 in 2001 and 18,673,646 in 2000			18,676			18,674
	Additional paid-in capital			143,346			143,331
	Retained earnings			84,123			91,827
	Employee Stock Ownership Plan and stock option loans			(1,582	)		(1,645	)
	Treasury shares at cost, 747,234 in 2001 and 738,676 in 2000			(9,107	)		(9,045	)
	Accumulated other comprehensive loss			(20,799	)		(15,894	)
		Total Shareholders' Equity		214,657			227,248
		Total Liabilities and Shareholders' Equity	$	421,038		$	424,110

See notes to consolidated financial statements

25

K2 INC.

STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY

		Common Stock		Additional paid-in capital		Retained earnings			Employee Stock Ownership Plan and stock option loans			Treasury shares, at cost			Accumulated other comprehensive loss			Total
		(Thousands except per share figures)
Balance at December 31, 1998		$	17,191	$	132,488	$	67,227		($	1,981	)	($	8,106	)	($	4,700	)	$	202,119
	Net income for the year 1999						9,843												9,843
	Translation adjustments															(3,060	)		(3,060	)
	Comprehensive income																		6,783
	Issuance of shares from acquisition of Ride, Inc.		1,482		10,838														12,320
	Repurchase of shares												(886	)					(886	)
	Cash dividends, $.11 per share						(1,822	)											(1,822	)
	Stock option loan(s)									(4	)								(4	)
	Employee Stock Ownership Plan, amortization, loan and partial loan repayment									10									10
Balance at December 31, 1999			18,673		143,326		75,248			(1,975	)		(8,992	)		(7,760	)		218,520
	Net income for the year 2000						16,579												16,579
	Translation adjustments															(8,606	)		(8,606	)
	Change in fair value of derivatives															472			472
	Comprehensive income																		8,445
	Repurchase of shares												(53	)					(53	)
	Exercise of stock options		1		5														6
	Stock option loan repayments									60									60
	Employee Stock Ownership Plan, amortization, loan and partial loan repayment									270									270
Balance at December 31, 2000			18,674		143,331		91,827			(1,645	)		(9,045	)		(15,894	)		227,248
	Net loss for the year 2001						(7,704	)											(7,704	)
	Translation adjustments															(5,344	)		(5,344	)
	Change in fair value of derivatives															439			439
	Comprehensive loss																		(12,609	)
	Repurchase of shares												(62	)					(62	)
	Exercise of stock options		2		15														17
	Stock option loan repayments									54									54
Employee Stock Ownership Plan, amortization, loan and partial loan repayment										9									9
Balance at December 31, 2001		$	18,676	$	143,346	$	84,123		($	1,582	)	($	9,107	)	($	20,799	)	$	214,657

See notes to consolidated financial statements

26

K2 INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

				Year ended December 31
				2001			2000			1999
				(Thousands)
Operating Activities
	Income (loss) from continuing operations			$	(7,704	)	$	16,698		$	8,511
	Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
		Depreciation of property, plant and equipment			13,525			11,907			11,685
		Amortization of intangibles			2,683			2,413			2,041
		Deferred taxes and income taxes receivable			(1,891	)		1,035			(6,522	)
		Changes in operating assets and liabilities:
			Accounts receivable		27,511			14,766			(12,186	)
			Increase (decrease) in sale of receivables		(21,268	)		23,095			—
			Inventories		4,958			(7,457	)		24,786
			Prepaid expenses and other current assets		(2,033	)		(1,520	)		283
			Accounts payable		(1,542	)		1,336			14,127
			Payrolls and other accruals		1,394			(11,504	)		1,972
	Net cash provided by continuing operations				15,633			50,769			44,697
Investing Activities
	Property, plant and equipment expenditures				(12,604	)		(14,738	)		(16,204	)
	Disposals of property, plant and equipment				797			1,547			4,013
	Purchases of businesses, net of cash acquired				(4,581	)		—			(2,629	)
	Other items, net				447			(499	)		2,833
	Net cash used in investing activities				(15,941	)		(13,690	)		(11,987	)
Financing Activities
	Borrowings under long-term debt				158,318			131,000			125,035
	Payments of long-term debt				(129,034	)		(168,730	)		(128,479	)
	Net increase (decrease) in short-term bank loans				(20,751	)		(31,156	)		(22,749	)
	Exercise of stock options				17			—			—
	Dividends paid				—			—			(1,822	)
	Net repayments by ESOP				—			245			—
	Net cash (used in) provided by financing activities				8,550			(68,641	)		(28,015	)
Net increase (decrease) in cash and cash equivalents from continuing operations					8,242			(31,562	)		4,695
Discontinued Operations
	Income (loss) from discontinued operations				—			(119	)		1,332
	Net proceeds received from sale of discontinued operation				—			24,360			—
	Adjustments to reconcile income (loss) from discontinued operations to net cash provided by discontinued operations:
		Depreciation and amortization			—			1,357			2,939
		Capital expenditures			—			(237	)		(2,565	)
		Other items, net			—			(46	)		(374	)
Cash provided by discontinued operations					—			25,315			1,332
Net increase (decrease) in cash and cash equivalents					8,242			(6,247	)		6,027
Cash and cash equivalents at beginning of year					3,174			9,421			3,394
Cash and cash equivalents at end of year				$	11,416		$	3,174		$	9,421

See notes to consolidated financial statements

27

K2 INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2001

Note 1—Summary of Significant Accounting Policies

Organization

        K2 is a leading designer, manufacturer and marketer of brand name sporting goods, which represent $445.2 million, or 74.8%, of K2's 2001 consolidated net sales, and other recreational products, which represent $39.8 million in 2001 net sales. K2 is also a manufacturer and supplier of selected industrial products, which had sales of $110.5 million in 2000.

Principles of Consolidation

        The consolidated financial statements include the accounts of K2 and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Periods

        K2 maintains its books using a 52/53 week year ending on the last Sunday of December. For purposes of the consolidated financial statements, the year end is stated as of December 31. The years ended December 31, 2001 and 1999 consisted of 52 weeks, and the year ended December 31, 2000 consisted of 53 weeks.

Revenue Recognition

        K2 recognizes revenue from product sales upon shipment to its customers. Under this guidance revenue is recognized when persuasive evidence of an arrangement exists, the price to the customer if fixed or determinable, and collectibility is reasonably assured.

Use of Estimates

        The preparation of financial statements requires management to make estimates and assumptions affecting the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual amounts could differ from those estimates.

Foreign Currency Translation

        The functional currency for most foreign operations is the local currency. The financial statements of foreign subsidiaries have been translated into United States dollars. Asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Revenue and expense accounts have been translated using the average exchange rate for the year. The gains and losses associated with the translation of the financial statements resulting from the changes in exchange rates from year to year have been reported in the other comprehensive income or loss account in shareholders' equity. To the extent assets and liabilities of the foreign operations are realized or the foreign operations pay back intercompany debt, amounts previously reported in other comprehensive income or loss account would be included in net income or loss in the period in which the transaction occurs. Transaction gains or losses, other than intercompany debt deemed to be of a long-term nature, are included in net income or loss in the period in which they occur.

28

Cash Equivalents

        Short-term investments (including any debt securities) that are part of K2's cash management portfolio are classified as cash equivalents carried at amortized cost. These investments are liquid, are of limited credit risk and have original maturities of three months or less when purchased. The carrying amount of cash equivalents approximates market.

Accounts Receivable and Allowances

        Accounts receivable are the result of K2's worldwide sales activities. Although K2's credit risk is spread across a large number of customers within a wide geographic area, periodic concentrations within a specific industry occur due to the seasonality of its businesses. At December 31, 2001 and 2000, K2's receivables from sporting goods retailers who sell skis, skates, snowboards and bikes, before giving consideration to receivables sold during the year, amounted to 59% and 66%, respectively of total receivables. K2 generally does not require collateral and performs periodic credit evaluations to manage its credit risk.

        K2 evaluates the collectibility of accounts receivable based on a combination of factors. In circumstances where there is knowledge of a specific customer's inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the net recognized receivable to the amount that is reasonably believed to be collected. For all other customers, reserves are established based on historical bad debts, customer payment patterns and current economic conditions. The establishment of these reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Accounts receivable are net of allowances for doubtful accounts of $5,316,000 and $6,969,000 at December 31, 2001 and 2000, respectively.

Inventories

        Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method, including material, labor and factory overhead. K2 records adjustments to its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

Long-Lived Assets

        Long-lived assets, include, among others, goodwill, intangible assets and property, plant and equipment and are reviewed periodically to determine if the carrying values are impaired. K2 considers the future cash flows of the acquired companies in assessing the recoverability of these assets. If indicators of impairment are present, or if long-lived assets are expected to be disposed of, impairment losses are recorded. Any impairment is charged to expense in the period in which the impairment is incurred.

Property, Plant and Equipment

        Property, plant and equipment are recorded at cost. Depreciation is provided on the straight-line method based upon the estimated useful lives of the assets ranging from 3 to 20 years. In the third

29

quarter of 2001 and the fourth quarter of 1999, K2 wrote down certain equipment and facilities no longer in use in connection with the closing of certain domestic manufacturing locations.

Intangibles

        Goodwill arising from acquisitions is amortized on a straight-line basis over a period ranging from 15 to 40 years. Other intangibles are amortized on a straight-line basis over 3 to 15 years. Accumulated amortization of intangibles as of December 31, 2001 and 2000 amounted to $12,494,000 and $10,418,000, respectively. Goodwill will no longer be amortized to earnings effective with K2's adoption of the statement on January 1, 2002. Goodwill amortization expense for the years ended December 31, 2001, 2000 and 1999 amounted to $2.6 million, $2.4 million and $2.0 million, respectively. Beginning in 2002, K2 will yearly review goodwill for impairment, annually.

Warranty

        K2 records the cost of product warranties at the time revenue is recognized. K2's warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure.

Income Taxes

        Income taxes are recorded using the liability method. K2 estimates actual current tax exposure together with temporary differences that result from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities. K2 then assesses the likelihood that deferred tax assets will be recovered from future taxable income and to the extent that recovery is unlikely, a valuation allowance must be established. A significant portion of K2's deferred tax assets relate to net operating loss carryforwards for both domestic and foreign purposes. The realization of these assets is based upon estimates of future taxable income. In those jurisdictions where the realization of these carryforwards is not likely, a valuation allowance has been established.

Pensions

        As described in Note 9, K2 sponsors several trusteed noncontributory defined benefit pension plans covering most of its domestic employees. Pension costs and liabilities are actuarially calculated. These calculations are based on assumptions related to the discount rate, projected compensation increases and expected return on assets.

Receivable Sales

        During 2001, 2000 and 1999, K2 sold trade receivables under a domestic accounts receivable securitization facility, in which K2 retained servicing responsibilities. The purchasers of the receivables had no recourse to K2's other assets for failure of customers to pay when due. The costs incurred by K2 associated with sales under the facility for the years ended December 31, 2001, 2000 and 1999 totaled $2,816,000, $3,995,000 and $2,849,000, respectively. The expenses are included in interest expense. For further discussion see Note 6.

30

Stock-Based Compensation and Other Equity Instruments

        K2 and its subsidiaries account for employee and directors' stock option grants using the intrinsic method. Generally, the exercise price of K2's employee stock options equals or exceeds the market price of the underlying stock on the date of grant and no compensation expense is recognized. If the option price is less than the fair value, K2 records compensation expense over the vesting period of the option. K2 disclosed the pro forma effects of using the fair value method for its option plans in the accompanying financial statements.

Shipping and Handling Costs

        K2 reports freight billed to customers ("freight recovery") as a component of net sales and related freight costs are reflected primarily in selling expenses.

Advertising Costs

        Advertising costs are expensed as incurred. Advertising costs for the years ended December 31, 2001, 2000 and 1999 amounted to $23,765,000, $25,209,000 and $23,680,000, respectively.

Research and Development

        Research and development costs are charged to expense as incurred.

Other Income

        Other income includes interest income, royalties and other miscellaneous income.

Earnings Per Share

        Basic earnings per share ("EPS") are 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 dilutive effects of stock options included in the dilutive EPS calculation at December 31, 2000 and 1999 were 91,000 and 3,000, respectively. During 2001, 2000 and 1999, the computation of diluted EPS did not include the options to purchase 1,890,000, 966,000 and 1,064,000 shares of common stock, respectively, because their inclusion would have been antidilutive.

Newly Adopted Accounting Standards

        During 2001, K2 adopted the new requirements of "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities", for sales of receivables that occurred during 2001. The impact of the adoption on the financial statements was immaterial.

        In July 2001, the FASB issued "Business Combinations," and "Goodwill and Other Intangible Assets." The Business Combination changes requires the purchase method of accounting for business combinations initiated after June 30, 2001, and eliminates the pooling-of interests method. The changes to goodwill are effective for fiscal years beginning after December 15, 2001, requiring that goodwill and indefinite-lived intangible assets no longer be amortized to earnings, but instead reviewed annually for

31

impairment. In addition, the standard includes provisions, upon adoption, for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. For existing goodwill and other intangibles, K2 will adopt this pronouncement on January 1, 2002. K2 is currently assessing the impact adoption will have on the consolidated financial statements. Amortization expense arising from goodwill and other intangible assets that will no longer be amortized under the provisions of the new rules was approximately $2.6 million and $2.4 million in 2001 and 2000, respectively.

        In August 2001, the FASB issued "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001. K2 is currently assessing the impact, if any on its consolidated financial position, results of operations and cash flows.

        In 2000 and 2001, the FASB Emerging Issues Task Force issued several changes to GAAP for the accounting for incentives to customers principally effective for year beginning after December 15, 2001. The impact of the adoption of these changes on K2's financial statements is expected to be immaterial.

        In September 2001, the FASB Emerging Issues Task Force, or EITF, issued EITF Issue No. 01-09, "Accounting for Consideration Given by Vendor to a Customer or a Reseller of the Vendor's Products," which is a codification of EITF Issues No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products," No. 00-14, "Accounting for Certain Sales Incentives," and No. 00-22, Accounting for "Points' and Certain Other Time-or Volume-Based Sales Incentive Offers and Offers for Free Products or Services to be Delivered in the Future." EITF 00-25, as codified by EITF 01-09, established the treatment in the statement of operations of vendor consideration to resellers of a vendor's products. EITF 00-25 and 01-09 are effective for fiscal quarters beginning after December 15, 2001. The impact of the adoption of this issue on K2's financial statements is expected to be immaterial.

Reclassifications

        Certain prior year amounts have been reclassified to conform to the current year presentation.

Note 2—Charges Against Earnings

        In ongoing cost reduction moves initiated in 1999, K2 completed the move of its remaining ski production to China in 2001, closing the Washington ski manufacturing facility during the 2001 third quarter. In addition, three other smaller manufacturing facilities were shut down in Minnesota and Alabama which serviced the Stearns and Hilton operations, with most of the production also moving overseas.

        In addition to the factory closures, K2 experienced a substantial industry-wide slowdown of sales of small-wheeled products in 2001, including primarily scooters and in-line skates, necessitating a downsizing of K2's small-wheeled products operation. The factory closures, coupled with the downsizing activities, have resulted in the reduction of approximately 600 positions worldwide. In conjunction with the closures and downsizing activities, K2 recorded a pre-tax charge in the 2001 third quarter of $18.0 million, primarily related to severance, the write down of facilities and equipment, and the reduction in the net carrying value of small-wheeled products inventory. Approximately $5.0 million of

32

the total amount was a charge to earnings that resulted in or will result in a cash payment. Approximately $15.6 million of the charge was included in cost of sales and approximately $2.4 million was included in general and administrative expenses.

        The following table summarizes the activity in 2001:

		Facilities & Equipment		Inventory		Severance and Related		Subtotal		Other Downsizing		Total
		(Thousands)
2001 Charges		$	3,179	$	9,266	$	4,389	$	16,834	$	1,166	$	18,000
Utilized:
	Cash						3,104		3,104		537		3,641
	Non-cash write down				9,266				9,266				9,266
	Non-cash disposal		3,179						3,179		529		3,708
			3,179		9,266		3,104		15,549		1,066		16,615
Balance December 31, 2001		$	—	$	—	$	1,285	$	1,285	$	100	$	1,385

        Of the remaining cash charges not utilized in 2001, K2 anticipates such amounts will be settled by the end of the 2002 first quarter, resulting in a cash outlay of $1.4 million.

        In the fourth quarter of 1999, a pre-tax charge of $10.5 million was charged to cost of products sold to cover restructuring costs of $6.5 million and downsizing costs of $4.0 million. K2's strategic initiative was adopted in 1999 to reduce the cost structure of its ski and snowboard operations by taking advantage of lower cost manufacturing and sourcing opportunities. In accordance with the initiative, K2's Seattle manufacturing facility was downsized and approximately half of its ski and all of its snowboard manufacturing were moved to either K2's China or California production facilities or to third party sourcing operations worldwide. The charges reflected expenses associated with the write-off of related equipment and inventory, the reduction of approximately 200 production personnel and the utilization of approximately 200 temporary workers. Approximately $5.3 million of the total amount was a cash charge to earnings.

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        The following table summarizes the activity in 1999 and 2000:

		Equipment		Inventory		Severance and Related		Subtotal		Downsizing		Total
		(Thousands)
1999 Charges		$	3,355	$	2,229	$	923	$	6,507	$	3,993	$	10,500
Utilized:
	Cash				500		130		630		3,852		4,482
	Non-cash write-down				1,132				1,132				1,132
	Non-cash disposal		3,355						3,355		141		3,496
			3,355		1,632		130		5,117		3,993		9,110
Balance December 31, 1999			—		597		793		1,390		—		1,390
Utilized:
	Cash		—		597		793		1,390		—		1,390
			—		597		793		1,390		—		1,390
Balance December 31, 2000		$	—	$	—	$	—	$	—	$	—	$	—

Note 3—Discontinued Operations

        On September 10, 1998, K2 adopted a plan to dispose of its Simplex building products division as part of K2's strategic focus on the core sporting goods and other recreational businesses. Accordingly, Simplex is shown in the accompanying consolidated financial statements as discontinued operations.

        On June 30, 2000, K2 completed the sale of the assets and business of Simplex. Consideration included $24.4 million in cash and the assumption of certain liabilities by the buyer. The loss on disposal of Simplex was $1,157,000, net of a tax benefit of $623,000, and included costs of disposal and reserves related to the retention of certain liabilities by K2.

        Income from discontinued operations is net of taxes of $560,000 for the year ended December 31, 2000. Net sales of $32,739,000 for the year ended December 31, 2000 were excluded from consolidated net sales in the accompanying consolidated statements of income.

Note 4—Acquisitions

        In 2001, K2 acquired certain assets of a resistat business from BASF. The net cash purchase price was approximately $4.5 million and was accounted for using the purchase method of accounting.

        On October 7, 1999, K2 completed the acquisition of Ride, Inc. ("Ride"), a designer and manufacturer of snowboard equipment, apparel and accessories, in a stock for stock merger transaction. Under the terms of the merger, each share of Ride common and preferred stock was converted into ¹/10 share of common stock of K2. Based on the number of preferred and common shares outstanding of Ride as of the acquisition date, approximately 1,482,000 shares of K2's common stock were issued to the Ride shareholders and the purchase price was valued at $12.3 million. This transaction was accounted for using the purchase method of accounting; accordingly, the purchased assets and liabilities

34

have been recorded at their estimated fair values at the date of the acquisition. The purchase price allocation resulted in an excess of cost over net assets acquired of approximately $21.7 million, to be amortized on a straight-line basis over 30 years. The results of operations of Ride have been included in the consolidated financial statements since the date of acquisition.

        In 1999, K2 acquired certain assets relating to the Morrow snowboard business, including the Morrow trademark, from Morrow Snowboards, Inc. The net cash purchase price was approximately $3.0 million and the acquisition was accounted for using the purchase method of accounting.

        The following summarized unaudited pro forma results of operations of K2 assume the acquisition of Ride had occurred as of the beginning of each period presented. This pro forma information does not purport to be indicative of what would have occurred had the acquisition been made as of those dates, or of results which may occur in the future:

Pro Forma Information (Unaudited)
(Thousands, except per share amounts)

	Year ended December 31, 1999
Net sales	$	675,797
Loss from continuing operations		(11,440	)
Loss per common share		(.63	)

Note 5—Inventories

        Inventories consisted of the following at December 31:

		2001		2000
		(Thousands)
Finished goods		$	135,623	$	137,733
Work in process			11,788		13,164
Raw materials			22,558		25,731
	Total inventories	$	169,969	$	176,628

Note 6—Borrowings and Other Financial Instruments

        As of December 31, 2001, K2 was not in compliance with certain financial covenants under its $75 million revolving line of credit and two long-term notes payable. In addition K2's asset securitization facility had expired by its terms on November 15, 2001. K2 operated under a series of short-term waivers and extensions until completion of amendments to the credit facilities and notes in March 2002. Additionally, a new asset securitization was entered into in the same month. Pursuant to the amendments, K2 has granted security interests in substantially all of its assets, except for certain domestic trade accounts receivables which are secured by the accounts receivable arrangement as discussed below. As the result of the amendments, there have been modifications of certain financial covenants and interest costs have increased. The new asset securitization will not qualify for off-balance

35

sheet treatment, and as a result, beginning in the first quarter, the assets and liabilities for the receivables securtized by the facility will be recorded on the K2's balance sheet. The discussion below relates to the revised credit arrangements.

        At December 31, 2001, K2 had $18.8 million outstanding under foreign lines of credit. Two of the foreign subsidiaries' lines of credit totaling $13.8 million have been converted to long-term facilities and the remaining lines are short-term. The short-term lines generally have no termination date but are reviewed annually for renewal and are denominated in the subsidiaries' local currencies. At December 31, 2001, interest rates on the foreign lines of credit ranged from 1.7% to 11.4%. The weighted average interest rates on the foreign lines of credit as of December 31, 2001 and 2000 were 3.6% and 5.6%, respectively.

        The principal components of long-term debt at December 31 were:

	2001*		2000
	(Thousands)
Notes payable due in seven equal annual principal installments through 2009 with semi-annual interest payable at 9.01%	$	50,000	$	50,000
Notes payable due in six equal annual principal installments through 2004 semi-annual interest payable at 8.89%		13,336		17,780
$75 million five-year secured bank revolving credit line due December 31, 2003, interest payments due at LIBOR plus 1.00% to 3.25% and a commitment fee of 0.225% to 0.50% on the unused portion of the line through December 31, 2003		26,500		6,500
Foreign lines of credit		13,818		—
Other		60		150
		103,714		74,430
Less-amounts due within one year		5,886		4,594
	$	97,828	$	69,836

*

2001 reflects security provided in March 2002 as discussed above.

        The principal amount of long-term debts contractually maturing in each of the five years following 2001 are:

	(Thousands)
2002	$	5,886
2003		50,527
2004		11,587
2005		7,143
2006		7,143
Thereafter		21,428
	$	103,714

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        Interest paid on short- and long-term debt for the years ended December 31, 2001, 2000 and 1999 was $13.6 million, $14.8 million and $12.7 million, respectively.

        Under a five year domestic accounts receivable arrangement, referred to above, K2 can sell with limited recourse, undivided participation interests in designated pools of accounts receivable in an amount not to exceed $75 million. The originators of the receivables sell the receivables through a subsidiary of K2 to a conduit who issues paper in the commercial market. As of December 31, 2001 and 2000, accounts receivable of $51.8 and $73.1 million, respectively, were sold under the expiring program. The costs incurred by K2 associated with sales under the facility for the years ended December 31, 2001, 2000 and 1999 totaled $2,816,000, $3,995,000 and $2,849,000, respectively. The expenses are included in interest expense.

        The credit facilities currently prohibit the payment of cash dividends and stock repurchases by K2 until certain financial covenants are met. The interest rate on the $75 million credit line at December 31, 2001 was 4.7%.

        K2 had $38.4 million of letters of credit outstanding as of December 31, 2001.

        The carrying amounts for the short-term lines of credit and the long-term bank revolving credit line approximate their fair value since floating interest rates are charged, which approximate market rates. The fair value of the $50.0 million 9.01% notes payable, based on quoted market interest rates, is $50.2 million as compared to a carrying amount of $50.0 million. The fair value of the $13.3 million 8.89% notes payable, based on quoted market interest rates, is $13.2 million as compared to a carrying amount of $13.3 million.

        K2, including its foreign subsidiaries, enters forward exchange contracts to hedge certain firm and anticipated purchase commitments, which are denominated in U.S. or foreign currencies. The purpose of the foreign currency hedging activities is to reduce K2's risk of fluctuating exchange rates. K2's forward contracts are accounted for as hedges because the derivative instruments are designated and effective as hedges and reduce K2's exposure to identified risks. The ineffective portion of derivative transactions was not material to the results of operations for the year ended December 31, 2001. At December 31, 2001, K2 had foreign exchange contracts with maturities of within one year to exchange various foreign currencies to dollars in the aggregate amount of $16.5 million. At December 31, 2001, the fair value of these contracts was $636,000, which was reflected net of taxes as an increase to other comprehensive income. The fair value of these contracts will be recognized in cost of sales when the related inventory is sold. Counterparties on foreign exchange contracts expose K2 to credit losses in the event of non-performance, but K2 does not anticipate non-performance.

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Note 7-Income Taxes

        Pretax income (loss) from continuing operations for the years ended December 31 was taxed under the following jurisdictions:

	2001			2000		1999
	(Thousands)
Domestic	$	(5,926	)	$	13,598	$	6,365
Foreign		(6,049	)		10,602		6,151
	$	(11,975	)	$	24,200	$	12,516

        Components of the income tax provision (benefit) applicable to continuing operations for the three years ended December 31 are:

	2001						2000				1999
	Current			Deferred			Current		Deferred		Current		Deferred
	(Thousands)
Federal	$	(1,115	)	$	(1,592	)	$	2,265	$	2,324	$	9,147	$	(7,317	)
State		(280	)		(24	)		524		105		705		(25	)
Foreign		1,112			(2,372	)		1,900		384		2,050		(555	)
	$	(283	)	$	(3,988	)	$	4,689	$	2,813	$	11,902	$	(7,897	)

        The principal elements accounting for the difference between the statutory federal income tax rate and the effective tax rate for the three years ended December 31 are:

	2001		2000		1999
	(Percent)
Statutory federal income tax rate	(35.0	)	35.0		35.0
State income tax effect, net of federal benefit	1.0		1.7		3.5
Valuation allowance and foreign earnings	(7.8	)	(5.9	)	(5.5	)
Other	6.1		0.2		(1.0	)
	(35.7	)	31.0		32.0

        No provision for United States income taxes has been made on undistributed earnings of foreign subsidiaries, since these earnings are considered to be permanently reinvested. At December 31, 2001, foreign subsidiaries had unused operating loss carryforwards of approximately $21.0 million which begins to expire in 2009, or carries forward indefinitely. Since the use of these operating loss carryforwards is limited to future taxable earnings of the related foreign subsidiaries, a valuation allowance has been recognized to offset the portion of the deferred tax assets arising from such carryforwards not likely to be usable in the near future. Approximately $2.6 million of foreign net deferred tax assets are not provided for with a valuation allowance and the realization of this asset is dependent upon achieving sufficient future taxable income in the foreign jurisdiction.

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        Deferred tax assets and liabilities are comprised of the following at December 31:

		2001		2000
		(Thousands)
Deferred tax liabilities:
Depreciation and amortization of property, plant and equipment		$	6,101	$	5,239
Trademark amortization			450		377
Other			1,217		1,979
	Deferred tax liabilities		7,768		7,595
Deferred tax assets:
Insurance accruals			1,026		1,994
Tax effect of foreign loss carryforwards			7,704		852
Tax effect of domestic loss carryforwards			3,995		4,230
Bad debt reserve			1,018		1,780
Inventory reserve			924		1,912
Restructure and contingency reserves			4,761		1,740
Pension accrual			2,405		2,101
Other			3,372		2,213
			25,205		16,822
Valuation allowance			8,599		4,377
	Current deferred tax assets		16,606		12,445
Deferred tax assets, net		$	8,838	$	4,850

        At the acquisition date, Ride had $30.2 million of federal net operating loss carryovers. The ability of K2 to utilize these losses to reduce future tax due is subject to an annual Internal Revenue Code §382 limitation. Accordingly, K2 currently estimates the amount realizable would be a maximum of $13.1 million over the twenty year carryforward period. For financial reporting purposes, the realization of these carryovers reduces goodwill recorded from the acquisition of Ride. During 2000, K2 recorded a reduction of goodwill of $1.1 million for the estimated amount of Ride's operating loss carryover likely to be utilized in the near future.

        No income taxes were paid for the year ended December 31, 2001. Income taxes paid, net of refunds, in the years ended December 31, 2000 and 1999 were $9.4 million and $9.0 million, respectively.

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Note 8—Commitments and Contingencies

        Future minimum payments under noncancelable operating leases as of December 31, 2001 are as follows:

	(Thousands)
2002	$	4,246
2003		3,684
2004		2,746
2005		393
2006		124
Thereafter		366
	$	11,559

        Leases are primarily for rentals of facilities, and about two-thirds of these contain rights to extend the terms from one to ten years.

        Net rental expense, including those rents payable under noncancelable leases and month-to-month tenancies, amounted to $6,901,000, $6,691,000 and $4,797,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

        K2 has not experienced any substantial difficulty in obtaining raw materials, parts or finished goods inventory for its sporting goods and other recreational products businesses. Certain components and finished products, however, are manufactured or assembled abroad and therefore could be subject to interruption as a result of local unrest, currency exchange fluctuations, increased tariffs, trade difficulties and other factors. A single supplier manufactures major portions of K2's in-line skates.    K2 believes alternate sources for these products could be found.

        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 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 accrues for liabilities of this nature when it is probable a liability has been incurred and the amount can be reasonably estimated. At December 31, 2001 and 2000, K2 had recorded an estimated liability of approximately $745,000 and $762,000, respectively, for environmental liabilities and made no provision for expected insurance recovery.

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        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.

Note 9—Pension Plans and Other Benefit Plans

        K2 sponsors several trusteed noncontributory defined benefit pension plans covering most of its employees. Benefits are generally based on years of service and the employee's highest compensation for five consecutive years during the years of credited service. Contributions are intended to provide for benefits attributable to service to date and service expected to be provided in the future. K2 funds these plans in accordance with the Employee Retirement Income Security Act of 1974.

        K2 also sponsors defined contribution pension plans covering most of its domestic employees. Contributions by K2 for the defined contribution plans are determined as a percent of the amounts contributed by the respective employees. During 2001, 2000 and 1999, K2 expensed contributions of $745,000, $816,000 and $940,000, respectively, related to these plans.

        The following table sets forth the defined benefit plans' funded status and amounts recognized in K2's consolidated balance sheets at December 31:

	Pension Plan
	2001			2000
	(Thousands)
Change in Benefit Obligation
Benefit obligation at beginning of year	$	52,532		$	50,179
Service cost		1,595			1,670
Interest cost		3,991			4,010
Actuarial loss		456			1,231
Other gains and forfeitures		—			(1,194	)
Benefits paid		(2,415	)		(3,364	)
Benefit obligation at end of year	$	56,159		$	52,532
Change in Plan Assets
Fair value of plan assets at beginning of year	$	52,821		$	57,377
Actual return on fair value of plan assets		(339	)		(1,193	)
Benefits paid		(2,415	)		(3,363	)
Fair value of plan assets at end of year		50,067			52,821
Funded status of the plan		(6,092	)		289
Unrecognized prior service cost		568			642
Unrecognized net transition asset		—			(51	)
Unrecognized actuarial (gain) loss		1,799			(3,657	)
Accrued benefit cost	$	(3,725	)	$	(2,777	)
Weighted Average Assumptions
Discount rate		7.25	%		7.75	%
Expected return on plan assets		9.00	%		9.00	%
Rate of compensation increase		4.00	%		5.00	%

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        The other gains and forfeitures reflects a change in future benefit obligations in part due to the sale of the discontinued operation during the year 2000.

        Net pension cost consisted of the following for the year ended December 31:

	Pension Plan
	2001			2000			1999
	(Thousands)
Net Periodic Cost
Service cost	$	1,595		$	1,670		$	2,061
Interest cost		3,991			4,010			3,838
Expected return on plan assets		(4,659	)		(5,840	)		(4,473	)
Amortization of prior service cost		73			88			106
Amortization of transition asset		(51	)		(285	)		(276	)
Amortization of loss (gain)		(1	)		(241	)		0
Net periodic cost	$	948		$	(598	)	$	1,256

Note 10—Other Comprehensive Loss

        The components of other comprehensive loss are as follows:

	Currency Translation Adjustments			Derivative Financial Instruments			Total
	(Thousands)
Balance at December 31, 1999	$	(7,760	)	$	—		$	(7,760	)
Currency translation adjustment		(8,606	)		—			(8,606	)
Change in fair value of derivatives, net of $212 taxes		—			472			472
Balance at December 31, 2000		(16,366	)		472			(15,894	)
Currency translation adjustment		(4,872	)		—			(4,872	)
Reclassification adjustment for amounts recognized in cost of sales		—			(472	)		(472	)
Change in fair value of derivatives, net of $197 taxes		—			439			439
Balance at December 31, 2001	$	(21,238	)	$	439		$	(20,799	)

        The earnings associated with K2's investment in its foreign subsidiaries are considered to be permanently invested and no provision for U.S. federal and state income taxes on those earnings or translation adjustments has been provided.

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Note 11—Quarterly Operating Data (Unaudited)

		Quarter
		First		Second		Third(a)			Fourth			Year(b)
		(Millions, except per share figures)
2001
Net sales from continuing operations		$	173.2	$	144.9	$	149.4		$	128.0		$	595.5
Gross profit			50.7		47.0		31.8			36.6			166.1
Net income (loss)		$	3.2	$	2.3	$	(10.7	)	$	(2.5	)	$	(7.7	)
Basic earnings per share
	Net income (loss)	$	0.18	$	0.13	$	(0.59	)	$	(0.14	)	$	(0.43	)
Diluted earnings per share
	Net income (loss)	$	0.17	$	0.13	$	(0.59	)	$	(0.14	)	$	(0.43	)
Cash dividend per share—none
Stock prices:
	High	$	9.75	$	11.43	$	11.99		$	8.74		$	11.99
	Low	$	7.75	$	7.80	$	5.40		$	5.31		$	5.31

(a)

Gross profit and net income are $47.4 and $1.0, respectively, before downsizing costs totaling $18.0 ($11.7 net of taxes). See Note 2 to Notes to Consolidated Financial Statements.

(b)

Gross profit and net income are $181.8 and $4.0, respectively, before downsizing costs totaling $18.0 ($11.7 net of taxes). See Note 2 to Notes to Consolidated Financial Statements.

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		Quarter
		First(a)		Second(a)			Third(a)		Fourth			Year
		(Millions, except per share figures)
2000
Net sales from continuing operations		$	185.0	$	161.8		$	166.1	$	157.9		$	670.8
Gross profit			54.1		54.8			54.0		45.6			208.5
Income from continuing operations			3.3		6.4			4.5		2.5			16.7
Discontinued operations, net of taxes			0.4		(0.1	)		—		(0.4	)		(0.1	)
Net income		$	3.7	$	6.3		$	4.5	$	2.1		$	16.6
Basic earnings per share
	Continuing operations	$	0.19	$	0.36		$	0.25	$	0.14		$	0.93
	Discontinued operations		0.02		(0.01	)		—		(0.02	)		(0.01	)
	Net income	$	0.21	$	0.35		$	0.25	$	0.12		$	0.92
Diluted earnings per share
	Continuing operations	$	0.18	$	0.36		$	0.25	$	0.14		$	0.93
	Discontinued operations		0.02		(0.01	)		—		(0.02	)		(0.01	)
	Net income	$	0.20	$	0.35		$	0.25	$	0.12		$	0.92
Cash dividend per share—none
Stock prices:
	High	$	8.00	$	8.81		$	11.38	$	9.75		$	11.38
	Low	$	6.75	$	7.00		$	8.38	$	7.38		$	6.75

(a)

Freight expenses billed to customers for outgoing shipments have been reclassified from selling expenses to net sales. Freight costs incurred by K2 for outgoing shipments have also been reclassified from net sales to selling expenses.

Note 12—Stock Options

        Under K2's 1999 and 1994 Incentive Stock Option Plans ("1999 Plan" and "1994 Plan", respectively), options may be granted to eligible directors and key employees of K2 and its subsidiaries at not less than 100% of the market value of the shares on the dates of grant. No further options may be granted under the 1994 Plan.

        The 1999 Plan permits the granting of options for terms not to exceed ten years from date of grant. The options are exercisable on such terms as may be established at the dates of grant.

        K2 is authorized, at the discretion of the Compensation Committee, to provide loans to key employees in connection with the exercise of stock options under the 1999 and 1994 Plans. At December 31, 2001 and 2000, there was a total of $38,500 and $155,000, respectively, of loans to key employees made to enable the exercise of stock options, and accrued interest outstanding. The remaining loan at December 31, 2001 is due March 2002. The amounts of these loans are shown as a

44

reduction of shareholders' equity. The loans are collateralized by the underlying shares of stock issued and bear interest.

        Options granted, exercised and forfeited for the 1999 Plan and 1994 Plan were as follows:

				Exercise Price
		Shares		Low		High		Weighted Average
Options outstanding at December 31, 1998		1,122,661		$	11.11	$	29.88	$	18.33
	Granted	229,500			7.50		10.63		7.55
	Forfeited	(63,050	)		10.63		29.88		18.42
Options outstanding at December 31, 1999		1,289,111			7.50		29.88		16.40
	Granted	906,000			7.13		8.56		7.22
	Forfeited	(251,050	)		7.13		29.88		15.07
Options outstanding at December 31, 2000		1,944,061			7.13		29.88		12.30
	Granted	83,000			7.75		8.76		8.32
	Exercised	(2,500	)		7.13		7.13		7.13
	Forfeited	(134,600	)		7.13		29.88		15.29
Options outstanding at December 31, 2001		1,889,961			7.13		29.88		11.91

        At December 31, 2001, 2000 and 1999, stock options to purchase 1,178,511, 865,661 and 695,761 were exercisable at weighted average prices of $14.66, $17.85 and $20.21, respectively. At December 31, 2001, 636,825 shares of common stock were reserved for issuance under the Plans.

        K2 uses the intrinsic-value method of accounting for stock-based awards granted to employees. Accordingly, K2 has not recognized compensation expense for its stock-based awards to employees. Had K2 elected to adopt the fair value approach, net income (loss) and basic and diluted earnings per share would have been $(8,768,000) $(.49) and $(.49), respectively, for the year ended December 31, 2001, $14,905,000, $.83 and $.83, respectively, for the year ended December 31, 2000 and $8,525,000, $.51 and $.50, respectively, for the year ended December 31, 1999. The pro forma effect was calculated using Black-Scholes option valuation model, and the following assumptions were utilized.

	2001		2000		1999
Risk free interest rate	1.85	%	4.75	%	5.5	%
Expected life	5 years		5 years		5 years
Expected volatility	.436		.394		.388
Expected dividend yield	—		—		—

        The pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period and additional options may be granted in future years. Since changes in the subjective assumptions used in the Black-Scholes model can materially affect the fair value estimate, management believes the model does not provide a reliable measure of the fair value of its options.

45

        Options are granted at an exercise price equal to the fair market value at the date of grant. Information regarding stock options outstanding as of December 31, 2001 is as follows:

	Options Outstanding				Options Exercisable
Price Range	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Shares	Weighted Average Exercise Price
$7.13 to $8.76	1,074,000	$	7.38	8.12 years	363,800	$	7.41
$10.63 to $17.25	456,961		12.70	4.84 years	455,711		12.70
$21.50 to $29.88	359,000		24.49	5.14 years	359,000		24.49

Note 13—Shareholders' Equity

Preferred Stock

        Shares are issuable in one or more series, and the Board of Directors has authority to fix the terms and conditions of each series. No shares were issued or outstanding during 2001 and 2000.

Employee Stock Ownership Plan

        K2 has an Employee Stock Ownership Plan ("ESOP"), which covers substantially all of its domestic non-union employees with at least one year of service. As of December 31, 2001, the trust was indebted to K2 in the aggregate amount of $319,000 in connection with stock purchases made from 1982 through 1984 of which 67,487 shares with an aggregate market value of $486,581 as of December 31, 2001 remained unallocated to participants. These loans are repayable over the next one to three years with interest at prime plus ¹/2%, not to exceed 18%, and the unallocated shares will be released to participants proportionately as these loans are repaid. Allocated shares as of December 31, 2001 totaled 1,396,180.

        Additionally, the trust was indebted to K2 in the amount of $1,100,000 at December 31, 2001 and 2000, in connection with distributions made to terminees.

        Shareholders' equity has been reduced by the amounts of the loans and any payments made by K2 on behalf of the trust. The payments, made by K2 on behalf of the trust, which at December 31, 2001 totaled $59,000, are being amortized to expense over the lives of the loans.

        The amount of K2's annual contribution to the ESOP is at the discretion of K2's Board of Directors. No contributions were made in 2001 or 2000. ESOP expense, including amortization of the foregoing payments, was $301,000, $203,000 and $638,000 in 2001, 2000 and 1999, respectively.

Preferred Stock Rights

        Rights are outstanding which entitle the holder of each share of Common Stock of K2 to buy one one-hundredth of a share of Series A Junior Participating Cumulative Preferred Stock at an exercise price of $60.00 per one one-hundredth of a share, subject to adjustment. The rights are not separately tradable or exercisable until a party either acquires, or makes a tender offer resulting in ownership of, at least 15% of K2's common shares. If a person becomes the owner of at least 15% of K2's

46

outstanding common shares (an "Acquiring Person"), each holder of a right other than such Acquiring Person and its affiliates is entitled, upon payment of the then-current exercise price per right (the "Exercise Price"), to receive shares of Common Stock (or Common Stock equivalents) having a market value of twice the Exercise Price. If K2 subsequently engages in a merger, a business combination or an asset sale with the Acquiring Person, each holder of a right other than the Acquiring Person and its affiliates is thereafter entitled, upon payment of the Exercise Price, to receive stock of the Acquiring Person having a market value of twice the Exercise Price. At any time after any party becomes an Acquiring Person, the Board of Directors may exchange the rights (except those held by the Acquiring Person) at an exchange ratio of one common share per right. Prior to a person becoming an Acquiring Person, the rights may be redeemed at a redemption price of one cent per right, subject to adjustment. The rights are subject to amendment by the Board.

Note 14—Segment Data

        K2 classifies its business into three segments based on similar product types consisting of sporting goods products, other recreational products and selected industrial products. The sporting goods segment consists primarily of sports equipment used to participate in individual sports activities sold primarily through sporting goods specialty dealers, regional and national sporting goods chains and the sporting goods department of mass merchants. The equipment includes in-line skates, skis, snowboards, bikes, fishing tackle and flotation vests. The other recreational products segment is primarily active leisure apparel sold principally into the advertising specialty market through distributors, and leisure footwear and other apparel sold through specialty sporting goods dealers. The industrial products segment includes monofilament line sold to the paper industry, string trimmer line sold to a variety of distributors, retailers and equipment manufacturers, fiberglass light poles sold to contractors, utility companies and municipalities and marine and CB radio antennas sold to marine dealers.

        K2 evaluates performance based on operating profit or loss (before interest, corporate expenses and income taxes). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 1 of Notes to Consolidated Financial Statements. Intercompany profit or loss is eliminated where applicable.

47

        The information presented below is as of or for the year ended December 31.

	Net Sales to Unaffiliated Customers						Intersegment Sales						Operating Profit (Loss)
	2001		2000		1999		2001		2000		1999		2001			2000			1999
	(Millions)
Sporting goods	$	445.2	$	509.6	$	480.6	$	54.0	$	39.5	$	30.4	$	(0.2	)(a)	$	32.3		$	15.0	(d)
Other recreational		39.8		42.2		42.8		2.2		0.7		0.2		(5.9	)(b)		(2.7	)		(1.9	)
Industrial		110.5		119.0		122.6		0.8		1.5		1.1		11.6	(c)		12.7			17.5
Total segment data	$	595.5	$	670.8	$	646.0	$	57.0	$	41.7	$	31.7		5.5			42.3			30.6
Corporate expenses, net														(3.9	)		(3.3	)		(5.4	)
Interest expense														13.6			14.8			12.7
Income (loss) from continuing operations before income taxes													$	(12.0	)	$	24.2		$	12.5

(a)

2001 includes a charge of $16.3 million for restructuring and downsizing costs

(b)

2001 includes a charge of $1.5 million for restructuring and downsizing costs

(c)

2001 includes a charge of $0.2 million for restructuring and downsizing costs

(d)

1999 includes a charge of $10.5 million for restrucuring and downsizing costs

48

		Identifiable Assets						Depreciation and Amortization						Capital Expenditures
		2001		2000		1999		2001		2000		1999		2001		2000		1999
		(Millions)
Sporting goods		$	298.2	$	306.9	$	346.9	$	12.0	$	10.4	$	9.9	$	10.9	$	12.1	$	13.0
Other recreational			33.0		32.3		32.4		0.7		0.9		0.8		0.5		0.7		0.5
Industrial			63.0		61.7		63.3		3.2		2.8		2.8		1.2		1.9		2.7
	Total segment data		394.2		400.9		442.6		15.9		14.1		13.5		12.6		14.7		16.2
Corporate			26.8		23.2		24.1		0.3		0.2		0.2
Total continuing operations			421.0		424.1		466.7		16.2		14.3		13.7		12.6		14.7		16.2
Discontinued operations			—		—		24.7		—		1.4		2.9		—		0.2		2.6
	Total	$	421.0	$	424.1	$	491.4	$	16.2	$	15.7	$	16.6	$	12.6	$	14.9	$	18.8

			2001		2000		1999
			(Millions)
Net sales by location
	North America		$	403.2	$	438.1	$	417.7
	Europe			130.6		157.3		171.4
	Asia			61.7		75.4		56.9
		Total net sales	$	595.5	$	670.8	$	646.0
Assets
	North America		$	303.5	$	276.8	$	351.5
	Europe			75.1		99.0		94.8
	Asia			42.4		48.3		45.1
		Total assets	$	421.0	$	424.1	$	491.4
Long-lived assets
	North America		$	92.6	$	93.6	$	99.2
	Europe			7.4		8.4		8.3
	Asia			9.5		6.8		4.0
		Total long-lived assets	$	109.5	$	108.8	$	111.5

49

K2 INC.

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders:

K2 Inc.

        We have audited the accompanying consolidated balance sheets of K2 Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of K2 Inc. and subsidiaries at December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

Los Angeles, California
February 15, 2002, except for Note 6 which is March 28, 2002

50

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Except as noted in the following paragraph the information called for by Items 10, 11, 12 and 13 have been omitted because on or before April 30, 2002, Registrant will file with the Commission pursuant to Regulation 14A a definitive proxy statement. The information called for by these items set forth in that proxy statement is incorporated herein by reference.

        The information called for by Item 10 with respect to executive officers of the Registrant appears following Item 4 under Part I of the Report.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

        The following documents are filed as part of this report.

(a-1)    Financial Statements (for the three years ended December 31, 2001 unless otherwise stated):

	Page Reference Form 10-K
Statements of consolidated income	24
Consolidated balance sheets at December 31, 2001 and 2000	25
Statements of consolidated shareholders' equity	26
Statements of consolidated cash flows	27
Notes to consolidated financial statements	28-49
Report of Ernst & Young LLP, Independent Auditors	50

(a-2)    Consolidated financial statement schedule:

II-Valuation and qualifying accounts S-1

        All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes.

(a-3)    Exhibits

(3)	(a)(i)	Restated Certificate of Incorporation dated May 4, 1989, filed as Exhibit (3)(a) to Form 10-K for the year ended December 31, 1989 and incorporated herein by reference.
	(a)(ii)	Certificate of Amendment of Restated Certificate of Incorporation dated May 31, 1995, filed as Exhibit 3(a)(ii) to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.

51

	(a)(iii)	Certificate of Amendment of Restated Certificate of Incorporation, filed as Exhibit (3)(i) to Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference.
	(b)(i)	By-Laws of K2 Inc., as amended and restated, filed as Exhibit 3 to Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference.
	(b)(ii)	By-Laws of K2 Inc., as amended, filed as Exhibit 3 to Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference.
(4)	(a)	Rights Agreement dated as of July 1, 1999 between K2 Inc. and Harris Trust Company of California, as Rights Agent, which includes thereto the Form of Rights Certificate to be distributed to holders of Rights after the Distribution, filed as Item 2, Exhibit 1 to Form 8-A filed August 9, 1999 and incorporated herein by reference.
(10)	Material contracts
	(a)	Note Agreement Re: $40,000,000 8.39% Senior Notes due November 20, 2004 dated as of October 15, 1992, filed as Exhibit (10)(b) to Form 10-K for the year ended December 31, 1992 and incorporated herein by reference.
		(1)	First Amendment to the Note Agreements, dated May 1, 1996, and filed as Exhibit 10.04 to Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference.
		(2)	Second Amendment to the Note Agreements, dated December 1, 1999. Guaranty Agreement Re: $40,000,000 8.39% Senior Notes due November 30, 2004 of K2 Inc. dated as of December 1, 1999, filed as Exhibit 10(A)(2) to Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
		(3)	Guaranty Agreement Re: $40,000,000 8.39% Senior Notes due November 30, 2004 of K2 Inc. dated as of December 1, 1999, filed as Exhibit 10(A)(3) to Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
		(4)	Fourth Amendment to Note Agreements, dated as of March 27, 2002.
	(b)	Note Agreement Re: $50,000,000 8.41% Series 1999-A Senior Notes due December 1, 2009, dated as of December 1, 1999, filed as Exhibit 10(C) to Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
		(1)	Third Amendment to Note Purchase Agreement, dated as of March 27, 2002.
	(c)	Credit Agreement dated as of December 21, 1999 among K2 Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuing Lender and the Other Financial Institutions Party Hereto, filed as Exhibit 10 (D) to Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
		(1)	First Amendment to Credit Agreement, dated as of March 28, 2002.

52

(d)	Amended and Restated Transfer and Administration Agreement among Enterprise Funding Corp. as the Company, K2 Funding, Inc., as the Transferor, K2 Inc. as the Master Servicer, and Bank of America, National Association as Agent and Bank Investor dated as of April 4, 2000, filed as Exhibit 10(a) to Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference.
(e)	Receivables Purchase and Servicing Agreement, Dated as of March 28, 2002 by and among K2 Finance Company LLC, as Seller, Redwood Receivables Corporation, as Conduit Purchaser, K2 Inc. as Master Servicer, K-2 Corporation, Shakespeare Company, LLC, and Stearns Inc., each as a Servicer, K2 Receivables Corporation and General Electric Capital Corporation, as Committed Purchaser and as Administrative Agent.
	(1)	Annex X to Sale and Contribution Agreement and Receivables Purchase and Servicing Agreement each dated as of March 28, 2002, Definitions and Interpretation.
(f)	Receivables Sale and Contribution Agreement, Dated as of March 28, 2002, by and between K2 Inc. as Parent Guarantor, The Entities Party Hereto as Originators and K2 Finance Company LLC as Buyer.
	(1)	Annex X to Sale and Contribution Agreement and Receivables Purchase and Servicing Agreement each dated as of March 28, 2002, Definitions and Interpretation, filed as Exhibit 10(e)(1) to Form 10-K for the year ended December 31, 2001 and incorporated herein by reference.
(g)	Security Agreement dated as of March 28, 2002 among K2 Inc., a Delaware Corporation, and certain subsidiaries of the company and Bank of America, N.A. as Collateral Agent.
(h)	Pledge Agreement dated as of March 28, 2002 among K2 Inc., a Delaware Corporation, and certain subsidiaries of the company and Bank of America, N.A., as Collateral Agent.
(i)	Membership Interest Pledge Agreement dated as of March 28, 2002 among K2 Inc., a Delaware Corporation, and each subsidiary of the company in favor of Bank of America, N.A., as Collateral Agent and Other Benefited Parties.
(j)	Executive compensation plans and arrangements:
	(1)(i)	Retirement agreement dated November 20, 1995 between K2 Inc. and B.I. Forester, filed as Exhibit (10)(d)(1)(i) to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
	(ii)	Trust for Anthony Industries, Inc. Supplemental Employee Retirement Plan for the Benefit of B.I. Forester between K2 Inc. and Wells Fargo Bank N.A., as Trustee, dated November 20, 1995, filed as Exhibit (10)(d)(1)(ii) to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
	(2)(i)	Special Supplemental Benefit Agreement between K2 Inc. and Bernard I. Forester dated December 9, 1986, filed as Exhibit (10)(g) to Form 10-K for the year ended December 31, 1986 and incorporated herein by reference.
	(3)	1988 Incentive Stock Option Plan filed as Exhibit A to the Proxy Statement for the Annual Meeting of Shareholders held on May 5, 1988 and incorporated herein by reference.

53

		(4)	Anthony Industries, Inc. Non-Employee Directors' Benefit Plan effective May 1, 1992, filed as Item 6, Exhibit (a)(28) of Form 10-Q for the quarter ended March 31, 1992 and incorporated herein by reference.
		(5)	Anthony Industries, Inc. Corporate Officers' Medical Expense Reimbursement Plan, as amended through October 22, 1993, effective August 15, 1974, filed as Exhibit (10)(c)(5) to Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
		(6)	Anthony Industries, Inc. Directors' Medical Expense Reimbursement Plan, as amended through October 22, 1993, effective January 1, 1993, filed as Exhibit (10)(c)(6) to Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
		(7)	K2 Inc. Executive Officers' Incentive Compensation Plan adopted August 5, 1993 as amended December 17, 1996, filed as Exhibit 10(d)(7) to Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.
		(8)	1994 Incentive Stock Option Plan, filed as Exhibit A to the Proxy Statement for the Annual Meeting of Shareholders held on May 5, 1994 and incorporated herein by reference.
		(9)	Employment agreement dated May 8, 2001 between K2 Inc. and Richard M. Rodstein, filed as Item 6, Exhibit 10.1 of Form 10-Q for the quarter ended March 31, 2001 and incorporated herein by reference.
		(10)	Employment agreement dated May 8, 2001 between K2 Inc. and John J. Rangel, filed as Item 6, Exhibit 10.2 of Form 10-Q for the quarter ended March 31, 2001 and incorporated herein by reference.
		(11)	1999 Incentive Stock Option Plan, filed as Exhibit A to the Proxy Statement for the Annual Meeting of Shareholders held on May 6, 1999 and incorporated herein by reference.
	(k)	(1)	Asset Purchase Agreement dated February 16, 1996 among General Aquatics, Inc., KDI Sylvan Pools, Inc. as Buyer, and Anthony Industries, Inc., as Seller, filed as Item 7, Exhibit 99(A) to Form 8-K filed March 21, 1996 and incorporated herein by reference.
		(2)	Amended and Restated Agreement and Plan of Merger dated as of July 22, 1999 among K2 Inc., Ride, Inc. and KT Acquisition, Inc. included as Appendix A to Form S-4 Registration No. 333-84791, filed August 9, 1999 and incorporated herein by reference.
		(3)	Asset Purchase Agreement dated June 8, 2000 by and between Tyco International (US) Inc., Ludlow Building Products, Inc. as Buyer, Tyco Plastics Services AG, as IP Buyer, and K2 Inc., as Seller, filed as Exhibit 10(b) for the quarter ended June 30, 2000 and incorporated herein by reference.
(21)	Subsidiaries
(23)	Consent of Independent Auditors

(b)    Reports on Form 8-K filed in the fourth quarter of 2001:

        None

(c)    Refer to (a-3) above.

(d)    Refer to (a-2) above.

54

SIGNATURES

        Pursuant to the requirements of Section 13 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.
Date: April 1, 2002	By:	/s/  RICHARD M. RODSTEIN Richard M. Rodstein President and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  RICHARD M. RODSTEIN Richard M. Rodstein	Director, President and Chief Executive Officer (Principal Executive Officer)	April 1, 2002
/s/  JOHN J. RANGEL John J. Rangel	Senior Vice President—Finance (Principal Finance and Accounting Officer)	April 1, 2002
/s/  RICHARD J. HECKMANN Richard J. Heckmann	Director, Chairman of the Board	April 1, 2002
/s/  JERRY E. GOLDRESS Jerry E. Goldress	Director	April 1, 2002
/s/  WILFORD D. GODBOLD, JR. Wilford D. Godbold, Jr.	Director	April 1, 2002
/s/  ROBIN E. HERNREICH Robin E. Hernreich	Director	April 1, 2002
/s/  LOU HOLTZ Lou Holtz	Director	April 1, 2002
/s/  STEWART M. KASEN Stewart M. Kasen	Director	April 1, 2002
/s/  ALFRED E. OSBORNE, JR. Alfred E. Osborne, Jr.	Director	April 1, 2002
/s/  DAN QUAYLE Dan Quayle	Director	April 1, 2002

55

K2 INC

SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

(Thousands)

				Additions				Deductions
Description		Balance at beginning of year		Charged to costs and expenses		Acquisitions accounted for as a purchase		Amounts charged to reserve net of reinstatements		Balance at end of year
Year ended December 31, 2001
	Allowance for doubtful items	$	6,969	$	1,149	$	—	$	2,802	$	5,316
		$	6,969	$	1,149	$	—	$	2,802	$	5,316
Year ended December 31, 2000
	Allowance for doubtful items	$	6,572	$	3,314	$	—	$	2,917	$	6,969
		$	6,572	$	3,314	$	—	$	2,917	$	6,969
Year ended December 31, 1999
	Allowance for doubtful items	$	5,798	$	2,594	$	1,687	$	3,507	$	6,572
		$	5,798	$	2,594	$	1,687	$	3,507	$	6,572

S-1

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PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
K2 INC. STATEMENTS OF CONSOLIDATED OPERATIONS
K2 INC. CONSOLIDATED BALANCE SHEETS
K2 INC. STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
K2 INC. STATEMENTS OF CONSOLIDATED CASH FLOWS
K2 INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001
K2 INC. REPORT OF INDEPENDENT AUDITORS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
K2 INC SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (Thousands)

EX-10.(A)(4)

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EXHIBIT 10(a)(4)

K2 Inc.

FOURTH AMENDMENT TO NOTE AGREEMENTS

Dated as of March 27, 2002

Re:

Note Agreement dated as of October 15, 1992

and

$40,000,000 Senior Notes
Due November 30, 2004

TABLE OF CONTENTS

			Heading	Page
Section 1.			Description of Notes and Commitment	2
Section 2.			Effective Date	2
Section 3.			Amendment to the Note Agreement	3
	Section 3.1.		Amendment to Section 1 (Description of Notes and Commitment)	3
		Section 1.4.	Security for the Notes	3
	Section 3.2.		Amendment to Section 2.2. (Optional Prepayments)	3
	Section 3.3.		Amendment of Section 5 (Company Covenants)	3
		Section 5.1.	Corporate Existence, Etc.	3
		Section 5.2.	Insurance	4
		Section 5.3.	Taxes, Claims for Labor and Materials, Compliance with Laws	4
		Section 5.4.	Maintenance, Etc.	4
		Section 5.5.	Nature of Business	5
		Section 5.6.	Foreign Pledges	5
		Section 5.7.	Further Assurances	5
		Section 5.8.	Collateral Matters	6
		Section 5.9.	Amendment to Agreements	6
		Section 5.10.	Leverage Ratio	6
		Section 5.11.	Limitations on Indebtedness	7
		Section 5.12.	Interest Coverage Ratio	8
		Section 5.13.	Fixed Charges Coverage Ratio	8
		Section 5.14.	Limitation on Liens	9
		Section 5.15.	Restricted Payments	10
		Section 5.16.	Loans and Investments	11
		Section 5.17.	Mergers, Consolidations and Sales of Assets	12
		Section 5.18.	Guaranties	14
		Section 5.19.	Repurchase of Notes	15
		Section 5.20.	Transactions with Affiliates	15
		Section 5.21.	Termination of Pension Plans	15
		Section 5.22.	Reports and Rights of Inspection	16
		Section 5.23.	Consolidated Net Worth	19
		Section 5.24.	No Restrictions on Subsidiaries	19
		Section 5.25.	Acquisitions	19
		Section 5.26.	Junior Capital	20
		Section 5.27.	Leases	20
		Section 5.28.	Post-Closing Deliveries	21
	Section 3.4.		Amendment to Section 6 (Events of Default)	21
		Section 6.1.	Events of Default	21
		Section 6.2.	Notice to Holders	23
		Section 6.3.	Acceleration of Maturities	23
		Section 6.4.	Rescission of Acceleration	23
	Section 3.5.		Amendment to Section 9.4 (Expenses, Stamp Tax Indemnity)	24
		Section 9.4.	Expenses, Stamp Tax Indemnity	24
	Section 3.6.		New Definitions	25
Section 4.			Representations and Warranties	41

Section 5.		Conditions Precedent to Effectiveness of Agreement	44
Section 6.		Waiver	44
	Section 6.1.	Waiver of Compliance with Section 5.6	44
	Section 6.2.	Waiver of Compliance with Section 5.7	44
	Section 6.3.	Waiver of Compliance with Section 5.8	45
Section 7.		Miscellaneous	45
	Section 7.1.	Effect of Agreement and Reaffirmation	45
	Section 7.2.	Release of Claims	45
	Section 7.3.	Successors and Assigns	45
	Section 7.4.	Expenses	45
	Section 7.5.	Counterparts	45
	Section 7.6.	Governing Law	46
	Section 7.7.	Approval of Amendment to Guaranty Agreement	46
	Section 7.8.	GE Securitization	46
Schedule I—Names and Addresses of Noteholders
Schedule II—Closing Conditions
Schedule III—Post-Closing Requirements
Schedule IV—Indebtedness of Company and its Subsidiaries
Schedule V—Subsidiaries of Company, Investments, Affiliates
Schedule VI—Liens of Company and its Subsidiaries
Exhibit A—Form of Amended and Restated Note
Exhibit B—Intercreditor Agreement
Exhibit C—Amendment to Guaranty Agreement
Exhibit D—Cash Flow Forecasts

ii

K2 Inc.
4900 South Eastern Avenue
Los Angeles, California 90040

Dated as of March 27, 2002

Re: Note Agreement dated as of October 15, 1992
and
$40,000,000 Senior Notes
Due November 30, 2004

To the Noteholders named in
Schedule I hereto

Ladies and Gentlemen:

        This Fourth Amendment to Note Agreements (this "Agreement") is entered into as of March 27, 2002 by and among K2 Inc., a Delaware corporation (the "Company"), and the purchasers named in Schedule I attached hereto (the "Noteholders," or as alternatively referred to herein, the "Original Noteholders").

PRELIMINARY STATEMENT

        The Company and the Original Noteholders are party to separate Note Agreements dated as of October 15, 1992 (the "Original Note Agreement"), as amended by the First Amendment dated as of May 1, 1996 (the "First Amendment"), the Second Amendment to Note Agreements dated as of December 1, 1999 (the "Second Amendment"), and the Third Amendment and Waiver dated as of December 14, 2001 (the "Third Amendment") (the Original Note Agreement as so amended by the First Amendment, the Second Amendment and the Third Amendment, the "Existing Note Agreement"). Under and pursuant to the Existing Note Agreement, the Company sold to the Original Noteholders its 8.39% Senior Notes due November 30, 2004 in the original aggregate principal amount of $40,000,000 (such notes as heretofore amended, the "Existing Notes"). The Company has requested that the Original Noteholders amend the Existing Note Agreement, all on and subject to the terms and conditions set forth below. Accordingly, this Agreement is executed and delivered by the Company to the Original Noteholders to amend certain portions of the Existing Note Agreement and in so doing set forth and confirm the terms and conditions applicable thereto and the covenants, representations and warranties to be made by the Company in connection therewith. Upon the execution hereof by the Company and the Original Noteholders, the Existing Note Agreement, together with the Exhibits and Schedules thereto, as amended by this Agreement, shall be referred to as the "Note Agreements." Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Note Agreement, as amended by this Agreement.

        The Company hereby agrees with each of you as follows:

Section 1.    Description of Notes and Commitment.

        Upon the effectiveness of this Agreement, automatically, and without further action on the part of either the Original Noteholders or the Company, the Existing Notes shall be amended and restated in their entirety to read as set forth in Exhibit A hereto (and the form of Note attached as Exhibit 1 to the Original Note Agreement shall be amended in its entirety to read as set forth in Exhibit A) and the amended and restated Notes shall be issued in renewal of, and evidence the same indebtedness formerly evidenced by, the Existing Notes. If any accrued and unpaid interest is outstanding in respect of any of the Existing Notes as of the date that the Existing Notes become evidenced by the amended and restated Notes, such accrued interest on each such Existing Note shall be due and payable on the first interest payment date applicable to such amended and restated Note. Each Note will be dated the date to which interest has been paid on the Existing Note surrendered therefor, will bear interest from such date at the Applicable Interest Rate, payable semiannually on the thirtieth day of May and

November in each year (commencing May 30, 2002), to be expressed to mature on November 30, 2004, and otherwise substantially in the form attached hereto as Exhibit A. The term "Notes" as used herein and in the Note Agreement shall include each such amended and restated Note delivered pursuant to this Agreement to replace the Existing Notes and any such notes issued in substitution therefore pursuant to Section 13 of the Note Agreement. Upon the effectiveness of this Agreement, the Existing Notes shall be returned to the Company.

Section 2.    Effective Date.

        Delivery of the Notes to be exchanged for the Existing Notes shall occur at the offices of Chapman and Cutler, 111 West Monroe, Chicago, Illinois, at 10:00 a.m. Chicago time, on March 27, 2002 or such other date as shall be mutually agreed upon by the Company and the Noteholders (the "Effective Date"). On the Effective Date, the Company will deliver to each Noteholder the Note to be delivered to such Noteholder in the form of a single Note for the full amount of the Existing Note held by such Noteholder (unless different denominations are specified by such Noteholder), dated the date through which interest has been paid on the corresponding Existing Note and registered in each Noteholder's name (or in the name of such Noteholder's nominee). If on the Effective Date the Company shall fail to tender such Note to each Noteholder as provided above in this Section 2, or any of the conditions specified in Section 5 shall not have been fulfilled to each Noteholder's satisfaction, each Noteholder shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Noteholder may have by reason of such failure or such nonfulfillment.

        If for any reason the Existing Note held by a Noteholder is not delivered to the Company on the Effective Date, the Company shall deposit the Note to be delivered to such Noteholder with the Noteholders' special counsel, Chapman and Cutler, for delivery against receipt of the Existing Note held by such Noteholder.

Section 3. Amendment to the Note Agreement.

Section 3.1.    Amendment to Section 1 (Description of Notes and Commitment).    Section 1 of the Note Agreements shall be and is hereby amended by inserting a new subsection at the end thereof to read as follows:

Section 1.4.    Security for the Notes.    (a) The payment of the Notes and the performance by the Company and its Subsidiaries of their respective obligations under this Agreement and the Guaranty Agreement will be secured in accordance with the terms of (i) the Amended and Restated Intercreditor Agreement dated as of March 27, 2002 (the "Intercreditor Agreement") (in substantially the form attached as Exhibit B to the Fourth Amendment) among the Collateral Agent and the holders of certain outstanding Indebtedness of the Company, including the Noteholders and the Bank Lenders, and (ii) the Security Documents.

        (b)  If at any time the Company or any Subsidiary shall grant to any one or more of the Collateral Agent or the Bank Lenders additional security of any kind or provide any one or more of the Collateral Agent or the Bank Lenders with additional guaranties or other credit support of any kind pursuant to the requirements of the Bank Credit Agreement, then the Company or such Subsidiary shall grant to the holders of the Notes the same security or guaranty so that the holders of the Notes shall at all times be secured on an equal and pro rata basis with the Bank Lenders.

Section 3.2.    Amendment to Section 2.2. (Optional Prepayments).    Section 2.2 of the Note Agreements shall be and is hereby amended by the addition of a new sentence at the end of such Section which shall read as follows:

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"Notwithstanding the foregoing, (i) the Notes may be redeemed in accordance with the provisions of §5.26 without the payment of any Make Whole Amount and (ii) so long as no Default or Event of Default shall exist, the Notes may be redeemed from the proceeds of insurance or condemnation with respect to property of the Company or any Subsidiary which is subject to the Lien of the Security Documents without the payment of any Make-Whole Amount."

Section 3.3.    Amendment of Section 5 (Company Covenants).    Section 5 of the Note Agreements shall be and is hereby amended in its entirety to read as follows:

From and after the Closing Date and continuing so long as any amount remains unpaid on any Note:

Section 5.1.Corporate Existence, Etc.    The Company will preserve and keep in full force and effect, and will cause each Subsidiary to preserve and keep in full force and effect, its corporate existence and all licenses and permits necessary to the proper conduct of its business; provided, however, that the foregoing shall not prevent any transaction permitted by §5.17.

Section 5.2.Insurance.    The Company will maintain, and will cause each Subsidiary to maintain, insurance coverage by financially sound and reputable insurers accorded a rating by A. M. Best Company, Inc. of A:X or higher at the time of issuance of any such policy and in such forms and amounts and against such risks as are customary for corporations of established reputation engaged in the same or a similar business and owning and operating similar properties; provided, however, that if during the term of any such insurance policy, the rating accorded the insurer shall be less than A:X, the Company, on the date of renewal of any such policy (or, if such change in rating shall occur within 90 days prior to such renewal date, within 90 days of the date of such change in rating), will obtain such insurance policy from an insurer accorded such a rating.

Section 5.3.    Taxes, Claims for Labor and Materials, Compliance with Laws.    The Company will prosmptly pay and discharge, and will cause each Subsidiary promptly to pay and discharge, all lawful taxes, assessments and governmental charges or levies imposed upon the Company or such Subsidiary, respectively, or upon or in respect of all or any part of the property or business of the Company or such Subsidiary, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor or materials, which if unpaid might become a Lien upon any property of the Company or such Subsidiary; provided, however, that the Company or such Subsidiary shall not be required to pay any such tax, assessment, charge, levy, account payable or claim if (i) the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any property of the Company or such Subsidiary or any material interference with the use thereof by the Company or such Subsidiary, and the Company or such Subsidiary shall set aside on its books, reserves deemed by it to be adequate with respect thereto in accordance with GAAP or (ii) the failure to pay any such tax, assessment, charge, levy, account payable or claim could not reasonably be expected to (A) materially and adversely affect the properties, business, prospects, profits or condition (financial or otherwise) of the Company or such Subsidiary or (B) impair the ability of the Company to perform its obligations hereunder. Neither the Company nor any Subsidiary shall violate any law, ordinance or governmental rule and regulation to which it is subject including, without limitation, the Occupational Safety and Health Act of 1970, as amended, ERISA and all laws, ordinances, governmental rules and regulations relating to environmental protection in all applicable jurisdictions, if such violation could reasonably be expected to materially and adversely affect the properties, business, prospects, profits or condition of the Company and its Subsidiaries or would result in any Lien not permitted under §5.14.

        Section 5.4.    Maintenance, Etc.    The Company will maintain, preserve and keep, and will cause each Subsidiary to maintain, preserve and keep (subject to sale in the ordinary course of

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business), its material properties which are used or useful in the conduct of its business (whether owned in fee or a leasehold interest) in good repair and working order (ordinary wear and tear excepted) and from time to time will make all necessary repairs, replacements, renewals and additions so that at all times the efficiency thereof shall be maintained.

Section 5.5.    Nature of Business.    Neither the Company nor any Subsidiary will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Company and its Subsidiaries on the date of this Agreement. No transaction or series of transactions permitted under §5.17 or constituting Ordinary Course Investments shall be deemed to violate this §5.5.

Section 5.6.    Foreign Pledges.    The Company will cause to be delivered to the Collateral Agent (to the extent not previously delivered) within the time period specified on Schedule III to the Fourth Amendment, agreements executed by the Company and each Domestic Subsidiary of the Company pledging 65% of the stock or other equity interests of each Foreign Subsidiary owned by the Company or such Domestic Subsidiary, together with all documents necessary to perfect the security interest of the Collateral Agent for the equal and ratable benefit of the Benefited Parties in such stock or other equity interests; provided that neither the Company nor any Subsidiary shall have an obligation to perfect the security interest of the Collateral Agent in the shares of any Foreign Subsidiary (other than any Foreign Subsidiary listed on Schedule III of the Fourth Amendment) under the laws of the jurisdiction of such Foreign Subsidiary's organization so long as the aggregate book value of (A) all assets owned by such Foreign Subsidiary does not exceed $8,000,000 and (B) all assets owned by all Foreign Subsidiaries with respect to which the security interest of the Collateral Agent has not been perfected under the laws of such Foreign Subsidiaries' respective jurisdictions of organization does not exceed $20,000,000.

Section 5.7.    Further Assurances.    The Company and its Subsidiaries shall, at their expense and without expense to any holder of Notes, do, execute and deliver such further acts and documents as are necessary, or as the Required Holders (or the Required Holders acting through the Collateral Agent) may reasonably request, from time to time (including the execution and delivery of guaranties, security agreements, pledge agreements, financing statements, mortgages, deeds of trust, bailee consents, landlord waivers or other third party agreements and other documents, the filing or recording of any of the foregoing, the delivery of stock certificates and other collateral with respect to which perfection is obtained by possession, and the delivery of opinions of counsel with respect to any of such documents) to (a) assure and confirm to the holders of Notes, or the Collateral Agent acting for the equal and ratable benefit of the holders of Notes and the Bank Lenders, the rights created by this Agreement and the Security Documents and (b) ensure that (i) the obligations of the Company under this Agreement and under any of the Intercreditor Agreement, the Security Documents and the Notes; and (ii) the obligations of each Subsidiary Guarantor under the Guaranty Agreement and the Security Documents are secured by a first-priority Lien (subject to any applicable exception expressly set forth herein or in any applicable Security Document) on substantially all of the assets of the Company and each Subsidiary Guarantor. Notwithstanding the foregoing, neither the Company nor any Domestic Subsidiary shall be required to pledge more than 65% of the stock of any Foreign Subsidiary.

Section 5.8.    Collateral Matters.    (a) The Noteholders shall (i) request that the Collateral Agent release any Lien on any property granted to or held by the Collateral Agent under any Security Document for the equal and ratable benefit of the holder of Notes and the Bank Lenders (w) upon termination of this Agreement and payment in full of all obligations of the Company hereunder and under the Notes, (x) which is sold or to be sold or disposed of as part of or in connection with any disposition of assets permitted by §5.17 of this Agreement, (y) on or after the

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occurrence of the Collateral Release Date (as defined in the Intercreditor Agreement) or (z) subject to §7.1, if approved, authorized or ratified in writing by the Required Holders; or (ii) request that Collateral Agent subordinate any Lien on any property granted to or held by Collateral Agent to the holder of any Lien on such property which is permitted by §5.14(f) and (j)and any extension or renewal of such Liens permitted by §5.14(k).

Section 5.9.    Amendment to Agreements.    The Company will not, and will permit any Subsidiary to, enter into any amendment or modification of any agreement relating to any Permitted Accounts Receivable Financing Facility in any manner which would (a) reduce advance rates with respect to accounts receivable purchased under such facility, or (b) shorten the maturity date of such facility. The Company shall, and shall cause each of its applicable Subsidiaries to, promptly (and, in any event, within three Business Days) deliver to each holder of the Notes a copy of any amendment or modification to any agreement relating to any termination event, event of default or similar event under any Permitted Accounts Receivable Financing Facility. Nothing in this §5.9 shall prevent (i) General Electric Capital Corporation from exercising the discretion granted to it under any GECC Document (as defined in Section 7.8 of the Fourth Amendment) to (x) modify reserves or (y) take any action which would modify the effective advance rates with respect to accounts receivable purchased under such facility or (ii) the Company or any Subsidiary from entering into a replacement for any Permitted Accounts Receivable Financing Facility so long as such replacement has terms which are not less favorable to the interests of the holders of the Notes in any material respect than the terms of the Permitted Accounts Receivable Financing Facility being replaced.

Section 5.10.    Leverage Ratio.    (a) The Company will not permit the Leverage Ratio at any time during any period set forth below to be greater than the ratio set forth below opposite such period:

Period	Maximum Leverage Ratio
Prior to 6/29/02	7.80 to 1
6/30/02-9/29/02	7.30 to 1
9/30/02-12/30/02	6.75 to 1
12/31/02-3/30/03	5.50 to 1
3/31/03-6/29/03	5.00 to 1
6/30/03-9/29/03	4.75 to 1
9/30/03-12/30/03	4.25 to 1
12/31/03 and at all times thereafter prior to the Collateral Release Date	4.00 to 1

        (b)  The Company will not permit the Adjusted Funded Leverage Ratio at any time on or after March 31, 2004 to be greater than 3.00 to 1.

Section 5.11.    Limitations on Indebtedness.    (a) The Company will not, and will not permit any Subsidiary to, create, assume or incur or in any manner be or become liable in respect of any Indebtedness, except:

        (a)  Ordinary Course Indebtedness;

        (b)  Indebtedness evidenced by the Notes;

        (c)  Indebtedness outstanding under the Bank Credit Agreement in an aggregate principal amount not exceeding $75,000,000;

        (d)  Indebtedness outstanding pursuant to Permitted Accounts Receivable Financing Facilities;

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        (e)  Indebtedness outstanding under the 1999 Note Purchase Agreement in an aggregate principal amount not exceeding $50,000,000;

        (f)    secured purchase money Indebtedness, including Capitalized Lease Obligations, originally incurred to acquire fixed assets provided that at the time of such acquisition, the aggregate amount remaining unpaid on all such Indebtedness secured by Liens on such fixed assets, whether or not assumed by the Company or its Subsidiaries, does not exceed an amount equal to the lesser of (i) 100%, in the case of fixed assets which are personal property (including Capitalized Leases of fixed assets which are personal property) or (ii) 80%, in the case of fixed assets which are real property, of the lesser of the total purchase price or Fair Market Value at the time of such acquisition as determined in good faith by the Board of Directors of the Company;

        (g)  other Indebtedness for borrowed money; provided that (i) at the time of incurrence thereof, no Default or Event of Default shall exist, (ii) the aggregate outstanding principal amount of such Indebtedness plus (without duplication) the aggregate investment or claim held by purchasers of receivables in Foreign Receivable Financing Facilities shall not exceed 15% of Consolidated Net Worth at any time, (iii) the aggregate outstanding principal amount of all such Indebtedness of the Company or any Domestic Subsidiary (other than Indebtedness under Excluded Subsidiary Guaranties) shall not exceed 3% of Consolidated Net Worth at any time, and (iv) the aggregate outstanding principal amount of all such Indebtedness of any Foreign Subsidiary plus (without duplication) the aggregate investment or claim held by purchasers of receivables in Foreign Receivable Financing Facilities shall not exceed 15% of Consolidated Net Worth at any time;

        (h)  Indebtedness under any Swap Contract with a term not greater than 184 days entered into in the ordinary course of business for bona fide hedging purposes and not for speculation;

        (i)    Indebtedness of the Company which is not required to be redeemed, repurchased or otherwise prepaid by the Company (except on account of a default thereunder) on or prior to March 1, 2010, and which Indebtedness is subordinated to other Indebtedness of the Company (including the Notes) on terms which are reasonably satisfactory to the holders of the Notes (such Indebtedness, "Subordinated Indebtedness"); and

        (j)    Indebtedness refinancing or extending Indebtedness permitted above on terms and conditions no less favorable than the Indebtedness being refinanced; provided, however, that the principal amount of such new Indebtedness shall not exceed the outstanding principal amount of Indebtedness being refinanced immediately prior to such refinancing and that at the time of incurrence of such Indebtedness and after giving effect thereto no Default or Event of Default shall exits under this Agreement; and

        (b)  Any corporation which becomes a Subsidiary after the date hereof shall for all purposes of this §5.11 be deemed to have created, assumed or incurred at the time it becomes a Subsidiary all Indebtedness of such corporation existing immediately after it becomes a Subsidiary.

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Section 5.12.    Interest Coverage Ratio.    The Company will not permit the Interest Coverage Ratio as of the last day of any fiscal quarter set forth below to be less than the ratio set forth below opposite such day:

Fiscal Quarter(s) Ending	Minimum Interest Coverage Ratio
December 31, 2001	2.50 to 1
March 31, 2002 and June 30, 2002	1.75 to 1
September 30, 2002	1.90 to 1
December 31, 2002	2.25 to 1
March 31, 2003, June 30, 2003 and September 30, 2003	2.50 to 1

        Section 5.13.    Fixed Charges Coverage Ratio.    The Company will not permit the ratio of Consolidated Income Available for Fixed Charges to Fixed Charges for the period consisting of the four immediately preceding fiscal quarters ending on the last day of each fiscal quarter set forth below to be less than the ratio set forth below opposite such day:

Fiscal Quarter(s) Ending	Minimum Fixed Coverage Ratio
December 31, 2001	1.25 to 1
March 31, 2002	0.70 to 1
June 30, 2002	0.80 to 1
September 30, 2002	0.95 to 1
December 31, 2002	1.25 to 1
March 31, 2003	1.35 to 1
June 30, 2003	1.45 to 1
September 30, 2003	1.55 to 1
December 31, 2003 and thereafter	1.75 to 1

Section 5.14.    Limitation on Liens.    The Company will not, and will not permit any Subsidiary to, create or incur, or suffer to be incurred or to exist, any Lien on its or their property or assets, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any Subsidiary to acquire, any property or assets upon conditional sales agreements or other title retention devices, except:

        (a)  Liens for property taxes and assessments or governmental charges or levies and Liens securing claims or demands of carriers, warehousemen, landlords, mechanics and materialmen, provided payment thereof is not at the time required by §5.3;

        (b)  Liens of or resulting from any judgment or award the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company or a Subsidiary shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured;

        (c)  Liens incidental to the conduct of business or the ownership of properties and assets (including Liens in connection with worker's compensation, unemployment insurance and other like laws, warehousemen's and attorneys' liens and statutory landlords' liens) and Liens to secure the performance of bids, tenders or trade contracts, or to secure statutory obligations, surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money; provided in

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each case, the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings;

        (d)  survey exceptions or encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which are necessary for the conduct of the activities of the Company and its Subsidiaries or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of the Company and its Subsidiaries;

        (e)  Liens securing Indebtedness of a Subsidiary to the Company or to another Wholly-Owned Subsidiary;

        (f)    Liens securing Indebtedness (including Capitalized Leases) permitted under §5.11(f),(g) and (j); provided, however that Liens permitted under §5.11(f) shall attach solely to the assets financed by such purchase money Indebtedness;

        (g)  Liens resulting from or consisting of operating leases;

        (h)  Liens arising in connection with non-exclusive licenses of Securitization Software and Hardware;

        (i)    Liens in favor of the Collateral Agent for the equal and ratable benefit of the Benefited Parties under the Intercreditor Agreement;

        (j)    Liens created in connection with Permitted Accounts Receivable Financing Facilities provided, that such Liens shall extend only to property or items of property which constitute Excluded Assets; and

        (k)  extensions and renewals of Liens described above, provided that (i) such Liens shall not be extended to other property of the Company or any of its Subsidiaries, and (ii) the principal amount of Indebtedness secured thereby shall not be increased over the principal amount thereof outstanding immediately prior to such extension or renewal.

Section 5.15.    Restricted Payments.    The Company will not, and will not permit any of its Subsidiaries to, make any Restricted Payments except:

        (a)  Restricted Payments not exceeding $9,000,000 in the aggregate in respect of any fiscal year; and

        (b)  Restricted Payments in any fiscal year in an amount equal to Investments that can be made under §5.16(j) in such fiscal year, but which are not made;

provided that, in each instance, after giving effect to any Restricted Payments, no Event of Default shall have occurred and be continuing; and provided, further, that no Restricted Payment shall be made when the Funded Leverage Ratio (determined on a pro forma basis both before and after giving effect to such Restricted Payment) is greater than 3.25 to 1.0.

        For the purposes of this §5.15, (a) the amount of any Restricted Payment declared, paid or distributed in property shall be deemed to be the greater of the book value or Fair Market Value (as determined in good faith by the Board of Directors of the Company) of such property at the time of the making of the Restricted Payment in question and (b) on the date which is twelve months after the date on which a corporation becomes a Subsidiary, all Investments of such corporation at such time shall be deemed to have been made by such corporation, as a Subsidiary, at such time and such Investments will not be taken into account for purposes of this §5.15 prior to such time.

Section 5.16.    Loans and Investments.    The Company will not, and will not permit any of its Subsidiaries to, make any Investment in any Person including any Affiliate of the Company, except:

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        (a)  Ordinary Course Investments;

        (b)  Investments existing as of the date hereof and set forth on Schedule V of the Fourth Amendment, including reinvestments of the same amounts in the same instruments;

        (c)  Investments in, or Guarantees with respect to Indebtedness of, joint ventures which respect to which the Company or its Subsidiaries is a partner not exceeding $2,000,000 in the aggregate at any time;

        (d)  loans or advances in the usual and ordinary course of business to officers, directors and employees for expenses (including moving and relocation expenses related to a transfer) incidental to carrying on the business of the Company or any of its Subsidiaries not exceeding $2,000,000 in the aggregate at any time outstanding;

        (e)  loan and advances to officers, directors and employees to exercise stock options of such employees to purchase stock of the Company, if, after giving effect thereto and to the application of the proceeds thereof, such loan does not increase Consolidated Net Worth or Consolidated Net Income (other than an increase due to interest on such loan or advance);

        (f)    advances on commissions in the ordinary course of business to employees or subcontractors of the Company or its Subsidiaries in an aggregate amount not exceeding $5,000,000 at any time outstanding;

        (g)  loans, guarantees, or other extensions of credit to the Company's employee stock ownership plan existing as of the Effective Date of the Fourth Amendment;

        (h)  [Intentionally omitted];

        (i)    notes taken in connection with any asset sales permitted pursuant to §5.17;

        (j)    additional Investments in any fiscal year in an amount equal to Restricted Payments that can be made under §5.15(a) in respect of such fiscal year, but which are not made, provided that after giving effect to such Investments, no Event of Default shall have occurred and be continuing; and

        (k)  additional Investments not exceeding $3,000,000 in the aggregate in any fiscal year, provided that after giving effect to such Investments, no Event of Default shall have occurred and be continuing; provided that the aggregate amount of all Investments (other than (x) Ordinary Course Investments described in clauses (a) and (e) of the definition of "Ordinary Course Investments" and (y) Investments permitted by clauses (b), (c), (d), (e), (f) and (i) above) and cash (in deposit accounts or otherwise, but excluding cash in disbursement accounts to the extent bona fide checks have been issued thereon) of the Company and its Subsidiaries does not exceed $10,000,000 for any four consecutive Business Days.

Section 5.17.    Mergers, Consolidations and Sales of Assets.    (a) The Company will not, and will not permit any Subsidiary to, (i) consolidate with or be a party to a merger with any other corporation or (ii) sell, lease or otherwise dispose of (including by means of merger or consolidation) all or any substantial part (as defined in paragraph (e) of this §5.17) of the assets of the Company and the Subsidiaries; provided, however, that:

        (1)  any Subsidiary may merge or consolidate (i) with or into the Company or any Wholly-owned Subsidiary so long as in any merger or consolidation involving the Company, the Company shall be the surviving or continuing corporation or (ii) with any other Person provided that such merger or consolidation does not constitute a sale, lease or other disposition of a substantial part of the assets of the Company and the Subsidiaries;

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        (2)  the Company may consolidate or merge with any other corporation if (i) the Company shall be the surviving or continuing corporation, (ii) at the time of such consolidation or merger and after giving effect thereto no Default or Event of Default shall have occurred and be continuing, and (iii) after giving effect to such consolidation or merger the Company would be permitted to incur at least $1.00 of additional Indebtedness under the provisions of §5.11; and

        (3)  any Subsidiary may sell, lease or otherwise dispose of all or any substantial part of its assets to the Company or any Wholly-Owned Subsidiary.

        (b)  The Company will not permit any Subsidiary to issue or sell any shares of stock of any class (including as "stock" for the purposes of this §5.17, any warrants, rights or options to purchase or otherwise acquire stock or other Securities exchangeable for or convertible into stock) of such Subsidiary to any Person other than the Company or a Wholly-Owned Subsidiary, except for (i) the purpose of qualifying directors, (ii) in satisfaction of the validly pre-existing preemptive rights of minority shareholders in connection with the simultaneous issuance of stock to the Company and/or a Subsidiary whereby the Company and/or such Subsidiary maintain their same proportionate interest in such Subsidiary or (iii) any such issuance or sale if an amount equal to the net proceeds of which are used to prepay Indebtedness of the Company or any Subsidiary (with a pro rata portion of such proceeds offered to prepay the Notes).

        (c)  The Company will not sell, transfer or otherwise dispose of any shares of stock of any Subsidiary (except to qualify directors) or any Indebtedness of any Subsidiary, and will not permit any Subsidiary to sell, transfer or otherwise dispose of (except to the Company or a Wholly-owned Subsidiary) any shares of stock or any Indebtedness of any other Subsidiary, unless:

        (1)  simultaneously with such sale, transfer, or disposition, all shares of stock and all Indebtedness of such Subsidiary at the time owned by the Company and by every other Subsidiary shall be sold, transferred or disposed of an entirety;

        (2)  the Board of Directors of the Company shall have determined, as evidenced by a resolution thereof, that the proposed sale, transfer or disposition of said shares of stock and Indebtedness is in the best interests of the Company;

        (3)  said shares of stock and Indebtedness are sold, transferred or otherwise disposed of to a Person on terms reasonably deemed by the Board of Directors to be adequate and satisfactory;

        (4)  the Subsidiary being disposed of shall not have any continuing investment in the Company or any other Subsidiary not being simultaneously disposed of; and

        (5)  such sale or other disposition does not involve a substantial part (as hereinafter defined) of the assets of the Company and its Subsidiaries.

        (d)  Neither the Company nor any Subsidiary will sell, transfer or otherwise dispose of any receivables other than any sale, lease or other disposition of receivables pursuant to the Permitted Accounts Receivable Financing Facility; provided that the net proceeds from any such Permitted Accounts Receivable Financing Facility shall be applied to the prepayment of Indebtedness of the Company or any Subsidiary which for purposes of this §5.17(d) and §5.17(e), shall include a temporary reduction in Indebtedness outstanding under the Bank Credit Agreement.

        (e)  As used in this §5.17, a sale, lease or other disposition of assets shall be deemed to be a "substantial part"of the assets of the Company and its Subsidiaries if the book value of such assets, when added to the book value of all other assets sold, leased or otherwise disposed of by the Company and its Subsidiaries (other than in the ordinary course of business) during the 12-month period ending with the date of such sale, lease or other disposition, exceeds 15% of Consolidated

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Total Assets, determined as of the end of the immediately preceding fiscal year. For purposes of making any determination of "substantial part", a sale, lease or other disposition of assets shall be excluded from any computation thereof if the Net Proceeds of such sale, lease or other disposition are applied within four Business Days after such sale, lease or other disposition to prepay Senior Indebtedness (including temporary reductions of revolving credit facilities) of the Company or any Subsidiary; provided that except in the case of proceeds from Permitted Accounts Receivable Financing Facilities, any such application of proceeds shall be made pro rata among all Benefited Parties under the Intercreditor Agreement (based on the principal amount of Indebtedness outstanding on the date of such prepayment but assuming for purposes of such calculation that the maximum commitment under the Bank Credit Agreement is outstanding).

Section 5.18.    Guaranties.    (a) The Company will not, and will not permit any Subsidiary to, become or be liable in respect of any Guaranty except (i) Guaranties by the Company which are limited in amount to a stated maximum dollar exposure or which constitute Guaranties of obligations incurred by any Subsidiary in compliance with the provisions of this Agreement and (ii) Guaranties which constitute Excluded Subsidiary Obligations.

        (b)  The Company will cause any Person which becomes a Subsidiary after December 1, 1999 and which is (i) required by the terms of the Bank Credit Agreement to become a party to, or otherwise Guaranty, Indebtedness outstanding under the Bank Credit Agreement or (ii) is an active Domestic Subsidiary (other than a special purpose bankruptcy remote financing entity in connection with a Permitted Accounts Receivable Financing Facility) to enter into the Guaranty Agreement, and deliver within three Business Days thereafter to each of the holders of the Notes the following items:

        (i)    a Guaranty Supplement in respect of the Guaranty Agreement;

        (ii)  a certificate signed by the President, a Vice President or another authorized Responsible Officer of the Company making representations and warranties to the effect of those contained in Exhibit A to the Second Amendment, with respect to such Subsidiary and the Guaranty Agreement, as applicable;

        (iii)      such documents and evidence with respect to such Subsidiary as any holder of the Notes may reasonably request in order to establish the existence and good standing of such Subsidiary;

        (iv)  an opinion of counsel addressed to each of the holders of the Notes satisfactory to the holders of 66²/3% in aggregate principal amount of the Notes, to the effect that the Guaranty Agreement has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of such Subsidiary enforceable in accordance with its terms, except as an enforcement of such terms may be limited by bankruptcy, insolvency, fraudulent conveyance and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles;

        (v)  If at any time one or more Subsidiaries which shall have guaranteed the Indebtedness outstanding under the Bank Credit Agreement shall have been released from its obligations under such Guaranty, then upon delivery to the holders of the Notes of evidence of such release (which evidence shall be reasonably satisfactory to holders of 66²/3% aggregate principal amount of the Notes), such Subsidiary shall be released from its obligations under the Guaranty Agreement.

Section 5.19.    Repurchase of Notes.    Neither the Company nor any Subsidiary or Affiliate, directly or indirectly, may repurchase or make any offer to repurchase any Notes unless an offer has been made to repurchase Notes, pro rata, from all holders of the Notes at the same time and upon the same terms. In case the Company repurchases or otherwise acquires any Notes, such

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Notes shall immediately thereafter be canceled and no Notes shall be issued in substitution therefor. Without limiting the foregoing, upon the repurchase or other acquisition of any Notes by the Company, any Subsidiary or any Affiliate, such Notes shall no longer be outstanding for purposes of any section of this Agreement relating to the taking by the holders of the Notes of any actions with respect hereto, including, without limitation, §6.3, §6.4 and §7.1.

Section 5.20.    Transactions with Affiliates.    The Company will not, and will not permit any Subsidiary to, enter into or be a party to any transaction or arrangement with any Affiliate (including, without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except (i) employment, consulting and other compensation arrangements with the current chairman of the board of directors of the Company and (ii) in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person other than an Affiliate.

Section 5.21.    Termination of Pension Plans.    The Company will not and will not permit any ERISA Affiliate to withdraw from any Multiemployer Plan if such withdrawal would result in withdrawal liability (as described in Part 1 of Subtitle E of Title IV of ERISA) which is currently owing which could materially and adversely affect the properties, business, prospects, profits or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. The Company and any ERISA Affiliate will not permit any employee benefit plan maintained by it to be terminated if such termination could result in the imposition of a Lien on any property of the Company or any ERISA Affiliate pursuant to Section 4068 of ERISA.

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Section 5.22.    Reports and Rights of Inspection.    The Company will keep, and will cause each Subsidiary to keep, proper books of record and account in sufficient detail to enable the preparation of consolidated and consolidating financial statements in accordance with GAAP consistently applied, and will furnish (or with respect to clause (g) below, will use its best efforts to furnish) to you so long as you are the holder of any Note and to each other Institutional Holder of the then outstanding Notes (in duplicate if so specified below or otherwise requested):

        (a)    Quarterly Statements.    As soon as available and in any event within 50 days after the end of each quarterly fiscal period (except the last) of each fiscal year, copies of:

        (1)  consolidated and consolidating balance sheets of (i) the Company and the Subsidiaries and (ii) the Company and its Subsidiaries as of the close of such quarterly fiscal period, setting forth in comparative form the consolidated figures for the fiscal year then most recently ended,

        (2)  consolidated and consolidating statements of income of (i) the Company and the Subsidiaries and (ii) the Company and its Subsidiaries for such quarterly fiscal period and for the portion of the fiscal year ending with such quarterly fiscal period, in each case setting forth in comparative form the consolidated figures for the corresponding periods of the preceding fiscal year, and

        (3)  consolidated and consolidating statements of cash flows of (i) the Company and the Subsidiaries and (ii) the Company and its Subsidiaries for each quarterly fiscal period and for the portion of the fiscal year ending with such quarterly fiscal period, setting forth in comparative form the consolidated figures for the corresponding period of the preceding fiscal year,

all in reasonable detail and certified as complete and correct by an authorized financial officer of the Company;

        (b)    Annual Statements.    As soon as available and in any event within 105 days after the close of each fiscal year of the Company, copies of:

        (1)  consolidated and consolidating balance sheets of (i) the Company and its Subsidiaries and (ii) the Company and its Subsidiaries as of the close of such fiscal year, and

        (2)  consolidated and consolidating statements of income and retained earnings and cash flows of (i) the Company and its Subsidiaries and (ii) the Company and its Subsidiaries for such fiscal year,

in each case setting forth in comparative form the consolidated figures for the preceding fiscal year, all in reasonable detail and accompanied, with respect to the Company and its Subsidiaries, by a report thereon of a firm of independent public accountants of recognized national standing selected by the Company to the effect that the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of the end of the fiscal year being reported on and the consolidated results of operations and cash flows for said year in conformity with GAAP and that the audit of such accountants in connection with such financial statements has been conducted in accordance with generally accepted auditing standards;

        (c)    Audit Reports.    Promptly upon receipt thereof, one copy of each interim or special audit made by independent accountants of the books of the Company or any Subsidiary and any management letter received from such accountants;

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        (d)    SEC and Other Reports.    Promptly upon their becoming sent or filed, one copy of each financial statement, report, notice or proxy statement sent by the Company to stockholders generally and of each regular or periodic report, and any registration statement or prospectus filed by the Company or any Subsidiary with any securities exchange or the Securities and Exchange Commission or any successor agency, and copies of any orders in any material proceedings to which the Company or any of its Subsidiaries is a party, issued by any governmental agency, Federal or state, having jurisdiction over the Company or any of its Subsidiaries;

        (e)    ERISA Reports.    As soon as practicable and in any event within 60 days after the Company knows that any of the following events has occurred, written notice of (i) a Reportable Event with respect to any Plan; (ii) the Company's receipt of notice from the PBGC stating its intention to terminate any Plan under Section 4042 of ERISA; (iii) the provision by the administrator of any Plan of a notice of intent to terminate such Plan; (iv) the imposition of withdrawal liability by a Multiemployer Plan under Section 4202 of ERISA; (v) a "prohibited transaction" within the meaning of Section 406 of ERISA in connection with any Plan other than a transaction for which a statutory exemption is available or an administrative exemption has been obtained; or (vi) any material increase in the contingent liability of the Company or any Subsidiary with respect to any post-retirement welfare liability (exceeding $1,500,000,) calculated in accordance with FASB 106 and required to be reported under FASB 106;

        (f)    Officer's Certificates.    Within the periods provided in paragraphs (a) and (b) above, a certificate of an authorized financial officer of the Company stating that such officer has reviewed the provisions of this Agreement and setting forth: (i) the information and computations (in sufficient detail) required in order to establish whether the Company was in compliance with the requirements of §5.9 through §5.13, inclusive, and §5.15, §5.16, §5.17, §5.23 and §5.25 at the end of the period covered by the financial statements then being furnished, and (ii) whether there existed as of the date of such financial statements and whether, to the best of such officer's knowledge, there exists on the date of the certificate or existed at any time during the period covered by such financial statements any Default or Event of Default and, if any such condition or event exists on the date of the certificate, specifying the nature and period of existence thereof and the action the Company is taking and proposes to take with respect thereto;

        (g)    Accountant's Certificates.    Within the period provided in paragraph (b) above, a certificate of the accountants who render an opinion with respect to such financial statements, stating that they have reviewed this Agreement and stating further whether, in making their audit, such accountants have become aware of any Default or Event of Default under any of the terms or provisions of this Agreement insofar as any such terms or provisions pertain to or involve accounting matters or determinations, and if any such condition or event then exists, specifying the nature and period of existence thereof;

        (h)    Intentionally Omitted;

        (i)    Requested Information.    With reasonable promptness, such other data and information as you or any such Institutional Holder may reasonably request and which may be furnished without unreasonable expense to the Company;

        (j)    Cash Flow Forecasts.    On the second Business Day of each week on or prior to the Collateral Release Date, a 13-week rolling cash flow forecast substantially in the form of Exhibit D to the Fourth Amendment; and

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        (k)    Intercreditor Agreement.    (i) Concurrently with the delivery to the Collateral Agent, the Company shall deliver to each Institutional Holder copies of all notices, schedules, certificates and reports delivered to the Collateral Agent pursuant to or in connection with any Security Document or with respect to the Collateral, (ii) not less than 10 Business Days prior to execution thereof, a copy of (x) each proposed amendment to the Collateral Documents, (y) each document or agreement which, if executed and delivered would become an additional Collateral Document, (iii) promptly following execution thereof, one copy of each of the documents referred to in the preceding clause (ii), and (iv) the items specified by such holder pursuant to Section 5 of the Security Agreement.

Without limiting the foregoing, the Company will permit you, so long as you are the holder of any Note, and each Institutional Holder of the then outstanding Notes (or such agents or representatives as either you or such Institutional Holder may designate), to visit and inspect, under the Company's guidance, any of the properties of the Company or any Subsidiary, to examine all of their books of account, records, reports and other papers, to make copies and extracts therefrom and to discuss their respective affairs, finances and accounts with their respective officers, employees, and independent public accountants (and by this provision the Company authorizes said accountants to discuss with you the finances and affairs of the Company and its Subsidiaries) all on such reasonable notice and at such reasonable times and as often as may be reasonably requested. The Company shall not be required to pay or reimburse you or any such holder for expenses which you or any such holder may incur in connection with any such visitation or inspection, except that if such visitation or inspection is made during any period when a Default or Event of Default shall have occurred and be continuing, the Company agrees to reimburse you or such holder for all such expenses promptly upon demand.

Section 5.23.    Consolidated Net Worth.    The Company will not at any time permit Consolidated Net Worth to be less than $170,000,000 plus 50% of each fiscal quarter's Consolidated Net Income (with no deduction for losses) commencing on January 1, 1999 plus 75% of any Net Issuance Proceeds after January 1, 1999.

Section 5.24.    No Restrictions on Subsidiaries.    The Company will not, nor will it permit any of its Subsidiaries to, enter into, or commit to enter into, any agreement or understanding that could limit or restrict any of its Subsidiaries making or declaring any dividends, either in cash or property, to the Company, repaying or prepaying any Indebtedness (other than for amounts loaned by the Company to its Subsidiaries on a subordinated basis in connection with Permitted Accounts Receivable Financing Facilities and the minimum net worth required to be maintained by a Subsidiary which is a special purpose entity pursuant to a Permitted Accounts Receivable Financing Facility) owing to the Company, or making any Investment in the Company.

Section 5.25.    Acquisitions.    The Company will not, nor will it suffer or permit any of its Subsidiaries to, make any Acquisition unless, after giving effect to such Acquisition (the "subject Acquisition"), all of the following requirements are satisfied:

        (a)  during the 12-month period ending on the last day of the month prior to the closing of the subject Acquisition, the aggregate consideration paid (including, without limitation, Indebtedness for borrowed money incurred or assumed) for all Acquisitions during such period (including, on a pro forma basis, the subject Acquisition) does not exceed 50% of Consolidated Tangible Net Worth as of the last day of such period (including all Acquisitions during such period including, on a pro forma basis, the subject Acquisition);

        (b)  the total consideration paid (including, without limitation, Indebtedness for borrowed money incurred or assumed, but excluding secured purchase money Indebtedness, including Capitalized Lease Obligations permitted under §5.14(f) for any one Acquisition or series of related Acquisitions does not exceed $75,000,000; provided, however,that the cash consideration and all Indebtedness incurred or assumed in any one Acquisition (excluding secured purchase

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money Indebtedness, including Capitalized Lease Obligations permitted under §5.14(f) shall not exceed an amount equal to the sum of (i) $25,000,000, (ii) the net cash proceeds received from asset dispositions (other than Permitted Accounts Receivable Financing Facilities) within the prior 12 months (excluding any such proceeds counted towards prior Acquisitions), and (iii) the net cash proceeds received from any equity offering;

        (c)  at the time of any Acquisition and after giving effect thereto no Default or Event of Default shall have occurred and be continuing; and

        (d)  such Acquisitions are not opposed by the board of directors or management of any Person or business to be acquired.

        Notwithstanding the foregoing, the Company will not, nor will it permit any of its Subsidiaries to, make any Acquisition with the proceeds of any Indebtedness if the Funded Leverage Ratio (determined on a pro forma basis both before and after giving effect to such Acquisition) is greater than 3.25 to 1.0. For purposes hereof, (a) Consolidated EBITDA may be adjusted by the Company in connection with such Acquisition to the extent approved by the Required Holders and (b) the Funded Debt of any Person to be acquired by the Company or any Subsidiary shall be included in the calculation of the Funded Leverage Ratio as if such Person were a Subsidiary as of the date of such Acquisition.

Section 5.26.    Junior Capital.    If, at any time prior to the date upon which the Company obtains an Investment Grade Rating, the Company shall sell or issue any Junior Capital, 40% of the net cash proceeds from the sale or issuance of such Junior Capital shall be applied by the Company within one Business Day from the date of receipt of such proceeds to the prepayment of Senior Indebtedness of the Company on a pro rata basis based on the unpaid principal amount of Senior Indebtedness outstanding on the date of such prepayment (assuming for purposes of such calculation that the maximum commitment under the Bank Credit Agreement is outstanding). At any time prior to the date upon which the Company obtains an Investment Grade Rating, any prepayment of the Notes with the proceeds from the sale of Junior Capital shall be made pursuant to §2.2, except that no Make-Whole Amount shall be required to be paid in connection with such prepayment.

        Any prepayment of the Notes with the proceeds from the sale of Junior Capital, on or after the date upon which the Company obtains an Investment Grade Rating shall be made in accordance with §2.2, including payment of the applicable Make-Whole Amount.

Section 5.27.    Leases.    The Company shall, and shall cause each of its Subsidiaries to, (a) pay all obligations with respect to leases of real property by the Company and its Subsidiaries, (b) at the request of Required Holders, provide copies of receipts or similar documents evidencing the current nature of payments under such leases and (c) promptly notify the holders of the Notes of any delinquent payment under any such lease.

Section 5.28.    Post-Closing Deliveries.    The Company will deliver each of the documents described in Schedule III to the Fourth Amendment on or prior to the date required for delivery of such document in Schedule III.

Section 3.4.    Amendment to Section 6 (Events of Default).    Section 6 of the Note Agreements shall be and is hereby amended in its entirety to read as follows:

Section 6.1.    Events of Default.    Any one or more of the following shall constitute an "Event of Default" as such term is used herein:

        (a)  Default shall occur in the payment of interest on any Note when the same shall have become due and such default shall continue for more than three business days; or

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        (b)  Default shall occur in the making of any required prepayment on any of the Notes as provided in §2.1; or

        (c)  Default shall occur in the making of any other payment of the principal of any Note or premium, if any, thereon at the expressed or any accelerated maturity date or at any date fixed for prepayment; or

        (d)  Default shall occur in the observance or performance of any other provision of this Agreement which is not remedied within 10 business days after the earlier of (i) the day on which a Responsible Officer of the Company first obtains actual knowledge of such default, or (ii) the day on which notice thereof is given to the Company by the holder of any Note; or

        (e)  (i) The Company or any Subsidiary (x) defaults in any payment when due of principal of or interest on any Indebtedness (other than Indebtedness hereunder) or (y) defaults in the observance or performance of any other agreement or condition relating to any Indebtedness (other than Indebtedness hereunder) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, Indebtedness having an aggregate principal amount in excess of $5,000,000 to be demanded or become due (automatically or otherwise) prior to its stated maturity, or any Guaranty in such amount to become payable or cash collateral in respect thereof to be demanded; or (ii) the occurrence under any Swap Contract of an Early Termination Date (as defined in such Swap Contract) resulting from (x) any event of default under such Swap Contract as to which the Company or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (y) any Termination Event occurs under any Swap Contract (as defined therein) as to which the Company or any Subsidiary is an Affected Party (as so defined), which, in either event, the Swap Termination Value owed by the Company or such Subsidiary as a result thereof is greater than $5,000,000; or

        (f)    Any representation or warranty made by the Company herein, or made by the Company in any statement or certificate furnished by the Company in connection with the consummation of the issuance and delivery of the Notes or furnished by the Company pursuant hereto, is untrue in any material respect as of the date of the issuance or making thereof; or

        (g)  Final judgment or judgments for the payment of money aggregating in excess of $1,000,000 is or are outstanding against the Company and/or any Subsidiary or against any property or assets of either and any one of such judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of 10 business days from the date of entry; or

        (h)  A custodian, liquidator, trustee or receiver is appointed for the Company or any Subsidiary or for the major part of the property of either and is not discharged within 30 days after such appointment; or

        (i)    The Company or any Subsidiary becomes insolvent or bankrupt, is generally not paying its debts as they become due or makes an assignment for the benefit of creditors, or the Company or any Subsidiary applies for or consents to the appointment of a custodian, liquidator, trustee or receiver for the Company or such Subsidiary or for the major part of the property of either; or

        (j)    Bankruptcy, reorganization, arrangement or insolvency proceedings, or other proceedings for relief under any bankruptcy or similar law or laws for the relief of debtors,

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are instituted by or against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary, are consented to or are not dismissed within 60 days after such institution; or

        (k)  (i) any Security Document shall cease to be in full force and effect with respect to the Company or any Subsidiary Guarantor (other than as a result of a transaction permitted hereunder); (ii) the Company or any Subsidiary Guarantor shall fail to comply with or to perform any applicable provision of any Security Document to which it is a party and such failure (x) has a material adverse effect on Collateral Agent's rights with respect to any material portion of the Collateral granted thereunder or (y) continues unremedied for 10 days after the earlier of the date on which (1) a Responsible Officer obtains knowledge of such failure or (2) Collateral Agent delivers notice of such failure to the Company; or (iii) the Company or any Subsidiary Guarantor (or any Person by, through or on behalf of the Company or such Subsidiary Guarantor) shall contest in any manner the validity, binding nature or enforceability of any Security Document; or

        (l)    any Event of Default shall occur under (and as defined in) the Bank Credit Agreement, or under the 1999 Note Purchase Agreement; or

        (m)  any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in the Fourth Amendment or in any writing furnished in connection with the transactions contemplated by the Fourth Amendment, including, without limitation, the representations and warranties of the Company and certain of its Subsidiaries set forth in or relating to the Security Documents, proves to have been false or incorrect in any Material respect on the date as of which made.

Section 6.2.    Notice to Holders.    When any Default or Event of Default described in the foregoing §6.1 has occurred, or if the holder of any Note or of any other evidence of Indebtedness of the Company in a principal amount greater than $1,000,000 gives any notice of or takes any other remedial action with respect to, a claimed default, the Company agrees to give notice within three business days of such event to all holders of the Notes then outstanding.

Section 6.3.    Acceleration of Maturities.    When any Event of Default described in paragraph (a), (b) or (c) of §6.1has happened and is continuing, any holder of any Note may, and when any Event of Default described in paragraphs (d) through (g), inclusive, and paragraphs (k) through (m), inclusive, of said §6.1 has happened and is continuing, the holder or holders of 25% or more of the principal amount of Notes at the time outstanding may, by notice to the Company, declare the entire principal and all interest accrued on all Notes to be, and all Notes shall thereupon become, forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. When any Event of Default described in paragraph (h), (i) or (j) of §6.1 has occurred, then all outstanding Notes shall immediately become due and payable without presentment, demand or notice of any kind. Upon the Notes becoming due and payable as a result of any Event of Default as aforesaid, the Company will forthwith pay to the holders of the Notes the entire principal and interest accrued on the Notes and, to the extent not prohibited by applicable law, an amount as liquidated damages for the loss of the bargain evidenced hereby (and not as a penalty) equal to the Make-Whole Amount, determined as of the date on which the Notes shall so become due and payable. No course of dealing on the part of the holder or holders of any Notes nor any delay or failure on the part of any holder of Notes to exercise any right shall operate as a waiver of such right or otherwise prejudice such holder's rights, powers and remedies. The Company further agrees, to the extent permitted by law, to pay to the holder or holders of the Notes all costs and expenses incurred by them in the collection of any Notes upon any default hereunder or thereon, including

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reasonable compensation to such holder's or holders' attorneys for all services rendered in connection therewith.

Section 6.4.    Rescission of Acceleration.    The provisions of §6.3 are subject to the condition that if the principal of and accrued interest on all or any outstanding Notes have been declared immediately due and payable by reason of the occurrence of any Event of Default described in paragraphs (a) through (g), inclusive, and paragraphs (k) through (m), inclusive, of §6.1, the holders of 66²/3% in aggregate principal amount of the Notes then outstanding may, by written instrument filed with the Company, rescind and annul such declaration and the consequences thereof, provided that at the time such declaration is annulled and rescinded:

        (a)  no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement;

        (b)  all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal, interest or premium on the Notes which has become due and payable solely by reason of such declaration under §6.3) shall have been duly paid; and

        (c)  each and every other Default and Event of Default shall have been made good, cured or waived pursuant to §7.1;

and provided further, that no such rescission and annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereto.

Section 3.5.    Amendment to Section 9.4 (Expenses, Stamp Tax Indemnity).    Section 9.4 of the Note Agreement shall be and is hereby amended to read in its entirety as follows:

Section 9.4.    Expenses, Stamp Tax Indemnity.    (a) Whether or not the transactions contemplated hereby are consummated, the Company will pay all reasonable costs and expenses (including reasonable attorneys' fees of one special counsel and, if reasonably required, local or other counsel) incurred by the Noteholders and the holders of Notes in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement, the Guaranty Agreement, the Security Documents, the Intercreditor Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the reasonable costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Guaranty Agreement, the Guaranty Supplement, the Security Documents, the Intercreditor Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand by any Governmental Authority issued in connection with this Agreement, the Guaranty Agreement, the Guaranty Supplement, the Security Documents, the Intercreditor Agreement or the Notes, or by reason of being a holder of any Note, and (b) the reasonable costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save each Noteholder and each other holder of a Note harmless from, all claims in respect of any reasonable fees, costs or expenses if any, of brokers and finders (other than those retained by the Noteholders). The Company also agrees that it will pay and save the Noteholders and each holder of Notes harmless against any and all liability with respect to stamp and other similar taxes not related to income, if any, which may be payable or which may be determined to be payable in connection with the execution and delivery of this Agreement, the Guaranty Agreement, the Guaranty Supplement, the Security Documents, the Intercreditor Agreement or the Notes, whether or not any Notes are then outstanding.

        (b)  Without limiting the foregoing, the Company agrees to pay all fees of the Collateral Agent in connection with the preparation, execution and delivery of the Intercreditor Agreement

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and the Security Documents and the transactions contemplated thereby, including but not limited to reasonable attorneys fees; to pay to the Collateral Agent from time to time reasonable compensation for all services rendered by it under the Intercreditor Agreement and the Security Documents; to indemnify the Collateral Agent for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of the Intercreditor Agreement and Security Documents, including, but not limited to, the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties thereunder.

Section 3.6.    New Definitions.    Section 8.1 of the Note Agreements shall be and is hereby amended in its entirety to read as follows:

"Acquisition" means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests or equity of any Person or otherwise causing any Person to become a Subsidiary of the Company, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary of the Company) provided that the Company or the Company's Subsidiary is the surviving entity; provided, however, that "Acquisition" shall not include any of the foregoing transactions between the Company and any Subsidiary that is a Subsidiary Guarantor prior to such transaction or between companies that are Subsidiary Guarantors prior to such transaction; provided, further, that "Acquisition" shall not include Investments.

"Adjusted Funded Debt" means all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis, other than (a) Indebtedness of the type described in clause (c) of the definition of "Indebtedness", (b) contingent obligations under letters of credit, (c) Ordinary Course Indebtedness, and (d) Indebtedness in respect of banker's acceptances.

"Adjusted Funded Leverage Ratio" means, as of any date of determination, the ratio of (a) Adjusted Funded Debt on such date to (b) Consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters of the Company.

"Affiliate" shall mean any Person (other than a Subsidiary) (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company, (ii) which beneficially owns or holds 5% or more of any class of the Voting Stock of the Company or (iii) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation 5% or more of the equity interest) of which is beneficially owned or held by the Company or a Subsidiary. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by contract or otherwise.

"Applicable Interest Rate" means the rate of 8.89% per annum; provided that if the ratio of Consolidated Income Available for Fixed Charges to Fixed Charges for the period of four consecutive fiscal quarters ending on the last day of any fiscal quarter set forth below is less than the minimum ratio set forth opposite such day, then, except as provided in the next succeeding sentence, the Applicable Interest Rate shall be 9.64% per annum at all times thereafter:

Fiscal Quarter Ending	Minimum Ratio
September 30, 2002	1.10 to 1
December 31, 2002	1.50 to 1
March 31, 2003	1.55 to 1
June 30, 2003 and thereafter	1.75 to 1

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        The Applicable Interest Rate shall be 8.89% per annum at all times from and after the date on which the Company obtains an Investment Grade Rating. Any increase in the Applicable Interest Rate shall be effective retroactive to the first day of the fiscal quarter in which the Company first falls below the minimum ratio set forth above.

"Bank Credit Agreement" shall mean the credit agreement between the Company and its bank lenders dated as of December 21, 1999, as amended by the First Amendment to Credit Agreement dated as of March 27, 2002, and as hereafter amended, restated, refinanced, replaced, increased or reduced from time to time and any successor bank credit agreement.

"Bank Lenders" shall mean the financial institutions that are party to the Bank Credit Agreement.

"Benefited Parties" shall have the meaning set forth in the Intercreditor Agreement.

"Capital Expenditures" means any expenditure that is considered a capital expenditure under GAAP, including any amount which is required to be treated as an asset subject to a Capital Lease.

"Capitalized Lease" shall mean any lease the obligation for Lease Rentals with respect to which is required to be capitalized on a consolidated balance sheet of the lessee and its subsidiaries in accordance with GAAP.

"Capitalized Lease Obligation" means any rental obligation which, under generally accepted accounting principles, is or will be required to be capitalized on the books of the Company or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with such principles.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

"Collateral" means all Property from time to time subject to the Liens granted to the Collateral Agent by the Security Documents.

"Collateral Agent" means Bank of America, N.A., as collateral agent under the Security Documents and the Intercreditor Agreement, and its successors and assigns in such capacity acting for the ratable benefit of the Benefited Parties.

"Collateral Release Date" means the first date on which (a) the Company has delivered financial statements pursuant to Section 7.1(a) and (b) and a related certificate of compliance demonstrating that the Funded Leverage Ratio as of the end of a fiscal quarter was less than 3.25 to 1, (b) no Default or Event of Default exists and (c) the Company has obtained an Investment Grade Rating.

"Company" shall mean K2 Inc., a Delaware corporation, and any Person who succeeds to all, or substantially all, of the assets and business of K2 Inc.

"Computer Hardware and Software" means (i) all computer and other electronic data processing hardware, whether now or hereafter owned, licensed or leased by the Company or any Subsidiary, including, without limitation, all integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware; (ii) all software programs, whether now or hereafter owned, licensed or leased by the Company or any Subsidiary, designed for use on the computers and electronic data processing hardware described in clause (i) above, including, without limitation, all operating system software, utilities and application programs in whatsoever form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever); (iii) all firmware associated with the foregoing, whether

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now or hereafter owned, licensed or leased by the Company or any Subsidiary; and (iv) all documentation for the hardware, software and firmware described in the preceding clauses (i), (ii) and (iii) above, whether now or hereafter owned, licensed or leased by such Company, including, without limitation, flow charts, logic diagrams manuals, specifications, training materials, charts and pseudo codes.

"Consolidated EBITDA" means, for the period of the four fiscal quarters ending on any date of determination (the "measurement period"), for the Company and its Subsidiaries on a consolidated basis, an amount equal to (i) the sum of (a) Consolidated Net Income for such measurement period, (b) Consolidated Interest Expense for such measurement period, (c) the amount of taxes, based on or measured by income, used or included in the determination of such Consolidated Net Income for such measurement period, (d) the amount of depreciation and amortization expense deducted in determining such Consolidated Net Income for such measurement period and (e) non-cash nonrecurring charges and expenses included in the determination of Consolidated Net Income for such measurement period to the extent relating to items originally purchased in periods prior to the measurement period; provided, however, that charges and expenses related to inventory excluded from the determination of Consolidated EBITDA by this clause (e) shall not exceed $5,000,000 in any measurement period, less (ii) noncash nonrecurring gains included in the determination of Consolidated Net Income for such measurement period to the extent relating to items originally purchased in periods prior to the measurement period; provided, further, that, with respect to the Acquisition of a Subsidiary within such measurement period which would have added at least $3,000,000 to Consolidated EBITDA had it been included in the calculation thereof for such measurement period, the Company may also include items (i) and (ii) above for such Subsidiary for such measurement period in Consolidated EBITDA if the Company has provided to all holders of Notes (x) the most recent year-end audited financial statements for that Subsidiary (which audited statements must be as of a date occurring within five fiscal quarters prior to the date of such Acquisition (even if such date is prior to the measurement period and, therefore, such audited statements are not actually used in computing Consolidated EBITDA for such measurement period)) and (y) Company-prepared financial statements for that Subsidiary for any portion of such measurement period to be included; provided, further, that the items in the foregoing proviso may only be included if the items set forth in the proviso to Consolidated Interest Expense relating to such Subsidiary are also included when determining any covenant hereunder; provided, further, that Consolidated EBITDA shall not be reduced by any portion of the $18,000,000 charge taken by the Company in the third fiscal quarter of 2001.

"Consolidated Income Available for Fixed Charges" means for any period the sum of (i) Consolidated Net Income, (ii) income tax expense, determined in accordance with GAAP, (iii) non-cash, non-recurring charges deducted from Consolidated Net Income during such period, and (iv) Fixed Charges; provided that Consolidated Income shall not be reduced by any portion of the $18,000,000 charge taken by the Company in the third fiscal quarter of 2001.

"Consolidated Indebtedness" means, as of any date of determination, the total of all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP.

"Consolidated Interest Expense" means, for the period of the four fiscal quarters ending on any date of determination (the "measurement period"), the sum, without duplication, of (a) total interest expense (including that portion attributable to Capitalized Leases in conformity with GAAP) of the Company and its Subsidiaries for such measurement period on a consolidated basis and (b) fees, commissions and interest related to Permitted Accounts Receivable Financing Facilities for such measurement period; provided, however, that, with respect to the Acquisition of a Subsidiary within such measurement period which would have added at least $3,000,000 to

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Consolidated EBITDA had it been included in the calculation thereof for such measurement period, the Company may also include items (a) and (b) above for such Subsidiary for such measurement period in Consolidated Interest Expense if the Company has provided to Administrative Agent (who shall promptly deliver the same to all Lenders) (i) the most recent year-end audited financial statements for that Subsidiary (which audited statements must be as of a date occurring within five fiscal quarters prior to the date of such Acquisition (even if such date is prior to the measurement period and, therefore, such audited statements are not actually used in computing Consolidated Interest Expense for such measurement period)) and (ii) company-prepared financial statements for that Subsidiary for any portion of such measurement period to be included.

"Consolidated Net Income" for any period shall mean the net income of the Company and its Subsidiaries for such period, determined in accordance with GAAP, but excluding in any event:

        (a)  any extraordinary gains or losses as defined in APBO Nos. 11, 16 and 30 and FASB Statement No. 4;

        (b)  net earnings and losses of any Subsidiary accrued prior to the date it became a Subsidiary;

        (c)  net earnings and losses of any corporation (other than a Subsidiary), substantially all the assets of which have been acquired in any manner by the Company or any Subsidiary, realized by such corporation prior to the date of such acquisition;

        (d)  net earnings and losses of any corporation (other than a Subsidiary) with which the Company or a Subsidiary shall have consolidated or which shall have merged into or with the Company or a Subsidiary prior to the date of such consolidation or merger;

        (e)  net earnings of any business entity (other than a Subsidiary) in which the Company or any Subsidiary has an ownership interest unless such net earnings shall have actually been received or are receivable by the Company or such Subsidiary in the form of cash distributions;

        (f)    any portion of the net earnings of any Subsidiary which for any reason is unavailable for payment of dividends to the Company or any other Subsidiary except to the extent applied to the repayment of Indebtedness of such Subsidiary to the Company or any other Subsidiary;

        (g)  earnings or amortization resulting from any reappraisal, revaluation or write-up of assets (other than pursuant to any purchase account adjustments made to the book value of assets of an acquired Person in connection with an Acquisition);

        (h)  any deferred or other credit or amortization thereof representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; and

        (i)    any gain arising from the acquisition of any Securities of the Company or any Subsidiary.

"Consolidated Net Worth" shall mean as of the date of any determination thereof the total assets of the Company and its Subsidiaries less the total liabilities of the Company and its Subsidiaries determined in accordance with GAAP.

"Consolidated Tangible Net Worth" means at any date Consolidated Net Worth less the intangible assets of the Company and its Subsidiaries on a consolidated basis, all determined as of such date. For purposes of this definition, "Intangible Assets" means the amount (to the extent reflected in determining such Consolidated Net Worth) of all unamortized debt discount and expense, unamortized deferred charges (other than deferred employee benefit liabilities), goodwill,

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patents, trademarks, service marks, trade names, copyrights, organization or development expenses and other intangible items.

"Current Debt" of any Person shall mean as of the date of any determination thereof (i) all Indebtedness of such Person for borrowed money other than Indebtedness of such Person and (ii) Guaranties by such Person of Current Debt of others.

"Default" shall mean any event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections.

"ERISA Affiliate" shall mean any corporation, trade or business that is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in section 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA.

"ESOP" shall mean the Employee Stock Ownership Plan of the Company.

"Event of Default" shall have the meaning set forth in §6.1.

"Excluded Assets" shall have the meaning set forth in the Security Agreement as in effect on the date of this Agreement.

"Excluded Subsidiary Guaranties" shall mean the Guaranty Agreement and any other Guaranty of Indebtedness of the Company by a Subsidiary Guarantor which shall be a party to the Guaranty Agreement; provided that each creditor which is a beneficiary of an Excluded Subsidiary Guaranty shall have become a party to the Intercreditor Agreement.

"Fair Market Value" means, at any time and with respect to any property, the sale value of such property that would be realized in an arm's length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under any compulsion to buy or sell).

"FASB 106" shall mean Statement No. 106 of the Financial Accounting Standards Board.

"Fixed Charges" means, with respect to any period, the sum of (i) Interest Expense and (ii) Lease Rentals for such period.

"Foreign Receivable Financing Facilities" means one or more facilities involving the sale or discount of undivided ownership interests in foreign accounts receivable and related property of the Company and one or more of its Foreign Subsidiaries.

"Foreign Subsidiaries" means those Subsidiaries of the Company which are not Domestic Subsidiaries.

"Fourth Amendment" shall mean that certain Fourth Amendment to Note Agreements dated as of March 27, 2002 among the Company and the Purchasers named therein.

"Funded Debt" means all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis, other than (a) Indebtedness of the type described in clause (c) of the definition of "Indebtedness" and (b) contingent obligations under letters of credit.

"Funded Leverage Ratio" means, as of any date of determination, the ratio of (a) Funded Debt on such date to (b) Consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters of the Company.

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"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession, that are applicable to the circumstances as of the date of determination, consistently applied. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any of this Agreement and the Notes, the Guaranty Agreement, the Intercreditor Agreement, the Security Documents or any other instrument or document in connection therewith, and either the Company or the Required Holders shall so request, the Noteholders and the Company shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of reflect such change in GAAP (subject to the approval of the Required Holders), provided that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) the Company shall provide to the Noteholders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

"Guaranty" by any Person shall mean any obligation (other than an endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation incurred through an agreement, contingent or otherwise, by such Person: (i) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (ii) to advance or supply funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, (iii) to lease property or to purchase Securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend.

"Guaranty Agreement" shall mean that certain Guaranty Agreement dated as of December 1, 1999 as amended and supplemented from time to time.

"Guaranty Obligations" means, as to any Person, any (a) guaranty by that Person of Indebtedness of, or other obligation payable or performable by, any other Person or (b) assurance, agreement, letter of responsibility, letter of awareness, undertaking or arrangement given by that Person to an obligee of any other Person with respect to the payment or performance of an obligation by, or the financial condition of, such other Person, whether direct, indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item of such other Person or any "keep-well" or other arrangement of whatever nature given for the purpose of assuring or holding harmless such obligee against loss with respect to any obligation of such other Person; provided, however, that the term Guaranty Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of

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business. The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, covered by such Guaranty Obligation or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith.

"Guaranty Supplement" means a Guaranty Supplement in substantially the form attached as Exhibit A to the Guaranty Agreement.

"Indebtedness" means, as to any Person at a particular time, all of the following, without duplication:

        (a)  all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

        (b)  any direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), banker's acceptances, bank guaranties, surety bonds and similar instruments;

        (c)  net obligations under any Swap Contract in an amount equal to (i) if such Swap Contract has been closed out, the termination value thereof, or (ii) if such Swap Contract has not been closed out, the mark-to-market value thereof determined on the basis of readily available quotations provided by any recognized dealer in Swap Contracts of the same type;

        (d)  all obligations of such Person to pay the deferred purchase price of property or services (excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for a period of more than 60 days or which are subject to a bona fide dispute) and all indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse, including, without limitation, any Permitted Accounts Receivable Financing Facility;

        (e)  all Capitalized Lease Obligations and Synthetic Lease Obligations of such Person; and

        (f)    all Guarantees of such Person in respect of any of the foregoing.

        For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership in which such Person is a general partner, unless such Indebtedness is expressly made non-recourse to such Person except for customary exceptions acceptable to the Required Holders.

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"Institutional Holder" shall mean any insurance company, bank, savings and loan association, trust company, investment company, charitable foundation, employee benefit plan (as defined in ERISA) or other institutional investor or financial institution.

"Intercreditor Agreement" is defined in §1.4.

"Interest Coverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated EBITDA for the period of the four prior fiscal quarters ending on such date to (b) Consolidated Interest Expense during such period.

"Interest Expense" means, with respect to any period, the sum (without duplication) of the following: (i) all interest expense in respect of Indebtedness of the Company and its Subsidiaries (including imputed interest on Capitalized Leases) deducted in determining Consolidated Net Income for such period, (ii) all Indebtedness discount and expense amortized in such period and (iii) fees, commissions and interest expense related to Permitted Accounts Receivable Financing Facilities for such period.

"Investment Grade Rating" means a rating by at least one Nationally Recognized Rating Agency of (a) in the case of Moody's, "Baa3" or better, (b) in the case of S&P, "BBB-" or better, or (c) in the case of Fitch, "BBB-" or better for the long term senior, unsecured, non-credit enhanced debt of the Company.

"Investments" shall mean all investments, in cash or by delivery of property made, directly or indirectly in any Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or Securities or by loan, advance, capital contribution or otherwise; provided, however, that "Investments" shall not include Acquisitions. In valuing any Investment for purposes of this Agreement, such Investments shall be taken at the original cost thereof, without allowance for any subsequent write-offs or appreciation or depreciation therein, but less any amount repaid or recovered on account of capital or principal.

"Junior Capital" means (i) common stock of the Company, (ii) preferred stock of the Company which is not subject to mandatory redemption or repurchase or otherwise required to be redeemed on or prior to March 1, 2010, and (iii) Subordinated Indebtedness.

"Lease Rentals" means, with respect to any period, the sum of the minimum amount of rental and other obligations required to be paid during such period by the Company or its Subsidiaries as lessee under all leases of real or personal property (other than Capitalized Leases), excluding any amounts required to be paid by the lessee (whether or not designated as rental) which are (i) on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges, or (ii) which are based on profits, revenues or sales realized by the lessee from all leased property or otherwise based on the performance of the lessee.

"Leverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated Indebtedness of the Company and its Subsidiaries (other than Indebtedness of the type described in clause (c) of the definition of "Indebtedness") to (b) Consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters of the Company.

"Lien" shall mean any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements) affecting property. For the

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purposes of this Agreement, the Company or a Subsidiary shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, Capitalized Lease or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes and such retention or vesting shall constitute a Lien.

"Make-Whole Amount" shall mean in connection with any prepayment of the Notes the excess, if any, of (i) the aggregate present value as of the date of such prepayment of each dollar of principal being prepaid (taking into account the application of such prepayment required by §2.1) and the amount of interest (exclusive of interest accrued to the date of prepayment) that would have been payable in respect of such dollar if such prepayment had not been made, determined by discounting such amounts at the Reinvestment Rate from the respective dates on which they would have been payable, over (ii) 100% of the principal amount of the outstanding Notes being prepaid. If the Reinvestment Rate is equal to or higher than the Applicable Interest Rate, the Make-Whole Amount shall be zero. For purposes of any determination of the Make-Whole Amount:

"Reinvestment Rate" shall mean .50%, plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the Weighted Average Life to Maturity of the principal being prepaid (taking into account the application of such prepayment required by §2.1). If no maturity exactly corresponds to such Weighted Average Life to Maturity, yields for the published maturity next longer than the Weighted Average Life to Maturity and for the published maturity next shorter than the Weighted Average Life to Maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used.

"Statistical Release" shall mean the then most recently published statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. Government Securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination hereunder, then such other reasonably comparable index which shall be designated by the holders of 66²/3% in aggregate principal amount of the outstanding Notes.

"Weighted Average Life to Maturity" of the principal amount of the Notes being prepaid shall mean, as of the time of any determination thereof, the number of years obtained by dividing the then Remaining Dollar-Years of such principal by the aggregate amount of such principal. The term "Remaining Dollar- Years" of such principal shall mean the amount obtained by (i) multiplying (x) the remainder of (1) the amount of principal that would have become due on each scheduled payment date if such prepayment had not been made, less (2) the amount of principal on the Notes scheduled to become due on such date after giving effect to such prepayment and the application thereof in accordance with the provisions of §2.1, by (y) the number of years (calculated to the nearest one-twelfth) which will elapse between the date of determination and such scheduled payment date, and (ii) totaling the products obtained in (i).

"Membership Pledge Agreement" means the membership pledge agreement dated as of March 27, 2002 among the Company, various Subsidiary Guarantors and Collateral Agent.

"Mortgage" means a mortgage, deed of trust, leasehold mortgage or similar instrument granting Collateral Agent a Lien on real property owned or leased by the Company or any Subsidiary Guarantor.

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"Multiemployer Plan" shall have the same meaning as in ERISA.

"Nationally Recognized Rating Agency" means Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Rating Group, a division of McGraw Hill, Inc. ("S&P") or Fitch/IBCA Duff & Phelps Ltd. ("Fitch").

"Net Issuance Proceeds" means, in respect of any issuance of equity, the cash proceeds and non-cash proceeds received or receivable in connection therewith, net of reasonable costs and expenses and underwriting discounts and commissions paid or incurred in connection therewith in favor of any Person not an Affiliate of the Company.

"Net Proceeds" means, with respect to any sale, lease or other disposition of any property by an Person, an amount equal to the difference of

        (a)  the aggregate amount of the consideration (valued at the Fair Market Value of such consideration at the time of the consummation of such sale, lease or other disposition but net of applicable taxes) received by such Person in respect of such disposition, minus

        (b)  all ordinary and reasonable out-of-pocket costs and expenses actually incurred by such Person in connection with such disposition.

"1999 Note Purchase Agreement" shall mean that certain Note Purchase Agreement dated as of December 1, 1999 between the Company and the institutional investors named therein, as heretofore amended and as hereafter amended from time to time.

"Ordinary Course Indebtedness" means:

        (a)  intercompany Guaranty Obligations of the Company or any of its Subsidiaries guarantying Indebtedness otherwise permitted hereunder of the Company or any Wholly-Owned Subsidiary of the Company;

        (b)  Indebtedness arising from the honoring of a check, draft or similar instrument against insufficient funds so long as such Indebtedness is paid within three Business Days after the incurrence thereof;

        (c)  Indebtedness of a Subsidiary to the Company or to a Wholly-Owned Subsidiary;

        (d)  Indebtedness of the Company to a Subsidiary Guarantor; and

        (e)  Indebtedness in connection with letters of credit issued in the ordinary course of business.

"Ordinary Course Investments" means Investments of the Company and its Subsidiaries, consisting of:

        (a)  Investments in and to Subsidiaries and the Company and in any Person that is a Subsidiary after giving effect to such Investment;

        (b)  Investments in commercial paper maturing in 270 days or less from the date of issuance which, at the time of acquisition by the Company or its Subsidiaries, is accorded the highest rating by a Nationally Recognized Rating Agency;

        (c)  Investments in direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America, in either case, maturing in 12 months or less from the date of acquisition thereof;

        (d)  Investments in certificates of deposit maturing within one year from the date of issuance thereof, issued by a bank or trust company organized under the laws of the United

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States or any state thereof, having capital, surplus and undivided profits aggregating at least $100,000,000 and whose long-term certificates of deposit are, at the time of acquisition thereof by the Company or its Subsidiaries, rated A or better by S&P or A or better by Moody's;

        (e)  receivables, including negotiable instruments and letters of credit in respect of which the Company or its Subsidiaries is the beneficiary, arising from the sale of goods and services in the ordinary course of business of the Company and its Subsidiaries;

        (f)    Investments in repurchase agreements or bankers acceptances, having terms of less than 30 days, with a United States bank or trust company meeting the requirements of paragraph (d) hereof, which Investments mature within one year and which are fully secured by obligations of the type described in paragraphs (c) and (d) hereof; and

        (g)  Investments in offshore certificates of deposit maturing within one year from the date of issuance thereof, issued by a bank or trust company having capital, surplus and undivided profits aggregating at least $1,000,000,000 and whose long term offshore certificates of deposit are at the time of acquisition thereof by the Company or its Subsidiaries, accorded a rating of A or better by S&P or Moody's.

"PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA.

"Permitted Accounts Receivable Financing Facilities" means one or more facilities involving the sale or discount of undivided ownership interests in accounts receivable and related property of the Company and one or more of its Subsidiaries; provided that the aggregate investment or claim held by purchasers of such assets does not exceed $75,000,000 in the case of receivables owned by Domestic Subsidiaries, and in the case of Foreign Receivable Financing Facilities the aggregate outstanding principal amount of Indebtedness for borrowed money of Foreign Subsidiaries plus the aggregate investment or claim held by purchasers of receivables in Foreign Receivable Financing Facilities shall not exceed 15% of Consolidated Net Worth at any time.

"Person" shall mean an individual, partnership, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof.

"Plan" shall mean a "pension plan," as such term is defined in Section 3(2) of ERISA that is subject to Title IV of ERISA, established, maintained or contributed to by the Company or any ERISA Affiliate except shall not include a Multiemployer Plan.

"Pledge Agreement" means the pledge agreement dated as of March 27, 2002 among the Company, various Subsidiary Guarantors and Collateral Agent.

"Purchasers" shall have the meaning set forth in §1.1.

"Reportable Event" shall have, with respect to any Plan, the same meaning as in Section 4043 of ERISA except shall not include reportable events with respect to which the 30-day notice requirement has been waived by the PBGC (provided that the loss of qualification of a Plan and the failure to meet the minimum funding standards of Section 412 of the Code or Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any waiver of the notice requirement by the PBGC).

"Required Holders" means, at any time, the holders of at least 66²/3% in principal amount of the Notes at the time outstanding; provided that in the case of any release of all or substantially all of the Collateral (other than on account of the occurrence of the Collateral Release Date), "Required Holders" shall mean the holders of 100% in principal amount of the Notes then outstanding (exclusive in each case of Notes then owned by the Company or any of its Affiliates).

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"Responsible Officer" shall mean the President, any Vice President, or Treasurer of the Company or any other officer of the Company who in the normal performance of his or her duties would have knowledge of this Agreement and the provisions hereof.

"Restricted Payments" means:

        (a)  the declaration or payment of any dividend by the Company, either in cash or property, on any shares of the capital stock of any class of the Company (except dividends or other distributions payable solely in shares of capital stock of the Company);

        (b)  the purchase, redemption or retirement by the Company of any shares of the capital stock of any class of the Company or any warrants, rights or options to purchase or acquire any shares of its capital stock, whether directly or indirectly, or through any Subsidiary; and

        (c)  any other payment or distribution by the Company in respect of its capital stock, either directly or indirectly or through any Subsidiary.

"Second Amendment" shall mean that certain Second Amendment dated as of December 1, 1999 among the Company and the Purchasers named therein.

"Securitization Hardware and Software" means the Computer Hardware and Software used to service and/or monitor the accounts and payments intangibles of the Company and its Subsidiaries; the Computer Hardware and Software and other computer materials otherwise relating to the Excluded Assets; and the printouts and other computer materials, technical knowledge or processes, data bases, customer lists, credit files, correspondence and advertising materials or any property of a similar nature relating to the Excluded Assets.

"Security" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended.

"Security Agreement" means the security agreement dated as of March 27, 2002 among the Company, the Subsidiary Guarantors and Collateral Agent.

"Security Documents" means the Security Agreement, the Membership Pledge Agreement, the Mortgages, the Pledge Agreement and all other documents pursuant to which the Company or any Subsidiary grants Collateral to Collateral Agent.

"Senior Indebtedness" means, as of any date of determination thereof, all Consolidated Indebtedness, other than Subordinated Indebtedness.

"Subordinated Indebtedness" is defined in Section 5.11.

        The term "subsidiary" shall mean as to any particular parent corporation any corporation of which more than 50% (by number of votes) of the Voting Stock shall be beneficially owned, directly or indirectly, by such parent corporation. The term "Subsidiary" shall mean a subsidiary of the Company.

"Subsidiary Guarantor" shall mean each Subsidiary of the Company which shall be a party to the Guaranty Agreement.

"Swap Contract" means (a) any and all rate swap transactions, basis swaps, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, foreign exchange contracts or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to

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any master agreement, or (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., or any other master agreement (any such master agreement, together with any related schedules, as amended, restated, extended, supplemented or otherwise modified in writing from time to time, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement.

"Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include any Bank Lender).

"Synthetic Lease Obligation" means all monetary obligations of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations which do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the Indebtedness of such Person (without regard to accounting treatment).

"Voting Stock" shall mean Securities of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions).

"Wholly-Owned" when used in connection with any Subsidiary shall mean a Subsidiary of which all of the issued and outstanding shares of stock (except shares required as directors' qualifying shares) and all Indebtedness shall be owned by the Company and/or one or more of its Wholly-Owned Subsidiaries.

Section 4.    Representations and Warranties.

        The Company represents and warrants that as of the date hereof and as of the date of execution and delivery hereof and after giving effect hereto (and to the amendment of the Bank Credit Agreement, the 1999 Note Purchase Agreement and the Permitted Accounts Receivable Financing Facility referred to in Schedule II hereto):

        (a)  No Default or Event of Default exists under the Note Agreement.

        (b)  In connection with the solicitation of an amendment to the Bank Credit Agreement, the 1999 Note Purchase Agreement and the Permitted Accounts Receivable Financing Facility or in connection with any other agreement pursuant to which Indebtedness of the Company is outstanding and relating to the subject matter of this Agreement, or any other amendment or modification required under any such agreement, the Company has paid no fees or other consideration (other than routine fees of counsel for such lenders and except as disclosed to the Noteholders and their special counsel, Chapman and Cutler) in connection with the review and/or execution and delivery of any such amendment or modification.

        (c)  The execution and delivery of the Agreement and each of the Security Documents to which it is a party by the Company and the compliance by the Company with all of the provisions of the Note Agreement, as amended hereby, and each of the Security Documents to which it is a party:

        (i)    is within the corporate powers of the Company; and

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        (ii)  will not violate any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the Articles of Incorporation or By-laws of the Company or any indenture or other agreement or instrument to which the Company is a party or by which it may be bound or result in the imposition of any Liens or encumbrances on any property of the Company (other than such Liens, security interests and encumbrances contemplated and otherwise created by virtue of the Security Documents).

        (d)  The execution and delivery of this Agreement and each of the Security Documents have been duly authorized by all proper corporate action on the part of the Company (no action by the stockholders of the Company being required by law, by the Articles of Incorporation or By-laws of the Company or otherwise); and this Agreement and each of the Security Documents have been executed and delivered by the Company, and the Note Agreement and the Notes, as amended by this Agreement, and the Security Documents constitute the legal, valid and binding obligations, contracts and agreements of the Company enforceable in accordance with their respective terms.

        (e)  The execution and delivery of the Amendment to Guaranty Agreement dated of even date herewith (the "Amendment to Guaranty") in substantially the form set forth in Exhibit C hereto or a Guaranty Supplement, as the case may be, and each of the Security Documents by the Subsidiary Guarantors and the compliance by each Subsidiary Guarantor with the provisions of the Security Documents to which such Subsidiary Guarantor is a party:

        (i)    is within the corporate powers of each such Subsidiary Guarantor; and

        (ii)  will not violate any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the Articles of Incorporation or By-laws of such Subsidiary Guarantor or any indenture or other agreement or instrument to which such Subsidiary Guarantor is a party or by which it may be bound or result in the imposition of any Liens or encumbrances on any property of the Company (other than such Liens, security interests and encumbrances contemplated and otherwise created by virtue of the Security Documents).

        (f)    The execution and delivery of the Amendment to Guaranty or the Guaranty Supplement, as the case may be, and each of the Security Documents to which each Subsidiary Guarantor is a party have been duly authorized by all proper corporate action on the part of each Subsidiary Guarantor (no action by the stockholders of such Subsidiary Guarantor being required by law, by the Articles of Incorporation or By-laws of such Subsidiary Guarantor or otherwise); and the Amendment to Guaranty or the Guaranty Supplement, as the case may be, and each of the Security Documents to which each Subsidiary Guarantor is a party have been executed and delivered by such Subsidiary Guarantor and constitute the legal, valid and binding obligations, contracts and agreements of each such Subsidiary Guarantor enforceable in accordance with their respective terms.

        (g)  No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company or any Subsidiary Guarantor of this Agreement or any Security Document to which the Company or any Subsidiary Guarantor is a party.

        (h)  There are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

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        (i)    Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

        (j)    Schedule IV hereto sets forth a complete and correct list of all outstanding Indebtedness (including Guaranties) of the Company and its Subsidiaries as of March 5, 2002, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment.

        (k)  Except as set forth in the Security Documents, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 5.15 of the Note Agreements. Schedule VI hereto sets forth a complete and correct list of all Liens on Property of the Company and its Subsidiaries which secure Indebtedness.

        (l)    Schedule V hereto contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, and all other Investments of the Company and its Subsidiaries and (ii) of the Company's Affiliates known to the Company, other than Subsidiaries.

Section 5.    Conditions Precedent to Effectiveness of Agreement.

        This Agreement shall become effective as of the date hereof upon the satisfaction of each of the following, unless waived by the Required Holders, in their sole discretion:

        (a)  The Required Holders on the date hereof shall have delivered an executed counterpart of this Agreement;

        (b)  No Event of Default shall have occurred and be continuing;

        (c)  The Company shall have delivered to the Noteholders in form and substance satisfactory to such Noteholders and their special counsel, Chapman and Cutler, the items listed or described in Schedule II hereto;

        (d)  The Company shall have paid the fees, costs, expenses and disbursements of Chapman and Cutler, special counsel to the Noteholders, incurred in connection with the consummation of the transactions contemplated by this Agreement and the Security Documents; and

        (e)  The Company shall have paid a fee to each Noteholder in an amount equal to 11.25 basis points of the unpaid principal amount of the Notes.

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Section 6.    Waiver.

Section 6.1.    Waiver of Compliance with Section 5.6.    The Noteholders hereby waive compliance by the Company with Section 5.6 of the Existing Note Agreement for the fiscal quarter ended on December 31, 2001 on account of the Company's inability to maintain the minimum ratio of Consolidated Current Assets to Consolidated Current Liabilities (as each such term is defined in the Existing Note Agreement) as of such date.

Section 6.2.    Waiver of Compliance with Section 5.7.    The Noteholders hereby waive compliance by the Company with Section 5.7 of the Existing Note Agreement for the fiscal quarters ended on September 30, 2001 and December 31, 2001 on account of Current Debt (as defined in the Existing Note Agreement) of the Company and the Restricted Subsidiaries being in excess of 80% of Consolidated Accounts Receivable (as defined in the Existing Note Agreement) as of each such date.

Section 6.3.    Waiver of Compliance with Section 5.8.    The Noteholders hereby waive compliance by the Company with Section 5.8 of the Existing Note Agreement for the fiscal quarters ended on September 30, 2001 and December 31, 2001 on account of the Company's inability to maintain the minimum ratio of Cash Flow Available for Fixed Charges to Fixed Charges (as each such term is defined in the Existing Note Agreement) as of each such date.

Section 7.    Miscellaneous.

Section 7.1.    Effect of Agreement and Reaffirmation.    Except as expressly amended by this Agreement, the Company acknowledges and agrees that the Note Agreements, the Notes and all other documents and agreements executed by the Company in connection with the Note Agreements in favor of the Noteholders shall remain unchanged and are hereby ratified and confirmed and shall remain in full force and effect. The Company further acknowledges and agrees that it has no defenses to its obligations under the Note Agreements and the Notes, as amended hereby, and that the Company has no claim against the Noteholders arising from or in connection with the Note Agreements and the Notes, as amended hereby.

Section 7.2.    Release of Claims.    In further consideration of the Noteholders' execution of this Agreement, the Company hereby releases each Noteholder and its respective affiliates, officers, employees, directors, trustees, agents and attorneys (collectively, the "Releasees") from any and all claims, demands, liabilities, responsibilities, disputes, causes of action (whether at law or in equity) and obligations of every nature whatsoever, whether liquidated or unliquidated, known or unknown, matured or unmatured, fixed or contingent that the Company may have against the Releasees which arise from or relate to any actions which the Releasees may have taken or omitted to take prior to the date hereof with respect to the Notes, the Note Agreement, any Collateral, the Guaranty Agreement, and any Security Documents and any third parties liable in whole or in part for the obligations under the Notes and the Note Agreement. For purposes of the release contained in this paragraph, the term "Company" shall mean and include such party's successors and assigns, including, without limitation, any trustees acting on behalf of such party and any debtor-in-possession in respect of such party.

Section 7.3.    Successors and Assigns.    This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Noteholders and to the benefit of the Noteholders' successors and assigns.

Section 7.4.    Expenses.    The Company hereby agrees to pay all out-of-pocket expenses incurred by the Noteholders in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the reasonable fees, expenses and disbursements of Chapman and Cutler.

Section 7.5.    Counterparts.    This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement.

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Section 7.6.    Governing Law.    This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to choice of law principles that would result in the application of the laws of any other jurisdiction.

Section 7.7.    Approval of Amendment to Guaranty Agreement.    Each Noteholder hereby consents to the terms of the Amendment to Guaranty dated of even date herewith and attached hereto as Exhibit C in respect of the Subsidiary Guaranty.

Section 7.8.    GE Securitization.    The Noteholders hereby consent to (i) the execution, delivery and performance by the Company, Stearns Inc. ("Stearns"), Shakespeare Company, LLC ("Shakespeare"), K-2 Corporation ("K-2 Corp."), K2 Receivables Corporation ("K2 SPV") and K2 Finance Company, LLC ("K2 LLC") of the GECC Securitization Transactions. Notwithstanding anything to the contrary in this Agreement or the Note Agreement, as amended hereby, the Notes, the Subsidiary Guaranties, the Security Documents and the Intercreditor Agreement (collectively the "Transaction Documents"), the GECC Securitization Transactions and the execution and delivery of, and performance under, the GECC Securitization Documents by the Company and it subsidiaries party thereto shall not be deemed to violate or contravene any provision of the Transaction Documents.

"GECC Securitization Documents" shall mean (i) that certain Receivables Sale and Contribution Agreement, dated as of March 28, 2002, among the Company as parent guarantor, Stearns, Shakespeare and K-2 Corp. as originators and K2 LLC as buyer (the "Sale and Contribution Agreement"), (ii) the Receivables Purchase and Servicing Agreement, dated as of March 28, 2002, among K2 LLC as seller, Company as master servicer, Stearns, Shakespeare and K-2 Corp. as servicers, K2 SPV, Redwood Receivables Corporation as the conduit purchaser (the "Conduit Purchaser"), General Electric Capital Corporation as committed purchaser (the "Committed Purchaser") and as administrative agent (the "Agent") for the Committed Purchaser and the Conduit Purchaser (the "Receivables Purchase Agreement"), and (iii) each Originator Performance Guaranty dated as of March 28, 2002, from the Company, Stearns, Shakespeare and K-2 Corp. in each case in the form delivered to the Noteholders on March 28, 2002.

"GECC Securitization Transactions" shall mean the transactions under the GECC Securitization Documents.

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In Witness Whereof, the Company has executed this Fourth Amendment to Note Agreements as of the day and year first above written.

K2 Inc.
By:
	Its:

        This Fourth Amendment to Note Agreements is accepted and agreed to as of the day and year first above written.

C.M. Life Insurance Company
By:	David L. Babson & Company Inc., as Investment Sub-Advisor
By:
	Its:

        This Fourth Amendment to Note Agreements is accepted and agreed to as of the day and year first above written.

Principal Life Insurance Company
By:	Principal Capital Management, LLC, a Delaware limited liability company, its authorized signatory
By:
	Its:
By:
	Its:

        This Fourth Amendment to Note Agreements is accepted and agreed to as of the day and year first above written.

Life Investors Insurance Company of America
By:
	Its:

        This Fourth Amendment to Note Agreements is accepted and agreed to as of the day and year first above written.

Monumental Life Insurance Company
By:
	Its:

Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111-0001

Principal Life Insurance Company
c/o Principal Capital Management, LLC
801 Grand Avenue
Des Moines, Iowa 50392-0800

Life Investors Insurance Company of America
c/o Aegon USA Investment Management, Inc.
1111 North Charles Street
Baltimore, Maryland 21201

Monumental Life Insurance Company
c/o Aegon USA Investment Management, Inc.
1111 North Charles Street
Baltimore, Maryland 21201

Schedule I
(to Fourth Amendment to Note Agreements)

CLOSING CONDITIONS

        1.    Amendment to Guaranty.    Each Subsidiary Guarantor shall have executed and delivered the Amendment to Guaranty.

        2.    Secretary Certificate of Company.    The Company shall have delivered to the Noteholders a certificate of an authorized officer, dated as of the Effective Date, with respect to its Articles of Incorporation and By-laws, certifying as to resolutions authorizing the execution and delivery of this Agreement and the Notes and the Security Documents, and the incumbency and signature of officers.

        3.    Officer's Certificate of Company.    The Company shall have delivered to the Noteholders a certificate of an authorized officer, dated as of the Effective Date, to the effect that the representations and warranties set forth in Section 4 of this Agreement and in the Security Documents are true and correct.

        4.    Subsidiary Secretary's Certificate.    Each Subsidiary which is a party to a Security Document or a Guaranty Supplement shall have delivered to the Noteholders a certificate of an authorized officer, dated as of the Effective Date, with respect to its Articles of Incorporation and By-laws, certifying as to resolutions authorizing the execution and delivery of the Security Documents or Guaranty Supplement to which such Subsidiary is a party, and the incumbency and signature of officers.

        5.    Subsidiary Officer's Certificate.    Each Subsidiary which is a party to the Security Documents shall have delivered to the Noteholders a certificate of an authorized officer, dated as of the Effective Date, certifying that the representations and warranties of such Subsidiary set forth in Section 4 of this Agreement in the Security Documents or Guaranty Supplement are true and correct.

        6.    Performance by the Company and each Subsidiary.    The Company and each Subsidiary which is a party to the Security Documents shall have performed and complied with all agreements and conditions contained in the Security Documents to which it is a party, required to be performed and complied with by it prior to or as of the Effective Date.

        7.    Security Documents.    The Security Documents shall be in form and substance satisfactory to the Noteholders and the Noteholders' special counsel, shall have been duly authorized, executed and delivered by the parties thereto and shall be in full force and effect, and the Noteholders shall have received true, correct and complete copies of each thereof.

        8.    Insurance.    Certificates of insurance evidencing the insurance policies and endorsements required to be delivered pursuant to the Security Documents shall have been delivered to the Collateral Agent and the Noteholders and their special counsel.

        9.    Bank Credit Agreement.    The Company shall have entered into an Amendment to the Bank Credit Agreement with the Bank Lenders which amendment shall be reasonably satisfactory to the Noteholders.

Schedule II
(to Fourth Amendment to Note Agreements)

        10.    1999 Note Purchase Agreement.    The Company shall have entered into an amendment to the 1999 Note Purchase Agreement.

        11.    Securitization Facility.    The Company shall have furnished you with a true and correct copy of the Receivables Purchase and Servicing Agreement dated as of March 28, 2002 among the Company, certain Subsidiaries and General Electric Capital Corporation, and all related Exhibits thereto and the Receivables Sale and Contribution Agreement dated as of March 28, 2002 among the Company and certain of its Subsidiaries and all related Exhibits thereto which shall be reasonably satisfactory to the Noteholders.

        12.    Intercreditor Agreement.    The Noteholders shall have entered into the Intercreditor Agreement with the Bank Lenders, the holders of the Notes under the 99 Note Agreement and the Collateral Agent.

        13.    Guaranty Supplement.    Shakespeare Conductive Fibers, LLC shall have delivered a Guaranty Supplement.

        14.    Notes.    The Company shall have delivered the amended and restated Notes, executed by a duly authorized officer of the Company.

        15.    Legal Opinion.    Gibson, Dunn & Crutcher LLP, counsel for the Company, shall have delivered an opinion in form and substance reasonably satisfactory to the Noteholders and their special counsel and otherwise in substantially the form of legal opinion delivered in connection with the amendment to the 99 Note Purchase Agreement but with respect to the Note Agreements, as amended, the Notes delivered on the Effective Date, the Guaranty Supplement and the Security Documents.

        16.    Title Insurance.    The Collateral Agent shall have received a loan title insurance policy issued by a title insurance company reasonably acceptable to the Noteholders and their special counsel (or, in the alternative, a commitment to issue a loan title insurance policy issued by a title insurance company reasonably acceptable to the Noteholders and their special counsel and marked and initialed by an authorized agent of such title insurance company to show changes to be made in connection with the actual issuance of such title insurance policy) in respect of each mortgage and deed of trust executed and delivered in connection with the transactions contemplated by this Agreement (collectively, the "Title Insurance Policies"), in form and substance satisfactory to the Noteholders and their special counsel, and all premiums in respect of the Title Insurance Policies shall have been paid in full.

        17.    Letter re Consultants.    The Company shall have delivered to you a letter regarding the retention of a financial advisor and consultant and related matters in form and substance satisfactory to you.

-2-

POST CLOSING REQUIREMENTS

        1.    Pledge Agreements pledging 65% of the outstanding stock of the following Foreign Subsidiaries by the applicable dates set forth below:

Foreign Subsidiary (Domicile)	Pledgor(s)	Delivery Date
Shakespeare (Hong Kong) Ltd. (Hong Kong)	Shakespeare Company LLC	June 30, 2002
Shakespeare International Ltd. (U.K.)	K2 Inc.
	Shakespeare Company LLC	April 12, 2002
K2 Ski Sport und Mode GmbH (Germany)	Shakespeare Company LLC	April 5, 2002
K2 Japan Corporation (Japan)	K-2 Corporation	June 30, 2002
Madshus A.S. (Norway)	K-2 Corporation	June 30, 2002
K2 Corporation of Canada (Canada)	Ride, Inc.	April 12, 2002

        2.    Each mortgage, deed of trust and financing statement required to be filed, registered or recorded in connection with the transactions contemplated by the Security Documents shall have been properly filed, registered or recorded in each office required in order to create in favor of the Collateral Agent, for the equal and ratable benefit of the Noteholders and the Bank Lenders, a valid perfected first priority Lien on the Collateral subject only to the Liens permitted by Section 5.9 of the Existing Note Agreement not more than 10 days following the Effective Date. In addition, the Collateral Agent and the Noteholders shall have received, to the extent available, acknowledgment copies of all of such filings, registrations and recordations stamped by the appropriate filing, registration or recordation officer (or, in lieu thereof, other evidence satisfactory to the Collateral Agent that all such filings, registrations and recordations have been made); and all necessary filing, registration and other similar fees, and all taxes and other charges related to such filings, registrations and recordations (including such other taxes and charges requested by the Noteholders), shall have been paid in full.

        3.    The Company shall use its best efforts to deliver to the Collateral Agent (a) not later than April 26, 2002, Collateral Access Agreements executed by owners of the properties located in (i) Fife, Washington, (ii) Lincolnwood, Illinois and (iii) Vista, California which are leased by the Company or a Subsidiary, and (b) not later than May 24, 2002, Collateral Access Agreements executed by owners of each other property leased by the Company or any Subsidiary.

Schedule III
(to Fourth Amendment to Note Agreements)

INDEBTEDNESS OF COMPANY AND ITS SUBSIDIARIES

        Outstanding Indebtedness of Company and Subsidiaries:

Subsidiary	Description	Amount Outstanding as of March 5, 2002 (US$)
K2 Inc.	Bank of America et al.—Revolver	$	40,829,000
K2 Inc.	Bank of America—LC's		20,714,000
K2 Inc.	Senior Notes—'92 Placement		13,336,000
K2 Inc.	Senior Notes—'99 Placement		50,000,000
K2 Inc.	Bank of America—Asset Securitization		45,979,000
K2 Japan	Union Bank		6,500,000
K2 Japan	Dai Ichi Kangyo Bank		4,195,000
K2 Japan	Dai Ichi Kangyo Bank—LC's		333,000
K2 GmbH	Bank of America		7,427,000
Shakespeare Hong Kong	Wells Fargo Bank/Norwest		2,968,000
Stearns Inc.	Norwest Bank—LC's		435,000
Shakespeare Fishing Tackle U.K.	Bank of America		460,000
Shakespeare Hengelsport B.V.	ING Bank		0
Shakespeare Australia	National Australia Bank		0
	Recourse obligations in respect of the discounted promissory notes in Japan		4,361,000

        Capitalized Leases:

Subsidiary	Description	Amount Outstanding as of March 5, 2002 (US$)
Ride Inc.	Key Bank	$	96,000
Morrow Inc.	Flow International	$	32,000

Schedule IV
(to Fourth Amendment to Note Agreements)

SUBSIDIARIES OF COMPANY, INVESTMENTS, AFFILIATES

Subsidiaries	Subsidiary Guarantor	Percentage of Each Class Outstsanding Owned by Company and Each Other Subsidiary
Shakespeare Conductive Fibers, LLC, a Delaware limited liability company	Yes	100%
Shakespeare Company, LLC, a Delaware limited liability company	Yes	100%
Shakespeare (Hong Kong) Ltd., a Hong Kong corporation	No	99%*
Pacific Rim Metallic Products Limited, a Hong Kong corporation	No	99%*
Shakespeare International Ltd., a British corporation	No	100%
Shakespeare Hengelsport, B.V., a Dutch corporation	No	100%
Shakespeare (Australia) Pty. Ltd., an Australian corporation	No	99%*
K2 Ski Sport und Mode GmbH, a German corporation	No	100%
Sitca Corporation, a Washington corporation	Yes	100%
K-2 Corporation, an Indiana corporation	Yes	100%
Planet Earth Skateboards, Inc., a California corporation	Yes	100%
K-2 International, Inc., an Indiana corporation	Yes	100%
K2 Japan Corporation, a Japanese corporation	No	100%
Madshus A.S., a Norwegian corporation	No	100%
SMCA, Inc., a Minnesota corporation	Yes	100%
Stearns Inc., a Minnesota corporation	Yes	100%
Ride, Inc., a Washington corporation	Yes	100%
Anthony Sales (Barbados), Ltd., a Barbados corporation**	No	100%
K2 Worldwide Company, a Cayman Island limited company	No	100%
Katin, Inc., a Delaware corporation	Yes	100%
Morrow Snowboards, Inc., a Delaware corporation	Yes	100%
K2 Bike, Inc., a Delaware corporation	Yes	100%
K2 Funding Inc., a Delaware corporation	No	100%
Shakespeare Industries Inc., a Delaware corporation	No	100%
Shakespeare Company (UK) Ltd., a United Kingdom company	No	100%
Shakespeare Monofilament UK Ltd., a United Kingdom company	No	100%
K2 (UK) Limited, a United Kingdom company	No	100%
Ride Snowboard Company, a Washington company	No	100%
Ride Manufacturing Inc., a California corporation	No	100%
Smiley Hats, Inc., a Nevada corporation	No	100%
K2 Corporation of Canada, a Canadian corporation	No	100%
Preston Binding Co., a Washington company	No	100%
Carve Inc., a Washington corporation	No	100%
SMP Clothing Inc., a Washington corporation	No	100%
K2 Outdoor Products (NZ) Ltd., a New Zealand corporation	No	100%
K2 Finance Company, LLC, a Delaware limited liability company	No	100%
K2 Receivables Corporation, a Delaware corporation	No	100%

*

One share owned by a director.

**

Presently being dissolved.

Schedule V
(to Fourth Amendment to Note Agreements)

        Investments of the Company and Its Subsidiaries:

Common Stock Investments	Number of Shares
Albany International Corporation	10
Bell Sports Company	10
Brunswick Corporation	20
Cascade Industries, Incorporated	10
Centuri, Inc.	100
Champion International Corporation	2
Coleco Industries	4
Coleman Company, Inc.	10
Escalade, Inc.	120
Figgie International	16
First Team Sports	15
Glassmaster	10
Hallwood Industries Incorporated	2,760
Huffy	10
Johnson Worldwide Associates	10
Major Pool Equipment Corp.	11
Metromedia International Group	10
Mossimo Inc.	10
Nike, Inc.	40
Pro-Group	10
Quiksilver	10
Reebok International, Ltd.	10
Seatrain Lines, Inc.	3
Skis Rossignol	10
Starter Corporation	10
The Mead Corporation	4

        Company's Affiliates (other than Subsidiaries):

Hilton Corporate Casuals—Division of K2 Inc.

Shakespeare Fishing Tackle (South Carolina)—Division of Shakespeare LLC

Shakespeare Monofilament (South Carolina)—Division of Shakespeare LLC

Shakespeare Composites & Electronics (South Carolina)—Division of Shakespeare LLC

V-2

LIENS OF COMPANY AND ITS SUBSIDIARIES

Liens:

Collateral Description
A= Accounts
E(S) = Equipment (specified items only)
E(C)= Equipment (all items sold, leased or financed under specific contract)
E(A)= Equipment (all equipment)
B = Blanket
O = Other

Debtor	Office/ Agency Searched	Search Valid Through	Secured Party	File No./ File Date	Collateral Description	Comment
Anthony Industries	CA Sec. of State	1/9/02	Enterprise Funding Corporation	9601960459/ 1/19/96	A	Assigned to NationsBank (BofA)
						K2 Funding Inc. substituted as Debtor
Hilton Corporate Casuals1	IL Sec. of State	1/3/02
Hilton Corporate Casuals	AL Sec. of State	12/26/01
K2 Corp.	Washington Dept. of Licensing	2/15/02	Anthony Industries	00960190045/ 1/19/96	A	Assigned to NationsBank (BofA) then K2 Funding substituted as Secured Party and further assigned to Bank of America; Continued 11/13/2000
K2 Corp.	Washington Dept. of Licensing	2/15/02	K2 Funding	00970730026/ 3/14/97	A	Assigned to NationsBank (BofA)

¹

a division of K2 Inc.

Schedule VI
(to Fourth Amendment to Note Agreements)

Debtor	Office/ Agency Searched	Search Valid Through	Secured Party	File No./ File Date	Collateral Description	Comment
K2 Corp.	Washington Dept. of Licensing	2/15/02	American Technologies Credit	00971390035/ 5/19/97	E(S)
K 2 Corporation	CA Sec. of State	3/6/02	Associates Commercial Corporation	0020160680/ 7/13/2000	E(C)
K-2 Corporation	Washington Dept. of Licensing	2/15/02	PrimeSource Corp.	00982670197/ 9/24/98	E(C)
K-2 Corporation	Washington Dept. of Licensing	2/15/02	Flow International Corp.	00993560217/ 11/22/99	E(S)
K2 Corporation	Washington Dept. of Licensing	2/15/02	SAFECO Credit Company, Inc.	20011090161/ 4/19/01	E(S)
K2 Corporation	Washington Dept. of Licensing	2/15/02	Magid Glove & Safety Mfg. Co.	20011490078/ 5/29/01	O (Inventory)
K2 Corporation	AL Sec. of State	12/26/01
K2 Corporation	IL Sec. of State	1/3/01
K2 Corporation	IN Sec. of State	2/19/02	Bankers/ Softech Divisions of EAB Leasing Corp.	200100007508 528/10/4/01	E(C)
K2 Corporation	IN Sec. of State	2/19/02	Bank of America, N.A., as Agent	200200000631 256/1/22/02
K2 Funding	CA Sec. of State	1/9/02	Enterprise Funding Corporation	9707360241/ 3/7/97	A	Assigned to NationsBank
K2 Funding Inc.	DE Sec. of State	12/7/01
K2 Funding Inc.	DE Sec. of State		K-2 Corporation		A	Pending filing
K2 Funding Inc.	DE Sec. of State		Shakespeare Company, LLC		A	Pending filing
K2 Funding Inc.	DE Sec. of State		Stearns Inc.		A	Pending filing
K2 Inc.	DE Sec. of State	1/25/02
K2 Inc.	CA Sec. of State	3/6/02	K2 Funding, Inc.	9709460920/ 4/3/97	A
K2 Inc.	AL Sec. of State	12/26/01
K2 Inc.	IL Sec. of State	1/3/02
K2 Inc. dba Simplex	OH Sec. of State		General Electric Capital Corporation	AP0204752/ 1/4/00	E(S)
K2 Inc.	MI Sec. of State		Caterpillar Financial Services Corporation	9501612016/ 12/7/98	E(S)
K2 Inc., Shakespeare Monofilament Division	SC Sec. of State		NEC America, Inc.	981110- 114259A	E(S)
K2 Inc., Shakespeare Monofilament Division	CA Sec. of State		NEC America, Inc.	9832060787/ 11/10/98	E(S)
K-2 International	Washington Dept. of Licensing	12/10/01
K-2 International, Inc.	IN Sec. of State	1/7/02

VI-2

K2 Worldwide Company	CA Sec. of State	1/9/02
Morrow Snowboards	Washington Dept. of Licensing	12/10/01	Flow International Corp.	00993560217/ 11/22/99	E(S)
Planet Earth Skateboards, Inc.	CA Sec. of State	1/9/02	Hawthorne Machinery Co.	9922460390/ 7/30/99	E(S)
Preston Binding Company	Washington Dept. of Licensing	12/10/01
Ride, Inc.	Washington Dept. of Licensing	1/31/02	Key Corp Leasing	00981100505/ 4/20/98	E(S)
Ride, Inc.	Washington Dept. of Licensing	1/31/02	Key Corp Leasing	00981100506/ 4/20/98	E(S)
Ride, Inc.	Washington Dept. of Licensing	1/31/02	Key Corp Leasing	00981100507/ 4/20/98	E(S)
Ride, Inc.	Washington Dept. of Licensing	1/31/02	Key Corp Leasing	00981130231/ 4/23/98	E(S)
Ride, Inc.	Washington Dept. of Licensing	1/31/02	Key Corp Leasing	00981910124/ 7/10/98	E(S)
Shakespeare Company, LLC	CA Sec. of State	3/4/02
Shakespeare Company	CA Sec. of State		Bank of America, N.A., as Agent	9707360252/ 3/13/97
Shakespeare Company	CA Sec. of State		Bank of America, N.A., as Agent	9601960446
Shakespeare Company, LLC	DE Sec. of State	1/25/02	Wells Fargo Financial	200111125330/ 9/10/01	E(S)
Shakespeare Company, LLC	DE Sec. of State	1/25/02	Bank of America, N.A., as Agent	20162291/ 1/18/02
Shakespeare Company, LLC	DE Sec. of State	1/25/02	Bank of America, N.A., as Agent	20118376/ 1/15/02
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Citicorp Vendor Finance, Inc.	104812A/ 3/20/01	E(C)
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Associates Leasing, Inc.	124716A/ 3/6/98	E(S)
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Midland Clarklift, Inc.	084426A/ 4/16/99	E(S)	Assigned to Associates Commercial Corp.
Shakespeare Company, LLC	SC Sec. of State	1/10/02	National Vendor Supply Co.	133749A/ 1/28/99	E(S)	Assigned to Industrial Credit
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Associates Leasing, Inc.	100110A/ 6/22/99	E(S)
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Associates Leasing, Inc.	100054A/ 6/22/99	E(S)
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Associates Leasing, Inc.	113047A/ 8/19/98	E(S)
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Southland Equipment	163229B/ 1/15/97	E(S)	Assigned to Associates Leasing
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Barloworld Handling	092851A/ 5/31/01	E(S)
Shakespeare Company, LLC	OH Sec. of State	1/9/02

VI-3

Shakespeare Company, LLC	NJ Sec. of State	1/10/02
Shakespeare Company, LLC	FL Sec. of State	3/1/02
Shakespeare Conductive Fibers, LLC	CA Sec. of State	1/9/02
Shakespeare Conductive Fibers, LLC	DE Sec. of State	11/20/01
Shakespeare Composites & Electronics2	SC Sec. of State	1/10/02
Shakespeare Composites & Electronics	CA Sec. of State	1/10/02
Shakespeare Composites & Electronics	FL Sec. of State	3/1/02
Shakespeare Composites & Electronics	NJ Sec. of State	1/10/02
Shakespeare Composites & Electronics	OH Sec. of State	1/9/02
Shakespeare Fishing Tackle2	SC Sec. of State	1/10/02
Shakespeare Fishing Tackle	NJ Sec. of State	1/10/02
Shakespeare Monafilament2	SC Sec. of State	1/10/02	WB Group LP dba Wrenn Handling	142821A/ 4/7/99	E(S)	Assigned to Hyster Credit Co.
Shakespeare Monafilament	SC Sec. of State	1/10/02	WB Group LP dba Wrenn Handling	120328A/ 1/18/99	E(S)	Assigned to Hyster Credit Co.
Shakespeare Monafilament	NC Sec. of State	12/20/01
Sitca Corporation	Washington Dept. of Licensing	12/10/01
Smiley Hats, Inc.	Washington Dept. of Licensing	12/10/01
SMP Clothing, Inc.	Washington Dept. of Licensing	12/10/01
Stearns, Inc.	MN Sec. of State	2/19/02	IBM Credit Corp.	2191501/ 1/06/99	E(C)
Stearns, Inc.	MN Sec. of State	2/19/02	IBM Credit Corp.	1984766/ 10/30/97	E(C)
Stearns, Inc.	MN Sec. of State	2/19/02	Hirsch International Corp.	2066713/ 9/8/98	E(S)
Stearns, Inc.	MN Sec. of State	2/19/02	Green Tree Vendor Services Group	21102881/ 3/1/99	E(S)	Assigned to Wells Fargo Leasing

VI-4

Stearns, Inc.	MN Sec. of State	2/19/02	Minnesota Lift Truck	2286596/ 1/2/01	E(S)	Assigned to Toyota Motor Credit Corporation
Stearns, Inc.	MN Sec. of State	2/19/02	K2 Funding	2216955/ 4/06/00	A	Assigned to Bank of America
Stearns Manufacturing	MN Sec. of State	3/18/02	Northern States Power Co.	1508906/ 6/12/92	E(S)	Search date
Stearns Manufacturing Co.	MN Sec. of State	3/20/02	IBM Credit Corporation	1929884/ 4/3/97	E(S)	Search date
Stearns Manufacturing Company	MN Sec. of State	3/20/02	MacPherson Meistergram	1993039/ 12/2/97	E(S)	Search date

²

a division of Shakespear Company LLC

VI-5

[Form of Amended and Restated Note]
K2 Inc.

Senior Note due November 30, 2004

No. [            ]	[Date]
$[                        ]	PPN [                        ]

        K2 Inc., a Delaware corporation (the "Company"), for value received, hereby promises to pay to

or registered assigns
on the thirtieth day of November, 2004
the principal amount of

Dollars ($                        )

and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount from time to time remaining unpaid hereon at the Applicable Interest Rate from the date hereof until maturity, payable semiannually on the thirtieth day of each May and November in each year (commencing with the May 30 or November 30 next succeeding the date hereof) and at maturity. The Company agrees to pay interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at a rate per annum, after the due date, whether by acceleration or otherwise, until paid, equal to the higher of (i) 2% over the Applicable Interest Rate and (ii) the annual rate of interest announced from time to time by Citibank, N.A., or its successors, as its "prime rate" plus 2% per annum. Both the principal hereof and interest hereon are payable at the principal office of the Company in Los Angeles, California in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts.

        This Note is one of the Senior Notes due November 30, 2004 (the "Notes") of the Company in the aggregate principal amount of $40,000,000 issued pursuant to the terms and provisions of the separate Note Agreement dated as of October 15, 1992 (as from time to time amended, supplemented or modified, including a Fourth Amendment to Note Agreements dated as of March 27, 2002, the "Note Agreements"), entered into by the Company with the respective Noteholders named therein, and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreements to all the benefits provided for thereby or referred to therein. Reference is hereby made to the Note Agreements for a statement of such rights and benefits.

        This Note and the other Notes outstanding under the Note Agreements may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreements.

Exhibit A
(to Fourth Amendment to Note Agreements)

        The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Agreements.

        This Note is registered on the books of the Company and is transferable, subject to the provisions of Section 9.1 of the Note Agreements, only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder.

K2 Inc.
By:
	Name:
	Title:

-2-

INTERCREDITOR AGREEMENT

Exhibit B
(to Fourth Amendment to Note Agreements)

AMENDMENT TO GUARANTY AGREEMENT

Exhibit C
(to Fourth Amendment to Note Agreements)

CASH FLOW FORECASTS

Exhibit D
(to Fourth Amendment to Note Agreements)

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TABLE OF CONTENTS
PRELIMINARY STATEMENT
CLOSING CONDITIONS
POST CLOSING REQUIREMENTS
INDEBTEDNESS OF COMPANY AND ITS SUBSIDIARIES
SUBSIDIARIES OF COMPANY, INVESTMENTS, AFFILIATES
LIENS OF COMPANY AND ITS SUBSIDIARIES
[Form of Amended and Restated Note] K2 Inc.
INTERCREDITOR AGREEMENT
AMENDMENT TO GUARANTY AGREEMENT
CASH FLOW FORECASTS

EX-10.(B)(1)

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EXHIBIT 10(b)(1)

K2 INC.

THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT

DATED AS OF MARCH 27, 2002

Re:

Note Purchase Agreement dated as of December 1, 1999

and

$50,000,000 Senior Notes

Due December 1, 2009

Table of Contents

Section			Heading	Page
SECTION 1.			DESCRIPTION OF NOTES AND COMMITMENT	2
SECTION 2.			EFFECTIVE DATE	2
SECTION 3.			AMENDMENT TO THE NOTE AGREEMENT	2
	Section 3.1.		Amendment to Section 1	2
		Section 1.2.	Security for the Notes	3
	Section 3.2.		Amendment of Section 7 (Reporting Information)	3
		Section 7.1.	Financial and Business Information	3
		Section 7.2.	Officer's Certificate	6
		Section 7.3.	Inspection	7
	Section 3.3.		Amendment to Section 8.2 (Optional Prepayments)	7
	Section 3.4.		Amendment of Section 9 (Affirmative Covenants)	8
		Section 9.1.	Compliance with Law	8
		Section 9.2.	Insurance	8
		Section 9.3.	Maintenance of Properties	8
		Section 9.4.	Payment of Taxes	8
		Section 9.5.	Corporate Existence, Etc	9
		Section 9.6.	Guaranty by Subsidiaries	9
		Section 9.7.	Rating for the Notes	10
		Section 9.8.	Foreign Pledges	10
		Section 9.9.	Further Assurances	10
		Section 9.10.	Collateral Matters	11
		Section 9.11.	Junior Capital	11
		Section 9.12.	Amendments to Agreements	11
		Section 9.13.	Leases.	12
		Section 9.14.	Post-Closing Deliveries.	12
	Section 3.5.		Amendment to Section 10 (Negative Covenants)	12
		Section 10.1.	Consolidated Net Worth	12
		Section 10.2.	Leverage Ratio	12
		Section 10.3.	Limitations on Indebtedness	13
		Section 10.4.	Interest Coverage Ratio	14
		Section 10.5.	Fixed Charges Coverage Ratio	14
		Section 10.6.	Limitation on Liens	15
		Section 10.7.	Sales of Assets	16
		Section 10.8.	Merger, Consolidation and Sale of Stock	17
		Section 10.9.	Nature of Business	18
		Section 10.10.	Transactions with Affiliates	18
		Section 10.11.	No Restrictions on Subsidiaries	19
		Section 10.12.	Acquisitions	19
		Section 10.13.	Loans and Investments	20
		Section 10.14.	Restricted Payments	21
	Section 3.6.		Amendment to Section 11 (Events of Default)	21
	Section 3.7.		Amendment to Section 15 (Expenses, Etc.)	25
		Section 15.1.	Transaction Expenses	25
	Section 3.8.		New Definitions	26
SECTION 4.			Representations and Warranties	43
SECTION 5.			Conditions Precedent to Effectiveness of Agreement	46
SECTION 6.			Waiver	47
	Section 6.1.		Waiver of Compliance with Section 10.5	47
SECTION 7.			Miscellaneous	47

Section 7.1.	Effect of Agreement and Reaffirmation	47
Section 7.2.	Release of Claims	47
Section 7.3.	Successors and Assigns	47
Section 7.4.	Expenses	47
Section 7.5.	Counterparts	48
Section 7.6.	Governing Law	48
Section 7.7.	Approval of Amendment to Guaranty Agreement	48
Section 7.8.	GE Securitization	48

Schedule I — Names and Addresses of Noteholders

Schedule II — Closing Conditions

Schedule III — Post-Closing Requirements

Schedule IV — Indebtedness of the Company and its Subsidiaries

Schedule V — Subsidiaries of Company, Investments, Affiliates

Schedule VI — Liens of Company and its Subsidiaries

Exhibit A— Form of Amended and Restated Note

Exhibit B— Intercreditor Agreement

Exhibit C— Amendment to Guaranty Agreement

Exhibit D— Cash Flow Forecasts

2

EXHIBIT 10(b)(1)

K2 Inc.
4900 South Eastern Avenue Los Angeles, California 90040

Dated as of March 27, 2002

Re:

Note Purchase Agreement dated as of December 1, 1999 and $50,000,000 Senior Notes Due December 1, 2009

To the Noteholders named in
Schedule I hereto

        Ladies and Gentlemen:

        This Third Amendment to Note Purchase Agreement (this "Agreement") is entered into as of March 27, 2002 by and among K2 Inc., a Delaware corporation (the "Company"), and the purchasers named in Schedule I attached hereto (the "Noteholders," or as alternatively referred to herein, the "Original Noteholders").

Preliminary Statement

        The Company and the Original Noteholders are party to the Note Purchase Agreement dated as of December 1, 1999 (the "Original Note Purchase Agreement"), as amended by the Amendment and Waiver dated as of December 15, 2001 (the "First Amendment") and the Amendment and Waiver dated as of January 15, 2002 (the "Second Amendment") (the Original Note Purchase Agreement, as so amended by the First Amendment and the Second Amendment, the "Existing Note Agreement"). Under and pursuant to the Existing Note Agreement, the Company sold to the Original Noteholders its 8.41% Senior Notes due December 1, 2009 in the original aggregate principal amount of $50,000,000 (such notes as heretofore amended, the "Existing Notes"). The Company has requested that the Original Noteholders amend the Existing Note Agreement, all on and subject to the terms and conditions set forth below. Accordingly, this Agreement is executed and delivered by the Company to the Original Noteholders to amend certain portions of the Existing Note Agreement and in so doing set forth and confirm the terms and conditions applicable thereto and the covenants, representations and warranties to be made by the Company in connection therewith. Upon the execution hereof by the Company and the Original Noteholders, the Existing Note Agreement, together with the Exhibits and Schedules thereto, as amended by this Agreement, shall be referred to as the "Note Agreement." Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Note Agreement, as amended by this Agreement.

        The Company hereby agrees with each of you as follows:

Section 1. Description of Notes and Commitment.

        Upon the effectiveness of this Agreement, automatically, and without further action on the part of either the Original Noteholders or the Company, the Existing Notes shall be amended and restated in their entirety to read as set forth in Exhibit A hereto (and the form of Note attached as Exhibit 1 to the Original Note Agreement shall be amended in its entirety to read as set forth in Exhibit A) and the amended and restated Notes shall be issued in renewal of, and evidence the same indebtedness formerly evidenced by, the Existing Notes. If any accrued and unpaid interest is outstanding in respect of any of the Existing Notes as of the date that the Existing Notes become evidenced by the amended and restated Notes, such accrued interest on each such Existing Note shall be due and payable on the first interest payment date applicable to such amended and restated Note. Each Note will be dated the date to which interest has been paid on the Existing Note surrendered therefor, will bear interest from such date at the Applicable Interest Rate, payable semiannually on the first day of June and December in each year (commencing June 1, 2002), to be expressed to mature on December 1, 2009, and otherwise substantially in the form attached hereto as Exhibit A. The term "Notes" as used herein and

in the Note Agreement shall include each such amended and restated Note delivered pursuant to this Agreement to replace the Existing Notes and any such notes issued in substitution therefore pursuant to Section 13 of the Note Agreement. Upon the effectiveness of this Agreement, the Existing Notes shall be returned to the Company.

Section 2. Effective Date.

        Delivery of the Notes to be exchanged for the Existing Notes shall occur at the offices of Chapman and Cutler, 111 West Monroe, Chicago, Illinois, at 10:00 a.m. Chicago time, on March 27, 2002 or such other date as shall be mutually agreed upon by the Company and the Noteholders (the "Effective Date"). On the Effective Date, the Company will deliver to each Noteholder the Note to be delivered to such Noteholder in the form of a single Note for the full amount of the Existing Note held by such Noteholder (unless different denominations are specified by such Noteholder), dated the date through which interest has been paid on the corresponding Existing Note and registered in each Noteholder's name (or in the name of such Noteholder's nominee). If on the Effective Date the Company shall fail to tender such Note to each Noteholder as provided above in this Section 2, or any of the conditions specified in Section 5 shall not have been fulfilled to each Noteholder's satisfaction, each Noteholder shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Noteholder may have by reason of such failure or such nonfulfillment.

        If for any reason the Existing Note held by a Noteholder is not delivered to the Company on the Effective Date, the Company shall deposit the Note to be delivered to such Noteholder with the Noteholders' special counsel, Chapman and Cutler, for delivery against receipt of the Existing Note held by such Noteholder.

Section 3. Amendment to the Note Agreement.

        Section 3.1.Amendment to Section 1.    Section 1 of the Note Agreement shall be and is hereby amended (i) by inserting a new subsection to read as "Section 1.1. Description of the Notes." immediately after the caption heading of such Section 1 and immediately before the phrase "The Company will authorize...," and (ii) by the deletion of the last paragraph of Section 1 and by the addition thereto of a new Section 1.2 in lieu thereof to read as follows:

Section 1.2. Security for the Notes. (a) The payment of the Notes and the performance by the Company and its Subsidiaries of their respective obligations under this Agreement and the Guaranty Agreement will be secured in accordance with the terms of (i) the Amended and Restated Intercreditor Agreement dated as of March 27, 2002 (the "Intercreditor Agreement") (in substantially the form attached as Exhibit B to the Third Amendment) among the Collateral Agent and the holders of certain outstanding Indebtedness of the Company, including the Noteholders and the Bank Lenders, and (ii) the Security Documents.

        (b)  If at any time the Company or any Subsidiary shall grant to any one or more of the Collateral Agent or the Bank Lenders additional security of any kind or provide any one or more of the Collateral Agent or the Bank Lenders with additional guaranties or other credit support of any kind pursuant to the requirements of the Bank Credit Agreement, then the Company or such Subsidiary shall grant to the holders of the Notes the same security or guaranty so that the holders of the Notes shall at all times be secured on an equal and pro rata basis with the Bank Lenders.

        Section 3.2.Amendment of Section 7 (Reporting Information).    Section 7 of the Note Agreement shall be and is hereby amended in its entirety to read as follows:

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Section 7. Information as to Company.

        Section 7.1. Financial and Business Information.    The Company shall deliver to each holder of Notes that is an Institutional Investor:

        (a) Quarterly Statements—within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of,

        (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and

        (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from normal, recurring year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a);

        (b) Annual Statements—within 105 days after the end of each fiscal year of the Company, duplicate copies of,

        (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and

        (ii)  consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by

        (A) an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and

        (B) a certificate of such accountants stating that they have reviewed Sections 10.1 through 10.5, inclusive, and Section 10.7 (with respect to calculations of the book value of asset dispositions, the Net Proceeds received from such dispositions and the book value of Consolidated Total Assets), Section 10.12(a) and (b), Section 10.13(j) and Section 10.14 of this Agreement and stating further whether, in making their audit, they have become aware of any condition or event under such Sections that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit),

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provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 7.1(b);

        (c) SEC and Other Reports—promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material;

        (d) Notice of Default or Event of Default—promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto;

        (e) ERISA Matters—promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto:

        (i) with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or

        (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or

        (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect;

        (f) Notices from Governmental Authority—promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect;

        (g) Supplements—promptly and in any event within 10 Business Days after the execution and delivery of any Supplement, a copy thereof;

        (h) [Intentionally Omitted];

        (i) Requested Information—with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the

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Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes;

        (j) Cash Flow Forecasts—on the second Business Day of each week on or prior to the Collateral Release Date, a 13-week rolling cash flow forecast substantially in the form of Exhibit D to the Third Amendment; and

        (k) Intercreditor Agreement—(i) concurrently with delivery to the Collateral Agent, copies of all notices, schedules, certificates and reports delivered to the Collateral Agent pursuant to or in connection with any Security Document or with respect to the Collateral, (ii) not less than 10 Business Days prior to execution thereof, a copy of (x) each proposed amendment to the Collateral Documents, (y) each document or agreement which, if executed and delivered would become an additional Collateral Document, (iii) promptly following execution thereof, one copy of each of the documents referred to in the preceding clause (ii), and (iv) the items specified by such holder pursuant to Section 5 of the Security Agreement.

        Section 7.2. Officer's Certificate.    Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth:

        (a) Covenant Compliance—the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.5 hereof, inclusive, and Section 10.7 and Section 10.12, Section 10.13 and Section 10.14 during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and

        (b) Event of Default—a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.

        Section 7.3. Inspection.    The Company shall permit the representatives of each holder of Notes that is an Institutional Investor:

        (a) No Default—if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and

        (b) Default—if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts

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therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested.

        Section 3.3.Amendment to Section 8.2 (Optional Prepayments).    Section 8.2 of the Note Agreement shall be and is hereby amended by the addition of a new sentence at the end of such Section which shall read as follows:

        "Notwithstanding the foregoing, (i) the Notes may be redeemed in accordance with the provisions of Section 9.11 without the payment of any Make Whole Amount and (ii) so long as no Default or Event of Default shall exist, the Notes may be redeemed from the proceeds of insurance or condemnation with respect to property of the Company or any Subsidiary which is subject to the Lien of the Security Documents without the payment of any Make-Whole Amount."

        Section 3.4.Amendment of Section 9 (Affirmative Covenants).    Section 9 of the Note Agreement shall be and is hereby amended in its entirety to read as follows:

Section 9. Affirmative Covenants.

        The Company covenants that so long as any of the Notes are outstanding:

Section 9.1. Compliance with Law. The Company will, and will cause each of its Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 9.2. Insurance. The Company will, and will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated.

Section 9.3. Maintenance of Properties. The Company will, and will cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 9.4. Payment of Taxes. The Company will, and will cause each of its Subsidiaries to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on

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properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect.

Section 9.5. Corporate Existence, Etc. Subject to Sections 10.7 and 10.8 and as permitted by such Sections, the Company will at all times preserve and keep in full force and effect its corporate existence, and will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Wholly-Owned Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect.

Section 9.6. Guaranty by Subsidiaries. The Company will cause any Person which becomes a Subsidiary after the Closing and which is (i) required by the terms of the Bank Credit Agreement to become a party to, or otherwise Guaranty, Indebtedness outstanding under the Bank Credit Agreement or (ii) is an active Domestic Subsidiary (other than a special purpose bankruptcy remote financing entity created in connection with a Permitted Accounts Receivable Financing Facility), to enter into the Guaranty Agreement, and deliver within three Business Days thereafter to each of the holders of the Notes the following items:

        (a) a Guaranty Supplement in respect of the Guaranty Agreement;

        (b) a certificate signed by the President, a Vice President or another authorized Responsible Officer of the Company making representations and warranties to the effect of those contained in Sections 5.4, 5.6 and 5.7, with respect to such Subsidiary and the Guaranty Agreement, as applicable;

        (c) such documents and evidence with respect to such Subsidiary as any holder of the Notes may reasonably request in order to establish the existence and good standing of such Subsidiary; and

        (d) an opinion of counsel addressed to each of the holders of the Notes satisfactory to the Required Holders, to the effect that the Guaranty Agreement has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of such Subsidiary enforceable in accordance with its terms, except as an enforcement of such terms may be limited by bankruptcy, insolvency, fraudulent conveyance and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles.

Section 9.7. Rating for the Notes. Promptly following a request by the holders of a majority in aggregate principal amount of the Series 1999-A Notes, the Company will obtain a rating for the Notes from a Nationally Recognized Rating Agency; provided that the Company shall not have to obtain a rating pursuant to any such request on more than 2 occasions prior to the maturity of the Series 1999-A Notes.

Section 9.8. Foreign Pledges. The Company will cause to be delivered to the Collateral Agent (to the extent not previously delivered) within the time period specified on Schedule III to the Third Amendment, agreements executed by the Company and each Domestic Subsidiary of the Company pledging 65% of the stock or other equity interests of each Foreign Subsidiary owned by the Company or such Domestic Subsidiary, together with all documents necessary to perfect the security interest of the Collateral Agent for the equal and ratable benefit of the Benefited Parties

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in such stock or other equity interests; provided that neither the Company nor any Subsidiary shall have an obligation to perfect the security interest of the Collateral Agent in the shares of any Foreign Subsidiary (other than any Foreign Subsidiary listed on Schedule III of the Third Amendment) under the laws of the jurisdiction of such Foreign Subsidiary's organization so long as the aggregate book value of (A) all assets owned by such Foreign Subsidiary does not exceed $8,000,000 and (B) all assets owned by all Foreign Subsidiaries with respect to which the security interest of the Collateral Agent has not been perfected under the laws of such Foreign Subsidiaries' respective jurisdictions of organization does not exceed $20,000,000.

Section 9.9. Further Assurances. The Company and its Subsidiaries shall, at their expense and without expense to any holder of Notes, do, execute and deliver such further acts and documents as are necessary, or as the Required Holders (or the Required Holders acting through the Collateral Agent) may reasonably request, from time to time (including the execution and delivery of guaranties, security agreements, pledge agreements, financing statements, mortgages, deeds of trust, bailee consents, landlord waivers or other third party agreements and other documents, the filing or recording of any of the foregoing, the delivery of stock certificates and other collateral with respect to which perfection is obtained by possession, and the delivery of opinions of counsel with respect to any of such documents) to (a) assure and confirm to the holders of Notes, or the Collateral Agent acting for the equal and ratable benefit of the holders of Notes and the Bank Lenders, the rights created by this Agreement and the Security Documents and (b) ensure that (i) the obligations of the Company under this Agreement and under any of the Intercreditor Agreement, the Security Documents and the Notes; and (ii) the obligations of each Subsidiary Guarantor under the Guaranty Agreement and the Security Documents are secured by a first-priority Lien (subject to any applicable exception expressly set forth herein or in any applicable Security Document) on substantially all of the assets of the Company and each Subsidiary Guarantor. Notwithstanding the foregoing, neither the Company nor any Domestic Subsidiary shall be required to pledge more than 65% of the stock of any Foreign Subsidiary.

Section 9.10. Collateral Matters. (a) The Noteholders shall (i) request that Collateral Agent release any Lien on any property granted to or held by the Collateral Agent under any Security Document for the equal and ratable benefit of the holder of Notes and the Bank Lenders (w) upon termination of this Agreement and payment in full of all obligations of the Company hereunder and under the Notes, (x) which is sold or to be sold or disposed of as part of or in connection with any disposition of assets permitted by Section 10.7 of this Agreement, (y) on or after the occurrence of the Collateral Release Date (as defined in the Intercreditor Agreement) or (z) subject to Section 17.1, if approved, authorized or ratified in writing by the Required Holders; or (ii) request that Collateral Agent subordinate any Lien on any property granted to or held by Collateral Agent to the holder of any Lien on such property which is permitted by Section 10.6(g), (h) and (k) and any extension or renewal of such Liens permitted by Section 10.6(m).

Section 9.11. Junior Capital. If, at any time prior to the date upon which the Company obtains an Investment Grade Rating, the Company shall sell or issue any Junior Capital, 40% of the net cash proceeds from the sale or issuance of such Junior Capital shall be applied by the Company within one Business Day from the date of receipt of such proceeds to the prepayment of Senior Indebtedness of the Company on a pro rata basis based on the unpaid principal amount of Senior Indebtedness outstanding on the date of such prepayment (assuming for purposes of such calculation that the maximum commitment under the Bank Credit Agreement is outstanding). At any time prior to the date upon which the Company obtains an Investment Grade Rating, any prepayment of the Notes with the proceeds from the sale of Junior Capital shall be made pursuant to Section 8.2, except that no Make-Whole Amount shall be required to be paid in connection with such prepayment. Any prepayment of the Notes with the proceeds from the sale of Junior Capital,

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on or after the date upon which the Company obtains an Investment Grade Rating shall be made in accordance with Section 8.2, including payment of the applicable Make-Whole Amount.

Section 9.12. Amendments to Agreements. The Company will not, and will permit any Subsidiary to, enter into any amendment or modification of any agreement relating to any Permitted Accounts Receivable Financing Facility in any manner which would (a) reduce advance rates with respect to accounts receivable purchased under such facility, or (b) shorten the maturity date of such facility. The Company shall, and shall cause each of its applicable Subsidiaries to, promptly (and, in any event, within three Business Days) deliver to each holder of the Notes a copy of any amendment or modification to any agreement relating to any termination event, event of default or similar event under any Permitted Accounts Receivable Financing Facility. Nothing in this Section 9.12 shall prevent (i) General Electric Capital Corporation from exercising the discretion granted to it under any GECC Securitization Document (as defined in Section 7.8 of the Third Amendment) to (x) modify reserves or (y) take any action which would modify the effective advance rates with respect to accounts receivable purchased under such facility or (ii) the Company or any Subsidiary from entering into a replacement for any Permitted Accounts Receivable Financing Facility so long as such replacement has terms which are not less favorable to the interests of the holders of the Notes in any material respect than the terms of the Permitted Accounts Receivable Financing Facility being replaced.

Section 9.13. Leases. The Company shall, and shall cause each of its Subsidiaries to, (a) pay all obligations with respect to leases of real property by the Company and its Subsidiaries, (b) at the request of Required Holders, provide copies of receipts or similar documents evidencing the current nature of payments under such leases and (c) promptly notify the holders of the Notes of any delinquent payment under any such lease.

Section 9.14. Post-Closing Deliveries. The Company will deliver each of the documents described in Schedule III to the Third Amendment on or prior to the date required for delivery of such document in such Schedule III.

        Section 3.5.Amendment to Section 10 (Negative Covenants).    Section 10 of the Note Agreement shall be and is hereby amended in its entirety to read as follows:

Section 10. Negative Covenants.

        The Company covenants that so long as any of the Notes are outstanding:

Section 10.1. Consolidated Net Worth. The Company will not at any time permit Consolidated Net Worth to be less than $170,000,000 plus 50% of each fiscal quarter's Consolidated Net Income (with no deduction for losses) commencing on January 1, 1999 plus 75% of any Net Issuance Proceeds after January 1, 1999.

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Section 10.2. Leverage Ratio. (a) The Company will not permit the Leverage Ratio at any time during any period set forth below to be greater than the ratio set forth below opposite such period:

Period	Maximum Leverage Ratio
Prior to 6/29/02	7.80 to 1
6/30/02-9/29/02	7.30 to 1
9/30/02-12/30/02	6.75 to 1
12/31/02-3/30/03	5.50 to 1
3/31/03-6/29/03	5.00 to 1
6/30/03-9/29/03	4.75 to 1
9/30/03-12/30/03	4.25 to 1
12/31/03- and at all times thereafter prior to the Collateral Release Date	4.00 to 1

        (b) The Company will not permit the Adjusted Funded Leverage Ratio at any time on or after March 31, 2004 to be greater than 3.00 to 1.

Section 10.3. Limitations on Indebtedness. The Company will not, and will not permit any Subsidiary to, create, assume or incur or in any manner be or become liable in respect of any Indebtedness, except:

        (a) Ordinary Course Indebtedness;

        (b) Indebtedness evidenced by the Series 1999-A Notes;

        (c) Indebtedness outstanding under the Bank Credit Agreement in an aggregate principal amount not exceeding $75,000,000;

        (d) Indebtedness outstanding pursuant to Permitted Accounts Receivable Financing Facilities;

        (e) Indebtedness outstanding under the 1992 Note Agreements in an aggregate principal amount not exceeding $13,336,000;

        (f) secured purchase money Indebtedness, including Capital Lease Obligations, originally incurred to acquire fixed assets providedthat at the time of such acquisition, the aggregate amount remaining unpaid on all such Indebtedness secured by Liens on such fixed assets, whether or not assumed by the Company or its Subsidiaries, does not exceed an amount equal to the lesser of (i) 100%, in the case of fixed assets which are personal property (including Capital Leases of fixed assets which are personal property), or (ii) 80%, in the case of fixed assets which are real property, of the lesser of the total purchase price or Fair Market Value at the time of such acquisition as determined in good faith by the Board of Directors of the Company;

        (g) other Indebtedness for borrowed money; provided that (i) at the time of incurrence thereof, no Default or Event of Default shall exist, (ii) the aggregate outstanding principal amount of such Indebtedness plus (without duplication) the aggregate investment or claim held by purchasers of receivables in Foreign Receivable Financing Facilities shall not exceed 15% of Consolidated Net Worth at any time, (iii) the aggregate outstanding principal amount of all such Indebtedness of the Company or any Domestic Subsidiary (other than Indebtedness under Excluded Subsidiary Guaranties) shall not exceed 3% of Consolidated Net Worth at any time, and (iv) the aggregate outstanding principal amount of all such Indebtedness of any Foreign Subsidiary plus (without duplication) the aggregate investment or claim held by purchasers of receivables in Foreign Receivable Financing Facilities shall not exceed 15% of Consolidated Net Worth at any time;

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        (h) Indebtedness under any Swap Contract with a term not greater than 184 days entered into in the ordinary course of business for bona fide hedging purposes and not for speculation;

        (i) Indebtedness of the Company which is not required to be redeemed, repurchased or otherwise prepaid by the Company (except on account of a default thereunder) on or prior to March 1, 2010, and which Indebtedness is subordinated to other Indebtedness of the Company (including the Notes) on terms which are reasonably satisfactory to the holders of the Notes (such Indebtedness, "Subordinated Indebtedness"); and

        (j) Indebtedness refinancing or extending Indebtedness permitted above on terms and conditions no less favorable than the Indebtedness being refinanced; provided, however, that the principal amount of such new Indebtedness shall not exceed the outstanding principal amount of Indebtedness being refinanced immediately prior to such refinancing and that at the time of incurrence of such Indebtedness and after giving effect thereto no Default or Event of Default shall exits under this Agreement.

Section 10.4. Interest Coverage Ratio. The Company will not permit the Interest Coverage Ratio as of the last day of any fiscal quarter set forth below to be less than the ratio set forth below opposite such day:

Fiscal Quarter(s) Ending	Minimum Interest Coverage Ratio
December 31, 2001	2.50 to 1
March 31, 2002 and June 30, 2002	1.75 to 1
September 30, 2002	1.90 to 1
December 31, 2002	2.25 to 1
March 31, 2003, June 30, 2003 and September 30, 2003	2.50 to 1

Section 10.5. Fixed Charges Coverage Ratio. The Company will not permit the ratio of Consolidated Income Available for Fixed Charges to Fixed Charges for the period consisting of the four immediately preceding fiscal quarters ending on the last day of each fiscal quarter set forth below to be less than the ratio set forth below opposite such day:

Fiscal Quarter(s) Ending	Minimum Fixed Charges Ratio
December 31, 2001	1.25 to 1
March 31, 2002	0.70 to 1
June 30, 2002	0.80 to 1
September 30, 2002	0.95 to 1
December 31, 2002	1.25 to 1
March 31, 2003	1.35 to 1
June 30, 2003	1.45 to 1
September 30, 2003	1.55 to 1
December 31, 2003 and thereafter	1.75 to 1

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Section 10.6. Limitation on Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits, except:

        (a) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Section 9.4;

        (b) Liens of or resulting from any judgment or award the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company or its Subsidiaries shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured;

        (c) Liens incidental to the conduct of business or the ownership of properties and assets (including landlords', carriers', warehousemen's, mechanics', materialmen's and other similar Liens) and Liens to secure the performance of bids, tenders, leases, or trade contracts, or to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or other Liens incurred in the ordinary course of business and not in connection with the borrowing of money;

        (d) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to the ownership of property or assets or the ordinary conduct of the business of the Company or any of its Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of such property;

        (e) Liens incidental to minor survey exceptions and similar Liens, provided that such Liens do not, in the aggregate, materially detract from the value of such Property;

        (f) Liens securing Indebtedness of a Subsidiary to the Company or to another Wholly-Owned Subsidiary;

        (g) Liens securing Indebtedness (including Capitalized Leases) permitted under Section 10.3(f), (g) and (j); provided, however that Liens permitted under Section 10.3(f) shall attach solely to the assets financed by such purchase money Indebtedness;

        (h) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Subsidiary or its becoming a Subsidiary, or any Lien existing on any property acquired by the Company or any Subsidiary at the time such property is so acquired (whether or not the Indebtedness secured thereby shall have been assumed), provided that (i) no such Lien shall have been created or assumed in contemplation of such consolidation or merger or such Person's becoming a Subsidiary or such acquisition of property, (ii) each such Lien shall extend solely to the item or items of property so acquired and, if required by the terms of the instrument originally creating such Lien, other property which is an improvement to or is acquired for specific use in connection with such acquired property, (iii) at the time such Person is consolidated with or merged into the Company or a Subsidiary or such property is acquired, the aggregate amount remaining unpaid on all Indebtedness secured by Liens on such property, whether or not assumed by the Company or a Subsidiary, shall not exceed an amount equal to the lesser of the total purchase price (or cost of construction) or Fair Market Value at the time of acquisition or construction of such property (as determined in good faith by one or more officers to whom authority to enter into the transaction has been delegated by the Board of Directors of the Company), and (iv) the

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aggregate principal amount of all Indebtedness secured by such Liens shall be permitted by the limitations set forth in Sections 10.3(g);

        (i) Liens resulting from or consisting of operating leases;

        (j) Liens arising in connection with non-exclusive licenses of Securitization Software and Hardware;

        (k) Liens created in connection with Permitted Accounts Receivable Financing Facilities provided, that such Liens shall extend only to property or items of property which constitute Excluded Assets;

        (l) Liens in favor of the Collateral Agent for the equal and ratable benefit of the Benefited Parties under the Intercreditor Agreement; and

        (m) extensions and renewals of Liens described above, provided that (i) such Liens shall not be extended to other property of the Company or any of its Subsidiaries, and (ii) the principal amount of Indebtedness secured thereby shall not be increased over the principal amount thereof outstanding immediately prior to such extension or renewal.

Section 10.7. Sales of Assets. The Company will not, and will not permit any Subsidiary to, sell, lease or otherwise dispose of any substantial part (as defined below) of the assets of the Company and its Subsidiaries; provided, however, that the Company or any Subsidiary may sell, lease or otherwise dispose of assets constituting a substantial part of the assets of the Company and its Subsidiaries if such assets are sold for Fair Market Value and, at such time and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and an amount equal to the Net Proceeds received from such sale, lease or other disposition shall be used within four Business Days of such sale, lease or disposition to prepay or retire Senior Indebtedness (including temporary reductions of revolving credit facilities) of the Company and/or its Subsidiaries; provided that except in the case of proceeds from Permitted Accounts Receivables Financings, any such application of proceeds shall be made pro rata among all Benefited Parties under the Intercreditor Agreement (based on the principal amount of Indebtedness outstanding on the date of such prepayment but assuming for purposes of such calculation that the maximum commitment under the Bank Credit Agreement is outstanding). Any amount prepaid on the Notes pursuant to this Section 10.7 will be prepaid, in compliance with Section 8.2.

        As used in this Section 10.7, a sale, lease or other disposition of assets shall be deemed to be a "substantial part" of the assets of the Company and its Subsidiaries if the book value of such assets, when added to the book value of all other assets sold, leased or otherwise disposed of by the Company and its Subsidiaries (other than in transactions (i) in the ordinary course of business, (ii) in which the purchaser is the Company or a Subsidiary, or (iii) which are Excluded Sale and Leaseback Transactions, (x) during the immediately preceding 12-month period, exceeds 15% of the book value of Consolidated Total Assets, determined as of the end of the fiscal year immediately preceding such sale, lease or other disposition, or (y) during the period beginning on the date of Closing and ending on the date of such sale, lease or other disposition, exceeds 30% of the book value of Consolidated Total Assets, determined as of the fiscal year immediately preceding such sale lease or other disposition. For purposes of determining whether assets sold by the Company and its Subsidiaries during any period constitute a "substantial part" of the assets of the Company, to the extent that the Net Proceeds from the disposition of such assets shall be applied in accordance with the terms of the preceding paragraph, the book value of such assets shall be excluded from the calculation of a "substantial part" of the assets of the Company. In addition, if the disposition of any assets (after giving effect to the disposition of all other assets previously disposed of during the applicable period and the application of the Net Proceeds from such disposition in accordance with the previous sentence) would cause the Company to exceed

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the limitation on the sale of assets set forth herein, only the Net Proceeds from the most recent asset disposition or dispositions which would cause such limitation to be exceeded shall be required to be applied in accordance with the preceding paragraph.

Section 10.8. Merger, Consolidation and Sale of Stock. (a) The Company will not, and will not permit any Subsidiary to, consolidate with or be a party to a merger with any other corporation; provided, however, that:

        (1) any Subsidiary may merge or consolidate with or into the Company or any other Person, so long as in any merger or consolidation involving the Company, the Company shall be the surviving or continuing corporation and in any merger involving a Subsidiary, such Subsidiary or another Subsidiary is the surviving or continuing entity; and

        (2) the Company may consolidate or merge with any other Person if (i) either (x) the Company shall be the surviving or continuing corporation, or (y) if the surviving or continuing entity is other than the Company, (A) such entity is organized under the laws of the United States or any jurisdiction thereof, (B) such entity expressly assumes, by written agreement satisfactory in scope and form to the Required Holders in aggregate principal amount of the outstanding Notes, all obligations of the Company under the Notes and this Agreement, (C) such entity shall cause to be delivered to each holder of Notes an opinion of independent counsel to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the provisions of this Section 10.8 and otherwise satisfactory in scope and form to the Required Holders in aggregate principal amount of the outstanding Notes, (ii) at the time of such consolidation or merger and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing, and (iii) at the time of such consolidation or merger and after giving effect thereto, the Company could incur $1.00 of additional Consolidated Indebtedness pursuant to Section 10.2.

        (b) The Company will not permit any Subsidiary to issue or sell any shares of stock of any class (including as "stock" for the purposes of this Section 10.9(b), any warrants, rights or options to purchase or otherwise acquire stock or other securities exchangeable for or convertible into stock) of such Subsidiary to any Person other than the Company or Wholly-Owned Subsidiary, except for the purpose of qualifying directors, or except in satisfaction of the validly pre-existing preemptive rights of minority shareholders in connection with the simultaneous issuance of stock to the Company and/or a Subsidiary whereby the Company and/or such Subsidiary maintain their same proportionate interest in such Subsidiary.

        (c) The Company will not sell, transfer or otherwise dispose of any shares of stock of any Subsidiary (except to qualify directors), and will not permit any Subsidiary to sell, transfer or otherwise dispose of (except to the Company or another Subsidiary) any shares of stock of any other Subsidiary, unless such sale or other disposition can be made within the limitations of Section 10.7.

Section 10.9. Nature of Business. Neither the Company nor any Subsidiary will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Company and its Subsidiaries on the date of this Agreement.

Section 10.10. Transactions with Affiliates. The Company will not and will not permit any Subsidiary to enter into directly or indirectly any Material transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except pursuant to the reasonable conduct of the Company's or such Subsidiary's

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business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate.

Section 10.11. No Restrictions on Subsidiaries. The Company will not, nor will it permit any of its Subsidiaries to, enter into, or commit to enter into, any agreement or understanding that could limit or restrict any of its Subsidiaries making or declaring any dividends, either in cash or property, to the Company, repaying or prepaying any Indebtedness (other than for amounts loaned by the Company to its Subsidiaries on a subordinated basis in connection with Permitted Accounts Receivable Financing Facilities and the minimum net worth required to be maintained by a Subsidiary which is a special purpose entity pursuant to a Permitted Accounts Receivable Financing Facility) owing to the Company, or making any Investment in the Company.

Section 10.12. Acquisitions. The Company will not, nor will it suffer or permit any of its Subsidiaries to, make any Acquisition unless, after giving effect to such Acquisition (the "subject Acquisition"), all of the following requirements are satisfied:

        (a) during the 12-month period ending on the last day of the month prior to the closing of the subject Acquisition, the aggregate consideration paid (including, without limitation, Indebtedness for borrowed money incurred or assumed) for all Acquisitions during such period (including, on a pro forma basis, the subject Acquisition) does not exceed 50% of Consolidated Tangible Net Worth as of the last day of such period (including all Acquisitions during such period including, on a pro forma basis, the subject Acquisition);

        (b) the total consideration paid (including, without limitation, Indebtedness for borrowed money incurred or assumed, but excluding secured purchase money Indebtedness, including Capital Lease Obligations permitted under Section 10.6(g) for any one Acquisition or series of related Acquisitions does not exceed $75,000,000; provided, however, that the cash consideration and all Indebtedness incurred or assumed in any one Acquisition (excluding secured purchase money Indebtedness, including Capital Lease Obligations permitted under Section 10.6(g) shall not exceed an amount equal to the sum of (i) $25,000,000, (ii) the net cash proceeds received from asset dispositions (other than Permitted Accounts Receivable Financing Facilities) within the prior 12 months (excluding any such proceeds counted towards prior Acquisitions), and (iii) the net cash proceeds received from any equity offering;

        (c) at the time of any Acquisition and after giving effect thereto no Default or Event of Default shall have occurred and be continuing; and

        (d) such Acquisitions are not opposed by the board of directors or management of any Person or business to be acquired.

        Notwithstanding the foregoing, the Company will not, nor will it permit any of its Subsidiaries to, make any Acquisition with the proceeds of any Indebtedness if the Funded Leverage Ratio (determined on a pro forma basis both before and after giving effect to such Acquisition) is greater than 3.25 to 1.0. For purposes hereof, (a) Consolidated EBITDA may be adjusted by the Company in connection with such Acquisition to the extent approved by the Required Holders and (b) the Funded Debt of any Person to be acquired by the Company or any Subsidiary shall be included in the calculation of the Funded Leverage Ratio as if such Person were a Subsidiary as of the date of such Acquisition.

Section 10.13. Loans and Investments. The Company will not, and will not permit any of its Subsidiaries to, make any Investment in any Person including any Affiliate of the Company, except:

        (a) Ordinary Course Investments;

        (b) Investments existing as of the date hereof and set forth on Schedule V of the Third Amendment, including reinvestments of the same amounts in the same instruments;

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        (c) Investments in, or Guarantees with respect to Indebtedness of, joint ventures which respect to which the Company or its Subsidiaries is a partner not exceeding $2,000,000 in the aggregate at any time;

        (d) loans or advances in the usual and ordinary course of business to officers, directors and employees for expenses (including moving and relocation expenses related to a transfer) incidental to carrying on the business of the Company or any of its Subsidiaries not exceeding $2,000,000 in the aggregate at any time outstanding;

        (e) loan and advances to officers, directors and employees to exercise stock options of such employees to purchase stock of the Company, if, after giving effect thereto and to the application of the proceeds thereof, such loan does not increase Consolidated Net Worth or Consolidated Net Income (other than an increase due to interest on such loan or advance);

        (f) advances on commissions in the ordinary course of business to employees or subcontractors of the Company or its Subsidiaries in an aggregate amount not exceeding $5,000,000 at any time outstanding;

        (g) loans, guarantees, or other extensions of credit to the Company's employee stock ownership plan existing as of the Effective Date of the Third Amendment;

        (h) [Intentionally omitted];

        (i) notes taken in connection with any asset sales permitted pursuant to Section 10.8;

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        (j) additional Investments in any fiscal year in an amount equal to Restricted Payments that can be made under Section 10.14(a) in respect of such fiscal year, but which are not made, provided that after giving effect to such Investments, no Event of Default shall have occurred and be continuing; and

        (k) additional Investments not exceeding $3,000,000 in the aggregate in any fiscal year, provided that after giving effect to such Investments, no Event of Default shall have occurred and be continuing; provided that the aggregate amount of all Investments (other than (x) Ordinary Course Investments described in clauses (a) and (e) of the definition of "Ordinary Course Investments" and (y) Investments permitted by clauses (b), (c), (d), (e), (f) and (i) above) and cash (in deposit accounts or otherwise, but excluding cash in disbursement accounts to the extent bona fide checks have been issued thereon) of the Company and its Subsidiaries does not exceed $10,000,000 for any four consecutive Business Days.

Section 10.14. Restricted Payments. The Company will not, and will not permit any of its Subsidiaries to, make any Restricted Payments except:

        (a) Restricted Payments not exceeding $9,000,000 in the aggregate in respect of any fiscal year; and

        (b) Restricted Payments in any fiscal year in an amount equal to Investments that can be made under Section 10.13(j) in such fiscal year, but which are not made;

provided that, in each instance, after giving effect to any Restricted Payments, no Event of Default shall have occurred and be continuing; and provided, further, that no Restricted Payment shall be made when the Funded Leverage Ratio (determined on a pro forma basis both before and after giving effect to such Restricted Payment) is greater than 3.25 to 1.0.

        For the purposes of this Section 10.14, (a) the amount of any Restricted Payment declared, paid or distributed in property shall be deemed to be the greater of the book value or Fair Market Value (as determined in good faith by the Board of Directors of the Company) of such property at the time of the making of the Restricted Payment in question and (b) on the date which is twelve months after the date on which a corporation becomes a Subsidiary, all Investments of such corporation at such time shall be deemed to have been made by such corporation, as a Subsidiary, at such time and such Investments will not be taken into account for purposes of this Section 10.14 prior to such time.

        Section 3.6.Amendment to Section 11 (Events of Default).    Section 11 of the Note Agreement shall be and is hereby amended in its entirety to read as follows:

Section 11. Events of Default.

        An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing:

        (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or

        (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or

        (c) the Company defaults in the performance of or compliance with any term contained in Section 10 and such default is not remedied within 10 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company

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receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (c) of Section 11); or

        (d) the Company defaults in the performance of or compliance with any term contained herein or in any Supplement (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (d) of Section 11); or

        (e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or any Supplement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any Material respect on the date as of which made; or

        (f) (i) the Company or any Subsidiary (x) defaults in any payment when due of principal of or interest on any Indebtedness (other than Indebtedness hereunder) or (y) defaults in the observance or performance of any other agreement or condition relating to any Indebtedness (other than Indebtedness hereunder) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, Indebtedness having an aggregate principal amount in excess of $5,000,000 to be demanded or become due (automatically or otherwise) prior to its stated maturity, or any Guaranty in such amount to become payable or cash collateral in respect thereof to be demanded; or (ii) the occurrence under any Swap Contract of an Early Termination Date (as defined in such Swap Contract) resulting from (x) any event of default under such Swap Contract as to which the Company or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (y) any Termination Event occurs under any Swap Contract (as defined therein) as to which the Company or any Subsidiary is an Affected Party (as so defined), which, in either event, the Swap Termination Value owed by the Company or such Subsidiary as a result thereof is greater than $5,000,000; or

        (g) the Company or any Significant Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or

        (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any Significant Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Significant Subsidiaries, or any such

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petition shall be filed against the Company or any of its Significant Subsidiaries and such petition shall not be dismissed within 60 days; or

        (i) a final judgment or judgments for the payment of money aggregating in excess of $1,000,000 are rendered against one or more of the Company or any Subsidiary and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days (or such lesser period of time as applicable law or rules of court allow a judgment creditor to levy on such judgments) after the expiration of such stay; or

        (j) If (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under Section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under Section 4042 of ERISA to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of Section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $8,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect.

As used in Section 11(j), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in Section 3 of ERISA; or

        (k) Default shall occur in the observance or performance of any provision of the Guaranty Agreement or the Guaranty Agreement shall cease to be in full force and effect for any reason whatsoever, including, without limitation, a final and nonappealable determination by any governmental body or court that the Guaranty Agreement is invalid, void or unenforceable as to one or more Subsidiaries, or any Subsidiary shall contest or deny in writing the validity or enforceability of any provision of, or obligation under, the Guaranty Agreement; or

        (l) (i) any Security Document shall cease to be in full force and effect with respect to the Company or any Subsidiary Guarantor (other than as a result of a transaction permitted hereunder); (ii) the Company or any Subsidiary Guarantor shall fail to comply with or to perform any applicable provision of any Security Document to which it is a party and such failure (x) has a material adverse effect on Collateral Agent's rights with respect to any material portion of the Collateral granted thereunder or (y) continues unremedied for 10 days after the earlier of the date on which (1) a Responsible Officer obtains knowledge of such failure or (2) Collateral Agent delivers notice of such failure to the Company; or (iii) the Company or any Subsidiary Guarantor (or any Person by, through or on behalf of the Company or such Subsidiary Guarantor) shall contest in any manner the validity, binding nature or enforceability of any Security Document; or

        (m) any Event of Default shall occur under (and as defined in) the Bank Credit Agreement or under the 1992 Note Agreements; or

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        (n) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in the Third Amendment or in any writing furnished in connection with the transactions contemplated by the Third Amendment, including, without limitation, the representations and warranties of the Company and certain of its Subsidiaries set forth in or relating to the Security Documents, proves to have been false or incorrect in any Material respect on the date as of which made.

        Section 3.7.Amendment to Section 15 (Expenses, Etc.).    Section 15.1 of the Note Agreement shall be and is hereby amended to read in its entirety as follows:

Section 15.1. Transaction Expenses. (a) Whether or not the transactions contemplated hereby are consummated, the Company will pay all reasonable costs and expenses (including reasonable attorneys' fees of one special counsel and, if reasonably required, local or other counsel) incurred by the Noteholders and the holders of Notes in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement, the Guaranty Agreement, the Security Documents, the Intercreditor Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the reasonable costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Guaranty Agreement, the Security Documents, the Intercreditor Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand by any Governmental Authority issued in connection with this Agreement, the Guaranty Agreement, the Security Documents, the Intercreditor Agreement or the Notes, or by reason of being a holder of any Note, and (b) the reasonable costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save each Noteholder and each other holder of a Note harmless from, all claims in respect of any reasonable fees, costs or expenses if any, of brokers and finders (other than those retained by the Noteholders).

        (b) Without limiting the foregoing, the Company agrees to pay all fees of the Collateral Agent in connection with the preparation, execution and delivery of the Intercreditor Agreement and the Security Documents and the transactions contemplated thereby, including but not limited to reasonable attorneys fees; to pay to the Collateral Agent from time to time reasonable compensation for all services rendered by it under the Intercreditor Agreement and the Security Documents; to indemnify the Collateral Agent for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of the Intercreditor Agreement and Security Documents, including, but not limited to, the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties thereunder.

        Section 3.8.New Definitions.    Schedule B to the Note Agreement shall be and is hereby amended in its entirety to read as follows:

        As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

"Acquisition" means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests or equity of any Person or otherwise causing any Person to become a Subsidiary of the Company, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary of the Company) provided that the

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Company or the Company's Subsidiary is the surviving entity; provided, however, that "Acquisition" shall not include any of the foregoing transactions between the Company and any Subsidiary that is a Subsidiary Guarantor prior to such transaction or between companies that are Subsidiary Guarantors prior to such transaction, provided, further, that "Acquisition" shall not include Investments.

"Additional Notes" is defined in Section 2.2.

"Additional Purchasers" means purchasers of Additional Notes.

"Adjusted Funded Debt" means all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis, other than (a) Indebtedness of the type described in clause (c) of the definition of "Indebtedness", (b) contingent obligations under letters of credit, (c) Ordinary Course Indebtedness, and (d) Indebtedness in respect of banker's acceptances.

"Adjusted Funded Leverage Ratio" means, as of any date of determination, the ratio of (a) Adjusted Funded Debt on such date to (b) Consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters of the Company.

"Affiliate" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company.

"Applicable Interest Rate" means the rate of 9.01% per annum; provided that if the ratio of Consolidated Income Available for Fixed Charges to Fixed Charges for the period of four consecutive fiscal quarters ending on the last day of any fiscal quarter set forth below is less than the minimum ratio set forth opposite such day, then, except as provided in the next succeeding sentence, the Applicable Interest Rate shall be 9.76% per annum at all times thereafter:

Fiscal Quarter Ending	Minimum Ratio
September 30, 2002	1.10 to 1
December 31, 2002	1.50 to 1
March 31, 2003	1.55 to 1
June 30, 2003 and thereafter	1.75 to 1

The Applicable Interest Rate shall be 9.01% per annum at all times from and after the date on which the Company obtains an Investment Grade Rating. Any increase in the Applicable Interest Rate shall be effective retroactive to the first day of the fiscal quarter in which the Company first falls below the minimum ratio set forth above.

"Bank Credit Agreement" means the credit agreement between the Company and its bank lenders, dated as of December 21, 1999, as amended by the First Amendment to Credit Agreement dated as of March 27, 2002, and as hereafter amended, restated, refinanced, replaced, increased or reduced from time to time and any successor bank credit agreement.

"Bank Lenders" shall mean the financial institutions which are party to the Bank Credit Agreement.

"Benefited Parties" shall have the meaning set forth in the Intercreditor Agreement.

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"Business Day" means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City, New York or Los Angeles, California are required or authorized to be closed.

"Capital Expenditures" means any expenditure that is considered a capital expenditure under GAAP, including any amount which is required to be treated as an asset subject to a Capital Lease.

"Capital Lease" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

"Capital Lease Obligation" means, with respect to any Person and a Capital Lease, the amount of the obligation of such Person, as the lessee under the Capital Lease, which would appear as a liability on a balance sheet of such Person in accordance with GAAP.

"Change in Control" has the meaning set forth in Section 8.7.

"Closing" is defined in Section 3.

"Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

"Collateral" means all Property from time to time subject to the Liens granted to the Collateral Agent, by the Security Documents.

"Collateral Agent" means Bank of America, N.A., as collateral agent under the Security Documents and the Intercreditor Agreement, and its successors and assigns in such capacity acting for the ratable benefit of the Benefited Parties.

"Collateral Release Date" means the first date on which (a) the Company has delivered financial statements pursuant to Section 7.1(a) and (b) and a related certificate of compliance demonstrating that the Funded Leverage Ratio as of the end of a fiscal quarter was less than 3.25 to 1, (b) no Default or Event of Default exists and (c) the Company has obtained an Investment Grade Rating.

"Company" means K2 Inc., a Delaware corporation.

        "Computer Hardware and Software" means (i) all computer and other electronic data processing hardware, whether now or hereafter owned, licensed or leased by the Company or any Subsidiary, including, without limitation, all integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware; (ii) all software programs, whether now or hereafter owned, licensed or leased by the Company or any Subsidiary, designed for use on the computers and electronic data processing hardware described in clause (i) above, including, without limitation, all operating system software, utilities and application programs in whatsoever form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever); (iii) all firmware associated with the foregoing, whether now or hereafter owned, licensed or leased by the Company or any Subsidiary; and (iv) all documentation for the hardware, software and firmware described in the preceding clauses (i), (ii) and (iii) above, whether now or hereafter owned, licensed or leased by such Company, including, without limitation, flow charts, logic diagrams manuals, specifications, training materials, charts and pseudo codes.

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"Confidential Information" is defined in Section 20.

"Consolidated EBITDA" means, for the period of the four fiscal quarters ending on any date of determination (the "measurement period"), for the Company and its Subsidiaries on a consolidated basis, an amount equal to (i) the sum of (a) Consolidated Net Income for such measurement period, (b) Consolidated Interest Expense for such measurement period, (c) the amount of taxes, based on or measured by income, used or included in the determination of such Consolidated Net Income for such measurement period, (d) the amount of depreciation and amortization expense deducted in determining such Consolidated Net Income for such measurement period and (e) non-cash nonrecurring charges and expenses included in the determination of Consolidated Net Income for such measurement period to the extent relating to items originally purchased in periods prior to the measurement period; provided, however, that charges and expenses related to inventory excluded from the determination of Consolidated EBITDA by this clause (e) shall not exceed $5,000,000 in any measurement period, less (ii) noncash nonrecurring gains included in the determination of Consolidated Net Income for such measurement period to the extent relating to items originally purchased in periods prior to the measurement period; provided, further, that, with respect to the Acquisition of a Subsidiary within such measurement period which would have added at least $3,000,000 to Consolidated EBITDA had it been included in the calculation thereof for such measurement period, the Company may also include items (i) and (ii) above for such Subsidiary for such measurement period in Consolidated EBITDA if the Company has provided to all holders of Notes (x) the most recent year-end audited financial statements for that Subsidiary (which audited statements must be as of a date occurring within five fiscal quarters prior to the date of such Acquisition (even if such date is prior to the measurement period and, therefore, such audited statements are not actually used in computing Consolidated EBITDA for such measurement period)) and (y) Company-prepared financial statements for that Subsidiary for any portion of such measurement period to be included; provided, further, that the items in the foregoing proviso may only be included if the items set forth in the proviso to Consolidated Interest Expense relating to such Subsidiary are also included when determining any covenant hereunder; provided, further, that Consolidated EBITDA shall not be reduced by any portion of the $18,000,000 charge taken by the Company in the third fiscal quarter of 2001.

"Consolidated Income Available for Fixed Charges" means for any period the sum of (i) Consolidated Net Income, (ii) income tax expense, determined in accordance with GAAP, (iii) non-cash, non-recurring charges deducted from Consolidated Net Income during such period, and (iv) Fixed Charges; provided that Consolidated Income Available for Fixed Charges shall not be reduced by any portion of the $18,000,000 charge taken by the Company in the third fiscal quarter of 2001.

"Consolidated Indebtedness" means as of any date of determination, the total of all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP.

"Consolidated Interest Expense" means, for the period of the four fiscal quarters ending on any date of determination (the "measurement period"), the sum, without duplication, of (a) total interest expense (including that portion attributable to Capitalized Leases in conformity with GAAP) of the Company and its Subsidiaries for such measurement period on a consolidated basis and (b) fees, commissions and interest related to Permitted Accounts Receivable Financing Facilities for such measurement period; provided, however, that, with respect to the Acquisition of a Subsidiary within such measurement period which would have added at least $3,000,000 to Consolidated EBITDA had it been included in the calculation thereof for such measurement period, the Company may also include items (a) and (b) above for such Subsidiary for such measurement period in Consolidated Interest Expense if the Company has provided to the holders

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of the Notes (i) the most recent year-end audited financial statements for that Subsidiary (which audited statements must be as of a date occurring within five fiscal quarters prior to the date of such Acquisition (even if such date is prior to the measurement period and, therefore, such audited statements are not actually used in computing Consolidated Interest Expense for such measurement period)) and (ii) company-prepared financial statements for that Subsidiary for any portion of such measurement period to be included.

"Consolidated Net Income" for any period shall mean the net income of the Company and its Subsidiaries for such period, determined in accordance with GAAP, but excluding in any event:

        (a) any extraordinary gains or losses as defined in APBO Nos. 11, 16 and 30 and FASB Statement No. 4;

        (b) net earnings and losses of any Subsidiary accrued prior to the date it became a Subsidiary;

        (c) net earnings and losses of any corporation (other than a Subsidiary), substantially all the assets of which have been acquired in any manner by the Company or any Subsidiary, realized by such corporation prior to the date of such acquisition;

        (d) net earnings and losses of any corporation (other than a Subsidiary) with which the Company or a Subsidiary shall have consolidated or which shall have merged into or with the Company or a Subsidiary prior to the date of such consolidation or merger;

        (e) net earnings of any business entity (other than a Subsidiary) in which the Company or any Subsidiary has an ownership interest unless such net earnings shall have actually been received or are receivable by the Company or such Subsidiary in the form of cash distributions;

        (f) any portion of the net earnings of any Subsidiary which for any reason is unavailable for payment of dividends to the Company or any other Subsidiary except to the extent applied to the repayment of Indebtedness of such Subsidiary to the Company or any other Subsidiary;

        (g) earnings or amortization resulting from any reappraisal, revaluation or write-up of assets (other than pursuant to any purchase accounting adjustments made to the book value of assets of an acquired Person in connection with an Acquisition);

        (h) to the extent not otherwise excluded pursuant to clause (a) above, any aggregate net gain (or any aggregate net loss) during such period arising from the sale, conversion, exchange or other disposition of capital assets (such term to include, without limitation, (i) all non-current assets and, without duplication, (ii) the following, whether or not current: all fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets, and all securities);

        (i) any deferred or other credit or amortization thereof representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; and

        (j) any gain arising from the acquisition of any securities of the Company or any Subsidiary.

"Consolidated Net Worth" means the consolidated stockholders' equity of the Company and its Subsidiaries, as defined according to GAAP.

"Consolidated Tangible Net Worth" means at any date Consolidated Net Worth less the intangible assets of the Company and its Subsidiaries on a consolidated basis, all determined as of such date. For purposes of this definition, "Intangible Assets" means the amount (to the extent

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reflected in determining such Consolidated Net Worth) of all unamortized debt discount and expense, unamortized deferred charges (other than deferred employee benefit liabilities), goodwill, patents, trademarks, service marks, trade names, copyrights, organization or development expenses and other intangible items.

"Consolidated Total Assets" means, as of the date of any determination thereof, the total amount of all assets of the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP.

"Current Indebtedness" means, without duplication, all Indebtedness other than Funded Indebtedness.

"Default" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.

"Default Rate" means that rate of interest that is the greater of (i) 2% per annum above the Applicable Interest Rate or (ii) 2% over the rate of interest publicly announced by Bank of America, N.A. in New York, New York as its "base" or "prime" rate.

"Domestic Subsidiaries" means those Subsidiaries of the Company which are incorporated under the laws of any State of the United States and which are engaged in business primarily in the United States, other than Subsidiaries which are Subsidiaries of a Foreign Subsidiary.

"Environmental Laws" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

"ERISA Affiliate" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under Section 414 of the Code.

"Event of Default" is defined in Section 11.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Excluded Assets" shall have the meaning set forth in the Security Agreement as in effect on the date of this Agreement.

"Excluded Sale and Leaseback Transaction" shall mean any sale or transfer of property acquired by the Company or any Subsidiary after the date of this Agreement to any Person within 365 days following the acquisition or construction of such property by the Company or any Subsidiary if the Company or a Subsidiary shall concurrently with such sale or transfer, lease such property, as lessee.

"Excluded Subsidiary Guaranties" shall mean the Guaranty Agreement and any other Guaranty of Indebtedness of the Company by a Subsidiary Guarantor which shall be a party to the Guaranty Agreement; provided that each creditor which is a beneficiary of an Excluded Subsidiary Guaranty shall have become a party to the Intercreditor Agreement.

"Fair Market Value" means, at any time and with respect to any Property, the sale value of such Property that would be realized in an arm's-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell).

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"Fixed Charges" means, with respect to any period, the sum of (i) Interest Expense and (ii) Lease Rentals for such period.

"Foreign Receivable Financing Facilities" means one or more facilities involving the sale or discount of undivided ownership interests in foreign accounts receivable and related property of the Company and one or more of its Foreign Subsidiaries.

"Foreign Subsidiaries" means those Subsidiaries of the Company which are not Domestic Subsidiaries.

"Funded Debt" means all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis, other than (a) Indebtedness of the type described in clause (c) of the definition of "Indebtedness" and (b) contingent obligations under letters of credit.

"Funded Leverage Ratio" means, as of any date of determination, the ratio of (a) Funded Debt on such date to (b) Consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters of the Company.

"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession, that are applicable to the circumstances as of the date of determination, consistently applied. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any of this Agreement and the Notes, the Guaranty Agreement, the Intercreditor Agreement, the Security Documents or any other instrument or document in connection therewith, and either the Company or the Required Holders shall so request, the Noteholders and the Company shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of reflect such change in GAAP (subject to the approval of the Required Holders), provided that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) the Company shall provide to the Noteholders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

"Governmental Authority" means

        (a) the government of

        (i) the United States of America or any State or other political subdivision thereof, or

        (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or

        (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.

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"Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person:

        (a) to purchase such Indebtedness or obligation or any property constituting security therefor;

        (b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation;

        (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of any other Person to make payment of the Indebtedness or obligation; or

        (d) otherwise to assure the owner of such Indebtedness or obligation against loss in respect thereof.

In any computation of the Indebtedness or other liabilities of the obligor under any Guaranty, the Indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor.

"Guaranty Agreement" is defined in Section 1 and shall mean and include such Guaranty Agreement as amended and supplemented from time to time.

"Guaranty Obligations" means, as to any Person, any (a) guaranty by that Person of Indebtedness of, or other obligation payable or performable by, any other Person or (b) assurance, agreement, letter of responsibility, letter of awareness, undertaking or arrangement given by that Person to an obligee of any other Person with respect to the payment or performance of an obligation by, or the financial condition of, such other Person, whether direct, indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item of such other Person or any "keep-well" or other arrangement of whatever nature given for the purpose of assuring or holding harmless such obligee against loss with respect to any obligation of such other Person; provided, however, that the term Guaranty Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, covered by such Guaranty Obligation or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith.

"Guaranty Supplement" means a Guaranty Supplement in substantially the form attached as Exhibit A to the Guaranty Agreement.

"Hazardous Material" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls).

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"holder" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1.

"Indebtedness" means, as to any Person at a particular time, all of the following, without duplication:

        (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

        (b) any direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), banker's acceptances, bank guaranties, surety bonds and similar instruments;

        (c) net obligations under any Swap Contract in an amount equal to (i) if such Swap Contract has been closed out, the termination value thereof, or (ii) if such Swap Contract has not been closed out, the mark-to-market value thereof determined on the basis of readily available quotations provided by any recognized dealer in Swap Contracts of the same type;

        (d) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for a period of more than 60 days or which are subject to a bona fide dispute) and all indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; including, without limitation, any Permitted Accounts Receivable Financing Facility;

        (e) all Capital Lease Obligations and Synthetic Lease Obligations of such Person; and

        (f) all Guaranty Obligations of such Person in respect of any of the foregoing.

        For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership in which such Person is a general partner, unless such Indebtedness is expressly made non-recourse to such Person except for customary exceptions acceptable to the Required Holders.

"Institutional Investor" means (a) any original purchaser of a Note, (b) any holder of a Note holding more than $2,000,000 of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form.

"Intercreditor Agreement" is defined in Section 1.2.

"Interest Coverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated EBITDA for the period of the four prior fiscal quarters ending on such date to (b) Consolidated Interest Expense during such period.

"Interest Expense" means, with respect to any period, the sum (without duplication) of the following: (i) all interest expense in respect of Indebtedness of the Company and its Subsidiaries (including imputed interest on Capital Leases) deducted in determining Consolidated Net Income for such period, (ii) all Indebtedness discount and expense amortized in such period and (iii) fees, commissions and interest expense related to Permitted Accounts Receivable Financing Facilities for such period.

"Investment Grade Rating" means a rating by at least one Nationally Recognized Rating Agency of (a) in the case of Moody's, "Baa3" or better, (b) in the case of S&P, "BBB-" or better,

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and (c) in the case of Fitch, "BBB-" or better for the long term senior, unsecured, non-credit enhanced debt of the Company.

"Investments" shall mean all investments, in cash or by delivery of property made, directly or indirectly in any Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or securities or by loan, advance, capital contribution or otherwise; provided however, that "Investments" shall not include Acquisitions. In valuing any Investment for purposes of this Agreement, such Investments shall be taken at the original cost thereof, without allowance for any subsequent write-offs or appreciation or depreciation therein, but less any amount repaid or recovered on account of capital or principal.

"Junior Capital" means (i) common stock of the Company, (ii) preferred stock of the Company which is not subject to mandatory redemption or repurchase or otherwise required to be redeemed on or prior to March 1, 2010, and (iii) Subordinated Indebtedness.

"Lease Rentals" means, with respect to any period, the sum of the minimum amount of rental and other obligations required to be paid during such period by the Company or its Subsidiaries as lessee under all leases of real or personal property (other than Capital Leases), excluding any amounts required to be paid by the lessee (whether or not designated as rental) which are (i) on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges, or (ii) which are based on profits, revenues or sales realized by the lessee from all leased property or otherwise based on the performance of the lessee.

"Leverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated Indebtedness of the Company and its Subsidiaries (other than Indebtedness of the type described in clause (c) of the definition of "Indebtedness") to (b) Consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters of the Company.

"Lien" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).

"Make-Whole Amount" shall have the meaning (i) set forth in Section 8.6 with respect to any Series 1999-A Note and (ii) set forth in the applicable Supplement with respect to any other series of Notes.

"Material" means material in relation to the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole.

"Material Adverse Effect" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement (including any Supplement), the Security Documents and the Notes, or (c) the validity or enforceability of this Agreement (including any Supplement), the Security Documents or the Notes.

"Membership Pledge Agreement" means the membership pledge agreement dated as of March 27, 2002 among the Company, various Subsidiary Guarantors and Collateral Agent.

"Memorandum" is defined in Section 5.3.

"Mortgage" means a mortgage, deed of trust, leasehold mortgage or similar instrument granting Collateral Agent a Lien on real property owned or leased by the Company or any Subsidiary Guarantor.

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"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA).

"Nationally Recognized Rating Agency" means Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Rating Group, a division of McGraw Hill, Inc. ("S&P"), or Fitch/IBCA Duff & Phelps Ltd. ("Fitch")".

"Net Issuance Proceeds" means, in respect of any issuance of equity, the cash proceeds and non-cash proceeds received or receivable in connection therewith, net of reasonable costs and expenses and underwriting discounts and commissions paid or incurred in connection therewith in favor of any Person not an Affiliate of the Company.

"Net Proceeds" means, with respect to any sale, lease or other disposition of any property by any Person, an amount equal to the difference of

        (a) the aggregate amount of the consideration (valued at the Fair Market Value of such consideration at the time of the consummation of such sale, lease or other disposition but net of applicable taxes) received by such Person in respect of such disposition, minus

        (b) all ordinary and reasonable out-of-pocket costs and expenses actually incurred by such Person in connection with such disposition.

"1992 Note Agreements" means the separate Note Agreements dated as of October 15, 1992 between the Company and the Institutional Investors named therein, as from time to time amended, renewed, restated or replaced.

"Notes" is defined in Section 1.

"Officer's Certificate" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate.

"Ordinary Course Indebtedness" means:

        (a) intercompany Guaranty Obligations of the Company or any of its Subsidiaries guarantying Indebtedness otherwise permitted hereunder of the Company or any Wholly-Owned Subsidiary of the Company;

        (b) Indebtedness arising from the honoring of a check, draft or similar instrument against insufficient funds so long as such Indebtedness is paid within three Business Days after the incurrence thereof;

        (c) Indebtedness of a Subsidiary to the Company or to a Wholly-Owned Subsidiary;

        (d) Indebtedness of the Company to a Subsidiary Guarantor; and

        (e) Indebtedness in connection with letters of credit issued in the ordinary course of business.

"Ordinary Course Investments" means Investments of the Company and its Subsidiaries, consisting of:

        (a) Investments in and to Subsidiaries and the Company and in any Person that is a Subsidiary after giving effect to such Investment;

        (b) Investments in commercial paper maturing in 270 days or less from the date of issuance which, at the time of acquisition by the Company or its Subsidiaries, is accorded the highest rating by a Nationally Recognized Rating Agency;

        (c) Investments in direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which

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constitutes a full faith and credit obligation of the United States of America, in either case, maturing in 12 months or less from the date of acquisition thereof;

        (d) Investments in certificates of deposit maturing within one year from the date of issuance thereof, issued by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $100,000,000 and whose long-term certificates of deposit are, at the time of acquisition thereof by the Company or its Subsidiaries, rated A or better by S&P or A or better by Moody's;

        (e) receivables, including negotiable instruments and letters of credit in respect of which the Company or its Subsidiaries is the beneficiary, arising from the sale of goods and services in the ordinary course of business of the Company and its Subsidiaries;

        (f) Investments in repurchase agreements or bankers acceptances, having terms of less than 30 days, with a United States bank or trust company meeting the requirements of paragraph (d) hereof, which Investments mature within one year and which are fully secured by obligations of the type described in paragraphs (c) and (d) hereof; and

        (g) Investments in offshore certificates of deposit maturing within one year from the date of issuance thereof, issued by a bank or trust company having capital, surplus and undivided profits aggregating at least $1,000,000,000 and whose long term offshore certificates of deposit are at the time of acquisition thereof by the Company or its Subsidiaries, accorded a rating of A or better by S&P or Moody's.

"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.

"Permitted Accounts Receivable Financing Facilities" means one or more facilities involving the sale or discount of undivided ownership interests in accounts receivable and related property of the Company and one or more of its Subsidiaries; provided that the aggregate investment or claim held by purchasers of such assets does not exceed $75,000,000 in the case of receivables owned by Domestic Subsidiaries, and in the case of Foreign Receivable Financing Facilities the aggregate outstanding principal amount of Indebtedness for borrowed money of Foreign Subsidiaries plus the aggregate investment or claim held by purchasers of receivables in Foreign Receivable Financing Facilities shall not exceed 15% of Consolidated Net Worth at any time.

"Person" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof.

"Plan" means an "employee benefit plan" (as defined in Section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.

"Pledge Agreement" means the pledge agreement dated as of March 27, 2002 among the Company, various Subsidiary Guarantors and Collateral Agent.

"property" or "properties" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.

"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor.

"Required Holders" means, at any time, the holders of at least 50% in principal amount of the Notes of each series at the time outstanding; provided that in the case of any release of all or substantially all of the Collateral (other than on account of the occurrence of the Collateral

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Release Date), "Required Holders" shall mean the holders of 100% in principal amount of the Notes of each series then outstanding; (exclusive in each case of Notes then owned by the Company or any of its Affiliates).

"Responsible Officer" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this Agreement.

"Restricted Payments" means:

        (a) the declaration or payment of any dividend by the Company, either in cash or property, on any shares of the capital stock of any class of the Company (except dividends or other distributions payable solely in shares of capital stock of the Company);

        (b) the purchase, redemption or retirement by the Company of any shares of the capital stock of any class of the Company or any warrants, rights or options to purchase or acquire any shares of its capital stock, whether directly or indirectly, or through any Subsidiary; and

        (c) any other payment or distribution by the Company in respect of its capital stock, either directly or indirectly or through any Subsidiary.

"Securitization Hardware and Software" means the Computer Hardware and Software used to service and/or monitor the accounts and payments intangibles of the Company and its Subsidiaries; the Computer Hardware and Software and other computer materials otherwise relating to the Excluded Assets; and the printouts and other computer materials, technical knowledge or processes, data bases, customer lists, credit files, correspondence and advertising materials or any property of a similar nature relating to the Excluded Assets.

"Security Agreement" means the security agreement dated as of March 27, 2002 among the Company, the Subsidiary Guarantors and Collateral Agent.

"Security Documents" means the Security Agreement, the Membership Pledge Agreement, the Mortgages, the Pledge Agreement and all other documents pursuant to which the Company or any Subsidiary grants Collateral to Collateral Agent.

"Securities Act" means the Securities Act of 1933, as amended from time to time.

"Senior Indebtedness" means, as of the date of any determination thereof, all Consolidated Indebtedness, other than Subordinated Indebtedness.

"Senior Financial Officer" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company.

"Significant Subsidiary" means at any time any Subsidiary that accounts for more than (i) 10% of the Consolidated Total Assets or (ii) 10% of consolidated revenue of the Company and its Subsidiaries.

"Simplex Products Disposition" means any sale or transfer of assets of the Simplex Products Division of the Company or refinancing or recapitalization of the assets or operation of the Simplex Products Division, whether in the form of a sale of stock, borrowing, issuance of debt or equity securities or otherwise, as a result of which (i) the Company ceases to own directly substantially all of the assets of the Simplex Products Division, (ii) the Company ceases to be liable directly or indirectly for any Indebtedness or trade payables of the Simplex Products Division (other than pursuant to any indemnification provision for the benefit of the transferee of the assets of the Simplex Products Division or any affiliate of such transferee contained in the agreements memorializing such transaction), and (iii) the Company receives in such transaction, by way of sale proceeds, refinancing proceeds, dividend proceeds, proceeds of the issuance of securities or otherwise, at least $20 million in cash.

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"Subordinated Indebtedness" is defined in Section 10.3.

"Subsidiary" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company.

"Subsidiary Guarantor" shall mean each Subsidiary of the Company which shall be a party to the Guaranty Agreement.

"Subsidiary Guaranty Agreements" shall mean the Guaranty Agreement and any other Guaranty of Indebtedness of the Company by a Subsidiary which shall be a party to the Guaranty Agreement; provided that each creditor which is a beneficiary of a Subsidiary Guaranty Agreement shall have become a party to the Intercreditor Agreement.

"Supplement" is defined in Section 2.2.

"Swap Contract" means (a) any and all rate swap transactions, basis swaps, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, foreign exchange contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, or (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., or any other master agreement (any such master agreement, together with any related schedules, as amended, restated, extended, supplemented or otherwise modified in writing from time to time, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement.

"Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include any Bank Lender).

"Synthetic Lease Obligation" means all monetary obligations of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations which do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the Indebtedness of such Person (without regard to accounting treatment).

"Third Amendment" means the Third Amendment to Note Purchase Agreement dated as of March 27, 2002 between the Company and the Noteholders.

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"Wholly-Owned Subsidiary" means, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Subsidiaries at such time.

Section 4. Representations and Warranties.

        The Company represents and warrants that as of the date hereof and as of the date of execution and delivery hereof and after giving effect hereto (and to the amendment of the Bank Credit Agreement, the 1992 Note Agreements and the Permitted Accounts Receivable Financing Facility referred to in Schedule II hereto):

        (a) No Default or Event of Default exists under the Note Agreement.

        (b) In connection with the solicitation of an amendment to the Bank Credit Agreement, the 1992 Note Agreement and the Permitted Accounts Receivable Financing Facility or in connection with any other agreement pursuant to which Debt of the Company is outstanding and relating to the subject matter of this Agreement, or any other amendment or modification required under any such agreement, the Company has paid no fees or other consideration (other than routine fees of counsel for such lenders and except as disclosed to the Noteholders and their special counsel, Chapman and Cutler) in connection with the review and/or execution and delivery of any such amendment or modification.

        (c) The execution and delivery of the Agreement and each of the Security Documents to which it is a party by the Company and the compliance by the Company with all of the provisions of the Note Agreement, as amended hereby, and each of the Security Documents to which it is a party:

        (i) is within the corporate powers of the Company; and

        (ii) will not violate any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the Articles of Incorporation or By-laws of the Company or any indenture or other agreement or instrument to which the Company is a party or by which it may be bound or result in the imposition of any Liens or encumbrances on any property of the Company (other than such Liens, security interests and encumbrances contemplated and otherwise created by virtue of the Security Documents).

        (d) The execution and delivery of this Agreement and each of the Security Documents have been duly authorized by all proper corporate action on the part of the Company (no action by the stockholders of the Company being required by law, by the Articles of Incorporation or By-laws of the Company or otherwise); and this Agreement and each of the Security Documents have been executed and delivered by the Company, and the Note Agreement and the Notes, as amended by this Agreement, and the Security Documents constitute the legal, valid and binding obligations, contracts and agreements of the Company enforceable in accordance with their respective terms.

        (e) The execution and delivery of the Amendment to Guaranty Agreement dated of even date herewith (the "Amendment to Guaranty") in substantially the form set forth in Exhibit C hereto or a Guaranty Supplement, as the case may be, and each of the Security Documents by the Subsidiary Guarantors and the compliance by each Subsidiary Guarantor with the provisions of the Security Documents to which such Subsidiary Guarantor is a party:

        (i) is within the corporate powers of each such Subsidiary Guarantor; and

        (ii) will not violate any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms,

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conditions or provisions of, or constitute a default under the Articles of Incorporation or By-laws of such Subsidiary Guarantor or any indenture or other agreement or instrument to which such Subsidiary Guarantor is a party or by which it may be bound or result in the imposition of any Liens or encumbrances on any property of the Company (other than such Liens, security interests and encumbrances contemplated and otherwise created by virtue of the Security Documents).

        (f) The execution and delivery of the Amendment to Guaranty or the Guaranty Supplement, as the case may be, and each of the Security Documents to which each Subsidiary Guarantor is a party have been duly authorized by all proper corporate action on the part of each Subsidiary Guarantor (no action by the stockholders of such Subsidiary Guarantor being required by law, by the Articles of Incorporation or By-laws of such Subsidiary Guarantor or otherwise); and the Amendment to Guaranty or the Guaranty Supplement, as the case may be, and each of the Security Documents to which each Subsidiary Guarantor is a party have been executed and delivered by such Subsidiary Guarantor and constitute the legal, valid and binding obligations, contracts and agreements of each such Subsidiary Guarantor enforceable in accordance with their respective terms.

        (g) No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company or any Subsidiary Guarantor of this Agreement or any Security Document to which the Company or any Subsidiary Guarantor is a party.

        (h) There are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

        (i) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

        (j) Schedule IV hereto sets forth a complete and correct list of all outstanding Debt (including Guaranties) of the Company and its Subsidiaries as of March 5, 2002, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment.

        (k) Except as set forth in the Security Documents, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.6 of the Note Agreement. Schedule VI hereto sets forth a complete and correct list of all Liens on Property of the Company and its Subsidiaries which secure Indebtedness.

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        (l) Schedule V hereto contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, and all other Investments of the Company and its Subsidiaries and (ii) of the Company's Affiliates known to the Company, other than Subsidiaries.

Section 5. Conditions Precedent to Effectiveness of Agreement.

        This Agreement shall become effective as of the date hereof upon the satisfaction of each of the following, unless waived by the Required Holders, in their sole discretion:

        (a) The Required Holders on the date hereof shall have delivered an executed counterpart of this Amendment;

        (b) No Event of Default shall have occurred and be continuing after giving effect to this Amendment;

        (c) The Company shall have delivered to the Noteholders in form and substance satisfactory to such Noteholders and their special counsel, Chapman and Cutler, the items listed or described in Schedule II hereto;

        (d) The Company shall have paid the fees, costs, expenses and disbursements of Chapman and Cutler, special counsel to the Noteholders, incurred in connection with the consummation of the transactions contemplated by this Agreement and the Security Documents; and

        (e) The Company shall have paid a fee to each Noteholder in an amount equal to 11.25 basis points of the unpaid principal amount of the Notes.

Section 6. Waiver.

        Section 6.1. Waiver of Compliance with Section 10.5.    The Purchasers hereby waive compliance by the Company with Section 10.5 of the Existing Note Agreement for the fiscal quarters ended on September 30, 2001 and December 31, 2001; provided that the ratio of Consolidated Income Available for Fixed Charges (as such term is defined in the Existing Note Agreement) to Fixed Charges shall have been not less than .75 to 1.0 as of either of such dates.

Section 7. Miscellaneous.

        Section 7.1.Effect of Agreement and Reaffirmation.    Except as expressly amended by this Agreement, the Company acknowledges and agrees that the Note Agreement, the Notes and all other documents and agreements executed by the Company in connection with the Note Agreement in favor of the Noteholders shall remain unchanged and are hereby ratified and confirmed and shall remain in full force and effect. The Company further acknowledges and agrees that it has no defenses to its obligations under the Note Agreement and the Notes, as amended hereby.

        Section 7.2.Release of Claims.    In further consideration of Noteholders' execution of this Amendment, the Company hereby releases each Noteholder and its respective affiliates, officers, employees, directors, trustees, agents and attorneys (collectively, the "Releasees") from any and all claims, demands, liabilities, responsibilities, disputes, causes of action (whether at law or in equity) and obligations of every nature whatsoever, whether liquidated or unliquidated, known or unknown, matured or unmatured, fixed or contingent that the Company may have against the Releasees which arise from or relate to any actions which the Releasees may have taken or omitted to take prior to the date hereof with respect to the Notes, the Note Agreement, any Collateral, the Guaranty Agreement, and any Security Documents and any third parties liable in whole or in part for the obligations under

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the Notes and the Note Agreement. For purposes of the release contained in this paragraph, the term "Company" shall mean and include such party's successors and assigns, including, without limitation, any trustees acting on behalf of such party and any debtor-in-possession in respect of such party.

        Section 7.3.Successors and Assigns.    This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Noteholders and to the benefit of the Noteholders' successors and assigns.

        Section 7.4.Expenses.    The Company hereby agrees to pay all out-of-pocket expenses incurred by the Noteholders in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the reasonable fees, expenses and disbursements of Chapman and Cutler.

Section 7.5.Counterparts. This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement.

        Section 7.6.Governing Law.    This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to choice of law principles that would result in the application of the laws of any other jurisdiction.

        Section 7.7.Approval of Amendment to Guaranty Agreement.    Each Noteholder hereby consents to the terms of the Amendment to Guaranty dated of even date herewith and attached hereto as Exhibit C in respect of the Subsidiary Guaranty.

        Section 7.8. GE Securitization.    The Noteholders hereby consent to (i) the execution, delivery and performance by the Company, Stearns Inc. ("Stearns"), Shakespeare Company, LLC ("Shakespeare"), K-2 Corporation ("K-2 Corp."), K2 Receivables Corporation ("K2 SPV") and K2 Finance Company, LLC ("K2 LLC") of the GECC Securitization Transactions. Notwithstanding anything to the contrary in this Agreement or the Note Agreement, as amended hereby, the Notes, the Subsidiary Guaranties, the Security Documents and the Intercreditor Agreement (collectively the "Transaction Documents"), the GECC Securitization Transactions and the execution and delivery of, and performance under, the GECC Securitization Documents by the Company and its Subsidiaries party thereto shall not be deemed to violate or contravene any provision of the Transaction Documents.

"GECC Securitization Documents" shall mean (i) that certain Receivables Sale and Contribution Agreement, dated as of March 28, 2002, among the Company as parent guarantor, Stearns, Shakespeare and K-2 Corp. as originators and K2 LLC as buyer (the "Sale and Contribution Agreement") and (ii) the Receivables Purchase and Servicing Agreement, dated as of March 28, 2002, among K2 LLC as seller, Company as master servicer, Stearns, Shakespeare and K-2 Corp. as servicers, K2 SPV, Redwood Receivables Corporation as the conduit purchaser (the "Conduit Purchaser"), General Electric Capital Corporation as committed purchaser (the "Committed Purchaser") and as administrative agent (the "Agent") for the Committed Purchaser and the Conduit Purchaser (the "Receivables Purchase Agreement"), and (iii) each Originator Performance Guaranty dated as of March 28, 2002, from the Company, Stearns, Shakespeare and K-2 Corp. in each case in the form delivered to the Noteholders on March 28, 2002.

"GECC Securitization Transactions" shall mean the transactions under the GECC Securitization Documents.

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EXHIBIT 10(b)(1)

        IN WITNESS WHEREOF, the Company has executed this Third Amendment to Note Purchase Agreement as of the day and year first above written.

K2 INC.

By

Its

Third Amendment to Note Purchase Agreement

K2 Inc.

        This Third Amendment to Note Purchase Agreement is accepted and agreed to as of the day and year first above written.

THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY

By

Its

Third Amendment to Note Purchase Agreement

K2 Inc.

        This Third Amendment to Note Purchase Agreement is accepted and agreed to as of the day and year first above written.

CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By	Cigna Investments, Inc.
By
Its

Third Amendment to Note Purchase Agreement

K2 Inc.

        This Third Amendment to Note Purchase Agreement is accepted and agreed to as of the day and year first above written.

THE CANADA LIFE ASSURANCE COMPANY, AS BENEFICIAL OWNER

By

Its

The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202

Connecticut General Life Insurance Company
c/o Cigna Investments, Inc.
280 Trumbull Street
Hartford, Connecticut 06103

The Canada Life Assurance Company
330 University Avenue, SP-11
Toronto, Ontario, Canada M5G 1R8

SCHEDULE I
(to Third Amendment to Note Purchase Agreement)

Closing Conditions

        1. Amendment to Guaranty. Each Subsidiary Guarantor shall have executed and delivered the Amendment to Guaranty.

        2. Secretary Certificate of Company. The Company shall have delivered to the Noteholders a certificate of an authorized officer, dated as of the Effective Date, with respect to its Articles of Incorporation and By-laws, certifying as to resolutions authorizing the execution and delivery of this Agreement and the Notes and the Security Documents, and the incumbency and signature of officers.

        3. Officer's Certificate of Company. The Company shall have delivered to the Noteholders a certificate of an authorized officer, dated as of the Effective Date, to the effect that the representations and warranties set forth in Section 4 of this Agreement and in the Security Documents are true and correct.

        4. Subsidiary Secretary's Certificate. Each Subsidiary which is a party to a Security Document or a Guaranty Supplement shall have delivered to the Noteholders a certificate of an authorized officer, dated as of the Effective Date, with respect to its Articles of Incorporation and By-laws, certifying as to resolutions authorizing the execution and delivery of the Security Documents or Guaranty Supplement to which such Subsidiary is a party, and the incumbency and signature of officers.

        5. Subsidiary Officer's Certificate. Each Subsidiary which is a party to the Security Documents or a Guaranty Supplement shall have delivered to the Noteholders a certificate of an authorized officer, dated as of the Effective Date, certifying that the representations and warranties of such Subsidiary set forth in Section 4 of this Agreement and in the Security Documents or Guaranty Supplement are true and correct.

        6. Performance by the Company and each Subsidiary. The Company and each Subsidiary which is a party to the Security Documents shall have performed and complied with all agreements and conditions contained in the Security Documents to which it is a party, required to be performed and complied with by it prior to or as of the Effective Date.

        7. Security Documents. The Security Documents shall be in form and substance satisfactory to the Noteholders and the Noteholders' special counsel, shall have been duly authorized, executed and delivered by the parties thereto and shall be in full force and effect, and the Noteholders shall have received true, correct and complete copies of each thereof.

        8. Insurance. Certificates of insurance evidencing the insurance policies and endorsements required to be delivered pursuant to the Security Documents shall have been delivered to the Collateral Agent and the Noteholders and their special counsel.

        9. Bank Credit Agreement. The Company shall have entered into an Amendment to the Bank Credit Agreement with the Bank Lenders which amendment shall be reasonably satisfactory to the Noteholders.

SCHEDULE II
(to Third Amendment to Note Purchase Agreement)

        10. 1992 Note Agreement. The Company shall have entered into an amendment to the 1992 Note Agreement which amendment shall be reasonably satisfactory to the Noteholders.

        11. Securitization Facility. The Company shall have furnished you with a true and correct copy of the Receivables Purchase and Servicing Agreement dated as of March 28, 2002 among the Company, certain Subsidiaries and General Electric Capital Corporation, and all related Exhibits thereto and the Receivables Sale and Contribution Agreement dated as of March 28, 2002 among the Company and certain of its Subsidiaries and all related Exhibits thereto which shall be reasonably satisfactory to the Noteholders.

        12. Intercreditor Agreement. The Noteholders shall have entered into the Intercreditor Agreement with the Bank Lenders, the holders of the Notes under the Senior Note Agreement and the Collateral Agent.

        13. Guaranty Supplement. Shakespeare Connective Fibers, LLC shall have executed and delivered a Guaranty Supplement.

        14. Notes. The Company shall have delivered the amended and restated Notes, executed by a duly authorized officer of the Company.

        15. Legal Opinion. Gibson, Dunn & Crutcher LLP, counsel for the Company shall have delivered an opinion in form and substance reasonably satisfactory to the Noteholders and their special counsel and otherwise in substantially the form of legal opinion delivered in connection with the Original Note Purchase Agreement but with respect to the Note Agreement, as amended, the Notes delivered on the Effective Date, the Guaranty Supplement and the Security Documents.

        16. Title Insurance. The Collateral Agent shall have received a loan title insurance policy issued by a title insurance company reasonably acceptable to the Noteholders and their special counsel (or, in the alternative, a commitment to issue a loan title insurance policy issued by a title insurance company reasonably acceptable to the Noteholders and their special counsel and marked and initialed by an authorized agent of such title insurance company to show all changes to be made in connection with the actual issuance of such title insurance policy) in respect of each mortgage and deed of trust executed and delivered in connection with the transactions contemplated by this Agreement (collectively, the "Title Insurance Policies"), in form and substance satisfactory to the Noteholders and their special counsel, and all premiums in respect of the Title Insurance Policies shall have been paid in full.

        17. Letter re Consultants. The Company shall have delivered to you a letter regarding the retention of a financial advisor and consultant and related matters in form and substance satisfactory to you.

2

Post Closing Requirements

        1. Pledge Agreements pledging 65% of the outstanding stock of the following Foreign Subsidiaries by the applicable dates set forth below:

Foreign Subsidiary (Domicile)	Pledgor(s)	Delivery Date
Shakespeare (Hong Kong) Ltd. (Hong Kong)	Shakespeare Company LLC	June 30, 2002
Shakespeare International Ltd. (U.K.)	K2 Inc. Shakespeare Company LLC	April 12, 2002
K2 Ski Sport und Mode GmbH (Germany)	Shakespeare Company LLC	April 19, 2002
K2 Japan Corporation (Japan)	K-2 Corporation	June 30, 2002
Madshus A.S. (Norway)	K-2 Corporation	June 30, 2002
K2 Corporation of Canada (Canada)	Ride, Inc.	April 12, 2002

        2. Each mortgage, deed of trust and financing statement required to be filed, registered or recorded in connection with the transactions contemplated by the Security Documents shall have been filed, registered or recorded in each office required in order to create in favor of the Collateral Agent, for the equal and ratable benefit of the Noteholders and the Bank Lenders, a valid perfected first priority Lien on the Collateral subject only to Liens permitted by Section 10.6 of the Existing Note Agreement not more than 10 days following the Effective Date. In addition, the Collateral Agent and the Noteholders shall have received, to the extent available, acknowledgment copies of all of such filings, registrations and recordations stamped by the appropriate filing, registration or recordation officer (or, in lieu thereof, other evidence satisfactory to the Collateral Agent that all such filings, registrations and recordations have been made); and all necessary filing, registration and other similar fees, and all taxes and other charges related to such filings, registrations and recordations (including such other taxes and charges requested by the Noteholders), shall have been paid in full.

        3. The Company shall use its best efforts to deliver to the Collateral Agent (a) not later than April 26, 2002, Collateral Access Agreements executed by owners of the properties located in (i) Fife, Washington, (ii) Lincolnwood, Illinois and (iii) Vista, California which are leased by the Company or a Subsidiary, and (b) not later than May 24, 2002, Collateral Access Agreements executed by owners of each other property leased by the Company or any Subsidiary.

SSCHEDULE III
(to Third Amendment to Note Purchase Agreement)

Indebtedness of Company and Its Subsidiaries

Outstanding Indebtedness of Company and Subsidiaries:

Subsidiary	Description	Amount Outstanding as of March 5, 2002 (US$)
K2 Inc.	Bank of America et al. — Revolver	$	40,829,000
K2 Inc.	Bank of America — LC's		20,714,000
K2 Inc.	Senior Notes — '92 Placement		13,336,000
K2 Inc.	Senior Notes — '99 Placement		50,000,000
K2 Inc.	Bank of America — Asset Securitization		45,979,000
K2 Japan	Union Bank		6,500,000
K2 Japan	Dai Ichi Kangyo Bank		4,195,000
K2 Japan	Dai Ichi Kangyo Bank — LC's		333,000
K2 GmbH	Bank of America		7,427,000
Shakespeare Hong Kong	Wells Fargo Bank/Norwest		2,968,000
Stearns Inc.	Norwest Bank — LC's		435,000
Shakespeare Fishing Tackle U.K.	Bank of America		460,000
Shakespeare Hengelsport B.V.	ING Bank		0
Shakespeare Australia	National Australia Bank		0
	Recourse obligations in respect of the discounted promissory notes in Japan		4,361,000

Capitalized Leases:

Subsidiary	Description	Amount Outstanding as of March 5, 2002 (US$)
Ride Inc.	Key Bank	$	96,000
Morrow Inc.	Flow International	$	32,000

SCHEDULE IV
(to Third Amendment to Note Purchase Agreement)

Subsidiaries of Company, Investments, Affiliates

Subsidiaries	Subsidiary Guarantor	Percentage of Each Class Outstanding Owned by Company and Each Other Subsidiary
Shakespeare Conductive Fibers, LLC, a Delaware limited liability company	Yes	100%
Shakespeare Company, LLC, a Delaware limited liability company	Yes	100%
Shakespeare (Hong Kong) Ltd., a Hong Kong corporation	No	99%*
Pacific Rim Metallic Products Limited, a Hong Kong corporation	No	99%*
Shakespeare International Ltd., a British corporation	No	100%
Shakespeare Hengelsport, B.V., a Dutch corporation	No	100%
Shakespeare (Australia) Pty. Ltd., an Australian corporation	No	99%*
K2 Ski Sport und Mode GmbH, a German corporation	No	100%
Sitca Corporation, a Washington corporation	Yes	100%
K-2 Corporation, an Indiana corporation	Yes	100%
Planet Earth Skateboards, Inc., a California corporation	Yes	100%
K-2 International, Inc., an Indiana corporation	Yes	100%
K2 Japan Corporation, a Japanese corporation	No	100%
Madshus A.S., a Norwegian corporation	No	100%
SMCA, Inc., a Minnesota corporation	Yes	100%
Stearns Inc., a Minnesota corporation	Yes	100%
Ride, Inc., a Washington corporation	Yes	100%
Anthony Sales (Barbados), Ltd., a Barbados corporation**	No	100%
K2 Worldwide Company, a Cayman Island limited company	No	100%
Katin, Inc., a Delaware corporation	Yes	100%
Morrow Snowboards, Inc., a Delaware corporation	Yes	100%
K2 Bike, Inc., a Delaware corporation	Yes	100%
K2 Funding Inc., a Delaware corporation	No	100%
Shakespeare Industries Inc., a Delaware corporation	No	100%
Shakespeare Company (UK) Ltd., a United Kingdom company	No	100%
Shakespeare Monofilament UK Ltd., a United Kingdom company	No	100%
K2 (UK) Limited, a United Kingdom company	No	100%
Ride Snowboard Company, a Washington company	No	100%
Ride Manufacturing Inc., a California corporation	No	100%
Smiley Hats, Inc., a Nevada corporation	No	100%
K2 Corporation of Canada, a Canadian corporation	No	100%
Preston Binding Co., a Washington company	No	100%
Carve Inc., a Washington corporation	No	100%
SMP Clothing Inc., a Washington corporation	No	100%
K2 Outdoor Products (NZ) Ltd., a New Zealand corporation	No	100%
K2 Finance Company, LLC, a Delaware limited liability company	No	100%
K2 Receivables Corporation, a Delaware corporation	No	100%

*

One share owned by a director.

**

Presently being dissolved.

SCHEDULE V
(to Third Amendment to Note Purchase Agreement)

Investments of the Company and Its Subsidiaries:

Common Stock Investments	Number of Shares
Albany International Corporation	10
Bell Sports Company	10
Brunswick Corporation	20
Cascade Industries, Incorporated	10
Centuri, Inc.	100
Champion International Corporation	2
Coleco Industries	4
Coleman Company, Inc.	10
Escalade, Inc.	120
Figgie International	16
First Team Sports	15
Glassmaster	10
Hallwood Industries Incorporated	2,760
Huffy	10
Johnson Worldwide Associates	10
Major Pool Equipment Corp.	11
Metromedia International Group	10
Mossimo Inc.	10
Nike, Inc.	40
Pro-Group	10
Quiksilver	10
Reebok International, Ltd.	10
Seatrain Lines, Inc.	3
Skis Rossignol	10
Starter Corporation	10
The Mead Corporation	4

Company's Affiliates (other than Subsidiaries):

        Hilton Corporate Casuals—Division of K2 Inc.

        Shakespeare Fishing Tackle (South Carolina)—Division of Shakespeare LLC

        Shakespeare Monofilament (South Carolina)—Division of Shakespeare LLC

        Shakespeare Composites & Electronics (South Carolina)—Division of Shakespeare LLC

2

LIENS OF COMPANY AND ITS SUBSIDIARIES

Liens:

Collateral Description
A= Accounts
E(S) = Equipment (specified items only)
E(C)= Equipment (all items sold, leased or financed under specific contract)
E(A)= Equipment (all equipment)
B = Blanket
O = Other

Debtor	Office/ Agency Searched	Search Valid Through	Secured Party	File No./ File Date	Collateral Description	Comment
Anthony Industries	CA Sec. of State	1/9/02	Enterprise Funding Corporation	9601960459/ 1/19/96	A	Assigned to NationsBank (BofA)
						K2 Funding Inc. substituted as Debtor
Hilton Corporate Casuals1	IL Sec. of State	1/3/02
Hilton Corporate Casuals	AL Sec. of State	12/26/01
K2 Corp.	Washington Dept. of Licensing	2/15/02	Anthony Industries	00960190045/ 1/19/96	A	Assigned to NationsBank (BofA) then K2 Funding substituted as Secured Party and further assigned to Bank of America; Continued 11/13/2000
K2 Corp.	Washington Dept. of Licensing	2/15/02	K2 Funding	00970730026/ 3/14/97	A	Assigned to NationsBank (BofA)

¹

a division of K2 Inc.

Schedule VI
(to Third Amendment to Note Purchase Agreement)

Debtor	Office/ Agency Searched	Search Valid Through	Secured Party	File No./ File Date	Collateral Description	Comment
K2 Corp.	Washington Dept. of Licensing	2/15/02	American Technologies Credit	00971390035/ 5/19/97	E(S)
K 2 Corporation	CA Sec. of State	3/6/02	Associates Commercial Corporation	0020160680/ 7/13/2000	E(C)
K-2 Corporation	Washington Dept. of Licensing	2/15/02	PrimeSource Corp.	00982670197/ 9/24/98	E(C)
K-2 Corporation	Washington Dept. of Licensing	2/15/02	Flow International Corp.	00993560217/ 11/22/99	E(S)
K2 Corporation	Washington Dept. of Licensing	2/15/02	SAFECO Credit Company, Inc.	20011090161/ 4/19/01	E(S)
K2 Corporation	Washington Dept. of Licensing	2/15/02	Magid Glove & Safety Mfg. Co.	20011490078/ 5/29/01	O (Inventory)
K2 Corporation	AL Sec. of State	12/26/01
K2 Corporation	IL Sec. of State	1/3/01
K2 Corporation	IN Sec. of State	2/19/02	Bankers/ Softech Divisions of EAB Leasing Corp.	200100007508 528/10/4/01	E(C)
K2 Corporation	IN Sec. of State	2/19/02	Bank of America, N.A., as Agent	200200000631 256/1/22/02
K2 Funding	CA Sec. of State	1/9/02	Enterprise Funding Corporation	9707360241/ 3/7/97	A	Assigned to NationsBank
K2 Funding Inc.	DE Sec. of State	12/7/01
K2 Funding Inc.	DE Sec. of State		K-2 Corporation		A	Pending filing
K2 Funding Inc.	DE Sec. of State		Shakespeare Company, LLC		A	Pending filing
K2 Funding Inc.	DE Sec. of State		Stearns Inc.		A	Pending filing
K2 Inc.	DE Sec. of State	1/25/02
K2 Inc.	CA Sec. of State	3/6/02	K2 Funding, Inc.	9709460920/ 4/3/97	A
K2 Inc.	AL Sec. of State	12/26/01
K2 Inc.	IL Sec. of State	1/3/02
K2 Inc. dba Simplex	OH Sec. of State		General Electric Capital Corporation	AP0204752/ 1/4/00	E(S)
K2 Inc.	MI Sec. of State		Caterpillar Financial Services Corporation	9501612016/ 12/7/98	E(S)
K2 Inc., Shakespeare Monofilament Division	SC Sec. of State		NEC America, Inc.	981110- 114259A	E(S)
K2 Inc., Shakespeare Monofilament Division	CA Sec. of State		NEC America, Inc.	9832060787/ 11/10/98	E(S)
K-2 International	Washington Dept. of Licensing	12/10/01
K-2 International, Inc.	IN Sec. of State	1/7/02

VI-2

K2 Worldwide Company	CA Sec. of State	1/9/02
Morrow Snowboards	Washington Dept. of Licensing	12/10/01	Flow International Corp.	00993560217/ 11/22/99	E(S)
Planet Earth Skateboards, Inc.	CA Sec. of State	1/9/02	Hawthorne Machinery Co.	9922460390/ 7/30/99	E(S)
Preston Binding Company	Washington Dept. of Licensing	12/10/01
Ride, Inc.	Washington Dept. of Licensing	1/31/02	Key Corp Leasing	00981100505/ 4/20/98	E(S)
Ride, Inc.	Washington Dept. of Licensing	1/31/02	Key Corp Leasing	00981100506/ 4/20/98	E(S)
Ride, Inc.	Washington Dept. of Licensing	1/31/02	Key Corp Leasing	00981100507/ 4/20/98	E(S)
Ride, Inc.	Washington Dept. of Licensing	1/31/02	Key Corp Leasing	00981130231/ 4/23/98	E(S)
Ride, Inc.	Washington Dept. of Licensing	1/31/02	Key Corp Leasing	00981910124/ 7/10/98	E(S)
Shakespeare Company, LLC	CA Sec. of State	3/4/02
Shakespeare Company	CA Sec. of State		Bank of America, N.A., as Agent	9707360252/ 3/13/97
Shakespeare Company	CA Sec. of State		Bank of America, N.A., as Agent	9601960446
Shakespeare Company, LLC	DE Sec. of State	1/25/02	Wells Fargo Financial	200111125330/ 9/10/01	E(S)
Shakespeare Company, LLC	DE Sec. of State	1/25/02	Bank of America, N.A., as Agent	20162291/ 1/18/02
Shakespeare Company, LLC	DE Sec. of State	1/25/02	Bank of America, N.A., as Agent	20118376/ 1/15/02
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Citicorp Vendor Finance, Inc.	104812A/ 3/20/01	E(C)
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Associates Leasing, Inc.	124716A/ 3/6/98	E(S)
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Midland Clarklift, Inc.	084426A/ 4/16/99	E(S)	Assigned to Associates Commercial Corp.
Shakespeare Company, LLC	SC Sec. of State	1/10/02	National Vendor Supply Co.	133749A/ 1/28/99	E(S)	Assigned to Industrial Credit
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Associates Leasing, Inc.	100110A/ 6/22/99	E(S)
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Associates Leasing, Inc.	100054A/ 6/22/99	E(S)
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Associates Leasing, Inc.	113047A/ 8/19/98	E(S)
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Southland Equipment	163229B/ 1/15/97	E(S)	Assigned to Associates Leasing
Shakespeare Company, LLC	SC Sec. of State	1/10/02	Barloworld Handling	092851A/ 5/31/01	E(S)
Shakespeare Company, LLC	OH Sec. of State	1/9/02

VI-3

Shakespeare Company, LLC	NJ Sec. of State	1/10/02
Shakespeare Company, LLC	FL Sec. of State	3/1/02
Shakespeare Conductive Fibers, LLC	CA Sec. of State	1/9/02
Shakespeare Conductive Fibers, LLC	DE Sec. of State	11/20/01
Shakespeare Composites & Electronics2	SC Sec. of State	1/10/02
Shakespeare Composites & Electronics	CA Sec. of State	1/10/02
Shakespeare Composites & Electronics	FL Sec. of State	3/1/02
Shakespeare Composites & Electronics	NJ Sec. of State	1/10/02
Shakespeare Composites & Electronics	OH Sec. of State	1/9/02
Shakespeare Fishing Tackle2	SC Sec. of State	1/10/02
Shakespeare Fishing Tackle	NJ Sec. of State	1/10/02
Shakespeare Monafilament2	SC Sec. of State	1/10/02	WB Group LP dba Wrenn Handling	142821A/ 4/7/99	E(S)	Assigned to Hyster Credit Co.
Shakespeare Monafilament	SC Sec. of State	1/10/02	WB Group LP dba Wrenn Handling	120328A/ 1/18/99	E(S)	Assigned to Hyster Credit Co.
Shakespeare Monafilament	NC Sec. of State	12/20/01
Sitca Corporation	Washington Dept. of Licensing	12/10/01
Smiley Hats, Inc.	Washington Dept. of Licensing	12/10/01
SMP Clothing, Inc.	Washington Dept. of Licensing	12/10/01
Stearns, Inc.	MN Sec. of State	2/19/02	IBM Credit Corp.	2191501/ 1/06/99	E(C)
Stearns, Inc.	MN Sec. of State	2/19/02	IBM Credit Corp.	1984766/ 10/30/97	E(C)
Stearns, Inc.	MN Sec. of State	2/19/02	Hirsch International Corp.	2066713/ 9/8/98	E(S)
Stearns, Inc.	MN Sec. of State	2/19/02	Green Tree Vendor Services Group	21102881/ 3/1/99	E(S)	Assigned to Wells Fargo Leasing

VI-4

Stearns, Inc.	MN Sec. of State	2/19/02	Minnesota Lift Truck	2286596/ 1/2/01	E(S)	Assigned to Toyota Motor Credit Corporation
Stearns, Inc.	MN Sec. of State	2/19/02	K2 Funding	2216955/ 4/06/00	A	Assigned to Bank of America
Stearns Manufacturing	MN Sec. of State	3/18/02	Northern States Power Co.	1508906/ 6/12/92	E(S)	Search date
Stearns Manufacturing Co.	MN Sec. of State	3/20/02	IBM Credit Corporation	1929884/ 4/3/97	E(S)	Search date
Stearns Manufacturing Company	MN Sec. of State	3/20/02	MacPherson Meistergram	1993039/ 12/2/97	E(S)	Search date

²

a division of Shakespear Company LLC

VI-5

[Form of Amended and Restated Note]
K2 Inc.

Series 1999-A Senior Note due December 1, 2009

No. [            ]	[Date]
$[                        ]	PPN 482732 A* 5

For Value Received, the undersigned, K2 Inc. (herein called the "Company"), a corporation organized and existing under the laws of the State of Delaware, hereby promises to pay to [                        ] or registered assigns, the principal sum of [                        ] Dollars on December 1, 2009 with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the Applicable Rate from the date hereof, payable semi-annually, on the first day of June and December in each year, commencing with the June 1 or December 1 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semi-annually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 2% over the Applicable Interest Rate or (ii) 2% over the rate of interest publicly announced by Bank of America, N.A. from time to time in New York, New York as its "base" or "prime" rate.

        Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America, N.A. in New York, New York or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.

        This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to separate Note Purchase Agreement, dated as of December 1, 1999 (as from time to time amended, supplemented or modified, including a Third Amendment to Note Purchase Agreement dated as of March 27, 2002, the "Note Purchase Agreement"), between the Company and the respective Noteholders named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement.

        This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.

Exhibit A
(to Third Amendment to Note Purchase Agreement)

        The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise.

        The interest rate borne by this Note and the other Notes issued pursuant to the Note Purchase Agreement may be changed upon the terms and conditions set forth in the Note Purchase Agreement.

        If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.

        All amounts of principal, interest and Make-Whole Amount payable with respect to the Notes are unconditionally guaranteed by all Subsidiaries under and pursuant to that certain Guaranty Agreement dated as of December 1, 1999 from said Subsidiaries.

        This Note shall be construed and enforced in accordance with, and the rights of the issuer and holder hereof shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.

K2 Inc.
By:
	Name:
	Title:

VI-2

INTERCREDITOR AGREEMENT

Exhibit B
(to Third Amendment to Note Purchase Agreement)

AMENDMENT TO GUARANTY AGREEMENT

Exhibit C
(to Third Amendment to Note Purchase Agreement)

CASH FLOW FORECASTS

Exhibit D
(to Third Amendment to Note Purchase Agreement)

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Table of Contents
K2 Inc. 4900 South Eastern Avenue Los Angeles, California 90040
Preliminary Statement
Closing Conditions
Post Closing Requirements
Indebtedness of Company and Its Subsidiaries
Subsidiaries of Company, Investments, Affiliates
LIENS OF COMPANY AND ITS SUBSIDIARIES
[Form of Amended and Restated Note] K2 Inc.
INTERCREDITOR AGREEMENT
AMENDMENT TO GUARANTY AGREEMENT
CASH FLOW FORECASTS

EX-10.(C)(1)

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EXHIBIT 10(c)(1)

FIRST AMENDMENT TO CREDIT AGREEMENT

        THIS FIRST AMENDMENT TO CREDIT AGREEMENT dated as of March 28, 2002 (this "Amendment") is among K2 INC. (the "Borrower"), the other signatories hereto and BANK OF AMERICA, N.A., as Administrative Agent, Issuing Lender and Swing Line Lender (the "Administrative Agent"), and amends the Credit Agreement dated as of December 21, 1999 (the "Credit Agreement").

RECITALS

        WHEREAS, the parties hereto desire to amend the Credit Agreement in certain respects as more fully set forth herein;

        NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

        1.    Terms.    All terms used herein have the same meanings as in the Credit Agreement unless otherwise defined herein.

        2.    Amendments.    Subject to the satisfaction of the conditions precedent set forth in Section 5, the Credit Agreement is hereby amended as follows:

        2.1    Amendments to Section 1.01.

        (a)  The following definitions are added to Section 1.01 in appropriate alphabetical sequence:

        "Collateral Agent"    means Bank of America in its capacity as collateral agent under the Intercreditor Agreement, and any successor thereto in such capacity.

        "Consolidated Income Available for Fixed Charges"    means, for any measurement period, the sum of (i) Consolidated Net Income, (ii) income tax expense, determined in accordance with GAAP, (iii) non-cash, nonrecurring charges deducted from Consolidated Net Income during such period and (iv) Fixed Charges; provided that Consolidated Income Available for Fixed Charges shall not be reduced by any portion of the $18,000,000 charge taken by Borrower in the third fiscal quarter of 2001.

        "Covenant Change Date"    means the first date on which (a) Borrower has delivered financial statements pursuant to Section 6.01(a) or (b) and a related Compliance Certificate demonstrating that the Funded Leverage Ratio as of the end of a fiscal quarter was less than 3.25 to 1 and (b) no Default or Event of Default exists.

        "Fixed Charges"    means, with respect to any measurement period, the sum of (i) Consolidated Interest Expense for such period and (ii) Lease Rentals for such period.

        "Funded Debt"    means all Indebtedness of Borrower and its Subsidiaries determined on a consolidated basis, other than (a)  Indebtedness of the type described in clause (c) of the definition of "Indebtedness" and (b) contingent obligations under letters of credit.

        "Funded Leverage Ratio"    means, as of any date of determination, the ratio of (a) Funded Debt on such date to (b) Consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters of Borrower.

        "Lease Rentals"    means, with respect to any measurement period, the sum of the minimum amount of rental and other obligations required to be paid during such period by Borrower or its Subsidiaries as lessee under all leases of real or personal property (other than Capitalized Leases),

1

excluding any amounts required to be paid by the lessee (whether or not designated as rentals) which are (i) on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges, or (ii) which are based on profits, revenues or sales realized by the lessee from all leased property or otherwise based on the performance of the lessee.

        "Lender Percentage"    means the quotient, expressed as a percentage, of (a) the combined Commitments (or after termination of the Commitments, the Outstanding Obligations at such time) divided by (b) the sum of (i) the combined Commitments (or after termination of the Commitments, the Outstanding Obligations) plus (ii) the aggregate outstanding principal amount of the Senior Notes plus (iii) the aggregate outstanding principal amount of loans under the UB Agreement (as defined in the Intercreditor Agreement) plus (iv) the sum of the aggregate outstanding principal amount of loans and the stated amount of outstanding letters of credit under the BofA Agreements (as defined in the Intercreditor Agreement) plus (v) the unused amount of the commitment to make loans under the BofA Agreements plus (vi) the outstanding principal amount of credit extensions under the Additional Financing Agreements.

        "Membership Pledge Agreement"    means the membership pledge agreement dated as of March 28, 2002 among Borrower, various Subsidiary Guarantors and Collateral Agent.

        "Mortgage"    means a mortgage, deed of trust, leasehold mortgage or similar instrument granting Collateral Agent a Lien on real property owned or leased by Borrower or any Subsidiary Guarantor.

        "Net Debt Proceeds"    means, with respect to any issuance of Subordinated Indebtedness by Borrower or any of its Subsidiaries, the aggregate cash proceeds received by Borrower or such Subsidiary pursuant to such issuance, net of the direct costs relating to such issuance (including sales and underwriter's discounts and commissions and legal, accounting and investment banking fees).

        "Pledge Agreement"    means the pledge agreement dated as of March 28, 2002 among Borrower, various Subsidiary Guarantors and Collateral Agent.

        "Security Agreement"    means the security agreement dated as of March 28, 2002 among Borrower, the Subsidiary Guarantors and Collateral Agent.

        "Security Documents"    means the Security Agreement, the Membership Pledge Agreement, the Mortgages, the Pledge Agreement and all other documents pursuant to which Borrower or any Subsidiary grants collateral to Collateral Agent.

        "Senior Notes"    means the notes issued by Borrower pursuant to the Senior Note Agreements.

        "Subordinated Indebtedness"    means Indebtedness of Borrower which is not required to be redeemed, repurchased or otherwise prepaid by Borrower (except on account of a default thereunder) on or prior to March 1, 2010, and which Indebtedness is subordinated to other Indebtedness of Borrower (including the Loans) on terms which are reasonably satisfactory to the Lenders.

2

        (b)  The definition of "Applicable Margin" is amended by (i) deleting each reference to "Leverage Ratio" contained therein and substituting "Funded Leverage Ratio" therefor and (ii) amending the pricing grid set forth therein in its entirety to read as follows:

Level	Funded Leverage Ratio	Offshore Rate Loans/ Financial Letter of Credit Fees/ Drafts Accepted under Commercial Letters of Credit		Base Rate Loans		Performance Letter of Credit Fees		Commitment Fee
7	³5.00:1	3.250	%	2.000	%	1.625	%	.500	%
6	³4.50:1 but <5.00:1	2.750	%	1.500	%	1.375	%	.500	%
5	³4.00:1 but <4.50:1	2.250	%	1.000	%	1.125	%	.500	%
4	³3.50:1 but <4.00:1	2.000	%	0.750	%	1.000	%	.500	%
3	³3.00:1 but <3.50:1	1.500	%	0.250	%	0.750	%	.325	%
2	³2.50:1 but <3.00:1	1.250	%	0.000	%	0.625	%	.275	%
1	<2.50:1	1.000	%	0.000	%	0.500	%	.225	%

        (c)  The definition of "Applicable Payment Date" is amended by (i) redesignating clause (b) as clause "(c)" and (ii) inserting the following new clause (b): "(b) as to any Base Rate Loan, the last Business Day of each month,".

        (d)  The definition of "Basket Total Debt" is deleted in its entirety.

        (e)  The definition of "Consolidated EBITDA" is amended by inserting the following proviso before the period at the end thereof:

; provided, further, that Consolidated EBITDA shall not be reduced by any portion of the $18,000,000 charge taken by Borrower in the third fiscal quarter of 2001.

        (f)    The definition of "Indebtedness" is amended in its entirety to read as follows:

        "Indebtedness"    means, as to any Person at a particular time, all of the following, without duplication:

        (a)  all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

        (b)  any direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), banker's acceptances, bank guaranties, surety bonds and similar instruments;

        (c)  net obligations under any Swap Contract in an amount equal to (i) if such Swap Contract has been closed out, the termination value thereof, or (ii) if such Swap Contract has not been closed out, the mark-to-market value thereof determined on the basis of readily available quotations provided by any recognized dealer in Swap Contracts of the same type;

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        (d)  all obligations of such Person to pay the deferred purchase price of property or services (excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for a period of more than 60 days or which are subject to a bona fide dispute) and all indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

        (e)  all Capitalized Lease Obligations and Synthetic Lease Obligations of such Person;

        (f)    all obligations of such Person under Permitted Accounts Receivable Financing Facilities; and

        (g)  all Guaranty Obligations of such Person in respect of any of the foregoing.

        For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership in which such Person is a general partner, unless such Indebtedness is expressly made non-recourse to such Person (except for customary exceptions acceptable to the Requisite Lenders).

        (g)  The definition of "Intercreditor Agreement" is amended in its entirety to read as follows:

        "Intercreditor Agreement"    means an intercreditor agreement among the purchasers party to the Senior Note Agreements, various other creditors of Borrower and the Subsidiary Guarantors and Collateral Agent.

        (h)  The definition of "Letter of Credit" is amended in its entirety to read as follows:

        "Letter of Credit"    means any letter of credit issued for the account of Borrower (or jointly for the account of Borrower and any Subsidiary) hereunder. A Letter of Credit may be a Commercial Letter of Credit, a Performance Letter of Credit or a Financial Letter of Credit.

        (i)    The definition of "Leverage Ratio" is amended in its entirety to read as follows:

        "Leverage Ratio"    means, as of any date of determination, the ratio of (a) consolidated Indebtedness of Borrower and its Subsidiaries (other than Indebtedness of the type described in clause (c) of the definition of "Indebtedness") to (b) Consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters of Borrower.

        (j)    The definition of "Loan Documents" is amended by inserting the phrase ", the Security Documents" immediately before the phrase "and any Note" contained therein.

        (k)  The definition of "Maturity Date" is amended by deleting the reference to "September 30, 2004" therein and substituting "December 31, 2003" therefor.

        (l)    The definition of "Obligations" is amended by inserting the phrase ", or but for operation of any provision of any Debtor Relief Law, would accrue" after the phrase "interest that accrues" contained therein.

        (m)  Clause (b) of the definition of "Ordinary Course Indebtedness" is amended by inserting the phrase ", so long as such Indebtedness is paid within three Business Days after the incurrence thereof" before the semicolon at the end thereof.

        (n)  The definition of "Ordinary Course Liens" is amended by (i) deleting the word "and" at the end of clause (d), (ii) redesignating clause (e) as clause "(g)" and (iii) inserting the following new clauses (e) and (f):

        (e)  Liens arising in connection with non-exclusive licenses of Securitization Hardware and Software;

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        (f)    Liens on assets of Foreign Subsidiaries securing Indebtedness of one or more Foreign Subsidiaries permitted under Section 7.02; and.

        (o)  The definition of "Permitted Accounts Receivable Financing Facilities" is amended in its entirety to read as follows:

        "Permitted Accounts Receivable Financing Facilities"    means one or more facilities involving the sale or discount of undivided ownership interests in (a) domestic accounts receivable and related property of Borrower and one or more of its Domestic Subsidiaries; provided that the aggregate investment or claim held by purchasers of such assets does not exceed $75,000,000 (or, if the Covenant Change Date has occurred, $100,000,000); or (b) foreign accounts receivable and related property of one or more Foreign Subsidiaries; provided that the aggregate investment or claim held by purchasers of such assets does not exceed $20,000,000 (or, if the Covenant Change Date has occurred, $30,000,000).

        (p)  The definition of "Subsidiary" is amended in its entirety to read as follows:

        "Subsidiary"    of a Person means any corporation, partnership, joint venture, limited liability company or other business entity of which more than 50% of the total voting power of shares of stock or other equity interests having ordinary voting power for the election of directors or other governing body is at the time owned or controlled, directly or indirectly by such Person, one or more of the other Subsidiaries of such Person or a combination thereof.

        (q)  The definition of "Swap Contract" is amended by inserting the phrase ", foreign exchange contracts" after the phrase "currency options" contained therein.

        2.2    Amendment to Section 2.02.    Section 2.02(a) is amended by inserting the following phrase at the end of the first sentence thereof immediately before the period:

and, in the case of any request for an Extension of Credit, so long as the Covenant Change Date has not occurred, a certificate of a Responsible Officer of Borrower certifying that (i) such Extension of Credit will be used by Borrower solely for working capital purposes and the making of capital expenditures, in each case in the ordinary course of business consistent with past practices and (ii) the statement contained in the proviso to Section 7.08 is true and correct after giving effect to the making of such Extension of Credit and the application of the proceeds thereof.

        2.3    Amendments to Section 2.03.

        (a)  The penultimate sentence of Section 2.03(a) is amended in its entirety to read as follows:

        No Letter of Credit may expire later than (i) in the case of a Commercial Letter of Credit, the earlier of (x) 60 days after the date of its issuance or last renewal and (y) the Letter of Credit Expiration Date and (ii) in the case of any other Letter of Credit, the Letter of Credit Expiration Date; and no banker's acceptance issued under a Letter of Credit may be payable later than the earlier of (1) 180 days after the issuance thereof and (2) the Maturity Date.

        (b)  The last sentence of Section 2.03(j) is amended in its entirety to read as follows:

        In addition, Borrower shall pay directly to Issuing Lender for its account a fronting fee in an amount (i) with respect to Performance Letters of Credit and Financial Letters of Credit, equal to ¹/8 of 1% per annum on the face amount thereof, payable quarterly in arrears on each Applicable Payment Date and (ii) with respect to Commercial Letters of Credit, equal to the greater of (A) $400 and (B) ¹/8 of 1% of the face amount thereof, payable on the issuance thereof.

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        2.4    Amendment to Section 2.06.    Section 2.06 is amended in its entirety to read as follows:

        2.06Reduction or Termination of Commitments.

        (a)  Upon Requisite Notice to Administrative Agent not later than the Requisite Time therefor, Borrower may at any time and from time to time, without premium or penalty, (i) permanently and irrevocably reduce the Commitments in a Minimum Amount therefor to an amount not less than the Outstanding Obligations at such time or (ii) terminate the Commitments.

        (b)  Concurrently with the receipt by Borrower or any Subsidiary of any Net Issuance Proceeds or Net Debt Proceeds, the Commitments shall be permanently and irrevocably reduced by an amount (rounded up, if necessary, to an integral multiple of $100,000) equal to the Lender Percentage of 40% of all such Net Issuance Proceeds and Net Debt Proceeds received since March 28, 2002 minus the aggregate amount previously applied to reduce the Commitments pursuant to this Section 2.06(b).

        (c)  At the time that any prepayment of the Senior Notes is (or would be) required to be made pursuant to Section 10.7 of the Senior Note Agreement dated as of December 1, 1999 or Section 5.17 of the Senior Note Agreement dated as of October 15, 1992 (in each case without giving effect to any modification or amendment after the date hereof to, or waiver under, or termination of, the applicable Senior Note Agreement), the Commitments shall be permanently and irrevocably reduced by an amount equal to the Lender Percentage of the total amount of net disposition proceeds from the asset sale which gave rise to such prepayment.

        (d)  Any reduction or termination of the Commitments pursuant to clause (a), (b) or (c) above shall be accompanied by payment of all accrued and unpaid commitment fees with respect to the portion of the Commitments being reduced or terminated. Administrative Agent shall promptly notify Lenders of any request for voluntary reduction or termination of the Commitments. Each Lender's Commitment shall be reduced by an amount equal to such Lender's Pro Rata Share times the amount of any reduction of the Commitments.

        2.5    Amendment to Section 2.08.    The parenthetical clause contained in Section 2.08(a) is amended in its entirety to read "(excluding Swing Line Loans and Commercial Letters of Credit)".

        2.6    Amendment to Section 5.13.    The first sentence of Section 5.13 is amended in its entirety to read as follows:

Borrower shall use the proceeds of the Loans solely (a) for working capital purposes and for capital expenditures in the ordinary course of business consistent with past practices (including making regularly-scheduled payments of principal and interest on Indebtedness) and not in contravention in any material respect of any material Law and (b) following the Covenant Change Date, for making Restricted Payments and for other general corporate purposes.

        2.7    Amendment to Section 6.01(j).    The following new Section 6.01(j) shall be added to the Credit Agreement in appropriate numerical sequence:

        (j)Cash Flow Forecasts.    On the second Business Day of each week on or prior to the Covenant Change Date, a 13-week rolling cash flow forecast substantially in the form of Exhibit G.

        2.8    Amendment to Section 6.02(c).    Section 6.02(c) is amended by deleting the word "litigation" the second time such word appears therein.

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        2.9    Addition of New Sections 6.11, 6.12 and 6.13.    The following new Sections 6.11, 6.12 and 6.13 are added to the Credit Agreement in appropriate numerical sequence to read as follows:

        6.11Fixed Charges Coverage Ratio.    Borrower will not permit the ratio of Consolidated Income Available for Fixed Charges to Fixed Charges for the most recently ended period of four consecutive fiscal quarters of Borrower ending on the last day of each fiscal quarter set forth below to be less than the ratio set forth below opposite such day:

Fiscal Quarter(s) Ending	Minimum Fixed Charges Coverage Ratio
December 31, 2001	1.25 to 1
March 31, 2002	0.70 to 1
June 30, 2002	0.80 to 1
September 30, 2002	0.95 to 1
December 31, 2002	1.25 to 1
March 31, 2003	1.35 to 1
June 30, 2003	1.45 to 1
September 30, 2003	1.55 to 1
December 31, 2003 and thereafter	1.75 to 1.

        6.12Accounts Receivable Financing Facilities.    Borrower will at all times maintain, and use reasonable efforts to maximize the usage of, one or more Permitted Accounts Receivable Financing Facilities.

        6.13Foreign Pledges.    Borrower will cause to be delivered to Collateral Agent (to the extent not previously delivered) within the time period specified on Schedule 2 to the First Amendment to this Agreement, agreements executed by Borrower and each Domestic Subsidiary of Borrower pledging approximately but not less than 65% of the stock or other equity interests of each Foreign Subsidiary owned by Borrower or such Domestic Subsidiary, together with all documents necessary to perfect the security interest of Collateral Agent in such stock or other equity interests.

        2.10    Amendments to Section 7.01.    Section 7.01 is amended by:

        (a)  deleting the reference to "Sections 7.02" in clause (c) and substituting "Section 7.02" therefor;

        (b)  adding the following phrase at the end of clause (d) immediately before the semicolon: "; provided that such Liens shall extend only to property or items of property which constitute Excluded Assets under and as defined in the Security Agreement as in effect on the date of the First Amendment to this Agreement"; and

        (c)  (i) deleting the word "and" after clause (f), (ii) redesignating clause (g) as clause "(h)", and (iii) adding the following new clause (g): "(g) Liens in favor of Collateral Agent; and".

        2.11    Amendments to Section 7.02.    Section 7.02 is amended as follows:

        (a)  Clause (b) is amended in its entirety to read as follows:

        (b)  Indebtedness outstanding under the Senior Note Agreements not exceeding in aggregate principal amount $63,336,000, provided that such Indebtedness shall at all times be pari passu with (and, if secured, equally and ratably secured with) the Obligations;

        (b)  Clause (f) is redesignated as clause "(h)";

        (c)  Clause (e) is redesignated as clause "(f)" and is restated in its entirety to read as follows:

        (f)    other Indebtedness for borrowed money; provided that (i) at the time of incurrence thereof, no Default or Event of Default shall exist, (ii) the aggregate outstanding principal amount of such Indebtedness shall not exceed 15% of Consolidated Net Worth at any time, (iii) the

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aggregate outstanding principal amount of all such Indebtedness which is secured by any assets of Borrower or any Domestic Subsidiary (other than Indebtedness that is entitled to the benefits of the Intercreditor Agreement) shall not exceed 3% of Consolidated Net Worth at any time, and (iv) the aggregate outstanding principal amount of all such Indebtedness which is secured by any assets of any Foreign Subsidiary shall not exceed 15% of Consolidated Net Worth at any time; and

        (d)  The following new clauses (e) and (g) are added to Section 7.02 in proper sequence:

        (e)  Indebtedness hereunder;

        (g)  Indebtedness under any Swap Contract with a term not greater than 184 days entered into in the ordinary course of business for bona fide hedging purposes and not for speculation;

        2.12    Amendment to Section 7.03.    Section 7.03 is amended by inserting the following at the end of that section immediately before the period: "; provided that any Subsidiary of Borrower which is a special purpose entity pursuant to a Permitted Accounts Receivable Financing Facility may enter into agreements which restrict its ability to do any of the foregoing if (a) its net worth is or would be below a minimum level or (b) an event has occurred which would (or, with the giving of notice or lapse of time, would) permit the lenders or purchasers under such Permitted Accounts Receivable Financing Facility to terminate such Permitted Accounts Receivable Financing Facility".

        2.13    Amendment to Section 7.04.    Clause (c) of Section 7.04 is amended in its entirety to read as follows: "(c) any of its Subsidiaries may sell, lease or otherwise dispose of (i) all or any substantial part of its assets to Borrower or any wholly-owned Domestic Subsidiary (other than a special purpose entity in connection with a Permitted Accounts Receivable Financing Facility) or (ii) all or any substantial part of its accounts receivable in connection with a Permitted Accounts Receivable Financing Facility".

        2.14    Amendment to Section 7.06.    Section 7.06 is amended by adding the following sentence to the end of the section:

        Notwithstanding the foregoing, Borrower will not, nor will it permit any of its Subsidiaries to, make any Acquisition with the proceeds of any Debt if the Funded Leverage Ratio (determined on a pro forma basis both before and after giving effect to such Acquisition) is greater than 3.25 to 1.0. For purposes hereof, (a) Consolidated EBITDA may be adjusted by Borrower in connection with such Acquisition to the extent approved by the Requisite Lenders and (b) the Funded Debt of any Person to be acquired by Borrower or any Subsidiary shall be included in the calculation of the Funded Leverage Ratio as if such Person were a Subsidiary as of the date of such Acquisition.

        2.15    Amendment to Section 7.07.    Section 7.07 is amended in its entirety to read as follows:

        7.07Operating Leases.    Borrower will not, nor will it permit any of its Subsidiaries to, create or suffer to exist obligations for the payment of rent under Operating Leases in excess of $12,000,000 in the aggregate for Borrower and its Subsidiaries at any time after the effectiveness of the First Amendment to this Agreement.

        2.16    Amendment to Section 7.08.    Section 7.08 is amended as follows:

        (a)  Clauses (g) and (h) of Section 7.08 are amended in their entirety to read as follows:

        (g)  loans, guarantees or other extensions of credit to Borrower's employee stock ownership plan existing on the date of the First Amendment to this Agreement;

        (h)  [Intentionally omitted];

        (b)  The period at the end of clause (k) is replaced with a semicolon followed by the following:

provided that the aggregate amount of all Investments (other than (x) Ordinary Course Investments described in clauses (a) and (e) of the definition of "Ordinary

8

Course Investments" and (y) Investments permitted by clauses (b), (c), (d), (e), (f) and (i) above) and cash (in deposit accounts or otherwise, but excluding cash in disbursement accounts to the extent bona fide checks have been issued thereon) of Borrower and its Subsidiaries does not exceed $10,000,000 for any four consecutive Business Days.

        2.17    Amendment to Section 7.09.    Section 7.09 is amended by inserting the following clause before the period at the end of the first paragraph thereof:

; and provided, further, that no Restricted Payment shall be made when the Funded Leverage Ratio (determined on a pro forma basis both before and after giving effect to such Restricted Payment) is greater than 3.25 to 1.0.

        2.18    Amendment to Section 7.12.    Section 7.12 is amended by replacing the number "$30,000,000" in the last sentence of that section with the number "$20,000,000".

        2.19    Amendment to Section 7.14.    Section 7.14 is amended in its entirety to read as follows:

        7.14Leverage Ratio.    Borrower shall not permit the Leverage Ratio at any time during any period set forth below to be greater than the ratio set forth below opposite such period:

Period	Maximum Leverage Ratio
Prior to 6/29/02	7.80 to 1
6/30/02-9/29/02	7.30 to 1
9/30/02-12/30/02	6.75 to 1
12/31/02-3/30/03	5.50 to 1
3/31/03-6/29/03	5.00 to 1
6/30/03-9/29/03	4.75 to 1
9/30/03 and thereafter	4.25 to 1.

        2.20    Amendment to Section 7.15.    Section 7.15 is amended in its entirety to read as follows:

        7.15Interest Coverage Ratio.    Borrower shall not permit the Interest Coverage Ratio as of the last day of any fiscal quarter set forth below to be less than the ratio set forth below opposite such day:

Fiscal Quarter Ending	Minimum Interest Coverage Ratio
December 31, 2001	2.50 to 1
March 31, 2002 and June 30, 2002	1.75 to 1
September 30, 2002	1.90 to 1
December 31, 2002	2.25 to 1
March 31, 2003 and thereafter	2.50 to 1.

        2.21    Amendment to Section 8.01.    Section 8.01 is amended by (i) deleting the period at the end of clause (m), (ii) inserting "; or" at the end of clause (m), and (iii) inserting a new clause (n) to read as follows:

        (n)  (i) any Security Document shall cease to be in full force and effect with respect to Borrower or any Subsidiary Guarantor (other than as a result of a transaction permitted hereunder); (ii) Borrower or any Subsidiary Guarantor shall fail to comply with or to perform any applicable provision of any Security Document to which it is a party and such failure (x) has a

9

material adverse effect on Collateral Agent's rights with respect to any material portion of the collateral granted thereunder or (y) continues unremedied for 10 days after the earlier of the date on which (1) a Responsible Officer obtains knowledge of such failure or (2) Collateral Agent delivers notice of such failure to Borrower; or (iii) Borrower or any Subsidiary Guarantor (or any Person by, through or on behalf of Borrower or such Subsidiary Guarantor) shall contest in any manner the validity, binding nature or enforceability of any Security Document.

        2.22    Amendment to Section 10.01.    Clause (d) of Section 10.01 is amended by inserting the following phrase immediately before the semicolon at the end of that clause: "or all or substantially all of the collateral granted under the Security Documents".

        2.23    Amendment to Section 10.04.    Clause (i) of the proviso set forth in Section 10.04(b) is amended by deleting the reference to "a Lender or an Affiliate of the assigning Lender" therein and substituting "an Eligible Assignee" therefor.

        2.24    Amendment to Section 10.18.    Section 10.18 is amended in its entirety to read as follows:

        10.18Further Assurances.    Borrower and its Subsidiaries shall, at their expense and without expense to Lenders or Administrative Agent, do, execute and deliver such further acts and documents as are necessary, or as Administrative Agent (or the Requisite Lenders acting through Administrative Agent) may reasonably request, from time to time (including the execution and delivery of guaranties, security agreements, pledge agreements, financing statements, mortgages, deeds of trust and other documents, the filing or recording of any of the foregoing, the delivery of stock certificates and other collateral with respect to which perfection is obtained by possession, and the delivery of opinions of counsel with respect to any of such documents) to (a) assure and confirm unto Lenders or Administrative Agent of the rights hereby created and (b) ensure that (i) the obligations of Borrower hereunder and under the other Loan Documents and any obligations of Borrower owing to any Lender or any Affiliate of any Lender under any Swap Agreement are secured by substantially all of the assets of Borrower and guaranteed by all of its Subsidiaries (including, promptly upon the acquisition or creation thereof, any Subsidiary acquired or created after the date hereof but excluding any special purpose Subsidiary acquired or created in connection with a Permitted Accounts Receivable Financing Facility) by execution of a counterpart of the Master Subsidiary Guaranty; provided that (x) no Foreign Subsidiary shall have an obligation to execute a counterpart of the Master Subsidiary Guaranty and (y) neither Borrower nor any Subsidiary shall have an obligation to perfect the security interest of the Collateral Agent in the shares of any Foreign Subsidiary (other than any Foreign Subsidiary listed on Schedule 2 of the First Amendment to this Agreement) under the laws of the jurisdiction of such Foreign Subsidiary's organization so long as the aggregate book value of (A) all assets owned by such Foreign Subsidiary does not exceed $8,000,000 and (B) all assets owned by all Foreign Subsidiaries with respect to which the security interest of the Collateral Agent has not been perfected under the laws of such Foreign Subsidiaries' respective jurisdictions of organization does not exceed $20,000,000; and (ii) the obligations of each Subsidiary Guarantor under the Master Subsidiary Guaranty and any obligations of such Subsidiary Guarantor owing to any Lender or any Affiliate of any Lender under any Swap Agreement are secured by substantially all of the assets of such Subsidiary Guarantor. Notwithstanding the foregoing, neither Borrower nor any Domestic Subsidiary shall be required to pledge more than 65% of the stock of any Foreign Subsidiary.

        2.25    Addition of New Sections 10.26, 10.27 and 10.28.    The following new Sections 10.26, 10.27 and 10.28 are added to the Credit Agreement in appropriate numerical sequence:

        10.26Collateral Matters.    (a) Administrative Agent shall, and Lenders irrevocably authorize Administrative Agent to, (i) request that Collateral Agent release any Lien on any property granted to or held by Collateral Agent under any Security Document (w) upon termination of the Commitments and payment in full of all Loans and other obligations of Borrower hereunder and

10

the expiration or termination of all Letters of Credit; (x) which is sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder, (y) on or after the occurrence of the Collateral Release Date (as defined in the Intercreditor Agreement) or (z) subject to Section 10.01, if approved, authorized or ratified in writing by the Requisite Lenders; or (ii) request that Collateral Agent subordinate any Lien on any property granted to or held by Collateral Agent to the holder of any Lien on such property which is permitted by subsection 7.01(b), 7.01(d) or 7.01(e), any Lien securing Indebtedness permitted by subsection 7.02(d) (subject to the limitations set forth in subsection 7.01(c)), and any extension or renewal of the Liens described above permitted by subsection 7.01(h). Upon request by Administrative Agent at any time, the Requisite Lenders will confirm in writing Administrative Agent's authority to request that Collateral Agent release or subordinate Collateral Agent's interest in particular types or items of property. Without limiting the foregoing, Borrower will deliver each of the documents described in Schedule 2 to the First Amendment to this Agreement on or prior to the date required for delivery of such document in such Schedule 2.

        10.27Amendments to Agreements.    Borrower shall not, and shall not permit any Subsidiary to, enter into any amendment or modification of any agreement relating to any Permitted Accounts Receivable Financing Facility in any manner which would (a) reduce advance rates with respect to accounts receivable purchased under such facility or (b) shorten the maturity date of such facility. Borrower shall, and shall cause each of its applicable Subsidiaries to, promptly (and, in any event, within three Business Days) deliver to Administrative Agent and each Lender a copy of any amendment or modification to any agreement relating to any termination event, event of default or similar event under any Permitted Accounts Receivable Financing Facility. Nothing in this Section 10.27 shall prevent (i) General Electric Capital Corporation from exercising the discretion granted to it under any GECC Securitization Document (as defined in Section 6.8 of the First Amendment to this Agreement) to (x) modify reserves or (y) take any action which would modify the effective advance rates with respect to accounts receivable purchased under such facility or (ii) Borrower or any Subsidiary from entering into a replacement for any Permitted Accounts Receivable Financing Facility so long as such replacement has terms which are not less favorable to the interests of the Lenders in any material respect than the terms of the Permitted Accounts Receivable Financing Facility being replaced.

        10.28Leases.    Borrower shall, and shall cause each of its Subsidiaries to, (a) pay all obligations with respect to leases of real property by the Borrower and its Subsidiaries, (b) at the request of Administrative Agent, provide copies of receipts or similar documents evidencing the current nature of payments under such leases and (c) promptly notify Administrative Agent or any delinquent payment under any such lease. Administrative Agent shall have the right to make any delinquent lease payment directly to the applicable lessor and to charge Borrower the amount of such payment as a Loan.

        2.26    Amendment to Exhibit B.    Exhibit B to the Credit Agreement is amended in its entirety to read as set forth on Exhibit B hereto.

        2.27    Addition of New Exhibit G.    Exhibit G hereto is added to the Credit Agreement as Exhibit G thereto.

        3.    Waivers.    The Requisite Lenders hereby waive any Event of Default under Sections 7.14 and 7.15 of the Credit Agreement for the fiscal quarters ended September 30, 2001 and December 31, 2001.

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        4.    Representations and Warranties.    The Borrower represents and warrants to the Administrative Agent and the Lenders that, on and as of the date hereof, and after giving effect to this Amendment:

        4.1    Authorization.    The execution, delivery and performance by the Borrower of this Amendment has been duly authorized by all necessary corporate action, and this Amendment has been duly executed and delivered by the Borrower.

        4.2    Binding Obligation.    This Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability.

        4.3    No Legal Obstacle to Amendment.    The execution, delivery and performance of this Amendment will not (a) contravene the Organization Documents of the Borrower; (b) constitute a breach or default under any contractual restriction or violate or contravene any law or governmental regulation or court decree or order binding on or affecting the Borrower which individually or in the aggregate does or could reasonably be expected to have a Material Adverse Effect; or (c) result in, or require the creation or imposition of, any Lien on any of the Borrower's properties, except any Lien pursuant to the Collateral Documents as defined in the Credit Agreement as amended hereby (as so amended, the "Amended Credit Agreement"). No approval or authorization of any governmental authority is required to permit the execution, delivery or performance by the Borrower of this Amendment.

        4.4    Incorporation of Certain Representations.    After giving effect to the terms of this Amendment, the representations and warranties of the Borrower set forth in Section 5 of the Credit Agreement are true and correct in all respects on and as of the date hereof as though made on and as of the date hereof, except as to such representations made as of an earlier specified date.

        4.5    Default.    No Default or Event of Default has occurred and is continuing after giving effect to the terms of this Amendment.

        5.    Conditions to Effectiveness.    The effectiveness of this Amendment is subject to the compliance by the Borrower with its agreements herein contained and the conditions set forth on Schedule 1, and to the delivery to the Administrative Agent, in form and satisfactory to the Administrative Agent, of the following:

        5.1    Counterparts.    Counterparts hereof signed by the Borrower and the Requisite Lenders and consented to by each Subsidiary Guarantor.

        5.2    Amendment Fee.    Payment of (a) an amendment fee for the account of each Lender approving this Amendment by 5:00 p.m. PST on March 28, 2002, equal to 30 basis points of such Lender's Commitment, and (b) all fees set forth in a separate fee letter among the Borrower, the Administrative Agent, the Collateral Agent and the Arranger.

        5.3    List of Subsidiaries.    A list showing the true legal name of each Subsidiary of the Borrower and designating which Subsidiaries are Subsidiary Guarantors.

        6.    Miscellaneous.

        6.1    Effectiveness of the Credit Agreement.    Except as hereby expressly amended hereby, the Credit Agreement shall remain in full force and effect, and is hereby ratified and confirmed in all respects on and as of the date hereof. After the effectiveness of this Amendment, all references in the Credit Agreement and the other Loan Documents to "Credit Agreement" or similar terms shall refer to the Credit Agreement as amended hereby.

        6.2    Counterparts.    This Amendment may be executed in any number of counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. All

12

provisions of this Amendment shall become effective when the Borrower, the Administrative Agent and the Requisite Lenders shall have signed a copy hereof and the same shall have been delivered to the Administrative Agent and the conditions in Section 4 shall have been satisfied.

        6.3    Governing Law.    This Amendment shall be governed by and construed in accordance with the laws of the State of California.

        6.4    Successors and Assigns.    This Amendment shall be binding upon the Borrower, the Lenders and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Lenders and the Administrative Agent and the respective successors and assigns of the Lenders and the Administrative Agent.

        6.5    Certain Collateral Matters.    The Requisite Lenders acknowledge that the Administrative Agent will enter into, and Bank of America will act as collateral agent (in such capacity, the "Collateral Agent") under, an Amended and Restated Intercreditor Agreement substantially in the form of Exhibit C among the purchasers under the Senior Note Agreements and various other creditors of the Borrower and/or its Subsidiaries (the "Intercreditor Agreement"). The Requisite Lenders authorize (i) the Administrative Agent to enter into the Intercreditor Agreement on behalf of the Lenders and to execute and deliver such documents as may reasonably be required or appropriate in connection therewith, (ii) Bank of America to act as Collateral Agent on behalf of the Lenders and various other creditors under the Intercreditor Agreement and (iii) Bank of America to enter into collateral access agreements with General Electric Capital Corporation substantially in the form of Exhibits B-1 and B-2 to the Intercreditor Agreement.

        6.6    Certain Real Estate Matters.    The Borrower hereby acknowledges that, subsequent to the recordation of the Mortgages in the appropriate county recorder's office for each of the real properties encumbered thereby, the Collateral Agent will be obtaining a real property appraisal for substantially all of such real properties for purposes of determining current appraised values (the "Current Appraised Values") for such real properties. The Borrower hereby acknowledges that the Current Appraised Values of the real properties encumbered by the Mortgages were not available to the Collateral Agent prior to the effectiveness of this Amendment and, accordingly, the Borrower hereby agrees as follows:

        (a)  With respect to any Mortgage recorded in the State of Alabama or Minnesota, to the extent enforcement of such Mortgage is limited to a debt amount that is less than the Current Appraised Value of the real property encumbered by such Mortgage, the Borrower agrees to enter into, or to cause the applicable Subsidiary Guarantor to enter into, an amendment to such Mortgage, in form and substance reasonably satisfactory to the Collateral Agent and the Borrower (or the applicable Subsidiary), to increase the enforcement amount of such Mortgage to an amount not less than 110% of the Current Appraised Value of such real property. Any such amendment to a Mortgage shall be in recordable form and shall be promptly recorded in the applicable county recorder's office where the applicable encumbered real property is located.

        (b)  With respect to any Title Insurance Policy issued in connection with any Mortgage for any real property for which a Current Appraised Value was obtained, if either (i) the liability amount of such Title Insurance Policy is less than the Current Appraised Value of the real property encumbered by such Mortgage or (ii) the liability amount of such Title Insurance Policy exceeds 110% of the Current Appraised Value, the Borrower will cause the applicable issuing title insurance company for such Title Insurance Policy to reissue such Title Insurance Policy (or otherwise supplement the existing Title Insurance Policy) in order to (x) include the amendment to Mortgage entered into in accordance with Section 10.28(a) as part of the insured Mortgage, (y) in the case of clause (i) above, increase the liability amount of such Title Insurance Policy to an amount not less than 110% of the Current Appraised Value of the applicable encumbered real property and (y) in the case of clause (ii) above, decrease the liability amount of such Title Insurance Policy to an amount equal to 110% of the Current

13

Appraised Value of the applicable encumbered real property. Such reissued or supplemented Title Insurance Policy shall not reflect any exception to title other than as reflected in Schedule B of the originally issued Title Insurance Policy for such Mortgage.

        (c)  The Borrower will pay all costs and expenses (subject only to the limitation set forth in Section 9(m) of the Intercreditor Agreement with respect to costs associated with appraisals of certain real property), including reasonable attorneys' fees and expenses, incurred in connection with the drafting, negotiation, closing and recording of the Mortgage amendments referred to above, as well as any additional mortgage taxes, recording costs and title insurance premiums incurred in connection with the foregoing.

        6.7    Release; Covenant not to Sue.    In consideration of the agreements and understandings in this Amendment, the Borrower and (by their execution of the Consent to this Amendment) the Subsidiary Guarantors, for themselves and, to the extent that any of the following is claiming by, through, or otherwise on behalf of (including, without limitation, on any derivative basis) either the Borrower or any Subsidiary Guarantor, for their respective employees, officers, agents, executors, heirs, successors and assigns, jointly and severally, hereby release each of the Administrative Agent and each Lender, and its employees, officers, participants, agents, affiliates, subsidiaries, successors and assigns from any claim, right or cause of action which now exists, in any way related to facts in existence as of the date hereof, whether known or unknown. By way of example and not limitation, the foregoing includes any claims in any way related to the Loan Documents and the business relationship with the Administrative Agent and the Lenders. The Borrower and the Subsidiary Guarantors hereby covenant that they will refrain from commencing any action or suit or prosecuting any action or suit, in law or in equity, against each of the Administrative Agent and each Lender, and its employees, officers, agents, participants, affiliates, subsidiaries, successors and assigns, on account of any claim, action or cause of action which now exists in the Borrower's or any Subsidiary Guarantor's favor based upon facts existing as of the date of this Agreement. In addition to the other liability which shall accrue upon the breach of this covenant, the breaching party shall be liable to the Administrative Agent and the Lenders for all reasonable attorneys' fees and costs incurred by such party in the defense of such action or suit.

        The Borrower and each Subsidiary Guarantor understand and have been advised by their legal counsel of the provisions of Section 1542 of the California Civil Code, which provides as follows:

        "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor."

        Each of the Borrower and each Subsidiary Guarantor understands and hereby waives the provisions of Section 1542 of the California Civil Code and declares that it realizes that it may have damages it presently knows nothing about and that, as to it, such damages have been released pursuant to this Section 6.8. Each of the Borrower and each Subsidiary Guarantor also declares that it understands that the Administrative Agent and the Lenders would not agree to enter into this Amendment if this Section 6.8 did not cover damages and their results which may not yet have manifested themselves or may be unknown to or not anticipated at the present by the Borrower or any Subsidiary Guarantor.

        6.8    GE Securitization.    The Requisite Lenders hereby (a) consent to the execution, delivery and performance by the Borrower, Stearns Inc. ("Stearns"), Shakespeare Company, LLC ("Shakespeare"), K-2 Corporation ("K-2 Corp."), K2 Receivables Corporation ("K2 SPV") and K2 Finance Company, LLC ("K2 LLC") of the GECC Securitization Documents and (b) confirm that the facility being provided pursuant to the GECC Securitization Documents constitutes a Permitted Accounts Receivable Financing Facility.

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        As used herein, "GECC Securitization Documents" means the following documents, each in the form delivered to the Lenders on March 27, 2002: (i) the Receivables Sale and Contribution Agreement dated as of March 28, 2002 among the Borrower, as parent guarantor, Stearns, Shakespeare and K-2 Corp., as originators, and K2 LLC, as buyer (the "Sale and Contribution Agreement"); (ii) the Receivables Purchase and Servicing Agreement dated as of March 28, 2002 among K2 LLC, as seller, the Borrower, as master servicer, Stearns, Shakespeare and K-2 Corp. as servicers, K2 SPV, Redwood Receivables Corporation, as the conduit purchaser (the "Conduit Purchaser"), General Electric Capital Corporation, as the committed purchaser (the "Committed Purchaser") and as administrative agent (the "Agent") for the Committed Purchaser and the Conduit Purchaser; (iii) the Parent Performance Guaranty dated as of March 28, 2002 among the Borrower, the Conduit Purchaser, K2 LLC, the Committed Purchaser and the Agent and (iv) the Performance Guaranties each dated as of March 28, 2002 among Stearns, Shakespeare and K-2 Corp., respectively, and K2 LLC, the Conduit Purchaser, the Committed Purchaser and the Agent.

15

        Delivered as of the day and year first above written.

K2 INC.
By	John J. Rangel Senior Vice President, Finance
BANK OF AMERICA, N.A., as Administrative Agent
By	Gina Meador Vice President
BANK OF AMERICA, N.A., as Issuing Lender, a Lender and Swing Line Lender
By	Timothy C. Hintz Managing Director
BANK ONE, N.A.
By
Title
UNION BANK OF CALIFORNIA, N.A.
By
Title
COMERICA WEST INCORPORATED
By
Title

16

CONSENT OF SUBSIDIARY GUARANTORS

        The undersigned Subsidiary Guarantors, as party to the Master Subsidiary Guaranty dated as of December 21, 1999 (the "Master Subsidiary Guaranty"), hereby consent to the foregoing First Amendment to Credit Agreement dated as of even date herewith to which this consent is attached and confirm that the Master Subsidiary Guaranty remains in full force and effect after giving effect thereto and represent and warrant that there is no defense, counterclaim or offset of any type or nature under the Master Subsidiary Guaranty.

Subsidiary Guarantors:

SHAKESPEARE COMPANY, LLC
SITCA CORPORATION
K2 CORPORATION
KATIN, INC.
PLANET EARTH SKATEBOARDS, INC.
K-2 INTERNATIONAL, INC.
MORROW SNOWBOARDS INC.
SMCA, INC.
STEARNS INC.
K2 BIKE INC.
RIDE, INC.

By

Name

Title

Date: March 28, 2002

17

SCHEDULE 1

CLOSING CONDITIONS

        1.    Acknowledgement and Consent of Subsidiary Guarantors.    Each Subsidiary Guarantor shall have executed and delivered the Consent of Subsidiary Guarantors.

        2.    Secretary Certificate of Borrower.    The Borrower shall have delivered to the Administrative Agent a certificate of an authorized officer, dated as of the date hereof, with respect to its Articles of Incorporation and By-laws, certifying as to resolutions authorizing the execution and delivery of this Amendment and the Security Documents, and the incumbency and signature of officers.

        3.    Officer's Certificate of Borrower.    The Borrower shall have delivered to the Administrative Agent a certificate of an authorized officer, dated as of the Effective Date, to the effect that the representations and warranties set forth in Section 4 of this Amendment and in the Security Documents are true and correct.

        4.    Subsidiary Secretary's Certificate.    Each Subsidiary which is a party to a Security Document or which will execute a counterpart of the Master Subsidiary Guaranty shall have delivered to the Administrative Agent a certificate of an authorized officer, dated as of the date hereof, with respect to its Articles of Incorporation and By-laws, certifying as to resolutions authorizing the execution and delivery of the Security Documents or Master Subsidiary Guaranty to which such Subsidiary is a party, and the incumbency and signature of officers.

        5.    Subsidiary Officer's Certificate.    Each Subsidiary which is a party to the Security Documents or will execute a counterpart to the Master Subsidiary Guaranty shall have delivered to the Administrative Agent a certificate of an authorized officer, dated as of the date hereof, certifying that the representations and warranties of such Subsidiary set forth in Section 4 of this Amendment and in the Security Documents or Master Subsidiary Guaranty are true and correct.

        6.    Performance by the Borrower and each Subsidiary.    The Borrower and each Subsidiary which is a party to the Security Documents shall have performed and complied with all agreements and conditions contained in the Security Documents to which it is a party, required to be performed and complied with by it prior to or as of the date hereof.

        7.    Security Documents.    The Security Documents shall be in form and substance satisfactory to the Administrative Agent, shall have been duly authorized, executed and delivered by the parties thereto and shall be in full force and effect, and the Administrative Agent shall have received true, correct and complete copies of each thereof.

        8.    Filings.    Each mortgage, deed of trust and financing statement required to be filed, registered or recorded in connection with the transactions contemplated by the Security Documents shall have been delivered to the Collateral Agent.

        9.    Insurance.    Certificates of insurance evidencing the insurance policies and endorsements required to be delivered pursuant to the Security Documents shall have been delivered to the Collateral Agent and the Administrative Agent.

        10.    Bank Credit Agreement.    The Borrower shall have entered into amendments to the Senior Note Agreements, in each case in form and substance reasonably satisfactory to the Requisite Lenders.

        11.    Securitization Facility.    The Borrower shall have furnished the Lenders with true and correct copies of (a) the Receivables Purchase and Servicing Agreement dated as of March 28, 2002 among the Borrower, certain of its Subsidiaries and General Electric Capital Corporation, and all related Exhibits thereto, and (b) the Receivables Sale and Contribution Agreement dated as of March 28, 2002 among the Borrower and certain of its Subsidiaries, and all related Exhibits thereto, each in form and substance reasonably satisfactory to the Lenders.

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        12.    Amended and Restated Intercreditor Agreement.    The Collateral Agent shall have entered into an Amended and Restated Intercreditor Agreement substantially in the form of Exhibit C.

        13.    Counterpart to Master Subsidiary Guaranty.    Shakespeare Connective Fibers, LLC shall have executed and delivered a counterpart to the Master Subsidiary Guaranty.

        14.    Legal Opinion.    Gibson, Dunn & Crutcher LLP, counsel for the Borrower and the Subsidiary Guarantors, shall have delivered an opinion in form and substance reasonably satisfactory to the Administrative Agent and the Requisite Lenders.

        15.    Title Insurance.    The Collateral Agent shall have received a loan title insurance policy issued by a title insurance company reasonably acceptable to the Administrative Agent and the Requisite Lenders (or, in the alternative, a commitment to issue a loan title insurance policy issued by a title insurance company reasonably acceptable to the Administrative Agent and the Requisite Lenders and marked and initialed by an authorized agent of such title insurance company to show all changes to be made in connection with the actual issuance of such title insurance policy) in respect of each mortgage and deed of trust executed and delivered in connection with the transactions contemplated by this Amendment (collectively, the "Title Insurance Policies"), in form and substance satisfactory to the Administrative Agent and the Requisite Lenders, and all premiums in respect of the Title Insurance Policies shall have been paid in full.

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SCHEDULE 2
POST-CLOSING DELIVERIES

1.    Pledge Agreements pledging 65% of the outstanding stock of the following Foreign Subsidiaries by the applicable dates set forth below:

Foreign Subsidiary (Domicile)	Pledgor(s)	Delivery Date
Shakespeare (Hong Kong) Ltd. (Hong Kong)	Shakespeare Company, LLC	June 30, 2002
Shakespeare International Ltd. (U.K.)	K2 Inc.
	Shakespeare Company, LLC	April 12, 2002
K2 Ski Sport + Mode GmbH (Germany)	Shakespeare Company, LLC	April 19, 2002
K2 Japan Corporation (Japan)	K-2 Corporation	June 30, 2002
Madshus A.S. (Norway)	K-2 Corporation	June 30, 2002
K2 Corporation of Canada (Canada)	Ride, Inc.	April 12, 2002

2.    The Borrower shall use its best efforts to deliver to the Collateral Agent (a) not later than April 26, 2002, Collateral Access Agreements executed by owners of the properties located in (i) Fife, Washington, (ii) Lincolnwood, Illinois and (iii) Vista, California which are leased by the Borrower or a Subsidiary, and (b) not later than May 24, 2002, Collateral Access Agreements executed by owners of each other property leased by the Borrower or any Subsidiary.

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EXHIBIT B

FORM OF AMENDED COMPLIANCE CERTIFICATE

21

EXHIBIT C

FORM OF AMENDED AND RESTATED INTERCREDITOR AGREEMENT

22

EXHIBIT G

FORM OF CASH FLOW FORECAST

23

QuickLinks

FIRST AMENDMENT TO CREDIT AGREEMENT
RECITALS
CONSENT OF SUBSIDIARY GUARANTORS
SCHEDULE 1 CLOSING CONDITIONS
SCHEDULE 2 POST-CLOSING DELIVERIES
EXHIBIT B FORM OF AMENDED COMPLIANCE CERTIFICATE
EXHIBIT C FORM OF AMENDED AND RESTATED INTERCREDITOR AGREEMENT
EXHIBIT G FORM OF CASH FLOW FORECAST

EX-10.(E)

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EXHIBIT 10(e)

RECEIVABLES PURCHASE AND SERVICING AGREEMENT

Dated as of March 28, 2002,

by and among

K2 FINANCE COMPANY, LLC

as Seller,

REDWOOD RECEIVABLES CORPORATION,

as Conduit Purchaser,

K2 INC.,

as Master Servicer,

K-2 CORPORATION,
SHAKESPEARE COMPANY, LLC, and
STEARNS INC.

each as a Servicer

K2 RECEIVABLES CORPORATION

and

GENERAL ELECTRIC CAPITAL CORPORATION,

as Committed Purchaser and as Administrative Agent

TABLE OF CONTENTS

			Page
ARTICLE I. DEFINITIONS AND INTERPRETATION			1
	Section 1.01.	Definitions	1
	Section 1.02.	Rules of Construction	1
ARTICLE II. AMOUNTS AND TERMS OF PURCHASES			2
	Section 2.01.	Purchases	2
	Section 2.02.	Optional Changes in Maximum Purchase Limit	2
	Section 2.03.	Notices Relating to Purchases and Reductions in Capital Investment	2
	Section 2.04.	Conveyance of Receivables	3
	Section 2.05.	Facility Termination Date	4
	Section 2.06.	Daily Yield	4
	Section 2.07.	Fees	4
	Section 2.08.	Time and Method of Payments	5
	Section 2.09.	Capital Requirements; Additional Costs	5
	Section 2.10.	Breakage Costs	6
	Section 2.11.	Purchase Excess	6
ARTICLE III. CONDITIONS PRECEDENT			7
	Section 3.01.	Conditions to Effectiveness of Agreement	7
	Section 3.02.	Conditions Precedent to All Purchases	8
ARTICLE IV. REPRESENTATIONS AND WARRANTIES			9
	Section 4.01.	Representations and Warranties of the Seller	9
	Section 4.02.	Representations and Warranties of the Servicer	15
ARTICLE V. GENERAL COVENANTS OF THE SELLER			16
	Section 5.01.	Affirmative Covenants of the Seller	16
	Section 5.02.	Reporting Requirements of the Seller	17
	Section 5.03.	Negative Covenants of the Seller	17
ARTICLE VI. COLLECTIONS AND DISBURSEMENTS			19
	Section 6.01.	Establishment of Accounts	19
	Section 6.02.	Funding of Collection Account	21
	Section 6.03.	Daily Disbursements From the Collection Account and Related Sub-Accounts; Revolving Period	22
	Section 6.04.	Disbursements From the Retention Account; Settlement Date Procedures; Revolving Period	23
	Section 6.05.	Liquidation Settlement Procedures	25
	Section 6.06.	Investment of Funds in Accounts	25
	Section 6.07.	Termination Procedures	25
ARTICLE VII. SERVICER PROVISIONS			26
	Section 7.01.	Appointment of the Servicer	26
	Section 7.02.	Duties and Responsibilities of the Servicer	26
	Section 7.03.	Collections on Receivables	26
	Section 7.04.	Authorization of the Servicer	27
	Section 7.05.	Servicing Fees	27
	Section 7.06.	Representations and Warranties of the Servicer	28
	Section 7.07.	Covenants of the Servicer	29
	Section 7.08.	Reporting Requirements of the Servicer	29

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ARTICLE VIII. GRANT OF SECURITY INTERESTS			30
	Section 8.01.	Seller's Grant of Security Interest	30
	Section 8.02.	Seller's Certification	31
	Section 8.03.	Consent to Assignment	31
	Section 8.04.	Delivery of Collateral	31
	Section 8.05.	Seller Remains Liable	32
	Section 8.06.	Covenants of the Seller and the Servicer Regarding the Seller Collateral	32
ARTICLE IX. TERMINATION EVENTS			35
	Section 9.01.	Termination Events	35
	Section 9.02.	Events of Servicer Termination	37
ARTICLE X. REMEDIES			40
	Section 10.01.	Actions Upon Termination Event	40
	Section 10.02.	Exercise of Remedies	41
	Section 10.03.	Power of Attorney	41
	Section 10.04.	Continuing Security Interest	41
ARTICLE XI. SUCCESSOR SERVICER PROVISIONS			41
	Section 11.01.	Servicer Not to Resign	41
	Section 11.02.	Appointment of the Successor Servicer	42
	Section 11.03.	Duties of the Servicer	42
	Section 11.04.	Effect of Termination or Resignation	42
ARTICLE XII. INDEMNIFICATION			42
	Section 12.01.	Indemnities by the Seller	42
	Section 12.02.	Indemnities by the Servicer	44
	Section 12.03.	Limitation of Damages; Indemnified Persons	44
ARTICLE XIII. AGENT			45
	Section 13.01.	Authorization and Action	45
	Section 13.02.	Reliance	45
	Section 13.03.	GE Capital and Affiliates	45
ARTICLE XIV. MISCELLANEOUS			46
	Section 14.01.	Notices	46
	Section 14.02.	Binding Effect; Assignability	46
	Section 14.03.	Termination; Survival of Seller Secured Obligations Upon Facility Termination Date	47
	Section 14.04.	Costs, Expenses and Taxes	47
	Section 14.05.	Confidentiality	48
	Section 14.06.	No Proceedings	49
	Section 14.07.	Complete Agreement; Modification of Agreement	49
	Section 14.08.	Amendments and Waivers	49
	Section 14.09.	No Waiver; Remedies	49
	Section 14.10.	GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL	49
	Section 14.11.	Counterparts	51
	Section 14.12.	Severability	51
	Section 14.13.	Section Titles	51
	Section 14.14.	Limited Recourse	51
	Section 14.15.	Further Assurances	51

ii

EXHIBITS, SCHEDULES AND ANNEXES

Exhibit 2.02(a)	Form of Commitment Reduction Notice
Exhibit 2.02(b)	Form of Commitment Termination Notice
Exhibit 2.03(a)	Form of Investment Base Certificate
Exhibit 2.03(b)	Form of Capital Purchase Request
Exhibit 2.03(c)	Form of Repayment Notice
Exhibit 2.04(a)	Form of Purchase Assignment
Exhibit 3.01(a)(i)	Form of Solvency Certificate
Exhibit 3.01(a)(ii)(A)	Form of Seller/SPC Certificate (Closing)
Exhibit 3.01(a)(ii)(B)	Form of Seller/SPC Certificate (Post-Closing)
Exhibit 3.01(a)(iii)(A)	Form of Servicer's Certificate (Closing)
Exhibit 3.01(a)(iii)(B)	Form of Servicer's Certificate (Post-Closing)
Exhibit 3.01(a)(iv)	Form of Monthly Report
Exhibit 10.03	Form of Power of Attorney
Exhibit A	Credit and Collection Policy
Exhibit B-1	First Amendment to Credit Agreement
Exhibit B-4	Fourth Amendment to 1992 Note Agreement
Exhibit B-3	Third Amendment to 1999 Note Agreement
Exhibit C	Credit Facility Intercreditor Agreement
Exhibit D	Pledge Agreement
Exhibit E	Membership Interest Pledge Agreement
Exhibit F	Security Agreement
Schedule 4.01(b)	Executive Offices; Collateral Locations; Corporate or Other Names; FEIN/Seller
Schedule 4.01(d)	Litigation
Schedule 4.01(h)	Ventures, Subsidiaries and Affiliates; Outstanding Stock and Debt/Seller
Schedule 4.01(i)	Tax Matters/Seller
Schedule 4.01(r)	Deposit and Disbursement Accounts/Seller
Schedule 5.01(b)	Trade Names/Seller
Schedule 5.03(b)	Existing Liens/Seller
Annex 5.02(a)	Reporting Requirements of the Seller
Annex 7.07	Reporting Requirements of the Servicers
Annex X	Definitions

iii

        THIS RECEIVABLES PURCHASE AND SERVICING AGREEMENT (as amended, supplemented or otherwise modified and in effect from time to time, the "Agreement") is entered into as of March 28, 2002, by and among K2 FINANCE COMPANY, LLC, a Delaware limited liability company (the "Seller"), K2 INC., a Delaware corporation (the "Parent"), in its capacity as master servicer hereunder (in such capacity, the "Master Servicer"), K-2 CORPORATION, an Indiana corporation ("K-2 Corp.") in its capacity as a servicer hereunder, SHAKESPEARE COMPANY, LLC, a Delaware limited liability company ("Shakespeare") in its capacity as a servicer hereunder, STEARNS INC., a Minnesota corporation ("Stearns") in its capacity as a servicer hereunder, K2 Receivables Corporation, a Delaware corporation ("SPC"), REDWOOD RECEIVABLES CORPORATION, a Delaware corporation (the "Conduit Purchaser"), and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as a Committed Purchaser (the "Committed Purchaser") and as administrative agent for the Conduit Purchaser and the Committed Purchaser hereunder (in such capacity, the "Administrative Agent").

RECITALS

        A.    The Seller is a special purpose entity owned by the Originators (as defined below) and SPC.

        B.    The Seller has been formed for the purpose of purchasing, or otherwise acquiring by capital contribution, all trade receivables of the Originators.

        C.    The Seller intends to sell, and subject to the terms and conditions hereof, the Conduit Purchaser and the Committed Purchaser intend to purchase, undivided percentage interests in such trade receivables, from time to time, as described herein.

        D.    The Administrative Agent has been requested and is willing to act as administrative agent on behalf of each of the Conduit Purchaser and the Committed Purchaser in connection with the making and financing of such purchases.

        E.    In order to effectuate the purposes of this Agreement, the Conduit Purchaser and the Committed Purchaser each desires to appoint the Parent to service, administer and collect the receivables acquired by the Purchasers pursuant to this Agreement and the Parent is willing to act in such capacity as Master Servicer hereunder on the terms and conditions set forth herein.

        F.    In order to effectuate the purposes of this Agreement, the Conduit Purchaser and the Committed Purchaser each desires to appoint each of K-2 Corp., Shakespeare and Stearns to service, administer and collect the receivables originated by it and subsequently acquired by the Purchasers pursuant to this Agreement and each of K-2 Corp., Shakespeare and Stearns is willing to act in such capacity as a Servicer hereunder on the terms and conditions set forth herein.

AGREEMENT

        NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS AND INTERPRETATION

        Section 1.01.    Definitions.    Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in Annex X.

        Section 1.02.    Rules of Construction.    For purposes of this Agreement, the rules of construction set forth in Annex X shall govern. All Appendices hereto, or expressly identified to this Agreement, are incorporated herein by reference and, taken together with this Agreement, shall constitute but a single agreement.

ARTICLE II.

AMOUNTS AND TERMS OF PURCHASES

        Section 2.01.    Purchases.    From and after the Closing Date and until the Facility Termination Date and subject to the terms and conditions hereof, the Conduit Purchaser and the Committed Purchaser severally agree to purchase Purchaser Interests (each such purchase hereunder, a "Purchase") from the Seller from time to time and the Seller agrees to sell such Purchaser Interests to the Purchasers. The obligation of the Conduit Purchaser to make Purchases hereunder shall be from the Closing Date until the occurrence of either a Committed Purchaser Funding Event or the Facility Termination Date. The obligation of the Committed Purchaser to make Purchases hereunder shall be from and after the occurrence of a Committed Purchaser Funding Event until the Facility Termination Date. Under no circumstances shall a Purchaser be obligated to make any Purchase if, after giving effect thereto, a Purchase Excess would exist. Each purchase of undivided percentage ownership interests in the Receivables by the Purchasers hereunder shall consist of either (i) a purchase made by the applicable Purchasers with new funds provided by such Purchasers (each, a "Capital Purchase") or (ii) a purchase made by the applicable Purchasers with funds consisting of Collections allocated to the Purchaser Interests pursuant to the terms of this Agreement (each, a "Reinvestment Purchase"). On each Business Day following the Closing Date until the Facility Termination Date, but subject to Section 3.02 hereof, each Purchaser holding a Purchaser Interest at such time shall be automatically deemed to have made a Reinvestment Purchase with the amount of funds to be distributed to the Seller pursuant to Section 6.03(c), if any.

        Section 2.02.    Optional Changes in Maximum Purchase Limit.

        (a)  The Seller may reduce the Maximum Purchase Limit permanently; provided, that (i) the Seller shall give thirty days' prior written notice of any such reduction to the Administrative Agent substantially in the form of Exhibit 2.02(a) (each such notice, a "Commitment Reduction Notice"), (ii) any partial reduction of the Maximum Purchase Limit shall be in a minimum amount of $5,000,000 or an integral multiple thereof, and (iii) no such reduction shall reduce the Maximum Purchase Limit below the greater of (x) Capital Investment at such time and (y) $50,000,000.

        (b)  The Seller may at any time on at least 30 days' prior written notice by the Seller to the Administrative Agent irrevocably terminate the Maximum Purchase Limit; provided, that (i) such notice of termination shall be substantially in the form of Exhibit 2.02(b) (the "Commitment Termination Notice"), and (ii) the Seller shall reduce the Capital Investment to zero and make all payments required by Section 2.03(c) at the time and in the manner specified therein. Upon such termination, the Seller's right to request that any Purchaser make Purchases hereunder shall simultaneously terminate and the Facility Termination Date shall automatically occur.

        (c)  Each written notice required to be delivered pursuant to Sections 2.02(a) and (b) shall be irrevocable and shall be effective (i) on the day of receipt if received by the Administrative Agent and the Purchasers not later than 4:00 p.m. (New York time) on any Business Day and (ii) on the immediately succeeding Business Day if received by the Administrative Agent and the Purchasers after such time on such Business Day or if any such notice is received on a day other than a Business Day (regardless of the time of day such notice is received). Each such notice of termination or reduction shall specify, respectively, the amount of, or the amount of the proposed reduction in, the Maximum Purchase Limit.

        Section 2.03.    Notices Relating to Purchases and Reductions in Capital Investment.

        (a)  Not later than 1:00 p.m. (New York time) on each Wednesday (or, if such day is not a Business Day, the immediately following Business Day), the Seller shall deliver to the Purchasers and the Administrative Agent an Officer's Certificate substantially in the form of Exhibit 2.03(a) (each, an "Investment Base Certificate"); provided, that if (i) an Incipient Termination Event or a

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Termination Event shall have occurred and be continuing or (ii) the Administrative Agent, in good faith, believes that an Incipient Termination Event or a Termination Event is imminent or deems any Purchaser's rights or interests in the Transferred Receivables or the Seller Collateral insecure, the Seller shall deliver an Investment Base Certificate to the Purchasers and the Administrative Agent at such more frequent intervals as the Administrative Agent may request from time to time. Capital Investment Available shall be determined by the Administrative Agent based on information related to the Seller Collateral available to it, including (A) any information obtained in connection with any audit or reflected in the most recent Investment Base Certificate or any other Investment Report delivered to the Purchasers and the Administrative Agent or (B) any other information that may be available to the Purchasers and the Administrative Agent.

        (b)  Each Purchase resulting in an increase in Capital Investment shall be made upon the provision of notice by the Seller to the Administrative Agent in the manner provided herein. Any such notice must be given in writing so that it is received no later than 4:00 p.m. (New York time) on the Business Day immediately preceding the proposed Purchase Date set forth therein. Each such notice (a "Capital Purchase Request") shall (i) be substantially in the form of Exhibit 2.03(b) and shall attach an Investment Base Certificate as of no more than three (3) Business Days prior to the date on which such Capital Purchase Request is delivered, (ii) be irrevocable and (iii) specify the amount of the requested increase in Capital Investment (which shall be in an amount not less than $1,000,000) and the proposed Purchase Date (which shall be a Business Day), and shall include such other information as may be reasonably required by the Purchasers and the Administrative Agent.

        (c)  The Seller may at any time reduce the Capital Investment; provided, that (i) the Seller shall give one Business Day's prior written notice of any such reduction to the Administrative Agent substantially in the form of Exhibit 2.03(c) (each such notice, a "Repayment Notice"), (ii) each such notice shall be irrevocable, (iii) each such notice shall specify the amount of the requested reduction in the Capital Investment and the proposed date of such reduction (which shall be a Business Day) and (iv) any such reduction must be accompanied by payment of (A) all Daily Yield accrued and unpaid on the Capital Investment being reduced through but excluding the date of such reduction and (B) the costs, if any, required by Section 2.10. Any such notice of reduction must be received by the Administrative Agent no later than 4:00 p.m. (New York time) on the Business Day immediately preceding the date of the proposed reduction in Capital Investment.

        Section 2.04.    Conveyance of Receivables.

        (a)    Purchase Assignment.    On or prior to the Closing Date, the Seller shall complete, execute and deliver to the Administrative Agent for the benefit of the Purchasers an assignment substantially in the form of Exhibit 2.04(a) (the "Purchase Assignment") in order to evidence the Purchases.

        (b)    Funding of Collection Account; Increases in Capital Investment.

        (i)    Funding of Collection Account by Purchaser.    Following receipt of any Capital Purchase Request, and subject to satisfaction of the conditions set forth in Section 3.02, the Applicable Purchaser shall make available to or on behalf of the Seller on the Purchase Date specified therein the lesser of the requested increase in Capital Investment specified in such Capital Purchase Request and Capital Investment Available by depositing such amount in same day funds into the Collection Account.

        (ii)    Payment of Purchase Price.    The Applicable Purchaser shall, or shall cause the Administrative Agent to, deposit into the Seller Account on each Business Day during the Revolving Period, in same day funds, all amounts on deposit in the Collection Account that

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are to be disbursed to or on behalf of the Seller pursuant to Section 6.03(c) as payment for the Purchaser Interests.

        (c)    Vesting of Ownership.

          (i)  Effective on and as of each Purchase Date (A) prior to the occurrence of the Committed Purchaser Funding Event, the Conduit Purchaser shall own the Purchaser Interests sold by the Seller hereunder on such Purchase Date, and (B) on and after the occurrence of the Committed Purchaser Funding Event, the Committed Purchaser shall own the Purchaser Interests sold by the Seller hereunder on such Purchase Date. The Seller shall not take any action inconsistent with such ownership and shall not claim any ownership interest in such Purchaser Interests.

        (ii)  The Seller shall indicate in its Records that interests in the Transferred Receivables have been sold hereunder and that ownership of such interests is vested in the Administrative Agent on behalf of the Purchasers. In addition, the Seller shall respond to any inquiries with respect to the ownership of any Transferred Receivable by stating that interests therein have been sold hereunder and that ownership of such interests is vested in the Purchasers. The Seller and the Servicers shall hold all Contracts and other documents and incidents relating to such Transferred Receivables in trust for the benefit of the Administrative Agent on behalf of the Conduit Purchaser and the Committed Purchaser, as the owner thereof, and for the sole purpose of facilitating the servicing of such Transferred Receivables. The Seller and the Servicers hereby acknowledge that their retention and possession of such Contracts and documents shall at all times be at the sole discretion of the Administrative Agent and in a custodial capacity for the Administrative Agent's (on behalf of the Purchasers) benefit only.

        (d)    Repurchases of Transferred Receivables.    If any Originator is required to repurchase Transferred Receivables from the Seller pursuant to Section 4.04 of the Sale and Contribution Agreement, the Applicable Purchaser shall sell and reconvey its Purchaser Interests in such Transferred Receivables to the Seller either (i) through a transfer of such Purchaser Interests in exchange for Purchaser Interests in other Transferred Receivables with an Outstanding Balance equal to the Outstanding Balance of the Receivables being repurchased or (ii) if and to the extent a Purchase Excess exists or would exist pursuant to such sale and reconveyance, for cash in an amount equal to the Outstanding Balance of the Receivables being repurchased.

        Section 2.05.    Facility Termination Date.    Notwithstanding anything to the contrary set forth herein, no Purchaser shall have any obligation to purchase any additional Purchaser Interests from and after the Facility Termination Date.

        Section 2.06.    Daily Yield.

        (a)  The Seller shall pay Daily Yield to the Administrative Agent, for the account of the Purchasers, for each day on which any Capital Investment is outstanding, in the manner and at the times specified in Sections 6.03, 6.04 and 6.05.

        (b)  Notwithstanding the foregoing, the Seller shall pay interest at the applicable Daily Yield Rate on unpaid Daily Yield and on any other amount payable by the Seller hereunder (to the extent permitted by law) that shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise) for the period commencing on the due date thereof to (but excluding) the date the same is indefeasibly paid in full.

        Section 2.07.    Fees.

        (a)  On or prior to the Closing Date, the Seller shall pay to the Administrative Agent, for the account of itself and the Purchasers, the fees set forth in the Fee Letter that are payable on the Closing Date.

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        (b)  On each Settlement Date, the Seller shall pay to the Master Servicer or to its Successor Servicer, as applicable, the Servicing Fee and/or the Successor Servicing Fees and Expenses, respectively, in each case to the extent of available funds therefor as provided in Section 6.04. On each Settlement Date, the Master Servicer or its Successor Servicer shall pay to each other Servicer or Successor Servicer the Applicable Servicing Fee.

        Section 2.08.    Time and Method of Payments.

        (a)  Subject to the provisions of Sections 6.02, 6.03, 6.04 and 6.05, all payments in reduction of Capital Investment and all payments of yield, fees and other amounts payable by the Seller hereunder shall be made in Dollars, in immediately available funds, to the Administrative Agent (for its account or the account of the applicable Purchasers, Affected Parties or Indemnified Persons) not later than 1:00 p.m. (New York time) on the due date therefor. Any such payment made on such date but after such time shall be deemed to have been made on, and Daily Yield shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any such payment becomes due on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day and Daily Yield, solely with respect to the Capital Investment outstanding during such period, shall be payable during such extension.

        (b)  Any and all payments by the Seller hereunder shall be made in accordance with this Section 2.08 without setoff or counterclaim and free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, excluding taxes imposed on or measured by the net income of any Affected Party by the jurisdictions under the laws of which such Affected Party is organized, or in which it maintains an office through which it engages in the transactions contemplated hereby, or by any political subdivisions thereof (such non-excluded taxes, levies, imposts, deductions, charges and withholdings being "Indemnified Taxes"). If the Seller shall be required by law to deduct any Indemnified Taxes from or in respect of any sum payable hereunder, (i) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.08) the Affected Party entitled to receive any such payment receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Seller shall make such deductions, and (iii) the Seller shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. Within 30 days after the date of any payment of Indemnified Taxes, the Seller shall furnish to the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof. The Seller shall indemnify any Affected Party from and against, and, within ten days of demand therefor, pay any Affected Party for, the full amount of Indemnified Taxes (together with any taxes imposed by any jurisdiction on amounts payable under this Section 2.08) paid by such Affected Party and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally asserted.

        Section 2.09.    Capital Requirements; Additional Costs.

        (a)  If the Administrative Agent on behalf of any Affected Party shall have determined that the adoption after the date hereof of any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by such Affected Party with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law) from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by such Affected Party against commitments made by it under this Agreement, any other Related Document or any Program Document and thereby reducing the rate of return on such Affected Party's capital as a consequence of its commitments hereunder or thereunder, then the Seller shall

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from time to time upon demand by the Administrative Agent pay to the Administrative Agent on behalf of such Affected Party additional amounts sufficient to compensate such Affected Party for the Seller's Share of such reduction together with interest thereon from the date of any such demand until payment in full at the applicable Daily Yield Rate. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by the Administrative Agent to the Seller shall be final, binding and conclusive on the parties hereto (absent manifest error) for all purposes.

        (b)  If, due to any Regulatory Change, there shall be any increase in the cost to any Affected Party of agreeing to make or making, funding or maintaining any commitment hereunder, under any other Related Document or under any Program Document, including with respect to any Purchases, Capital Investment, LOC Draws or Liquidity Loans, or any reduction in any amount receivable by such Affected Party hereunder or thereunder, including with respect to any Purchases, Capital Investment, LOC Draws or Liquidity Loans (any such increase in cost or reduction in amounts receivable are hereinafter referred to as "Additional Costs"), then the Seller shall, from time to time upon demand by the Administrative Agent, pay to the Administrative Agent on behalf of such Affected Party additional amounts sufficient to compensate such Affected Party for the Seller's Share of such Additional Costs together with interest thereon from the date demanded until payment in full thereof at the applicable Daily Yield Rate. Such Affected Party agrees that, as promptly as practicable after it becomes aware of any circumstance referred to above that would result in any such Additional Costs, it shall, to the extent not inconsistent with its internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by the Seller pursuant to this Section 2.09(b).

        (c)  Determinations by any Affected Party for purposes of this Section 2.09 of the effect of any Regulatory Change on its costs of making, funding or maintaining any commitments hereunder, under any other Related Document or under any Program Document or on amounts receivable by it hereunder or thereunder or of the additional amounts required to compensate such Affected Party in respect of any Additional Costs shall be set forth in a written notice to the Seller in reasonable detail and shall be final, binding and conclusive on the Seller (absent manifest error) for all purposes.

        Section 2.10.    Breakage Costs.    The Seller shall pay to the Administrative Agent for the account of either Purchaser, upon request of such Purchaser, such amount or amounts as shall compensate such Purchaser for any loss, cost or expense incurred by such Purchaser (as determined by such Purchaser) as a result of any reduction by the Seller in Capital Investment (and accompanying loss of Daily Yield thereon) other than on the maturity date of the Commercial Paper (or other financing source) funding such Capital Investment, which compensation shall include an amount equal to any loss or expense incurred by such Purchaser during the period from the date of such reduction to (but excluding) the maturity date of such Commercial Paper (or other financing source) if the rate of interest obtainable by such Purchaser upon the redeployment of funds in an amount equal to such reduction is less than the interest rate applicable to such Commercial Paper (or other financing source) (any such loss, cost or expense, "Breakage Costs"). The determination by such Purchaser of the amount of any such loss or expense shall be set forth in a written notice to the Seller in reasonable detail and shall be final, binding and conclusive on the Seller (absent manifest error) for all purposes.

        Section 2.11.    Purchase Excess.    On each Business Day during the Revolving Period and after completion of the disbursements specified in Section 6.03, the Administrative Agent shall notify the Seller and the Master Servicer of any Purchase Excess on such day, and the Seller shall deposit the amount of such Purchase Excess in the Collection Account by 1:00 p.m. (New York time) on the immediately succeeding Business Day.

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ARTICLE III.

CONDITIONS PRECEDENT

        Section 3.01.    Conditions to Effectiveness of Agreement.    Neither the Conduit Purchaser nor the Committed Purchaser shall be obligated to purchase Purchaser Interests hereunder on the occasion of the initial Purchase, nor shall any Purchaser or the Administrative Agent be obligated to take, fulfill or perform any other action hereunder, until the following conditions have been satisfied, in the sole discretion of, or waived in writing by, the Purchasers and the Administrative Agent:

        (a)    Purchase Agreement; Other Related Documents.    This Agreement shall have been duly executed by, and delivered to, the parties hereto and the Purchasers and the Administrative Agent shall have received such other documents, instruments, agreements and legal opinions as each Purchaser and the Administrative Agent shall request in connection with the transactions contemplated by this Agreement, including all those listed in the Schedule of Documents, each in form and substance satisfactory to each Purchaser and the Administrative Agent.

        (b)    Approvals.    The Purchasers and the Administrative Agent shall have received (i) satisfactory evidence that the Seller and each Servicer have obtained all required consents and approvals of all Persons, including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Related Documents and the consummation of the transactions contemplated hereby or thereby or an Officer's Certificate from each of the Seller and each Servicer in form and substance satisfactory to the Purchasers and the Administrative Agent affirming that no such consents or approvals are required, and (ii) written consent of the credit facility providers under the Credit Facilities, in form and substance satisfactory to the Administrative Agent, to the execution, delivery and performance of this Agreement and the other Related Documents and the consummation of the transactions contemplated hereby or thereby.

        (c)    Compliance with Laws.    The Seller and each Servicer shall be in compliance in all respects with all applicable foreign, federal, state and local laws and regulations, including those specifically referenced in Section 5.01(a) other than violations that could not reasonably be expected to have a Material Adverse Effect.

        (d)    Payment of Fees.    The Seller shall have paid all fees required to be paid by it on the Closing Date, including all fees required hereunder and under the Fee Letter, and shall have reimbursed each Purchaser for all fees, costs and expenses of closing the transactions contemplated hereunder and under the other Related Documents, including each Purchaser's reasonable legal, Rating Agency and audit expenses, and other document preparation costs.

        (e)    Representations and Warranties.    Each representation and warranty by the Seller contained herein and in each other Related Document shall be true and correct as of the Closing Date, except to the extent that such representation or warranty expressly relates solely to an earlier date.

        (f)    No Termination Event.    No Incipient Termination Event or Termination Event hereunder shall have occurred and be continuing or would result after giving effect to any of the transactions contemplated on the Closing Date. As of the Closing Date, no "default" or "event of default" exists under the Credit Facilities.

        (g)    Confirmation of Commercial Paper Ratings.    The Administrative Agent shall have received written confirmation from each Rating Agency that the then current rating of the Commercial Paper shall not be withdrawn or downgraded after giving effect to this Agreement and the transactions contemplated thereby.

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        (h)    Servicing Software Rights.    The Administrative Agent shall have received, (i) in form and substance satisfactory to the Administrative Agent, written authorization of the licensor of the Servicing Software to use such Servicing Software for the purpose of obtaining information about and servicing the Transferred Receivables, or evidence that Seller and its Affiliates have exercised best efforts to obtain such written authorization, or (ii) shall have received written documentation confirming that an Originator or the Seller owns such Servicing Software.

        (i)    Credit Facilities' Documents.    The Administrative Agent shall have received, in form and substance satisfactory to the Administrative Agent, the following fully executed documents and satisfactory evidence that all transactions contemplated thereby have been consummated or will be consummated simultaneously with the closing hereunder: (i) the "First Amendment to Credit Agreement" relating to the Parent Revolver attached as Exhibit B-1 hereto, (ii) the "K2 Inc. Fourth Amendment to Note Agreements" relating to the 1992 Note Agreement attached as Exhibit B-2 and the "K2 Inc. Third Amendment to Note Purchase Agreement" relating to the 1999 Note Agreement attached as Exhibit B-3, (iii) the Credit Facility Intercreditor Agreement, and (iv) the Credit Facilities' Security Documents.

        Section 3.02.    Conditions Precedent to All Purchases.    No Purchaser shall be obligated to purchase Purchaser Interests hereunder on any Purchase Date if, as of the date thereof:

        (a)  any representation or warranty of the Seller or any Servicer contained herein or in any of the other Related Documents shall be untrue or incorrect as of such date, either before or after giving effect to the Purchase of Purchaser Interests on such date and to the application of the proceeds therefrom, except to the extent that such representation or warranty expressly relates to an earlier date and except for changes therein expressly permitted by this Agreement;

        (b)  any event shall have occurred, or would result from the Purchase of Purchaser Interests on such Purchase Date or from the application of the proceeds therefrom, that constitutes an Incipient Termination Event, a Termination Event, an Incipient Servicer Termination Event, or an Event of Servicer Termination;

        (c)  the Seller shall have failed to timely deliver an Investment Base Certificate as most recently required pursuant Section 2.03(a) or (b) hereof, or the Seller shall otherwise not be in compliance with any of its covenants or other agreements set forth herein;

        (d)  the Facility Termination Date shall have occurred;

        (e)  either before or after giving effect to such Purchase and to the application of the proceeds therefrom, a Purchase Excess would exist;

        (f)    the Purchaser Interests sold hereunder would, after giving effect to such purchase, exceed 100%;

        (g)  any Originator, the Seller or any Servicer shall fail to have taken such other action, including delivery of approvals, consents, opinions, documents and instruments to the Purchasers and the Administrative Agent, (i) as any Purchaser or the Administrative Agent may reasonably request, or (ii) as either Rating Agency may request; or

        (h)  the Administrative Agent shall have determined that any event or condition has occurred that has had, or could reasonably be expected to have or result in, a Material Adverse Effect;

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provided, that if an involuntary bankruptcy proceeding is filed against any Originator and such proceeding has not been dismissed, the Purchasers shall cease to purchase Purchaser Interests hereunder and the Seller shall cease to purchase Receivables under the Sale and Contribution Agreement; provided, further, that the Purchasers may resume purchasing Purchaser Interests hereunder and the Seller may resume purchasing Transferred Receivables under the Sale and Contribution Agreement if, within ten days after any such filing, (i) the applicable Originator, the Seller, the Administrative Agent or any Purchaser shall have obtained an order from the court conducting such involuntary bankruptcy proceeding (A) authorizing the Originator to continue to make the transfers of Transferred Receivables under the Sale and Contribution Agreement and (B) confirming that such sales, and any security interest related thereto, will not be voidable as a postpetition transaction under Section 549 of the Bankruptcy Code or in any other similar proceedings and (ii) counsel to the applicable Originator and to the Seller shall have reaffirmed the conclusions of the true sale and nonconsolidation opinions delivered pursuant to Section 3.01(a) of the Purchase Agreement, which reaffirmation shall be reasonably acceptable to the Administrative Agent and the Purchasers.

        The delivery by the Seller of a Capital Purchase Request and the acceptance by the Seller of the funds from such Capital Purchase on any Purchase Date shall be deemed to constitute, as of any such Purchase Date, a representation and warranty by the Seller that the conditions in this Section 3.02 have been satisfied.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES

        Section 4.01.    Representations and Warranties of the Seller and SPC.    To induce each Purchaser to purchase the Purchaser Interests and the Administrative Agent to take any action hereunder, each of SPC (only with respect to itself) and the Seller makes the following representations and warranties to each Purchaser and the Administrative Agent as of the Closing Date and, except to the extent provided otherwise below, as of each Purchase Date, each and all of which shall survive the execution and delivery of this Agreement.

        (a)    Corporate Existence; Compliance with Law.    The Seller is a limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, the state of Delaware (which is Seller's only state of organization), and SPC is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, the state of Delaware. Each of the Seller and SPC (i) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification; (ii) has the requisite power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business, in each case, as now, heretofore and proposed to be conducted; (iii) has all licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (iv) is in compliance with its Charter Documents; and (v) subject to specific representations set forth herein regarding ERISA, tax and other laws, is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

        (b)    Executive Offices; Collateral Locations; Corporate or Other Names; FEIN.    As of the Closing Date, the current location of the Seller's chief executive office, principal place of business, other offices, the warehouses and premises within which any Seller Collateral is stored or located, and the locations of its records concerning the Seller Collateral (including originals of the Seller

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Assigned Agreements) are set forth in Schedule 4.01(b) and none of such locations has changed within the past 12 months (or such shorter time as the Seller has been in existence). During the prior five years (or such shorter time as the Seller has been in existence), except as set forth in Schedule 4.01(b), the Seller has not been known as or used any corporate, fictitious or trade name. In addition, Schedule 4.01(b) lists the organizational identification number issued by Seller's state of organization or states that no such number has been issued and lists the federal employer identification number of the Seller.

        (c)    Corporate Power, Authorization, Enforceable Obligations.    The execution, delivery and performance by each of SPC and the Seller of this Agreement and the other Related Documents to which it is a party, the creation and perfection of all Liens and ownership interests provided for therein: (i) are within such Person's power; (ii) have been duly authorized by all necessary or proper action (corporate, shareholder or otherwise); (iii) do not contravene any provision of such Person's Charter Documents; (iv) do not violate any law or regulation, or any order or decree of any court or Governmental Authority; (v) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which SPC, the Seller or any Originator is a party or by which SPC, the Seller or any Originator or any of the property of SPC, the Seller or any Originator is bound; (vi) do not result in the creation or imposition of any Adverse Claim upon any of the property of SPC, the Seller or any Originator; and (vii) do not require the consent or approval of any Governmental Authority or any other Person, except those which have been duly obtained, made or complied with prior to the Closing Date as provided in Section 3.01(b). The exercise by SPC, each of the Seller, the Purchasers or the Administrative Agent of any of its rights and remedies under any Related Document to which it is a party, do not require the consent or approval of any Governmental Authority or any other Person (other than consents or approvals solely relating to or required to be obtained by a Purchaser or the Administrative Agent, and subject to the Bankruptcy Code), except those which will have been duly obtained, made or complied with prior to the Closing Date as provided in Section 3.01(b). On or prior to the Closing Date, each of the Related Documents to which SPC or the Seller is a party shall have been duly executed and delivered by such Person and each such Related Document shall then constitute a legal, valid and binding obligation of such Person enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights and by general principles of equity.

        (d)    No Litigation.    No Litigation is now pending or, to the knowledge of SPC or the Seller, threatened against such Person that (i) challenges the such Person's right or power to enter into or perform any of its obligations under the Related Documents to which it is a party, or the validity or enforceability of any Related Document or any action taken thereunder, (ii) seeks to prevent the transfer, sale, pledge or contribution of any Receivable or the consummation of any of the transactions contemplated under this Agreement or the other Related Documents, or (iii) if determined adversely to the Seller, could reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 4.01(d), as of the Closing Date there is no Litigation pending or threatened that seeks damages or injunctive relief against, or alleges criminal misconduct by, the Seller.

        (e)    Solvency.    Both before and after giving effect to (i) the transactions contemplated by this Agreement and the other Related Documents and (ii) the payment and accrual of all transaction costs in connection with the foregoing, each of SPC and Seller is and will be Solvent.

        (f)    Material Adverse Effect.    Since the date of each of SPC's and the Seller's organization, (i) such Person has not incurred any obligations, contingent or non-contingent liabilities, liabilities for charges, long-term leases or unusual forward or long-term commitments that, alone or in the

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aggregate, could reasonably be expected to have a Material Adverse Effect, (ii) no contract, lease or other agreement or instrument has been entered into by such Person or has become binding upon such Person's assets and no law or regulation applicable to such Person has been adopted that has had or could reasonably be expected to have a Material Adverse Effect and (iii) such Person is not in default and no third party is in default under any material contract, lease or other agreement or instrument to which such Person is a party that alone or in the aggregate could reasonably be expected to have a Material Adverse Effect. Since the date of each of SPC's and the Seller's organization, no event has occurred that alone or together with other events could reasonably be expected to have a Material Adverse Effect.

        (g)    Ownership of Property; Liens.    No Transferred Receivable is subject to any Adverse Claim, none of the other properties and assets of the Seller are subject to any Adverse Claims other than Permitted Seller Encumbrances, and there are no facts, circumstances or conditions known to the Seller or SPC that may result in (i) with respect to the Transferred Receivables, any Adverse Claims (including Adverse Claims arising under Environmental Laws) and (ii) with respect to Seller's or SPC's other properties and assets, any Adverse Claims (including Adverse Claims arising under Environmental Laws) other than Permitted Seller Encumbrances. The Seller has received all assignments, bills of sale and other documents, and has duly effected all recordings, filings and other actions necessary to establish, protect and perfect the Seller's right, title and interest in and to the Transferred Receivables and its other properties and assets. The Seller has rights in and the power to transfer the Transferred Receivables. The Seller has rights in and the power to transfer each item of the Seller Collateral upon which it purports to grant a Lien hereunder free and clear of any and all Liens other than Permitted Seller Encumbrances. The Liens granted to the Purchaser pursuant to Section 8.01 will at all times be fully perfected first priority Liens in and to the Seller Collateral other than Permitted Seller Encumbrances.

        (h)    Ventures, Subsidiaries and Affiliates; Outstanding Stock and Debt.    Except as set forth in Schedule 4.01(h), each of the Seller and SPC has no Subsidiaries, is not engaged in any joint venture or partnership with any other Person, and is not an Affiliate of any other Person. As of the Closing Date, all of the issued and outstanding Stock of each of SPC and the Seller is owned by each of the Stockholders in the amounts set forth on Schedule 4.01(h) . There are no outstanding rights to purchase, options, warrants or similar rights or agreements pursuant to which the Seller or SPC may be required to issue, sell, repurchase or redeem any of its Stock or other equity securities or any Stock or other equity securities of its Subsidiaries. All outstanding Debt of the Seller and SPC as of the Closing Date is described in Section 5.03(i).

        (i)    Taxes.    All tax returns, reports and statements, including information returns, required by any Governmental Authority to be filed by the Seller and each of its Affiliates included in the Parent Group have been filed with the appropriate Governmental Authority and all charges shown thereon to be due have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid), excluding charges or other amounts being contested in accordance with Section 5.01(e). Proper and accurate amounts have been withheld by the Seller or such Affiliate from its respective employees for all periods in full and complete compliance with all applicable federal, state, local and foreign laws and such withholdings have been timely paid to the respective Governmental Authorities. Schedule 4.01(i) sets forth as of the Closing Date (i) those taxable years for which the Seller's or such Affiliates' tax returns are currently being audited by the IRS or any other applicable Governmental Authority and (ii) any assessments or threatened assessments in connection with any such audit or otherwise currently outstanding. Except as described on Schedule 4.01(i), neither the Seller nor any such Affiliate has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any charges. The Seller is

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not liable for any charges: (A) under any agreement (including any tax sharing agreements) or (B) to the best of the Seller's knowledge, as a transferee. As of the Closing Date, neither the Seller nor any of its Affiliates included in the Parent Group has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise, that would have a Material Adverse Effect.

        (j)    Full Disclosure.    All information contained in this Agreement, any Investment Base Certificate or any of the other Related Documents, or any written statement furnished by or on behalf of SPC or the Seller to either Purchaser or the Administrative Agent pursuant to the terms of this Agreement or any of the other Related Documents is true and accurate in every material respect, and none of this Agreement, any Investment Base Certificate or any of the other Related Documents, or any written statement furnished by or on behalf of SPC or the Seller to either Purchaser or the Administrative Agent pursuant to the terms of this Agreement or any of the other Related Documents is misleading as a result of the failure to include therein a material fact.

        (k)    ERISA.    Each of SPC and the Seller is in compliance with ERISA and has not incurred and does not expect to incur any liabilities (except for premium payments arising in the ordinary course of business) payable to the PBGC under ERISA.

        (l)    Brokers.    No broker or finder acting on behalf of the Seller was employed or utilized in connection with this Agreement or the other Related Documents or the transactions contemplated hereby or thereby and the Seller has no obligation to any Person in respect of any finder's or brokerage fees in connection therewith.

        (m)    Margin Regulations.    The Seller is not engaged in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin security," as such terms are defined in Regulation U of the Federal Reserve Board as now and from time to time hereafter in effect (such securities being referred to herein as "Margin Stock"). The Seller owns no Margin Stock, and no portion of the proceeds of the purchase price for Transferred Receivables sold hereunder will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Debt that was originally incurred to purchase or carry any Margin Stock or for any other purpose that might cause any portion of such proceeds to be considered a "purpose credit" within the meaning of Regulations T, U or X of the Federal Reserve Board. The Seller will not take or permit to be taken any action that might cause any Related Document to violate any regulation of the Federal Reserve Board.

        (n)    Nonapplicability of Bulk Sales Laws.    No transaction contemplated by this Agreement or any of the Related Documents requires compliance with any bulk sales act or similar law.

        (o)    Securities Act and Investment Company Act Exemptions.    Each Purchase of Purchaser Interests under this Agreement will constitute (i) a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act and (ii) a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act.

        (p)    Government Regulation.    Neither SPC nor the Seller is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act. The Purchase of Purchaser Interests by the Purchasers hereunder, the application of the proceeds thereof and the consummation of the transactions contemplated by this Agreement and the other Related Documents will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission.

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        (q)    Nonconsolidation.    Each of SPC and the Seller is operated in such a manner that the separate corporate existence of each of the Seller and SPC, on the one hand, and any member of the Parent Group, on the other hand, would not be disregarded in the event of the bankruptcy or insolvency of any member of the Parent Group and, without limiting the generality of the foregoing:

          (i)  the Seller is a limited purpose entity whose activities are restricted in its Charter Documents to those activities expressly permitted hereunder and under the other Related Documents; SPC is a limited purpose entity whose activities are restricted in its Charter Documents to owning Stock in the Seller and activities related thereto; and neither the Seller nor SPC has engaged, and does presently engage, in any activity other than those activities expressly permitted hereunder and under the other Related Documents, nor has the Seller or SPC entered into any agreement other than this Agreement, the other Related Documents to which it is a party and, with the prior written consent of the Purchasers and the Administrative Agent, any other agreement necessary to carry out more effectively the provisions and purposes hereof or thereof, and;

        (ii)  no member of the Parent Group or any individual at the time he or she is acting as an officer of any such member is or has been involved in the day-to-day management of the Seller or SPC (but nothing in this subclause (ii) shall prohibit any Person from holding positions with any member of the Parent Group, the Seller and/or the SPC simultaneously);

        (iii)  other than the purchase and acceptance through capital contribution of Transferred Receivables, the payment of dividends or distributions and the return of capital to the Originators, the payment of Servicing Fees (including Applicable Servicing Fees) to the Servicers under this Agreement and the transactions evidenced by the Ancillary Services and Lease Agreement, the Seller engages and has engaged in no intercorporate transactions with any member of the Parent Group;

        (iv)  other than the execution and delivery of this Agreement, SPC engages and has engaged in no intercorporate transactions with any member of the Parent Group;

        (v)  each of the Seller and SPC maintains corporate records and books of account separate from that of each member of the Parent Group, holds regular corporate meetings and otherwise observes corporate formalities and has a business office separate from that of each member of the Parent Group;

        (vi)  the financial statements and books and records of the Seller, SPC and the Originators reflect the separate corporate existence of the Seller and SPC;

      (vii)  (A) each of the Seller and SPC maintains its assets separately from the assets of each member of the Parent Group (including through the maintenance of separate bank accounts and except for any Records to the extent necessary to assist the Servicers in connection with the servicing of the Transferred Receivables), (B) each of the Seller's and SPC's funds (including all money, checks and other cash proceeds) and assets, and records relating thereto, have not been and are not commingled with those of any member of the Parent Group and (C) the separate creditors of each of SPC and the Seller will be entitled to be satisfied out of the SPC's or Seller's, respectively, assets prior to any value in SPC or the Seller, respectively, becoming available to SPC's or the Seller's Stockholders, respectively;

      (viii)  except as otherwise expressly permitted hereunder and as provided in the Ancillary Services and Lease Agreement, under the other Related Documents and under the SPC's and Seller's Charter Documents, no member of the Parent Group (A) pays either SPC's or the Seller's expenses, (B) guarantees either SPC's or the Seller's obligations, or (C) advances funds to either SPC or the Seller for the payment of expenses or otherwise;

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        (ix)  all business correspondence and other communications of each of SPC and the Seller are conducted in such Person's own name, on its own stationery and through a separately-listed telephone number;

        (x)  neither SPC nor the Seller acts as agent for any member of the Parent Group, but instead each presents itself to the public as an entity separate from each such member and independently engaged in the business of purchasing and financing Receivables;

        (xi)  the Seller maintains at least two independent directors or managers, as applicable, each of whom (A) is not a Stockholder, director, officer, employee or associate, or any relative of the foregoing, of any member of the Parent Group (other than the Seller), all as provided in its Charter Documents, (B) has (1) prior experience as an independent director for a corporation whose Charter Documents required the unanimous consent of all independent directors or managers, as applicable, thereof before such corporation could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (2) at least three years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to issuers of securitization or structured finance instruments, agreements or securities, and (C) is otherwise acceptable to the Purchasers and the Administrative Agent;

      (xii)  the Charter Documents of the Seller require (A) the affirmative vote of each independent director and of SPC before a voluntary petition under Section 301 of the Bankruptcy Code may be filed by the Seller, and (B) the Seller to maintain (1) correct and complete books and records of account and (2) minutes of the meetings and other proceedings of its Stockholders and board of directors or managers, as applicable;

      (xiii)  SPC maintains at least two independent directors each of whom (A) is not a Stockholder, director, officer, employee or associate, or any relative of the foregoing, of any member of the Parent Group (other than the Seller), all as provided in its Charter Documents, (B) has (1) prior experience as an independent director for a corporation whose Charter Documents required the unanimous consent of all independent directors thereof before such corporation could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (2) at least three years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to issuers of securitization or structured finance instruments, agreements or securities, and (C) is otherwise acceptable to the Purchasers and the Administrative Agent; and

      (xiv)  the Charter Documents of SPC require (A) the affirmative vote of each independent director before a voluntary petition under Section 301 of the Bankruptcy Code may be filed by SPC and before SPC may vote, in its capacity as a Stockholder of the Seller, in favor of a voluntary petition under Section 301 of the Bankruptcy Code being filed by the Seller, and (B) SPC to maintain (1) correct and complete books and records of account and (2) minutes of the meetings and other proceedings of its Stockholders and board of directors.

        (r)    Deposit and Disbursement Accounts.Schedule 4.01(r) lists all banks and other financial institutions at which the Seller maintains deposit or other bank accounts as of the Closing Date, including any Lockbox Accounts, and such schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.

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        (s)    Transferred Receivables.

        (i)    Transfers.    Each Transferred Receivable was purchased by or contributed to the Seller on the relevant Transfer Date pursuant to the Sale and Contribution Agreement.

        (ii)    Eligibility.    Each Transferred Receivable designated as an Eligible Receivable in each Investment Base Certificate constitutes an Eligible Receivable as of the date specified in such Investment Base Certificate.

        (iii)    No Material Adverse Effect.    As of the date of delivery of the most recent Investment Base Certificate, the Seller has no knowledge of any fact (including any defaults by the Obligor thereunder on any other Receivable) that would cause it or should have caused it to expect that any payments on each Transferred Receivable designated as an Eligible Receivable in such Investment Base Certificate will not be paid in full when due or to expect any other Material Adverse Effect.

        (iv)    Nonavoidability of Transfers.    The Seller shall (A) have received each Contributed Receivable as a contribution to the capital of the Seller by an Originator and (B) (1) have purchased each Sold Receivable from the Originators for cash consideration and (2) have accepted assignment of any Eligible Receivables transferred pursuant to clause (b) of Section 4.04 of the Sale and Contribution Agreement, in each case in an amount that constitutes fair consideration and reasonably equivalent value therefor. Each Sale of a Sold Receivable effected pursuant to the terms of the Sale and Contribution Agreement shall not have been made for or on account of an antecedent debt owed by any Originator to the Seller and no such Sale is or may be avoidable or subject to avoidance under any bankruptcy laws, rules or regulations.

        (t)    Representations and Warranties in Other Related Documents.    Each of the representations and warranties of the Seller contained in the Related Documents (other than this Agreement) is true and correct in all respects and the Seller hereby makes each such representation and warranty to, and for the benefit of, the Purchasers and the Administrative Agent as if the same were set forth in full herein.

        (u)    Servicing Software.    The Seller has all necessary licenses and rights to use the Servicing Software.

        Section 4.02.    Representations and Warranties of the Servicers.    To induce the Purchasers to purchase the Purchaser Interests and the Administrative Agent to take any action required to be performed by it hereunder, each Servicer represents and warrants to the Purchasers and the Administrative Agent, which representation and warranty shall survive the execution and delivery of this Agreement, that each of the representations and warranties of each Servicer (whether made by such Servicer in its capacity as an Originator or as Servicer) contained in any Related Document is true and correct and, if made by such Servicer in its capacity as an Originator, applies with equal force to such Servicer in its capacity as Servicer, and each Servicer hereby makes each such representation and warranty to, and for the benefit of, the Purchasers and the Administrative Agent as if the same were set forth in full herein.

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ARTICLE V.

GENERAL COVENANTS OF THE SELLER AND SPC

        Section 5.01.    Affirmative Covenants of the Seller and SPC.    Each of the Seller and SPC (with respect to itself only) covenants and agrees that from and after the Closing Date and until the Termination Date:

        (a)    Compliance with Agreements and Applicable Laws.    Each of SPC and the Seller shall perform each of its obligations under this Agreement and the other Related Documents and comply with all federal, state and local laws and regulations applicable to it and the Transferred Receivables, including those relating to truth in lending, retail installment sales, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices, privacy, licensing, taxation, ERISA and labor matters and Environmental Laws and Environmental Permits. The Seller shall comply in all respects with the Credit and Collection Policies with respect to each Transferred Receivable and the Contract therefor.

        (b)    Maintenance of Existence and Conduct of Business.    Each of SPC and the Seller shall: (i) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises; (ii) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder and in accordance with (1) the terms of its Charter Documents, (2) Sections 4.01(q) and (r) and (3) the assumptions set forth in each legal opinion of Gibson Dunn & Crutcher LLP or other counsel to SPC or the Seller from time to time delivered pursuant to Section 3.02(d) of the Sale and Contribution Agreement with respect to issues of substantive consolidation and true sale and absolute transfer; (iii) at all times maintain, preserve and protect all of its assets and properties used or useful in the conduct of its business, including all licenses, permits, charters and registrations, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices; and (iv) transact business only in such corporate and trade names as are set forth in Schedule 5.01(b). Each of SPC and the Seller shall keep adequate books and records with respect to its business activities in which proper entries, reflecting all financial transactions, are made in accordance with GAAP and on a basis consistent with the financial statements delivered pursuant to Section 5.02(a).

        (c)    Deposit of Collections.    The Seller shall deposit or cause to be deposited promptly into a Lockbox Account, and in any event no later than the first Business Day after receipt thereof, all Collections Seller may receive with respect to any Transferred Receivable.

        (d)    Use of Proceeds.    The Seller shall utilize the proceeds of the Purchases made hereunder solely for (i) the purchase of Receivables from the Originators pursuant to the Sale and Contribution Agreement, (ii) the payment of dividends or other distributions to its Stockholders, and (iii) the payment of administrative fees or Servicing Fees (including Applicable Servicing Fees) or expenses to the Servicers or routine administrative or operating expenses, in each case only as expressly permitted by and in accordance with the terms of this Agreement and the other Related Documents.

        (e)    Payment, Performance and Discharge of Obligations.

          (i)  Subject to Section 5.01(e)(ii), each of SPC and the Seller shall pay, perform and discharge or cause to be paid, performed and discharged promptly all charges payable by it, including (A) charges imposed upon it, its income and profits, or any of its property (real, personal or mixed) and all charges with respect to tax, social security and unemployment

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withholding with respect to its employees, and (B) lawful claims for labor, materials, supplies and services or otherwise.

        (ii)  Each of SPC and the Seller may in good faith contest, by appropriate proceedings, the validity or amount of any charges or claims described in Sections 4.01(i) and 5.01(e)(i) ; provided, that (A) adequate reserves with respect to such contest are maintained on the books of such Person, in accordance with GAAP, (B) such contest is maintained and prosecuted continuously and with diligence, (C) none of the Seller Collateral becomes subject to forfeiture or loss as a result of such contest, (D) no Lien shall be imposed to secure payment of such charges or claims other than inchoate tax liens and (E) none of the Purchasers or the Administrative Agent has advised the Seller or SPC, as applicable, in writing that such Affected Party reasonably believes that failure to pay or to discharge such claims or charges could have or result in a Material Adverse Effect.

        (f)    ERISA and Environmental Laws.    Each of SPC and the Seller shall give the Administrative Agent prompt written notice of any event that could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA. Each of SPC and the Seller shall give the Administrative Agent prompt written notice of receipt by Seller of any material notice relating to Environmental Laws or Environmental Permits.

        Section 5.02.    Reporting Requirements of the Seller.

        (a)  The Seller hereby agrees that, from and after the Closing Date and until the Termination Date, it shall deliver or cause to be delivered to the Purchasers, the Administrative Agent and, in the case of paragraph (g) therein only, to the Rating Agencies, the financial statements, notices and other information at the times, to the Persons and in the manner set forth in Annex 5.02(a).

        (b)  As soon as available, and in any event no later than 1:00 p.m. (New York time) on each Wednesday (or if such day is not a Business Day, the immediately following Business Day) of each week, an Investment Base Certificate, which shall be prepared by the Seller or any of the Servicers as of the last day of the previous week; provided, that if (A) an Incipient Termination Event or a Termination Event shall have occurred and be continuing or (B) the Administrative Agent, in good faith, believes that an Incipient Termination Event or a Termination Event is imminent or deems any Purchaser's rights or interests in the Transferred Receivables or the Seller Collateral insecure, then such report shall be delivered for such periods and as frequently as the Administrative Agent shall request an Investment Base Certificate.

        (c)  The Seller hereby agrees that, from and after the Closing Date and until the Termination Date, it shall deliver or cause to be delivered to the Purchasers and the Administrative Agent such other reports, statements and reconciliations with respect to the Investment Base or Seller Collateral as any Purchaser, the Administrative Agent or the Collateral Agent shall from time to time request in its reasonable discretion.

        Section 5.03.    Negative Covenants of the Seller and SPC.    Each of SPC (with respect to itself only) and the Seller covenants and agrees that, without the prior written consent of the Purchasers and the Administrative Agent, from and after the Closing Date until the Termination Date:

        (a)    Sale of Stock and Assets.    Neither SPC nor the Seller shall sell, transfer, convey, assign or otherwise dispose of, or assign any right to receive income in respect of, any of its properties or other assets, including its capital Stock (whether in a public or a private offering or otherwise), any Transferred Receivable or Contract therefor or any of its rights with respect to any Lockbox or any Lockbox Account, the Collection Account, the Retention Account or any other deposit account in which any Collections of any Transferred Receivable are deposited, except as otherwise expressly permitted by this Agreement or any of the other Related Documents.

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        (b)    Liens.    Neither SPC nor the Seller shall create, incur, assume or permit to exist (i) with respect to the Seller, any Adverse Claim on or with respect to its Transferred Receivables or (ii) any Adverse Claim on or with respect to its other properties or assets (whether now owned or hereafter acquired) except for the Liens set forth in Schedule 5.03(b) and other Permitted Seller Encumbrances. In addition, neither SPC nor the Seller shall become a party to any agreement, note, indenture or instrument or take any other action that would prohibit the creation of a Lien on any of its properties or other assets in favor of the Purchasers as additional collateral for the Seller Secured Obligations, except as otherwise expressly permitted by this Agreement or any of the other Related Documents.

        (c)    Modifications of Receivables, Contracts or Credit and Collection Policies.    The Seller shall not, without the prior written consent of the Administrative Agent and with respect to clause (iii) only, upon provision of written notice to the Rating Agencies, (i) extend, amend, rescind, forgive, discharge, compromise, waive, cancel or otherwise modify the terms of any Transferred Receivable, provided, that the Seller may authorize each Servicer to take such actions as are expressly permitted by the terms of the Credit and Collection Policies as such Servicer deems appropriate to maximize Collections thereof so long as such extension or adjustment does not alter any Receivable's classification as a Defaulted Receivable or result in such Receivable being required to be paid more than 364 days from the Billing Date thereof, (ii) amend, modify or waive any term or condition of any Contract related thereto to the extent such amendment, modification, or waiver materially impairs the collectibility of the Receivables, or (iii) amend, modify or waive any term or provision of the Credit and Collection Policies.

        (d)    Changes in Instructions to Obligors.    The Seller shall not make any change in its instructions to Obligors regarding the deposit of Collections with respect to the Transferred Receivables without the prior written consent of the Administrative Agent.

        (e)    Capital Structure and Business.    Neither SPC nor the Seller shall (i) make any changes in any of its business objectives, purposes or operations that could have or result in a Material Adverse Effect, (ii) make any change in its capital structure as described on Schedule 4.01(h), including the issuance of any shares of Stock, warrants or other securities convertible into Stock or any revision of the terms of its outstanding Stock, (iii) reincorporate or reorganize itself under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of the date hereof without the prior written consent of Administrative Agent, or (iv) amend its Charter Documents. Neither SPC nor the Seller shall engage in any business other than as provided in its Charter Documents and the Related Documents.

        (f)    Mergers, Subsidiaries, Etc.    Neither SPC nor the Seller shall directly or indirectly, by operation of law or otherwise, (i) form or acquire any Subsidiary, or (ii) merge with, consolidate with, acquire all or substantially all of the assets or capital Stock of, or otherwise combine with or acquire, any Person.

        (g)    Sale Characterization; Sale and Contribution Agreement.    The Seller shall not make statements or disclosures, prepare any financial statements or in any other respect account for or treat the transactions contemplated by the Sale and Contribution Agreement (including for accounting, tax and reporting purposes) in any manner other than (i) with respect to each Sale of each Sold Receivable effected pursuant to the Sale and Contribution Agreement, as a true sale and absolute assignment of the title to and sole record and beneficial ownership interest of the Transferred Receivables by the Originators to the Seller and (ii) with respect to each contribution of Contributed Receivables thereunder, as an increase in the stated capital of the Seller.

        (h)    Restricted Payments.    Neither SPC nor the Seller shall enter into any lending transaction with any other Person. Neither SPC nor the Seller shall at any time (i) advance credit to any Person or (ii) declare any dividends, repurchase any Stock, return any capital, or make any other

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payment or distribution of cash or other property or assets in respect of such Person's Stock if, after giving effect to any such advance or distribution, a Purchase Excess, Incipient Termination Event or Termination Event would exist or otherwise result therefrom.

        (i)    Debt.    Neither SPC nor the Seller shall create, incur, assume or permit to exist any Debt, except (i) Debt of the Seller to any Affected Party, Indemnified Person, any Servicer or any other Person expressly permitted by this Agreement or any other Related Document, (ii) deferred taxes, (iii) unfunded pension fund and other employee benefit plan obligations and liabilities to the extent they are permitted to remain unfunded under applicable law, and (iv) indorser liability in connection with the indorsement of negotiable instruments for deposit or collection in the ordinary course of business.

        (j)    Prohibited Transactions.    Neither SPC nor the Seller shall enter into, or be a party to, any transaction with any Person except as expressly permitted hereunder or under any other Related Document.

        (k)    Investments.    Except as otherwise expressly permitted hereunder or under the other Related Documents, neither SPC nor the Seller shall make any investment in, or make or accrue loans or advances of money to, any Person, including any Stockholder, director, officer or employee of the Seller, the Originators or any Originators' other Subsidiaries, through the direct or indirect lending of money, holding of securities or otherwise, except with respect to Transferred Receivables, Permitted Investments and SPC's investment in the Seller.

        (l)    Commingling.    The Seller shall not deposit or permit the deposit of any funds that do not constitute Collections of Transferred Receivables into any Lockbox Account. If such funds are nonetheless deposited into a Lockbox Account and the Seller so notifies the Administrative Agent, the Administrative Agent shall promptly remit any such amounts to the applicable Originator.

        (m)    ERISA.    Neither SPC nor the Seller shall, nor shall cause or permit any of its ERISA Affiliates to, cause or permit to occur an event that could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA.

        (n)    Related Documents.    The Seller shall not amend, modify or waive any term or provision of any Related Document without the prior written consent of the Administrative Agent.

        (o)    Board Policies.    Neither SPC nor the Seller shall modify the terms of any policy or resolutions of its board of directors or managers, as applicable, if such modification could have or result in a Material Adverse Effect.

ARTICLE VI.

COLLECTIONS AND DISBURSEMENTS

        Section 6.01.    Establishment of Accounts.

        (a)    The Lockbox Accounts.

          (i)  The Seller has established with each Lockbox Account Bank one or more Lockbox Accounts. The Seller agrees that the Administrative Agent shall have exclusive dominion and control of each Lockbox Account and all monies, instruments and other property from time to time on deposit therein. The Seller shall not make or cause to be made, or have any ability to make or cause to be made, any withdrawals from any Lockbox Account except as provided in Section 6.01(b)(ii).

        (ii)  The Seller and each Servicer have instructed all existing Obligors of Transferred Receivables, and shall instruct all future Obligors of such Receivables, to make payments in

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respect thereof only (A) by check or money order mailed to one or more lockboxes or post office boxes under the control of the Administrative Agent (each a "Lockbox" and collectively the "Lockboxes") or (B) by wire transfer or moneygram directly to a Lockbox Account. Schedule 4.01(r) lists all Lockboxes and all Lockbox Account Banks at which the Seller maintains Lockbox Accounts as of the Closing Date, and such schedule correctly identifies (1) with respect to each such Lockbox Account Bank, the name, address and telephone number thereof, (2) with respect to each Lockbox Account, the name in which such account is held and the complete account number therefor, and (3) with respect to each Lockbox, the lockbox number and address thereof. The Seller and each Servicer shall endorse, to the extent necessary, all checks or other instruments received in any Lockbox so that the same can be deposited in the Lockbox Account, in the form so received (with all necessary endorsements), on the first Business Day after the date of receipt thereof. In addition, each of the Seller and each Servicer shall deposit or cause to be deposited into a Lockbox Account all cash, checks, money orders or other proceeds of Transferred Receivables or Seller Collateral received by it other than in a Lockbox or a Lockbox Account, in the form so received (with all necessary endorsements), not later than the close of business on the first Business Day following the date of receipt thereof, and until so deposited all such items or other proceeds shall be held in trust for the benefit of the Collateral Agent. Neither the Seller nor any Servicer shall make any deposits into a Lockbox or any Lockbox Account except in accordance with the terms of this Agreement or any other Related Document.

        (iii)  If, for any reason, a Lockbox Account Agreement terminates or any Lockbox Account Bank fails to comply with its obligations under the Lockbox Account Agreement to which it is a party, then the Seller shall promptly notify all Obligors of Transferred Receivables who had previously been instructed to make wire payments to a Lockbox Account maintained at any such Lockbox Account Bank to make all future payments to a new Lockbox Account in accordance with this Section 6.01(a)(iii). The Seller shall not close any such Lockbox Account unless it shall have (A) received the prior written consent of the Administrative Agent, (B) established a new account with the same Lockbox Account Bank or with a new depositary institution satisfactory to the Administrative Agent, (C) entered into an agreement covering such new account with such Lockbox Account Bank or with such new depositary institution substantially in the form of such Lockbox Account Agreement or that is satisfactory in all respects to the Administrative Agent (whereupon, for all purposes of this Agreement and the other Related Documents, such new account shall become a Lockbox Account, such new agreement shall become a Lockbox Account Agreement and any new depositary institution shall become a Lockbox Account Bank), and (D) taken all such action as the Administrative Agent shall require to grant and perfect a first priority Lien in such new Lockbox Account to the Purchaser under Section 8.01 of this Agreement. Except as permitted by this Section 6.01(a), neither the Seller nor any Servicer shall open any new Lockbox or Lockbox Account without the prior written consent of the Administrative Agent.

        (b)    Collection Account.

          (i)  The Purchasers have established and shall maintain the Collection Account with the Depositary. The Collection Account shall be registered in the name of the Administrative Agent and the Administrative Agent shall, subject to the terms of this Agreement, have exclusive dominion and control thereof and of all monies, instruments and other property from time to time on deposit therein.

        (ii)  Pursuant to Section 6.02, the Seller shall instruct each Lockbox Account Bank at which Lockboxes or Lockbox Accounts are held to transfer, and the Seller hereby grants the Administrative Agent the authority to instruct each such Lockbox Account Bank to transfer, on each Business Day in same day funds, all available funds in each such Lockbox Account to

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the Collection Account. The Purchasers and the Administrative Agent may deposit into the Collection Account from time to time all monies, instruments and other property received by any of them as proceeds of the Transferred Receivables. On each Business Day prior to the Facility Termination Date the Administrative Agent shall instruct and cause the Depositary (which instruction may be in writing or by telephone confirmed promptly thereafter in writing) to release funds on deposit in the Collection Account in the order of priority set forth in Section 6.03. On each Business Day from and after the Facility Termination Date the Administrative Agent shall apply all amounts when received in the Collection Account in the order of priority set forth in Section 6.05.

        (iii)  If, for any reason, the Depositary wishes to resign as depositary of the Collection Account or fails to carry out the instructions of the Administrative Agent, then the Administrative Agent shall promptly notify the Purchasers. Neither the Purchasers nor the Administrative Agent shall close the Collection Account unless (A) a new deposit account has been established with the Depositary, (B) the Purchasers and the Administrative Agent have entered into an agreement covering such new account with such new depositary institution satisfactory in all respects to the Administrative Agent (whereupon such new account shall become the Collection Account for all purposes of this Agreement and the other Related Documents), and (C) the Purchasers and the Administrative Agent have taken all such action as the Administrative Agent shall require to grant and perfect a first priority Lien in such new Collection Account to the Administrative Agent on behalf of the Purchasers and to the Collateral Agent on behalf of the Conduit Purchaser under the Collateral Agent Agreement.

        (c)    Retention Account.    The Administrative Agent has established and shall maintain the Retention Account with the Depositary. The Retention Account shall be registered in the name of the Administrative Agent and the Administrative Agent shall, subject to the terms of this Agreement, have exclusive dominion and control thereof and of all monies, instruments and other property from time to time on deposit therein.

        Section 6.02.    Funding of Collection Account.

        (a)  As soon as practicable, and in any event no later than 1:00 p.m. (New York time) on each Business Day:

          (i)  the Administrative Agent shall transfer or cause to be transferred, to the extent then available, all Collections deposited in each Lockbox Account prior to such Business Day to the Collection Account;

        (ii)  the Applicable Purchaser or the Administrative Agent shall deposit in the Collection Account the amount, if any, required pursuant to Section 2.04(b)(i);

        (iii)  if, on the immediately preceding Business Day, the Administrative Agent shall have notified the Seller of any Purchase Excess, then the Seller shall deposit cash in the amount of such Purchase Excess in the Collection Account;

        (iv)  if on such Business Day the Seller is required to make other payments under this Agreement not previously retained out of Collections (including Additional Amounts and Indemnified Amounts not previously paid), then the Seller shall deposit an amount equal to such payments in the Collection Account;

        (v)  if, on the immediately preceding Business Day, any Originator made a capital contribution or repurchased a Transferred Receivable pursuant to Section 4.04 of the Sale and Contribution Agreement or made a payment as a result of any Dilution Factors pursuant to Section 4.02(o) of the Sale and Contribution Agreement, then the Seller shall deposit in the

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Collection Account cash in the amount so received from such Originator for such contribution or for such repurchase or payment;

        (vi)  each Servicer shall deposit in the Collection Account the Outstanding Balance of any Transferred Receivable such Servicer elects to pay pursuant to Section 7.04; and

      (vii)  the Seller shall deposit in the Collection Account the Outstanding Balance of any Transferred Receivable the Seller elects to pay pursuant to Section 8.06(d).

        (b)  If, on or before the second Business Day immediately preceding any Settlement Date, the Administrative Agent shall have notified the Seller of any Retention Account Deficiency pursuant to Section 6.04(b), then the Seller shall deposit cash in the amount of such deficiency in the Collection Account no later than 12:00 noon (New York time) on such Settlement Date.

        (c)  From and after the Facility Termination Date, the Administrative Agent shall transfer all amounts on deposit in the Retention Account as of that date and all amounts on deposit in any of Seller's other deposit accounts as of that date to the Collection Account.

        Section 6.03.    Daily Disbursements From the Collection Account; Revolving Period.    On each Business Day no later than 1:00 p.m. (New York time) during the Revolving Period, and following the transfers made pursuant to Section 6.02, the Administrative Agent shall disburse the amount of all Collections then on deposit in the Collection Account and its related subaccounts in the following priority:

        (a)  (x) prior to the occurrence of a Committed Purchaser Funding Event, to the Retention Account and (y) after the occurrence of a Committed Purchaser Funding Event, to the Administrative Agent:

          (i)  an amount equal to any Retention Account Deficiency, first from amounts deposited pursuant to Section 6.02(b) and second from Collections then on deposit in the Collection Account; and

        (ii)  an amount equal to the sum of:

        (A)  Daily Yield;

        (B)  the Yield Shortfall, if any, as of the close of business on the immediately preceding Business Day;

        (C)  the Servicing Fee (calculated assuming that the Servicing Fee Rate is the applicable rate); provided, however, that if the Parent Guarantor or any Affiliate of the Parent Guarantor is the Master Servicer then such amount will not be deposited in the Retention Account on such day but the Seller shall pay the Servicing Fee in accordance with the provisions of Section 7.05(b); provided, further, that if any Affiliate of the Parent Guarantor is a Servicer other than the Master Servicer, such amount shall be reduced by the Applicable Servicing Fee due such Servicer but the Master Servicer shall pay such Applicable Servicing Fee in accordance with the provisions of Section 7.05(b);

        (D)  the Servicing Fee Shortfall, if any, as of the close of business on the immediately preceding Business Day; provided, however, that if the Parent Guarantor or any Affiliate of the Parent Guarantor is a Servicer, then the amount of such Servicing Fee Shortfall attributable to such Servicer will not be deposited in the Retention Account on such day but the Seller shall pay the Servicing Fee in accordance with the provisions of Section 7.05(b);

        (E)  the Unused Commitment Fee for such day;

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        (F)  the Unused Commitment Fee Shortfall, if any, as of the close of business on the immediately preceding Business Day; and

        (G)  any Additional Amounts or Indemnified Amounts as to which any Indemnified Person has made a demand on the Seller and which remains unpaid for five (5) or more Business Days;

        (b)  to the Purchasers:

          (i)  an amount equal to any Purchase Excess to be applied in reduction of Capital Investment, to the Purchasers ratably based on the amount of their respective Capital Investments;

        (ii)  an amount equal to the deposits made in the Collection Account pursuant to Section 6.02(a)(iv) and not otherwise disbursed pursuant to Section 6.03(a), to be disbursed ratably based on the amounts owed to the applicable Purchasers;

        (iii)  if, pursuant to a Repayment Notice, the Seller has requested a reduction of the Capital Investment of the Purchasers, then to the Purchasers, ratably based on the amount of their respective Capital Investments, the lesser of (A) the amount of such requested reduction of Capital Investment and (B) such balance remaining on deposit in the Collection Account;

        (c)  to the Seller Account, the balance of any amounts remaining in the Collection Account after making the foregoing disbursements.

        Section 6.04.    Disbursements From the Retention Account; Settlement Date and Daily Procedures; Revolving Period.

        (a)  During the Revolving Period, (x) on each Settlement Date prior to the occurrence of a Committed Purchaser Funding Event and (y) on each Business Day after the occurrence of a Committed Purchaser Funding Event, the amounts on deposit in the Retention Account or transferred to the Administrative Agent pursuant to Section 6.03(a) shall be disbursed or retained by the Administrative Agent in the following priority:

          (i)  to the applicable Purchasers (or, if applicable, any Indemnified Person or Affected Party), an amount equal to:

        (A)  if such Settlement Date occurs on or prior to the occurrence of a Committed Purchaser Funding Event, an amount equal to:

        (1)  the accrued and unpaid Accrued Monthly Yield as of the end of the immediately preceding Settlement Period;

        (2)  the accrued and unpaid Unused Commitment Fee as of the end of the immediately preceding Settlement Period;

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        (3)  all Additional Amounts incurred and payable to any Affected Party as of the end of the immediately preceding Settlement Period;

        (4)  all other amounts accrued and payable under the Agreement (including Indemnified Amounts incurred and payable to any Indemnified Person) as of the end of the immediately preceding Settlement Period to the extent not already transferred pursuant to Section 6.03(b)(ii); and

        (5)  if a Purchase Excess exists on such date, an amount equal to such excess to the extent not already transferred pursuant to Section 6.03(b)(i), to be applied in reduction of Capital Investment;

        (B)  if such Business Day occurs after the occurrence of a Committed Purchaser Funding Event, an amount equal to:

        (1)  the accrued and unpaid Daily Yield as of such date;

        (2)  the accrued and unpaid Unused Commitment Fee as of such date;

        (3)  all Additional Amounts as to which any Affected Party has made a demand on the Seller and which remain unpaid for five (5) or more Business Days;

        (4)  all other amounts accrued and payable under this Agreement (including Indemnified Amounts as to which any Indemnified Person has made a demand on the Seller to the extent not already transferred pursuant to Section 6.03(b)(ii); and

        (5)  if a Purchase Excess exists on such date, an amount equal to such excess to the extent not already transferred pursuant to Section 6.03(b)(i), to be applied in reduction of Capital Investment;

        (ii)  to the extent any funds have been deposited in the Retention Account in accordance with Section 6.03(a)(ii)(C) and (D), to any Servicer or the Successor Servicer, as applicable, on behalf of the Seller, an amount equal to the accrued and unpaid Servicing Fee or Successor Servicing Fees and Expenses payable to such Servicer or Successor Servicer as of (x) the end of the immediately preceding Settlement Period (if such Settlement Date occurs on or prior to the occurrence of a Committed Purchaser Funding Event) or (y) such date (if such date occurs after the occurrence of a Committed Purchaser Funding Event); provided, however, that any such amount shall be paid net of any amounts paid, or that should have been paid, as provided in Section 7.05(b);

        (iii)  to be retained in the Retention Account, if such Settlement Period occurs prior to the occurrence of a Committed Purchaser Funding Event, an amount equal to the Accrued Monthly Daily Yield, Accrued Unused Commitment Fee and, to the extent any funds have been deposited in the Retention Account pursuant to Sections 6.03(a)(ii)(C) and (D), Accrued Servicing Fee as of such date; and

        (iv)  to the Seller Account, the balance of any funds remaining after retaining or disbursing the foregoing amounts (and, prior to the occurrence of a Committed Purchaser Funding Event, the Administrative Agent shall transfer to the Seller Account on such date any and all interest earned on, and paid by the Depository with respect to, any funds on deposit in the Retention Account during the preceding Settlement Period).

        (b)  No later than the second Business Day immediately preceding each Settlement Date, the Administrative Agent shall determine and notify the Seller of any Retention Account Deficiency for the preceding Settlement Period, and the Seller shall deposit cash in the amount of such Retention Account Deficiency to the Collection Account pursuant to Section 6.02(b).

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        Section 6.05.    Liquidation Settlement Procedures.    On each Business Day from and after the Facility Termination Date until the Termination Date, the Administrative Agent shall, as soon as practicable, (A) to the extent the Seller has any deposit accounts (other than any Lockbox Account) holding Collections or the proceeds thereof, shall transfer all amounts on deposit therein to the Collection Account, (B) shall transfer all amounts then on deposit in the Retention Account to the Collection Account, and (C) shall transfer all amounts in the Collection Account (including amounts transferred from the Retention Account pursuant to Section 6.02(c) and amounts which are not allocable to the Purchaser Interests), in the following priority:

        (a)  if an Event of Servicer Termination has occurred and a Successor Servicer has assumed the responsibilities and obligations of any Servicer in accordance with Section 11.02, then to such Successor Servicer an amount equal to its accrued and unpaid Successor Servicing Fees and Expenses;

        (b)  to the Purchasers, ratably, an amount equal to accrued and unpaid Daily Yield through and including the date of maturity (if any) of the Commercial Paper (or other funding source) maintaining the Capital Investment;

        (c)  to the Purchasers, an amount equal to the unpaid Capital Investment;

        (d)  to the Administrative Agent, an amount equal to accrued and unpaid Unused Commitment Fees;

        (e)  all Additional Amounts incurred and payable to any Affected Party and Indemnified Amounts incurred and payable to any Indemnified Person; and

        (f)    if an Event of Servicer Termination shall not have occurred, to the Master Servicer in an amount equal to the accrued and unpaid Servicing Fee; and

        (g)  to the Seller Account, the balance of any funds remaining after payment in full of all amounts set forth in this Section 6.05.

        Section 6.06.    Investment of Funds in Accounts.    Prior to a Committed Purchaser Funding Event, to the extent uninvested amounts are on deposit in the Retention Account on any given day during the Revolving Period, the Administrative Agent shall invest all such amounts in Permitted Investments selected by the Administrative Agent that mature no later than the immediately succeeding Settlement Date. From and after the Facility Termination Date, any investment of such amounts shall be solely at the discretion of the Administrative Agent, subject to the restrictions described above. All proceeds of any such investment shall be deposited upon receipt into the Retention Account.

        Section 6.07.    Termination Procedures.

        (a)  On the earlier of (i) the first Business Day after the Facility Termination Date on which the Capital Investment has been reduced to zero or (ii) the Final Purchase Date, if the obligations to be paid pursuant to Section 6.05 have not been paid in full, the Seller shall immediately deposit in the Collection Account an amount sufficient to make such payments in full.

        (b)  On the Termination Date, all amounts on deposit in the Collection Account and the Retention Account shall be disbursed to the Seller and all ownership interests or Liens of the Purchasers in and to all Transferred Receivables and all Liens of the Purchasers and the Administrative Agent in and to the Seller Collateral shall be released by each Purchaser and the Administrative Agent. Such disbursement shall constitute the final payment to which the Seller is entitled pursuant to the terms of this Agreement.

        (c)  Seller acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the written

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consent of Administrative Agent and agrees that it will not do so without the prior written consent of Administrative Agent, subject to Seller's rights under Section 9-509(d)(2) of the UCC.

ARTICLE VII.

SERVICER PROVISIONS

        Section 7.01.    Appointment of the Servicers.    Each of the Conduit Purchaser and the Committed Purchaser hereby appoints the Master Servicer as its agent, and the Seller hereby acknowledges such appointment, to service the Transferred Receivables and enforce its (and the applicable Originator's) rights and interests in and under each Transferred Receivable and Contract therefor and to serve in such capacity until the termination of its responsibilities pursuant to Sections 9.02 or 11.01. Each of the Conduit Purchaser and the Committed Purchaser hereby appoints each other Servicer as its agent, and the Seller hereby acknowledges such appointment, to service the Transferred Receivables originated by such Servicer and enforce its rights and interests in and under each Transferred Receivable and Contract therefor and to serve in such capacity until the termination of its responsibilities pursuant to Sections 9.02 or 11.01. In connection therewith, the Master Servicer and each other Servicer hereby accepts such appointment and agrees to perform the duties and obligations set forth herein. Each Servicer may, with the prior written consent of each Purchaser and the Administrative Agent, subcontract with a Sub-Servicer for the collection, servicing or administration of the Transferred Receivables; provided, that (a) the Master Servicer and such assigning Servicer shall remain liable for the performance of the duties and obligations of such Sub-Servicer pursuant to the terms hereof and (b) any Sub-Servicing Agreement that may be entered into and any other transactions or services relating to the Transferred Receivables involving a Sub-Servicer shall be deemed to be between the Sub-Servicer and such Servicer alone, and the Purchasers and the Administrative Agent shall not be deemed parties thereto and shall have no obligations, duties or liabilities with respect to the Sub-Servicer.

        Section 7.02.    Duties and Responsibilities of the Servicers.    Subject to the provisions of this Agreement, the Master Servicer shall conduct the servicing, administration and collection of the Transferred Receivables and shall take, or cause to be taken, all actions that (i) may be necessary or advisable to service, administer and collect each Transferred Receivable from time to time, (ii) the Master Servicer would take if the Transferred Receivables were owned by such Servicer, and (iii) are consistent with industry practice for the servicing of such Transferred Receivables. Subject to the provisions of this Agreement, each other Servicer shall conduct the servicing, administration and collection of the Transferred Receivables originated by it and shall take, or cause to be taken, all actions that (i) may be necessary or advisable to service, administer and collect such Transferred Receivables from time to time, (ii) such Servicer would take if the Transferred Receivables were owned by such Servicer, and (iii) are consistent with industry practice for the servicing of such Transferred Receivables.

        Section 7.03.    Collections on Receivables.

        (a)  In the event that any Servicer is unable to determine the specific Transferred Receivables on which Collections have been received from the Obligor thereunder, the parties agree for purposes of this Agreement only that such Collections shall be deemed to have been received on such Receivables in the order in which they were originated with respect to such Obligor. In the event that any Servicer is unable to determine the specific Transferred Receivables on which discounts, offsets or other non-cash reductions have been granted or made with respect to the Obligor thereunder, the parties agree for purposes of this Agreement only that such reductions shall be deemed to have been granted or made (i) if no Termination Event has occurred and is continuing, on such Receivables as determined by such Servicer, and (ii) from and after the

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occurrence and during the continuation of a Termination Event, in the reverse order in which they were originated with respect to such Obligor.

        (b)  If any Servicer determines that amounts unrelated to the Transferred Receivables (the "Unrelated Amounts") have been deposited in the Collection Account, then such Servicer shall provide written evidence thereof to the Purchasers and the Administrative Agent no later than the first Business Day following the day on which such Servicer had actual knowledge thereof, which evidence shall be provided in writing and shall be otherwise satisfactory to each such Affected Party. Upon receipt of any such notice, the Administrative Agent shall segregate the Unrelated Amounts and the same shall not be deemed to constitute Collections on Transferred Receivables and shall not be subject to the provisions of Article VI.

        Section 7.04.    Authorization of the Servicers.    Each of the Conduit Purchaser and the Committed Purchasers hereby authorizes each Servicer, and the Seller acknowledges such authorization, to take any and all reasonable steps in its name and on its behalf necessary or desirable and not inconsistent with the ownership of the Purchaser Interests purchased by such Purchaser hereunder and the pledge of the Conduit's Purchaser Interest by the Conduit Purchaser to the Collateral Agent pursuant to the Collateral Agent Agreement, in the determination of such Servicer, to (a) collect all amounts due under any Transferred Receivable (or, with respect to each Servicer other than the Master Servicer, any Transferred Receivable originated by it), including endorsing its name on checks and other instruments representing Collections on such Receivable, and execute and deliver any and all instruments of satisfaction or cancellation or of partial or full release or discharge and all other comparable instruments with respect to any such Receivable and (b) after any Transferred Receivable (or, with respect to each Servicer other than the Master Servicer, any Transferred Receivable originated by it) becomes a Defaulted Receivable and to the extent permitted under and in compliance with applicable law and regulations, commence proceedings with respect to the enforcement of payment of any such Receivable and the Contract therefor and adjust, settle or compromise any payments due thereunder, in each case to the same extent as the applicable Originator could have done if it had continued to own such Receivable. Each Originator, the Seller, the Administrative Agent and each Purchaser shall furnish each Servicer with any powers of attorney and other documents necessary or appropriate to enable such Servicer to carry out its servicing and administrative duties hereunder. Notwithstanding anything to the contrary contained herein, the Purchasers and the Administrative Agent shall have the absolute and unlimited right to direct the Servicers (whether such Servicer is the Parent or otherwise) (i) to commence or settle any legal action to enforce collection of any Transferred Receivable or (ii) to foreclose upon, repossess or take any other action that the Administrative Agent deems necessary or advisable with respect thereto; provided, that in lieu of commencing any such action or taking other enforcement action, such Servicer may, at its option, elect to (x) pay to the Applicable Purchaser, the Capital Investment with respect to its Purchaser Interest in such Transferred Receivable or (y) replace such Transferred Receivable with an Eligible Receivable(s) of equal or greater amount to the Capital Investment with respect to the Purchasers' Purchaser Interest in such Transferred Receivable. In no event shall any Servicer be entitled to make any Affected Party a party to any Litigation without such Affected Party's express prior written consent, or to make the Seller a party to any Litigation without the Administrative Agent's consent.

        Section 7.05.    Servicing Fees.

        (a)  As compensation for its servicing activities and as reimbursement for its reasonable expenses in connection therewith, the Master Servicer shall be entitled to receive the Servicing Fees in accordance with Sections 6.04 and 6.05, and each other Servicer shall be entitled to receive the Applicable Servicing Fees in accordance with Section 2.07(b). Each Servicer shall be required to pay for all expenses incurred by it in connection with its activities hereunder (including any payments to accountants, counsel or any other Person) and shall not be entitled to any payment therefor other than the Servicing Fees or the Applicable Servicing Fees.

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        (b)  For any period that the Parent or any Affiliate of the Parent is the Master Servicer, the Seller agrees that it shall pay to the Master Servicer on each Settlement Date the applicable Servicing Fee, to the extent of funds available to the Seller on such Settlement Date. The Seller agrees that it will pay the Servicing Fee to the Master Servicer prior to using any funds available to it on such Settlement Date for any other purpose, including, without limitation, the purchase of additional Receivables. If the Seller does not have sufficient funds available to so pay the Servicing Fee in full on any Settlement Date, the shortfall shall be paid on the next Business Day on which the Seller does have available funds but only to the extent that funds are then available to the Seller in accordance with the provisions of Article VI. Each Servicer waives any right it has or may at any time have to demand payment and/or take any action to or in furtherance of payment of any shortfall in the payment of the Servicing Fee and agrees that it shall not have a "claim" under Section 101(5) of the Bankruptcy Code for the payment of any such shortfall, except for, and only to the extent of, any excess available funds, as described above.

        (c)  On each Settlement Date, an Authorized Officer of the Seller shall deliver to the Administrative Agent a certificate certifying that the Servicing Fee payable for the preceding Settlement Period has been paid in accordance with this Section 7.07.

        Section 7.06.    Representations and Warranties of the Servicers.    To induce the Purchasers to purchase the Purchaser Interests and the Administrative Agent to take any action required to be performed by it hereunder, each Servicer represents and warrants to the Purchasers and the Administrative Agent, which representation and warranty shall survive the execution and delivery of this Agreement:

        (a)    Corporate Existence; Compliance with Law.    Each Servicer (i) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; (ii) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification; (iii) has the requisite power and authority and the legal right to own and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (iv) has all licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct, except where the failure to have received any such license, permit, consent or approval or to have given any such notice, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; (v) is in compliance with its Charter Documents; and (vi) subject to specific representations set forth herein regarding ERISA, tax and other laws, is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

        (b)    Corporate Power, Authorization, Enforceable Obligations.    The execution, delivery and performance by each Servicer of this Agreement and the other Related Documents to which it is a party and, solely with respect to clause (vii) below, the exercise by each of the Seller, the Purchasers or the Administrative Agent of any of its rights and remedies under any Related Document to which it is a party: (i) are within each Servicer's power; (ii) have been duly authorized by all necessary or proper action (corporate, shareholder or otherwise); (iii) do not contravene any provision of such Servicer's Charter Documents; (iv) do not violate any law or regulation, or any order or decree of any court or Governmental Authority; (v) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Servicer is a party or by which such Servicer or any of the property of such Servicer is bound; (vi) do not result in the creation or imposition of any Adverse Claim upon any of the property of such Servicer; and (vii) do not require the consent or

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approval of any Governmental Authority or any other Person, except those referred to in Section 3.01(b), all of which will have been duly obtained, made or complied with prior to the Closing Date. On or prior to the Closing Date, each of the Related Documents to which any Servicer is a party shall have been duly executed and delivered by such Servicer and each such Related Document shall then constitute a legal, valid and binding obligation of such Servicer enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights and by general principles of equity.

        (c)    No Litigation.    Except as set forth on Schedule 4.01(d), no Litigation is now pending or, to the knowledge of any Servicer, threatened against any Servicer that (i) challenges any Servicer's right or power to enter into or perform any of its obligations under the Related Documents to which it is a party, or the validity or enforceability of any Related Document or any action taken thereunder, (ii) seeks to prevent the transfer, sale, pledge or contribution of any Receivable or the consummation of any of the transactions contemplated under this Agreement or the other Related Documents, or (iii) if determined adversely to any Servicer, could reasonably be expected to have a Material Adverse Effect.

        (d)    Full Disclosure.    No information contained in this Agreement, any Investment Base Certificate or any of the other Related Documents, or any written statement furnished by or on behalf of any Servicer to either Purchaser or the Administrative Agent pursuant to the terms of this Agreement or any of the other Related Documents contains any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.

        (e)    Other Representations and Warranties.    Each of the representations and warranties of each Servicer (whether made by such Servicer in its capacity as an Originator or as a Servicer) contained in any Related Document is true and correct and, if made by any Servicer in its capacity as an Originator, applies with equal force to such Servicer in its capacity as a Servicer.

        Section 7.07.    Covenants of the Servicers.    Each Servicer covenants and agrees that from and after the Closing Date and until the Termination Date:

        (a)    Ownership of Transferred Receivables.    Each Servicer shall identify the Transferred Receivables clearly and unambiguously in its Servicing Records to reflect that such Transferred Receivables have been sold or contributed to the Seller and, following the Purchase of Purchaser Interests in such Transferred Receivables under this Agreement, are owned by the Conduit Purchaser or Committed Purchaser, as applicable.

        (b)    Compliance with Credit and Collection Policies.    Each Servicer shall comply in all respects with the Credit and Collection Policies with respect to each Transferred Receivable and the Contract therefor. No Servicer shall amend, waive or modify any term or provision of the Credit and Collection Policies without the prior written consent of the Administrative Agent.

        (c)    Covenants in Other Related Documents.    Each Servicer shall perform, keep and observe all covenants applicable to it in its capacity as an Originator under the Sale and Contribution Agreement and the other Related Documents (including those covenants set forth in Sections 4.02 and 4.03 of the Sale and Contribution Agreement) and each Servicer hereby agrees to be bound by such covenants in its capacity as Servicer hereunder for the benefit of the Purchasers and the Administrative Agent as if the same were set forth in full herein.

        Section 7.08.    Reporting Requirements of the Servicers.    Each Servicer hereby agrees that, from and after the Closing Date and until the Termination Date, it shall deliver or cause to be delivered to the

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Purchasers and the Administrative Agent the financial statements, notices, and other information at the times, to the Persons and in the manner set forth in Annex 5.02(a).

ARTICLE VIII.

GRANT OF SECURITY INTERESTS

        Section 8.01.    Seller's Grant of Security Interest.    The parties hereto intend that each Purchase of Purchaser Interests to be made hereunder shall constitute a purchase and sale of undivided percentage ownership interests in the Transferred Receivables and not a loan. Notwithstanding the foregoing, in addition to and not in derogation of any rights now or hereafter acquired by any Purchaser or the Administrative Agent hereunder, the parties hereto intend that this Agreement shall constitute a security agreement under applicable law. In such regard and, in any event, to secure the prompt and complete payment, performance and observance of all Seller Secured Obligations, and to induce the Conduit Purchaser and the Committed Purchaser to enter into this Agreement and perform the obligations required to be performed by it hereunder in accordance with the terms and conditions thereof, the Seller hereby grants, assigns, conveys, pledges, hypothecates and transfers to the Administrative Agent, for the benefit of itself, the Conduit Purchaser and the Committed Purchaser, a Lien upon and security interest in all of its right, title and interest in, to and under, but none of its obligations arising from, the following property, whether now owned by or owing to, or hereafter acquired by or arising in favor of, the Seller (including under any trade names, styles or derivations of the Seller), and regardless of where located (all of which being hereinafter collectively referred to as the "Seller Collateral"):

        (a)  all Receivables, Contracts therefor and Collections thereon;

        (b)  the Sale and Contribution Agreement, all Lockbox Account Agreements and all other Related Documents now or hereafter in effect relating to the purchase, servicing or processing of Receivables (collectively, the "Seller Assigned Agreements"), including (i) all rights of the Seller to receive moneys due and to become due thereunder or pursuant thereto, (ii) all rights of the Seller to receive proceeds of any insurance, indemnity, warranty or guaranty with respect thereto, (iii) all claims of the Seller for damages or breach with respect thereto or for default thereunder and (iv) the right of the Seller to amend, waive or terminate the same and to perform and to compel performance and otherwise exercise all remedies thereunder;

        (c)  all of the following (collectively, the "Seller Account Collateral"):

          (i)  all deposit accounts, including the Lockbox Accounts, the Lockboxes, and all funds on deposit therein and all certificates and instruments, if any, from time to time representing or evidencing any deposit account, the Lockbox Accounts, the Lockboxes or such funds,

        (ii)  the Collection Account, the Retention Account and all funds on deposit therein and all certificates and instruments, if any, from time to time representing or evidencing the Collection Account, the Retention Account or such funds,

        (iii)  all Investments from time to time of amounts in the Collection Account and the Retention Account, and all certificates, instruments and investment property, if any, from time to time representing or evidencing such Investments,

        (iv)  all notes, certificates of deposit and other instruments from time to time delivered to or otherwise possessed by any Purchaser or any assignee or agent on behalf of any Purchaser in substitution for or in addition to any of the then existing Seller Account Collateral, and

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        (v)  all interest, dividends, cash, instruments, investment property and other property from time to time received, receivable or otherwise distributed with respect to or in exchange for any and all of the then existing Seller Account Collateral;

        (d)  all software and Computer Hardware;

        (e)  all other property that may from time to time hereafter be granted and pledged by the Seller or by any Person on its behalf under this Agreement, including any deposit with any Purchaser or the Administrative Agent of additional funds by the Seller; and

        (f)    to the extent not otherwise included, all proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and profits of, each of the foregoing Seller Collateral (including proceeds that constitute property of the types described in Sections 8.01(a) through (e).

        Section 8.02.    Seller's Certification.    The Seller hereby certifies that (a) the benefits of the representations, warranties and covenants of each Originator and Parent Guarantor to the Seller under the Sale and Contribution Agreement have been assigned by the Seller to the Administrative Agent on behalf of the Purchasers hereunder; (b) the rights of the Seller to require a capital contribution from the Originators or to require payment of a Rejected Amount from an Originator under the Sale and Contribution Agreement may be enforced by the Purchasers and the Administrative Agent; and (c) the Sale and Contribution Agreement provides that the representations, warranties and covenants described in Sections 4.01, 4.02 and 4.03 thereof, the indemnification and payment provisions of Article V thereof and the provisions of Sections 4.03(j), 8.03 and 8.14 thereof shall survive the sale of the Transferred Receivables (and undivided percentage ownership interests therein) and the termination of the Sale and Contribution Agreement and this Agreement. The Seller hereby acknowledges that the Conduit Purchaser has assigned to the Collateral Agent under the Collateral Agent Agreement the benefits of the representations, warranties and covenants certified in Section 8.02(a) to have been assigned to the Conduit Purchaser.

        Section 8.03.    Consent to Assignment.    Each of the Seller and the Servicers acknowledges and consents to the grant by the Conduit Purchaser to the Collateral Agent pursuant to the Collateral Agent Agreement of a Lien upon all of the Conduit Purchaser's rights, title and interest in, to and under the Seller Collateral and acknowledges the rights of the Collateral Agent thereunder and the covenants made by the Conduit Purchaser in favor of the Collateral Agent set forth therein, and further acknowledges and consents that, upon the occurrence and during the continuance of an Incipient Termination Event or a Termination Event prior to a Committed Purchaser Funding Event, the Collateral Agent shall be entitled to enforce the provisions of the Seller Assigned Agreements and shall be entitled to all the rights and remedies of the Conduit Purchaser thereunder. In addition, each of the Seller and the Servicers hereby authorizes the Collateral Agent to rely on the representations and warranties made by it in the Seller Assigned Agreements to which it is a party and in any other certificates or documents furnished by it to any party in connection therewith.

        Section 8.04.    Delivery of Collateral.    All certificates or instruments representing or evidencing the Seller Collateral shall be delivered to and held by or on behalf of the Administrative Agent and shall be in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Administrative Agent. The Administrative Agent shall have the right (a) at any time to exchange certificates or instruments representing or evidencing Seller Collateral for certificates or instruments of smaller or larger denominations and (b) at any time in its discretion following the occurrence and during the continuation of a Termination Event and without notice to the Seller, to transfer to or to register in the name of the Administrative Agent or its nominee any or all of the Seller Collateral. The Seller will, (A) at all times from and after the date hereof, clearly and conspicuously mark its computer and master data processing books and records with a legend describing the Administrative Agent's interest (on behalf of the Purchasers) in the Receivables and (B) segregate (from all other receivables then owned or being serviced by the Seller) all contracts relating to each Receivable.

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        Section 8.05.    Seller Remains Liable.    It is expressly agreed by the Seller that, anything herein to the contrary notwithstanding, the Seller shall remain liable under any and all of the Transferred Receivables, the Contracts therefor, the Seller Assigned Agreements and any other agreements constituting the Seller Collateral to which it is a party to observe and perform all the conditions and obligations to be observed and performed by it thereunder. The Purchasers, the Administrative Agent, the Collateral Agent and the other Conduit Purchaser Secured Parties shall not have any obligation or liability under any such Receivables, Contracts or agreements by reason of or arising out of this Agreement or the Collateral Agent Agreement or the granting herein or therein of a Lien thereon or the receipt by the Administrative Agent, Purchasers, the Collateral Agent or any Purchaser Secured Party of any payment relating thereto pursuant hereto or thereto. The exercise by any Purchaser or the Administrative Agent of any of its respective rights under this Agreement shall not release any Originator, the Seller or any Servicer from any of their respective duties or obligations under any such Receivables, Contracts or agreements. None of the Purchasers, the Administrative Agent, the Collateral Agent or any of the Conduit Purchaser Secured Parties shall be required or obligated in any manner to perform or fulfill any of the obligations of any Originator, the Seller or any Servicer under or pursuant to any such Receivable, Contract or agreement, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any such Receivable, Contract or agreement, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times.

        Section 8.06.    Covenants of the Seller and the Servicers Regarding the Seller Collateral.

        (a)    Offices and Records.    The Seller shall maintain its principal place of business and chief executive office and the office at which it stores its Records at the respective locations specified in Schedule 4.01(b) or, upon 30 days' prior written notice to the Administrative Agent, at such other location in a jurisdiction where all action requested by the Administrative Agent pursuant to Section 14.15 shall have been taken with respect to the Seller Collateral. Each of the Seller and each Servicer shall, at its own cost and expense, maintain adequate and complete records of the Transferred Receivables and the Seller Collateral, including records of any and all payments received, credits granted and merchandise returned with respect thereto and all other dealings therewith. Each of the Seller and each Servicer shall mark conspicuously with a legend, in form and substance satisfactory to the Administrative Agent, its books and records, computer tapes, computer disks and credit files pertaining to the Seller Collateral, and its file cabinets or other storage facilities where it maintains information pertaining thereto, to evidence this Agreement and the assignment and Liens granted pursuant to this Article VIII. Upon the occurrence and during the continuance of a Termination Event, the Seller and each Servicer shall deliver and turn over such books and records to the Administrative Agent or its representatives at any time on demand of the Administrative Agent. Prior to the occurrence of a Termination Event and upon notice from the Administrative Agent, the Seller and each Servicer shall permit any representative of the Administrative Agent to inspect such books and records and shall provide photocopies thereof to the Administrative Agent as more specifically set forth in Section 8.06(b).

        (b)    Access.    Each of the Seller and each Servicer shall, at its own expense, during normal business hours, from time to time upon five Business Days' prior notice as frequently as the Administrative Agent determines to be appropriate: (i) provide the Purchasers, the Administrative Agent and any of their respective officers, employees and agents access to its properties (including properties utilized in connection with the collection, processing or servicing of the Transferred Receivables), facilities, advisors and employees (including officers) and to the Seller Collateral, (ii) permit the Purchasers, the Administrative Agent and any of their respective officers, employees and agents to inspect, audit and make extracts from its books and records, including all Records, (iii) permit the Purchasers or the Administrative Agent and their respective officers, employees

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and agents to inspect, review and evaluate the Transferred Receivables and the Seller Collateral and (iv) permit the Purchasers or the Administrative Agent and their respective officers, employees and agents to discuss matters relating to the Transferred Receivables or its performance under this Agreement or the other Related Documents or its affairs, finances and accounts with any of its officers, directors, and, so long as the Purchasers or the Administrative Agent notifies the Seller or the applicable Servicer, as the case may be, and gives the Seller or the applicable Servicer the opportunity to participate in any such communications, with its employees, representatives or agents (in each case, with those persons having knowledge of such matters), and, so long as the Purchasers or the Administrative Agent notifies the Seller or the applicable Servicer, as the case may be, and gives the Seller or the applicable Servicer the opportunity to participate in any such communications, with its independent certified public accountants. If (A) an Incipient Termination Event or a Termination Event shall have occurred and be continuing or (B) the Administrative Agent, in good faith, believes that an Incipient Termination Event or a Termination Event is imminent or deems any Purchaser's rights or interests in the Transferred Receivables, the Seller Assigned Agreements or any other Seller Collateral insecure, then each of the Seller and each Servicer shall, at its own expense, provide such access at all times and without advance notice and provide the Purchasers or the Administrative Agent with access to its customers (other than customers of K2 Inc. that are not also customers of the other Servicers), and, so long as the Purchasers or the Administrative Agent notifies the Seller or the applicable Servicer, as the case may be, and gives the Seller or the applicable Servicer the opportunity to be present, with its suppliers. Each of the Seller and each Servicer shall make available to the Administrative Agent and its counsel, as quickly as is possible under the circumstances, originals or copies of all books and records, including Records, that the Administrative Agent may reasonably request. Each of the Seller and each Servicer shall deliver any document or instrument necessary for the Administrative Agent, as the Administrative Agent may from time to time reasonably request, to obtain records from any service bureau or other Person that maintains records for the Seller or any Servicer, and shall maintain duplicate records or supporting documentation on media, including computer tapes and disks owned by the Seller or such Servicer.

        (c)    Communication with Accountants.    So long as the Purchasers or the Administrative Agent notifies the Seller or the applicable Servicer, as the case may be, and gives the Seller or the applicable Servicer the opportunity to participate in any such communications, each of the Seller and each Servicer authorizes the Purchasers and the Administrative Agent to communicate directly with its independent certified public accountants and authorizes and shall instruct those accountants and advisors to disclose and make available to the Purchasers and the Administrative Agent any and all financial statements and other supporting financial documents, schedules and information relating to the Seller or any Servicer (including copies of any issued management letters) with respect to its business, financial condition and other affairs.

        (d)    Collection of Transferred Receivables.    Except as otherwise provided in this Section 8.06(d), each Servicer shall continue to collect or cause to be collected, at its sole cost and expense, all amounts due or to become due to the Seller under the Transferred Receivables (or, with respect to any Servicer other than the Master Servicer, the Transferred Receivables originated by it), the Seller Assigned Agreements and any other Seller Collateral. In connection therewith, the Seller and each Servicer shall take such action as it, and from and after the occurrence and during the continuance of a Termination Event, the Administrative Agent, may deem necessary or desirable to enforce collection of the Transferred Receivables, the Seller Assigned Agreements and the other Seller Collateral; provided, that the Seller or any Servicer may, rather than commencing any such action or taking any other enforcement action, at its option, elect to pay to the Administrative Agent, for the account of the Applicable Purchaser (in accordance with its Purchaser Interests), the Outstanding Balance of any such Transferred Receivable; provided further, that if (i) an Incipient Termination Event or a Termination Event shall have occurred and be

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continuing or (ii) the Administrative Agent, in good faith believes that an Incipient Termination Event or a Termination Event is imminent or deems any Purchaser's rights or interests in the Transferred Receivables, the Seller Assigned Agreements or any other Seller Collateral insecure, then the Administrative Agent may, without prior notice to the Seller or the Servicers, notify or cause the Servicers to notify any Obligor under any Transferred Receivable or obligors under the Seller Assigned Agreements of the assignment of such Transferred Receivables or Seller Assigned Agreements, as the case may be, to the Administrative Agent on behalf of the Purchasers hereunder and direct that payments of all amounts due or to become due to the Seller thereunder be made directly to the Administrative Agent or any Servicer, collection agent or lockbox or other account designated by the Administrative Agent and, upon such notification and at the sole cost and expense of the Seller and the Servicers, the Administrative Agent may enforce collection of any such Transferred Receivable or the Seller Assigned Agreements and adjust, settle or compromise the amount or payment thereof. Notwithstanding the foregoing, no Servicer shall extend, amend, rescind, forgive, discharge, compromise, waive, cancel or otherwise modify the terms of any Transferred Receivable or amend, modify or waive any term or condition of any Contract related thereto, provided, that such Servicer may take such actions as are expressly permitted by the Credit and Collection Policies as such Servicer deems appropriate to maximize Collections thereof so long as such extension or adjustment does not alter any classification of a Receivable as a Defaulted Receivable or result in any Receivable being required to be paid more than 364 days from the Billing Date thereof.

        (e)    Performance of Seller Assigned Agreements.    Each of the Seller and each Servicer shall (i) perform and observe all the terms and provisions of the Seller Assigned Agreements to be performed or observed by it, maintain the Seller Assigned Agreements in full force and effect, enforce the Seller Assigned Agreements in accordance with their terms and take all action as may from time to time be requested by the Administrative Agent in order to accomplish the foregoing, and (ii) upon the request of and as directed by the Administrative Agent, make such demands and requests to any other party to the Seller Assigned Agreements as are permitted to be made by the Seller or any Servicer thereunder.

        Section 8.07.    License for Use of Software and Other Intellectual Property.    Unless expressly prohibited by the licensor thereof or any provision of applicable law, if any, the Seller hereby grants to the Administrative Agent and the Purchasers a non-exclusive license to use, without charge:

        (a)  such Seller's computer programs, software, printouts and other computer materials, technical knowledge or processes, data bases, materials, and licenses thereto, and

        (b)  such Seller's owned or licensed trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, patent applications, trade names, rights of use of any name, labels fictitious names, inventions, designs, trade secrets, goodwill, registrations, copyrights, copyright applications, permits, franchises, customer lists, credit files, correspondence, and advertising materials or any property of a similar nature,

in each case, as it pertains to the Seller, or any rights to any of the foregoing, in the advertising for sale, and selling any of the Seller Collateral, or exercising of any other remedies hereto. The Seller agrees that the Seller's rights under all licenses and franchise agreements shall inure to the Administrative Agent's and Purchasers' benefit. To the extent the grant of the aforesaid license described is expressly prohibited by the licensor thereof, the Seller shall exercise its best efforts to obtain the consent of such licensor to the Seller's grant to the Administrative Agent and the Purchasers of such license. Each of the Administrative Agent and the Purchasers agrees not to use any such license without giving the Seller and Master Servicer prior notice and unless a Termination Event has occurred and is continuing.

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ARTICLE IX.

TERMINATION EVENTS

        Section 9.01.    Termination Events.    If any of the following events (each, a "Termination Event") shall occur (regardless of the reason therefor):

        (a)  (i) the Seller shall fail to make any payment of any Seller Secured Obligation when due and payable and the same shall remain unremedied for two Business Days or more, (ii) the Seller shall fail to deliver the Investment Base Certificate as required pursuant to Section 2.03 or the reports as and when required in clauses (a), (b), (c) or (d) of Annex 5.02(a) and, in each case, such failure shall remain unremedied for two (2) Business Days or more, or (iii) the Seller or SPC shall fail or neglect to perform, keep or observe any other provision of this Agreement or the other Related Documents (other than any provision embodied in or covered by any other clause of this Section 9.01) and the same shall remain unremedied for five (5) Business Days or more after written notice thereof shall have been given by the Administrative Agent to the Seller; or

        (b)  a default or breach (after giving effect to applicable cure periods, if any) shall occur under any other agreement, document or instrument to which the Parent Guarantor, any Originator, or any other Subsidiary of the Parent Guarantor is a party or by which any such Person or its property is bound, and such default or breach (i) involves the failure to make any payment when due in respect of any Debt to GE Capital or any of its Affiliates, (ii) permits any holder of Debt or a trustee or agent under the Credit Facilities or any foreign credit facility of Parent Guarantor or any of its Subsidiaries to cause such Debt or a portion thereof to become due prior to its stated maturity or prior to its regularly scheduled dates of payment, or (iii) permits any holder of Debt or a portion thereof which is in excess of a principal amount of $5,000,000 in the aggregate to cause such Debt or a portion thereof to become due prior to its stated maturity or prior to its regularly scheduled dates of payment; in each case, regardless of whether such default is waived, or such right is exercised, by such holder, trustee or agent; or

        (c)  a case or proceeding shall have been commenced against the Parent Guarantor, any Subsidiary of Parent Guarantor, the SPC, the Seller or any Originator seeking a decree or order in respect of any such Person (i) under the Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for any such Person or for any substantial part of such Person's assets, or (iii) ordering the winding-up or liquidation of the affairs of any such Person and, other than with respect to the Seller, any such proceedings or case shall not be dismissed within 60 days after commencement thereof; or

        (d)  the Parent Guarantor, the SPC, the Seller, any Originator or any other Subsidiary of Parent Guarantor shall (i) file a petition seeking relief under the Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) consent or fail to object in a timely and appropriate manner to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for any such Person or for any substantial part of such Person's assets, (iii) make an assignment for the benefit of creditors, or (iv) take any corporate action in furtherance of any of the foregoing; or

        (e)  (i) Parent Guarantor, any Originator, the SPC, the Seller or any Servicer generally does not pay its debts as such debts become due or admits in writing its inability to, or is generally unable to, pay its Debts as such Debts become due or (ii) the fair market value of the Parent Guarantor's, the SPC's, any Originator's, any Servicer's or the Seller's liabilities exceeds the fair market value of its assets; or

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        (f)    a final judgment or judgments for the payment of money in excess of $5,000,000 (exclusive of judgments to the extent covered by insurance) in the aggregate at any time outstanding shall be rendered against Parent Guarantor or any of its Subsidiaries and the same shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed or bonded pending appeal, or shall not have been discharged prior to the expiration of any such stay; or

        (g)  a judgment or order for the payment of money shall be rendered against the Seller or SPC; or

        (h)  (i) any information contained in any Investment Base Certificate is untrue or incorrect in any respect, or (ii) any representation or warranty of Parent Guarantor or any of its Subsidiaries, any Originator, SPC or the Seller herein or in any other Related Document or in any written statement, report, financial statement or certificate (other than an Investment Base Certificate) made or delivered by or on behalf of such Person to any Affected Party hereto or thereto is untrue or incorrect in any material respect as of the date when made or deemed made, except to the extent that any Originator has complied with Section 4.04 of the Sale and Contribution Agreement with respect to such breach; or

        (i)    any Governmental Authority (including the IRS or the PBGC) shall file notice of a Lien with regard to any assets of any Originator (other than a Lien (i) limited by its terms to assets other than Receivables and (ii) not materially adversely affecting the financial condition of such Originator or the ability of the Parent to perform as Master Servicer hereunder); or

        (j)    any Governmental Authority (including the IRS or the PBGC) shall file notice of a Lien with regard to any of the assets of the Seller or SPC; or

        (k)  the Administrative Agent shall have determined (and so notified the Seller) that (i) there shall have occurred any event which materially impairs the collectibility of the Receivables, or (ii) any event or condition that has had or could reasonably be expected to have or result in a Material Adverse Effect has occurred; or

        (l)    (i) a default or breach shall occur under any provision of Section 4.03(l) of the Sale and Contribution Agreement, (ii) a default or breach shall occur under any provision of Sections 4.02(o), 4.04, 5.01 or 8.14 of the Sale and Contribution Agreement and the same shall remain unremedied for two Business Days or more after the occurrence thereof, (iii) a default or breach shall occur under any other provision of the Sale and Contribution Agreement and the same shall remain unremedied for five Business Days or more after written notice thereof shall have been given by the Administrative Agent to the Seller or (iv) the Sale and Contribution Agreement shall for any reason cease to evidence the transfer to the Seller of the legal and equitable title to, and ownership of, the Transferred Receivables; or

        (m)  except as otherwise expressly provided herein, any Lockbox Account Agreement or the Sale and Contribution Agreement shall have been modified, amended or terminated without the prior written consent of the Purchasers and the Administrative Agent; or

        (n)  an Event of Servicer Termination shall have occurred; or

        (o)  (i) with respect to the Transferred Receivables, (A) prior to the Purchase of Purchaser Interests therein hereunder, the Seller shall cease to hold valid and properly perfected title to and sole record and beneficial ownership in such Transferred Receivables or (B) after the Purchase of Purchaser Interests hereunder, (1) the Administrative Agent (on behalf of the Purchasers) shall cease to hold either (a) valid and properly perfected title to and sole record and beneficial ownership in the related Transferred Receivables or (b) a first priority, perfected Lien in the related Transferred Receivables or any of the Seller Collateral; or

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        (p)  a Change of Control with respect to the Parent, SPC, the Seller or any Originator; or

        (q)  the Seller or SPC shall amend its Charter Documents without the express prior written consent of the Purchasers and the Administrative Agent; or

        (r)  the Seller shall have received an Election Notice from any Originator pursuant to Section 2.01(d) of the Sale and Contribution Agreement; or

        (s)  (i) the Default Ratio shall exceed 11.0%; (ii) the Delinquency Ratio shall exceed 3.0%; (iii) the Dilution Trigger Ratio shall exceed 7.5%; (iv) the Receivables Collection Turnover shall exceed 110 days; or (v) the Seller's Net Worth Percentage shall be less than 5.0%; or

        (t)    the Parent Revolver, the 1992 Note Agreement or the 1999 Note Agreement shall (i) terminate without being refinanced as set forth in clause (iii) below, (ii) fail to have its maturity date extended beyond the Final Purchase Date or other period reasonably satisfactory to the Administrative Agent, or (iii) if the Parent Revolver, the 1992 Note Agreement or the 1999 Note Agreement is to be refinanced, (A) Seller shall fail to deliver to the Administrative Agent at least sixty (60) days prior to the maturity date of such Debt, a letter of intent with respect to the refinancing between Parent and the lenders thereunder or similar replacement lenders in form and substance reasonably satisfactory to the Administrative Agent, (B) Seller shall fail to deliver to the Administrative Agent at least thirty (30) days prior to the maturity date of such Debt, a binding commitment letter with respect to such refinancing between Parent and such refinancier in form and substance reasonably satisfactory to the Administrative Agent, or (C) if such refinancier is secured, Seller shall fail to deliver to the Administrative Agent a Satisfactory Intercreditor Agreement executed by such refinancier; or

        (u)  any material provision of any Related Document shall for any reason cease to be valid, binding and enforceable in accordance with its terms (or any Originator or the Seller shall challenge the enforceability of any Related Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Related Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms); or

        (v)  to the extent that the Credit Facilities' Security Documents prohibit amendment, supplement, restatement or other modification thereof without the consent of the Administrative Agent, the failure to obtain the Administrative Agent's consent to any such amendment, supplement, restatement or modification;

then, and in any such event, the Administrative Agent shall, at the request of, or may, with the consent of, the Purchaser or the Administrative Agent, by notice to the Seller, declare the Facility Termination Date to have occurred without demand, protest or further notice of any kind, all of which are hereby expressly waived by the Seller; provided, that the Facility Termination Date shall automatically occur (i) upon the occurrence of any of the Termination Events described in Sections 9.01(c), (d), (e) or (r) or (ii) three days after the occurrence of the Termination Event described in Section 9.01(a)(i) if the same shall not have been remedied by such time, in each case without demand, protest or any notice of any kind, all of which are hereby expressly waived by the Seller.

        Section 9.02.    Events of Servicer Termination.    If any of the following events (each, an "Event of Servicer Termination") shall occur (regardless of the reason therefor):

        (a)  any Servicer shall (i) fail to make any payment or deposit required to be made by it under this Agreement or any other Related Document, (ii) fail to deliver any reports required to be delivered by it under clauses (a), (b), or (c) of Annex 5.02(a) or Section 5.02(b) of this Agreement and such failure shall remain unremedied for two (2) Business Days or more, (iii) fail to deliver any other reports required to be delivered by it under this Agreement or any other

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Related Document and such failure shall remain unremedied for five (5) Business Days or more, or (iv) fail or neglect to perform, keep or observe any other provision of this Agreement or the other Related Documents (whether in its capacity as an Originator or as Servicer) and the same shall remain unremedied for five (5) Business Days or more after written notice thereof shall have been given by the Purchasers or the Administrative Agent to such Servicer or the Master Servicer; or

        (b)  a default or breach shall occur (after giving effect to applicable cure periods, if any) under any other agreement, document or instrument to which any Servicer is a party or by which any such Person or its property is bound, and such default or breach (i) involves the failure to make any payment when due in respect of any Debt to GE Capital or any of its Affiliates, (ii) permits any holder of Debt or a trustee or agent under the Credit Facilities or any foreign credit facility of any Servicer to cause such Debt or a portion thereof to become due prior to its stated maturity or prior to its regularly scheduled dates of payment, or (iii) permits any holder of Debt or a portion thereof which is in excess of a principal amount of $5,000,000 in the aggregate to cause such Debt or a portion thereof to become due prior to its stated maturity or prior to its regularly scheduled dates of payment; in each case, regardless of whether such default is waived, or such right is exercised, by such holder, trustee or agent; or

        (c)  a case or proceeding shall have been commenced against any Servicer or any Affiliate thereof which acts as a Sub-Servicer seeking a decree or order in respect of any such Person (i) under the Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for any such Person or for any substantial part of such Person's assets, or (iii) ordering the winding-up or liquidation of the affairs of any such Person; or

        (d)  any Servicer or any Affiliate thereof which acts as a Sub-Servicer shall (i) file a petition seeking relief under the Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) consent or fail to object in a timely and appropriate manner to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for any such Person or for any substantial part of such Person's assets, (iii) make an assignment for the benefit of creditors, or (iv) take any corporate action in furtherance of any of the foregoing; or

        (e)  (i) any Servicer generally does not pay its debts as such debts become due or admits in writing its inability to, or is generally unable to, pay its Debts as such Debts become due or (ii) the fair market value of any Servicer's liabilities exceeds the fair market value of its assets; or

        (f)    a final judgment or judgments for the payment of money in excess of $5,000,000 in the aggregate at any time outstanding (exclusive of judgments to the extent covered by insurance) shall be rendered against any Servicer or any Affiliate thereof which acts as a Sub-Servicer and the same shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed or bonded pending appeal, or shall not have been discharged prior to the expiration of any such stay; or

        (g)  any representation or warranty of any Servicer herein or in any other Related Document or in any written statement, report, financial statement or certificate (other than an Investment Base Certificate) made or delivered by any Servicer to any Affected Party hereto or thereto is untrue or incorrect in any material respect as of the date when made or deemed made, except to the extent that any Originator has complied with Section 4.04 of the Sale and Contribution Agreement with respect to such breach; or

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        (h)  the Administrative Agent shall have determined that any event or condition that materially adversely affects the ability of any Servicer to collect the Transferred Receivables or to otherwise perform hereunder has occurred; or

        (i)    a Termination Event shall have occurred or this Agreement shall have been terminated; or

        (j)    a deterioration has taken place in the quality of servicing of Transferred Receivables or other Receivables serviced by any Servicer that the Administrative Agent, in its sole discretion, determines to be material, and such material deterioration has not been eliminated within 30 days after written notice thereof shall have been given by the Administrative Agent to such Servicer or the Master Servicer; or

        (k)  any Originator shall, or any Servicer shall, assign or purport to assign any of their respective obligations hereunder or under the Sale and Contribution Agreement without the prior written consent of the Administrative Agent; or

        (l)    a Change of Control shall occur with respect to any Servicer; or

        (m)  if the Master Servicer is the Parent and the Parent ceases to own 100%, directly or indirectly, of the outstanding Stock of the Originators, and if the Servicers are the Originators, the Servicers, together with the SPC, cease to own 100% of the outstanding Stock of the Seller; or

        (n)  the Seller's board of directors or managers, as applicable, shall have determined that it is in the best interests of the Seller to terminate the duties of any Servicer hereunder and shall have given such Servicer or the Master Servicer, the Purchasers and the Administrative Agent at least 30 days' written notice thereof;

then, and in any such event, the Administrative Agent shall, at the request of, or may, with the consent of, the Purchasers or the Administrative Agent, terminate the servicing responsibilities of any or all of the Servicers hereunder by delivery of a Servicer Termination Notice to the Seller and the applicable Servicer(s), without demand, protest or further notice of any kind, all of which are hereby waived by the Servicers. Upon the delivery of any such notice, all authority and power of the Servicer(s) being terminated under this Agreement and the Sale and Contribution Agreement shall pass to and be vested in its or their Successor Servicer(s) acting pursuant to Section 11.02; provided, that notwithstanding anything to the contrary herein, each terminated Servicer agrees to continue to follow the procedures set forth in Section 7.02 with respect to Collections on the Transferred Receivables until its Successor Servicer has assumed the responsibilities and obligations of such Servicer in accordance with Section 11.02.

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ARTICLE X.

REMEDIES

        Section 10.01.    Actions Upon Termination Event.    If any Termination Event shall have occurred and be continuing and the Administrative Agent shall have declared the Facility Termination Date to have occurred or the Facility Termination Date shall be deemed to have occurred pursuant to Section 9.01, then the Administrative Agent may exercise in respect of the Seller Collateral, in addition to any and all other rights and remedies granted to it hereunder, under any other Related Document or under any other instrument or agreement securing, evidencing or relating to the Seller Secured Obligations or otherwise available to it, all of the rights and remedies of a secured party upon default under the UCC (such rights and remedies to be cumulative and nonexclusive), and, in addition, may take the following actions:

        (a)  The Administrative Agent may, without notice to the Seller except as required by law and at any time or from time to time, charge, offset or otherwise apply amounts payable to the Seller from the Collection Account, any Lockbox Account, the Retention Account or any part of such accounts in accordance with the priorities set forth in Sections 6.05 and 6.07 against all or any part of the Seller Secured Obligations.

        (b)  The Administrative Agent may, without notice except as specified below, solicit and accept bids for and sell the Seller Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or any of the Purchasers', or Administrative Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. The Administrative Agent shall have the right to conduct such sales on the Seller's premises or elsewhere and shall have the right to use any of the Seller's premises without charge for such sales at such time or times as the Administrative Agent deems necessary or advisable. The Seller agrees that, to the extent notice of sale shall be required by law, at least ten Business Days' notice to the Seller of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of Seller Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed for such sale, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Every such sale shall operate to divest all right, title, interest, claim and demand whatsoever of the Seller in and to the Seller Collateral so sold, and shall be a perpetual bar, both at law and in equity, against each Originator, the Seller, any Person claiming the Seller Collateral sold through any Originator or the Seller, and their respective successors or assigns. The Administrative Agent shall deposit the net proceeds of any such sale in the Collection Account and such proceeds shall be disbursed in accordance with Section 6.05.

        (c)  Upon the completion of any sale under Section 10.01(b), the Seller or any Servicer shall deliver or cause to be delivered to the purchaser or purchasers at such sale on the date thereof, or within a reasonable time thereafter if it shall be impracticable to make immediate delivery, all of the Seller Collateral sold on such date, but in any event full title and right of possession to such property shall vest in such purchaser or purchasers upon the completion of such sale. Nevertheless, if so requested by the Administrative Agent or by any such purchaser, the Seller shall confirm any such sale or transfer by executing and delivering to such purchaser all proper instruments of conveyance and transfer and releases as may be designated in any such request.

        (d)  At any sale under Section 10.01(b), the Purchasers, the Administrative Agent or any other Purchaser Secured Party may bid for and purchase the property offered for sale and, upon compliance with the terms of sale, may hold, retain and dispose of such property without further accountability therefor.

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        (e)  The Administrative Agent may exercise, at the sole cost and expense of the Seller, any and all rights and remedies of the Seller under or in connection with the Seller Assigned Agreements or the other Seller Collateral, including any and all rights of the Seller to demand or otherwise require payment of any amount under, or performance of any provisions of, the Seller Assigned Agreements.

        Section 10.02.    Exercise of Remedies.    No failure or delay on the part of the Administrative Agent in exercising any right, power or privilege under this Agreement and no course of dealing between any Originator, Parent Guarantor, the Seller or any Servicer, on the one hand, and the Administrative Agent, on the other hand, shall operate as a waiver of such right, power or privilege, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. The rights and remedies under this Agreement are cumulative, may be exercised singly or concurrently, and are not exclusive of any rights or remedies that the Administrative Agent would otherwise have at law or in equity. No notice to or demand on any party hereto shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the party providing such notice or making such demand to any other or further action in any circumstances without notice or demand.

        Section 10.03.    Power of Attorney.    On the Closing Date, each of the Seller and each Servicer shall execute and deliver a power of attorney substantially in the form attached hereto as Exhibit 10.03 (each, a "Power of Attorney"). The power of attorney granted pursuant to each Power of Attorney is a power coupled with an interest and shall be irrevocable until all of the Seller Secured Obligations are indefeasibly paid or otherwise satisfied in full. The powers conferred on the Administrative Agent under each Power of Attorney are solely to protect the Purchaser's Liens upon and interests in the Seller Collateral and shall not impose any duty upon the Administrative Agent to exercise any such powers. The Administrative Agent shall not be accountable for any amount other than amounts that it actually receives as a result of the exercise of such powers and none of the Administrative Agent's officers, directors, employees, agents or representatives shall be responsible to the Seller or any Servicer for any act or failure to act, except in respect of damages attributable solely to their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction.

        Section 10.04.    Continuing Security Interest.    This Agreement shall create a continuing Lien in the Seller Collateral until the conditions to the release of the Liens of the Purchaser and the Administrative Agent thereon set forth in Section 6.07(b) have been satisfied.

ARTICLE XI.

SUCCESSOR SERVICER PROVISIONS

        Section 11.01.    Servicer Not to Resign.    No Servicer shall resign from the obligations and duties hereby imposed on it except upon a determination that (a) the performance of its duties hereunder has become impermissible under applicable law or regulation and (b) there is no reasonable action that such Servicer could take to make the performance of its duties hereunder become permissible under applicable law. Any such determination shall (i) with respect to clause (a) above, be evidenced by an opinion of counsel to such effect and (ii) with respect to clause (b) above, be evidenced by an Officer's Certificate to such effect, in each case delivered to the Purchaser and the Administrative Agent. No such resignation with respect to the Master Servicer shall become effective until a Successor Servicer shall have assumed the responsibilities and obligations of the Master Servicer in accordance with Section 11.02, and no such resignation with respect to any Servicer other than the Master Servicer shall become effective until the Master Servicer shall have assumed the responsibilities and obligations of such Servicer.

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        Section 11.02.    Appointment of a Successor Servicer.    In connection with the termination of any Servicer's responsibilities pursuant to Section 9.02 or the resignation by the Master Servicer under this Agreement pursuant to Section 11.01, the Administrative Agent shall (a) succeed to and assume all of such Servicer's responsibilities, rights, duties and obligations as a Servicer (but not in any other capacity, it being specifically understood that the Administrative Agent shall not assume any of the obligations of the Servicer set forth in Section 12.02) under this Agreement (and except that the Administrative Agent makes no representations and warranties pursuant to Section 4.02) and (b) may at any time appoint a successor servicer to such Servicer that shall be acceptable to the Administrative Agent, that shall have satisfied the Rating Agency Condition in respect thereof and shall succeed to all rights and assume all of the responsibilities, duties and liabilities of such Servicer under this Agreement (the Administrative Agent, in such capacity, or such successor servicer to a Servicer being referred to as a "Successor Servicer"); provided, that a Successor Servicer shall have no responsibility for any actions of any Servicer prior to the date of its appointment or assumption of duties as a Successor Servicer. In selecting a Successor Servicer, the Administrative Agent may obtain bids from any potential Successor Servicer and may agree to any bid it deems appropriate. A Successor Servicer shall accept its appointment by executing, acknowledging and delivering to the Administrative Agent an instrument in form and substance acceptable to the Administrative Agent. In connection with the termination of any Servicer's responsibilities pursuant to Section 9.02 or the resignation by the Master Servicer under this Agreement pursuant to Section 11.01, any Sub-Servicing Agreement to which such Servicer is a party shall be terminated.

        Section 11.03.    Duties of the Servicers.    Each Servicer covenants and agrees that, following the appointment of, or assumption of duties by, its Successor Servicer:

        (a)  Such Servicer shall terminate its activities as a Servicer hereunder in a manner that facilitates the transfer of servicing duties to its Successor Servicer and is otherwise acceptable to each Purchaser and the Administrative Agent and, without limiting the generality of the foregoing, shall timely deliver (i) any funds to the Administrative Agent that were required to be remitted to the Administrative Agent for deposit in the Collection Account and (ii) all Servicing Records and other information with respect to the Transferred Receivables to its Successor Servicer at a place selected by its Successor Servicer. Such Servicer shall account for all funds and shall execute and deliver such instruments and do such other things as may be required to vest and confirm in its Successor Servicer all rights, powers, duties, responsibilities, obligations and liabilities of such Servicer.

        (b)  Such Servicer shall terminate each existing Sub-Servicing Agreement and its Successor Servicer shall not be deemed to have assumed any of such Servicer's interests therein or to have replaced such Servicer as a party thereto.

        Section 11.04.    Effect of Termination or Resignation.    Any termination of or resignation by any Servicer hereunder shall not affect any claims that the Seller, the Purchasers, or the Administrative Agent may have against any Servicer for events or actions taken or not taken by any Servicer arising prior to any such termination or resignation.

ARTICLE XII.

INDEMNIFICATION

        Section 12.01.    Indemnities by the Seller.

        (a)  Without limiting any other rights that the Conduit Purchaser, the Committed Purchaser, the Administrative Agent, the Collateral Agent, the Liquidity Agent, any Liquidity Lender, the Letter of Credit Agent or any Letter of Credit Provider or any of their respective officers, directors, employees, attorneys, agents or representatives (each, an "Indemnified Person") may have

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hereunder or under applicable law, the Seller hereby agrees to indemnify and hold harmless each Indemnified Person from and against any and all Indemnified Amounts that may be claimed or asserted against or incurred by any such Indemnified Person in connection with or arising out of the transactions contemplated under this Agreement or under any other Related Document or any actions or failures to act in connection therewith, including any and all legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Related Documents; provided, that the Seller shall not be liable for any indemnification to a Indemnified Person to the extent that any such Indemnified Amount (x) results from (i) with respect to any Indemnified Person other than the Conduit Purchaser, such Indemnified Person's gross negligence or (ii) with respect to any Indemnified Person, such Indemnified Person's willful misconduct, in each case as finally determined by a court of competent jurisdiction or (y) constitutes recourse for uncollectible or uncollected Transferred Receivables. Without limiting the generality of the foregoing, the Seller shall pay on demand to each Indemnified Person any and all Indemnified Amounts relating to or resulting from:

          (i)  reliance on any representation or warranty made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement or any other Related Document or on any other information delivered by the Seller pursuant hereto or thereto that shall have been incorrect in any material respect when made or deemed made or delivered;

        (ii)  the failure by the Seller to comply with any term, provision or covenant contained in this Agreement, any other Related Document or any agreement executed in connection herewith or therewith, any applicable law, rule or regulation with respect to any Transferred Receivable or the Contract therefor, or the nonconformity of any Transferred Receivable or the Contract therefor with any such applicable law, rule or regulation; or

        (iii)  (1) the failure to vest and maintain vested in the Seller or the Purchasers valid and properly perfected title to and sole record and beneficial ownership of the Receivables that constitute Transferred Receivables, together with all Collections in respect thereof, free and clear of any Adverse Claim, (2) the failure to maintain or transfer to the Purchasers a first priority perfected Lien in the Seller Collateral and (3) the failure to maintain or transfer to the Administrative Agent a first priority perfected Lien therein;

        (iv)  any dispute, claim, offset or defense of any Obligor (other than its discharge in bankruptcy to the payment of any Transferred Receivable that is the subject of a Purchase hereunder (including a defense based on such Receivable or the Contract therefor not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services giving rise to such Receivable or the furnishing of or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by any of its Affiliates acting as Servicer), except to the extent that such dispute, claim, offset or defense results solely from any action or inaction on the part of any Indemnified Person;

        (v)  any products liability claim or other claim arising out of or in connection with merchandise, insurance or services that is the subject of any Contract with respect to any Transferred Receivable;

        (vi)  the commingling of Collections with respect to Transferred Receivables by the Seller at any time with its other funds or the funds of any other Person;

      (vii)  any failure by the Seller to cause the filing of, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or any other applicable laws with respect to any Transferred Receivable that is the

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subject of a Purchase hereunder, whether at the time of any such Purchase or at any subsequent time; or

      (viii)  any failure of a Lockbox Account Bank to comply with the terms of the applicable Lockbox Account Agreement.

        (b)  Any Indemnified Amounts subject to the indemnification provisions of this Section 12.01 not paid in accordance with Article VI shall be paid by the Seller to the Indemnified Person entitled thereto within five Business Days following written demand therefor.

        Section 12.02.    Indemnities by the Servicers.

        (a)  Without limiting any other rights that an Indemnified Person may have hereunder or under applicable law, each Servicer hereby agrees to indemnify and hold harmless each Indemnified Person from and against any and all Indemnified Amounts that may be claimed or asserted against or incurred by any such Indemnified Person in connection with or arising out of any breach by any Servicer of its obligations hereunder or under any other Related Document; provided, that no Servicer shall be liable for any indemnification to an Indemnified Person to the extent that any such Indemnified Amount (x) results solely from (i) with respect to any Indemnified Person other than the Conduit Purchaser, such Indemnified Person's gross negligence or (ii) with respect to any Indemnified Person, such Indemnified Person's willful misconduct, in each case as finally determined by a court of competent jurisdiction, or (y) constitutes recourse for uncollectible or uncollected Transferred Receivables. Without limiting the generality of the foregoing, each Servicer shall pay on demand to each Indemnified Person any and all Indemnified Amounts relating to or resulting from:

          (i)  reliance on any representation or warranty made or deemed made by any Servicer (or any of its officers) under or in connection with this Agreement or any other Related Document or on any other information delivered by any Servicer pursuant hereto or thereto that shall have been incorrect in any material respect when made or deemed made or delivered;

        (ii)  the failure by any Servicer to comply with any term, provision or covenant contained in this Agreement, any other Related Document or any agreement executed in connection herewith or therewith, any applicable law, rule or regulation with respect to any Transferred Receivable or the Contract therefor, or the nonconformity of any Transferred Receivable or the Contract therefor with any such applicable law, rule or regulation;

        (iii)  the imposition of any Adverse Claim with respect to any Transferred Receivable or the Seller Collateral as a result of any action taken by any Servicer; or

        (iv)  the commingling of Collections with respect to Transferred Receivables by any Servicer at any time with its other funds or the funds of any other Person.

        (b)  Any Indemnified Amounts subject to the indemnification provisions of this Section 12.02 not paid in accordance with Article VI shall be paid by the Servicers to the Indemnified Person entitled thereto within five Business Days following demand therefor.

        Section 12.03.    Limitation of Damages; Indemnified Persons.NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A RESULT OF ANY TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

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ARTICLE XIII.

AGENT

        Section 13.01.    Authorization and Action.

        (a)  The Administrative Agent may take such action and carry out such functions under this Agreement as are authorized to be performed by it pursuant to the terms of this Agreement, any other Related Document or otherwise contemplated hereby or thereby or are reasonably incidental thereto; provided, that the duties of the Administrative Agent hereunder shall be determined solely by the express provisions of this Agreement, and, other than the duties set forth in Section 13.02, any permissive right of the Administrative Agent hereunder shall not be construed as a duty.

        Section 13.02.    Reliance.    None of the Administrative Agent, any of its Affiliates or any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or the other Related Documents, except for damages solely caused by its or their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. Without limiting the generality of the foregoing, and notwithstanding any term or provision hereof to the contrary, the Seller, each Servicer, the Conduit Purchaser and the Committed Purchaser hereby acknowledge and agree that the Administrative Agent (a) acts as agent hereunder for the Conduit Purchaser and the Committed Purchaser and has no duties or obligations to, shall incur no liabilities or obligations to, and does not act as an agent in any capacity for, the Seller (other than, with respect to the Administrative Agent, under the Power of Attorney with respect to remedial actions) or the Originators, (b) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts, (c) makes no representation or warranty hereunder to any Affected Party and shall not be responsible to any such Person for any statements, representations or warranties made in or in connection with this Agreement or the other Related Documents, (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, or the other Related Documents on the part of the Seller, any Servicer, the Conduit Purchaser or the Committed Purchaser or to inspect the property (including the books and records) of the Seller, the Servicers, the Conduit Purchaser or the Committed Purchaser, (e) shall not be responsible to the Seller, any Servicer or any Purchaser for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Related Documents or any other instrument or document furnished pursuant hereto or thereto, (f) shall incur no liability under or in respect of this Agreement or the other Related Documents by acting upon any notice, consent, certificate or other instrument or writing believed by it to be genuine and signed, sent or communicated by the proper party or parties and (g) shall not be bound to make any investigation into the facts or matters stated in any notice or other communication hereunder and may rely on the accuracy of such facts or matters. Notwithstanding the foregoing, the Administrative Agent acknowledges that it has a duty to transfer funds between and among the Accounts and the Collection Account, and make investments of funds on deposit in the Retention Account, in accordance with Article VI and the instructions of the Master Servicer.

        Section 13.03.    GE Capital and Affiliates.    GE Capital and its Affiliates may generally engage in any kind of business with any Obligor, the Originators, the Seller, any Servicer, the Conduit Purchaser or the Committed Purchaser, any of their respective Affiliates and any Person who may do business with or own securities of such Persons or any of their respective Affiliates, all as if GE Capital were not the Administrative Agent and without the duty to account therefor to any Obligor, any Originator, the Seller, any Servicer, any Purchaser or any other Person.

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ARTICLE XIV.

MISCELLANEOUS

        Section 14.01.    Notices.    Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three Business Days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by facsimile (with such facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 14.01), (c) one Business Day after deposit with a reputable overnight courier with all charges prepaid or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number set forth under its name on the signature page hereof or to such other address (or facsimile number) as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than the Conduit Purchaser, the Committed Purchaser and the Administrative Agent) designated in any written notice provided hereunder to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. Notwithstanding the foregoing, whenever it is provided herein that a notice is to be given to any other party hereto by a specific time, such notice shall only be effective if actually received by such party prior to such time, and if such notice is received after such time or on a day other than a Business Day, such notice shall only be effective on the immediately succeeding Business Day.

        Section 14.02.    Binding Effect; Assignability.

        (a)  This Agreement shall be binding upon and inure to the benefit of the Seller, the Servicers, the Conduit Purchaser, the Committed Purchaser and the Administrative Agent and their respective successors and permitted assigns. Neither the Seller nor any Servicer may assign, transfer, hypothecate or otherwise convey any of their respective rights or obligations hereunder or interests herein without the express prior written consent of the Conduit Purchaser, the Committed Purchaser and the Administrative Agent and unless the Rating Agency Condition shall have been satisfied with respect to any such assignment. Any such purported assignment, transfer, hypothecation or other conveyance by the Seller or any Servicer without the prior express written consent of the Conduit Purchaser, the Committed Purchaser and the Administrative Agent shall be void.

        (b)  The Conduit Purchaser, the Committed Purchaser or the Administrative Agent may, at any time, assign any of its rights and obligations hereunder or interests herein to any Person which has a short-term debt rating of at least A-1 by S&P and P-1 by Moody's, and any such assignee may further assign at any time its rights and obligations hereunder or interests herein (including any rights it may have in and to the Purchaser Interests and the Seller Collateral and any rights it may have to exercise remedies hereunder), in each case without the consent of any Originator, the Seller or any Servicer so long as such assignee is a Person which has a short-term debt rating of at least A-1 by S&P and P-1 by Moody's. The Seller acknowledges and agrees that, upon any such assignment, the assignee thereof may enforce directly, without joinder of any Purchaser, all of the obligations of the Seller hereunder.

        (c)  The Seller hereby acknowledges that in accordance with the provisions of the LAPA, on the day of the Committed Purchaser Funding Event, (A) the Liquidity Lenders may purchase from

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the Conduit Purchaser all or any part of the Purchaser Interests sold by the Seller hereunder on each Purchase Date prior to the Committed Purchaser Funding Event, and (B) the Conduit Purchaser may assign all or any part of its rights and interest in the Seller Collateral to the Liquidity Lenders.

        Section 14.03.    Termination; Survival of Seller Secured Obligations Upon Facility Termination Date.

        (a)  This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Termination Date.

        (b)  Except as otherwise expressly provided herein or in any other Related Document, no termination or cancellation (regardless of cause or procedure) of any commitment made by any Affected Party under this Agreement shall in any way affect or impair the obligations, duties and liabilities of the Seller or the rights of any Affected Party relating to any unpaid portion of the Seller Secured Obligations, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Facility Termination Date. Except as otherwise expressly provided herein or in any other Related Document, all undertakings, agreements, covenants, warranties and representations of or binding upon the Seller or any Servicer, and all rights of any Affected Party hereunder, all as contained in the Related Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, that the rights and remedies provided for herein with respect to any breach of any representation or warranty made by the Seller or any Servicer pursuant to Article IV, the indemnification and payment provisions of Article XII and Sections 14.04, 14.05 and 14.06 shall be continuing and shall survive the Termination Date.

        Section 14.04.    Costs, Expenses and Taxes.    (a) The Seller shall reimburse each Purchaser and the Administrative Agent for all out-of-pocket expenses incurred in connection with the negotiation and preparation of this Agreement and the other Related Documents (including all out-of-pocket expenses of the Administrative Agent and the Purchasers incurred in connection with their field audit and due diligence and the reasonable fees and expenses of all of its special counsel, advisors, consultants and auditors retained in connection with the transactions contemplated thereby and advice in connection therewith). The Seller shall reimburse the Conduit Purchaser, the Committed Purchaser and the Administrative Agent for all fees, costs and expenses, including the reasonable fees, costs and expenses of counsel or other advisors (including management consultants and appraisers, and, so long as notice is given prior to the use of environmental consultants and an itemized bill is provided at the time the Conduit Purchaser, the Committed Purchaser, or the Administrative Agent seeks reimbursement for the fees, costs and expenses related to the use of such consultants, environmental consultants) for advice, assistance, or other representation in connection with:

          (i)  the forwarding to the Seller or any other Person on behalf of the Seller by any Purchaser of any payments for Purchases made by it hereunder;

        (ii)  any amendment, modification or waiver of, consent with respect to, or termination of this Agreement or any of the other Related Documents or advice in connection with the administration thereof or their respective rights hereunder or thereunder;

        (iii)  any Litigation, contest or dispute (whether instituted by the Seller, the Conduit Purchaser, the Committed Purchaser, the Administrative Agent or any other Person as a party, witness, or otherwise) in any way relating to the Seller Collateral, any of the Related Documents or any other agreement to be executed or delivered in connection herewith or therewith, including any Litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against the Seller or any other Person that may be obligated to the Purchaser or the Administrative Agent by virtue of the Related Documents, including any such Litigation, contest, dispute, suit, proceeding or action arising in connection with any work-out or restructuring of the transactions contemplated hereby during the pendency of one or more Termination Events;

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        (iv)  any attempt to enforce any remedies of the Conduit Purchaser, the Committed Purchaser or the Administrative Agent against the Seller or any other Person that may be obligated to them by virtue of any of the Related Documents, including any such attempt to enforce any such remedies in the course of any work-out or restructuring of the transactions contemplated hereby during the pendency of one or more Termination Events;

        (v)  any work-out or restructuring of the transactions contemplated hereby during the pendency of one or more Termination Events; and

        (vi)  efforts to (A) monitor the Purchases or any of the Seller Secured Obligations, (B) evaluate, observe or assess any Originator, the Seller or any Servicer or their respective affairs, and (C) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of any of the Seller Collateral;

including all reasonable attorneys' and other professional and service providers' fees arising from such services, including those in connection with any appellate proceedings, and all expenses, costs, charges and other fees incurred by such counsel and others in connection with or relating to any of the events or actions described in this Section 14.04, all of which shall be payable, promptly on demand, by the Seller to the Conduit Purchaser, the Committed Purchaser or the Administrative Agent, as applicable. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: fees, costs and expenses of accountants, environmental advisors, appraisers, investment bankers, management and other consultants and paralegals; court costs and expenses; photocopying and duplication expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram or facsimile charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal or other advisory services.

        (b)  In addition, the Seller shall pay promptly on demand any and all stamp, sales, excise and other taxes (excluding income taxes) and fees payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement or any other Related Document, and the Seller agrees to indemnify and save each Indemnified Person harmless from and against any and all liabilities with respect to or resulting from any delay or failure to pay such taxes and fees.

        Section 14.05.    Confidentiality.

        (a)  Except to the extent otherwise required by applicable law, as required to be filed publicly with the Securities and Exchange Commission, or unless the Administrative Agent shall otherwise consent in writing, the Seller and each Servicer agree to maintain the confidentiality of this Agreement (and all drafts hereof and documents ancillary hereto) in its communications with third parties other than any Affected Party or any Indemnified Person and otherwise and not to disclose, deliver or otherwise make available to any third party (other than its directors, officers, employees, accountants or counsel) the original or any copy of all or any part of this Agreement (or any draft hereof and documents ancillary hereto) except to an Affected Party or an Indemnified Person.

        (b)  The Seller and each Servicer each agrees that it shall not (and shall not permit any of its Subsidiaries to) issue any news release or make any public announcement pertaining to the transactions contemplated by this Agreement and the other Related Documents without the prior written consent of the Conduit Purchaser, the Committed Purchaser and the Administrative Agent (which consent shall not be unreasonably withheld) unless such news release or public announcement is required by law, in which case the Seller or such Servicer, as applicable, shall consult with the Conduit Purchaser, the Committed Purchaser and the Administrative Agent prior to the issuance of such news release or public announcement. The Seller may, however, disclose the general terms of the transactions contemplated by this Agreement and the other Related

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Documents to trade creditors, suppliers and other similarly-situated Persons so long as such disclosure is not in the form of a news release or public announcement.

        Section 14.06.    No Proceedings.    Each of the Seller and each Servicer hereby agrees that, from and after the Closing Date and until the date one year plus one day following the date on which the Commercial Paper with the latest maturity has been paid in full in cash, it will not, directly or indirectly, institute or cause to be instituted against the Conduit Purchaser or the Committed Purchaser any proceeding of the type referred to in Sections 9.01(c) and 9.01(d). This Section 14.06 shall survive the termination of this Agreement.

        Section 14.07.    Complete Agreement; Modification of Agreement.    This Agreement and the other Related Documents constitute the complete agreement among the parties hereto with respect to the subject matter here of and thereof, supersede all prior agreements and understandings relating to the subject matter hereof and thereof, and may not be modified, altered or amended except as set forth in Section 14.08.

        Section 14.08.    Amendments and Waivers.    No amendment, modification, termination or waiver of any provision of this Agreement or any of the other Related Documents, or any consent to any departure by the Seller or any Servicer therefrom, shall in any event be effective unless the same shall be in writing and signed by each of the parties hereto or thereto and by the Collateral Agent; provided, that (i) the Administrative Agent shall notify each of the Rating Agencies concurrently with the execution of any amendment to any provision of this Agreement or any of the other Related Documents, and (ii) it shall be a condition precedent to the effectiveness of any material amendment to any provision of this Agreement or any of the other Related Documents that the Rating Agency Condition shall have been satisfied in respect thereof.

        Section 14.09.    No Waiver; Remedies.    The failure by the Conduit Purchaser, the Committed Purchaser or the Administrative Agent, at any time or times, to require strict performance by the Seller or any Servicer of any provision of this Agreement or any Purchase Assignment shall not waive, affect or diminish any right of any Purchaser or the Administrative Agent thereafter to demand strict compliance and performance herewith or therewith. Any suspension or waiver of any breach or default hereunder shall not suspend, waive or affect any other breach or default whether the same is prior or subsequent thereto and whether the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of the Seller or any Servicer contained in this Agreement or any Purchase Assignment, and no breach or default by the Seller or any Servicer hereunder or thereunder, shall be deemed to have been suspended or waived by any Purchaser or the Administrative Agent unless such waiver or suspension is by an instrument in writing signed by an officer of or other duly authorized signatory of the Conduit Purchaser, the Committed Purchaser, the Collateral Agent and the Administrative Agent and directed to the Seller or such Servicer, as applicable, specifying such suspension or waiver. The rights and remedies of the Conduit Purchaser, the Committed Purchaser, the Collateral Agent and the Administrative Agent under this Agreement shall be cumulative and nonexclusive of any other rights and remedies that the Conduit Purchaser, the Committed Purchaser, the Collateral Agent and the Administrative Agent may have under any other agreement, including the other Related Documents, by operation of law or otherwise. Recourse to the Seller Collateral shall not be required.

        Section 14.10.GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.

        (a)  THIS AGREEMENT AND EACH OTHER RELATED DOCUMENT (EXCEPT TO THE EXTENT THAT ANY RELATED DOCUMENT EXPRESSLY PROVIDES TO THE CONTRARY) AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION

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5-1401 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES) EXCEPT TO THE EXTENT THAT THE PERFECTION, EFFECT OF PERFECTION OR PRIORITY OF THE INTERESTS OF THE ADMINISTRATIVE AGENT IN THE RECEIVABLES OR REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

        (b)  EACH PARTY HERETO HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THEM PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT; PROVIDED, THAT EACH PARTY HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE BOROUGH OF MANHATTAN IN NEW YORK CITY; PROVIDED FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE ANY PURCHASER OR THE ADMINISTRATIVE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE SELLER COLLATERAL OR ANY OTHER SECURITY FOR THE SELLER SECURED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE CONDUIT PURCHASER, THE COMMITTED PURCHASER OR THE ADMINISTRATIVE AGENT. EACH PARTY HERETO SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH PARTY HERETO HEREBY WAIVES ANY OBJECTION THAT SUCH PARTY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH PARTY HERETO HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PARTY AT THE ADDRESS SET FORTH BENEATH ITS NAME ON THE SIGNATURE PAGES HEREOF AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH PARTY'S ACTUAL RECEIPT THEREOF OR THREE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL, PROPER POSTAGE PREPAID. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

        (c)  BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

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        Section 14.11.    Counterparts.    This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement.

        Section 14.12.    Severability.    Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

        Section 14.13.    Section Titles.    The section titles and table of contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

        Section 14.14.    Limited Recourse.    The obligations of the Conduit Purchaser and the Committed Purchaser under this Agreement and all Related Documents are solely the corporate obligations of each such Purchaser. No recourse shall be had for the payment of any amount owing in respect of Purchases or for the payment of any fee hereunder or any other obligation or claim arising out of or based upon this Agreement or any other Related Document against any Stockholder, employee, officer, director, agent or incorporator of such Purchaser. Any accrued obligations owing by the Conduit Purchaser or the Committed Purchaser under this Agreement shall be payable by such Purchaser solely to the extent that funds are available therefor from time to time in accordance with the provisions of Article VI of this Agreement, and, with respect to the Conduit Purchaser, in accordance with Article VI of the Collateral Agent Agreement (and such accrued obligations shall not be extinguished until paid in full). The Conduit Purchaser shall not, and shall not be obligated to, pay any amount pursuant to the Related Documents unless (i) the Conduit Purchaser has received funds which may be used to make such payment pursuant to the Program Documents, and (ii) after giving effect to such payment, either (A) the Conduit Purchaser could issue Commercial Paper to refinance all outstanding Commercial Paper (assuming such outstanding Commercial Paper matured at such time) without violating the Program Documents, or (B) all Commercial Paper is paid in full. Any amount which the Conduit Purchaser does not pay pursuant to the operation of the preceding sentence shall not constitute a claim (as defined in Section 101 of the Bankruptcy Code) against or an obligation of the Conduit Purchaser for any insufficiency unless and until the Conduit Purchaser satisfies the provisions of such preceding sentence. This Section 14.14 shall survive the termination of this Agreement.

        Section 14.15.    Further Assurances.

        (a)  Each of the Seller and each Servicer shall, at its sole cost and expense, upon request of the Conduit Purchaser, the Committed Purchaser or the Administrative Agent, promptly and duly execute and deliver any and all further instruments and documents and take such further action that may be necessary or desirable or that the Conduit Purchaser, the Committed Purchaser or the Administrative Agent may request to (i) perfect, protect, preserve, continue and maintain fully the Purchases made and the right, title and interests (including Liens) granted to such Purchaser under this Agreement, (ii) enable the Conduit Purchaser, the Committed Purchaser or the Administrative Agent to exercise and enforce its rights under this Agreement or any of the other Related Documents or (iii) otherwise carry out more effectively the provisions and purposes of this Agreement or any other Related Document. Without limiting the generality of the foregoing, the Seller shall, upon request of the Conduit Purchaser and the Committed Purchaser or the Administrative Agent, (A) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices that may be necessary or desirable or that the Purchasers or the Administrative Agent may request to perfect, protect and preserve the Purchases made and the Liens granted pursuant to this Agreement, free and clear of all Adverse Claims, (B) mark conspicuously, or cause each Servicer to mark conspicuously, its master data processing records evidencing such Transferred Receivables, with a

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legend acceptable to the Administrative Agent evidencing that the Purchasers have purchased an undivided percentage ownership interest in all right and title thereto and interest therein as provided herein, (C) notify or cause each Servicer to notify Obligors of the sale of undivided percentage ownership interests in the Transferred Receivables effected hereunder, (D) so mark the original copy of each purchase money security agreement relating to a Receivable that consists of chattel paper or an instrument with any appropriate endorsement or assignment, (E) take all steps necessary to grant the Administrative Agent control of all electronic chattel paper in accordance with the UCC, (F) execute an endorsement to the Seller for each instrument representing a Receivable, and (G) hold in trust and safely keep all invoices constituting chattel paper and all other instruments constituting Receivables in separate filing cabinets or other suitable containers at the branch locations of the Originator thereof and all purchase money security agreements constituting chattel paper in filing cabinets or other suitable containers at the location or locations specified by the Administrative Agent.

        (b)  Without limiting the generality of the foregoing, the Seller hereby authorizes the Conduit Purchaser, the Committed Purchaser and the Administrative Agent, and each of the Conduit Purchaser and the Committed Purchaser hereby authorizes the Administrative Agent, to file one or more financing or continuation statements, or amendments thereto or assignments thereof, relating to all or any part of the Transferred Receivables, including Collections with respect thereto, or the Seller Collateral without the signature of the Seller or, as applicable, the Conduit Purchaser or the Committed Purchaser, as applicable, to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Agreement or of any notice or financing statement covering the Transferred Receivables, the Seller Collateral or any part thereof shall be sufficient as a notice or financing statement where permitted by law.

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        IN WITNESS WHEREOF, the parties have caused this Receivables Purchase and Servicing Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

K2 FINANCE COMPANY, LLC, as the Seller
By
Name:	John J. Rangel
Title:	Vice President
Address: 4900 South Eastern Avenue, #200 Los Angeles, CA 90040 Attention: John J. Rangel Facsimile: (323) 724-0355
K2 RECEIVABLES CORPORATION, as the SPC
By
Name:	John J. Rangel
Title:	Vice President
Address: 4900 South Eastern Avenue, #200 Los Angeles, CA 90040 Attention: John J. Rangel
K2 INC., as the Master Servicer
By
Name:	John J. Rangel
Title:	Senior Vice President—Finance
Address: 4900 South Eastern Avenue, #200 Los Angeles, California 90040 Attention: John J. Rangel Facsimile: (323) 724-0470

K-2 CORPORATION, as a Servicer
By
Name:	John J. Rangel
Title:	Senior Vice President
Address: 19215 Vashon Highway, SW Vashon, Washington 98070 Attention: John J. Rangel Facsimile: (323) 724-0470
With a copy to: 4900 South Eastern Avenue, #200 Los Angeles, California 90040 Attention: John J. Rangel
SHAKESPEARE COMPANY, LLC, as a Servicer By: K2 INC., its Manager
By
Name:	John J. Rangel
Title:	Senior Vice President—Finance
Address: 4900 South Eastern Avenue, #200 Los Angeles, California 90040 Attention: John J. Rangel Facsimile: (323) 724-0470
STEARNS INC., as a Servicer
By
Name:	John J. Rangel
Title:	Senior Vice President
Address: 1100 Stearns Drive Sauk Rapids, Minnesota 56379 Attention: John J. Rangel Facsimile: (323) 724-0470
With a copy to: 4900 South Eastern Avenue, #200 Los Angeles, California 90040 Attention: John J. Rangel

REDWOOD RECEIVABLES CORPORATION, as the Conduit Purchaser
By
Name:	Brian P. Schwinn
	Assistant Secretary
Address: c/o General Electric Capital Corporation 3001 Summer Street, 2nd Floor Stamford, Connecticut 06927 Telephone: (203) 602-9330 Facsimile: (203) 961-2953
GENERAL ELECTRIC CAPITAL CORPORATION, as Committed Purchaser
By
Name:	Craig Winslow
	Duly Authorized Signatory
Address: 201 High Ridge Road Stamford, Connecticut 06927 Attention: Vice President—Portfolio/K2 Telephone: (203) 316-7607 Facsimile: (203) 316-7821
GENERAL ELECTRIC CAPITAL CORPORATION, as Administrative Agent
By
Name:	Craig Winslow
	Duly Authorized Signatory
Address: 201 High Ridge Road Stamford, Connecticut 06927 Attention: Vice President—Portfolio/K2 Telephone: (203) 316-7607 Facsimile: (203) 316-7821

ACKNOWLEDGED AND AGREED:
GENERAL ELECTRIC CAPITAL CORPORATION, as Collateral Agent
By
Name:	Craig Winslow
	Duly Authorized Signatory
Address: 201 High Ridge Road Stamford, Connecticut 06927 Attention: Vice President Telephone: (203) 316-7607 Facsimile: (203) 316-7821

QuickLinks

TABLE OF CONTENTS
EXHIBITS, SCHEDULES AND ANNEXES
RECITALS
AGREEMENT
ARTICLE I. DEFINITIONS AND INTERPRETATION
ARTICLE II. AMOUNTS AND TERMS OF PURCHASES
ARTICLE III. CONDITIONS PRECEDENT
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
ARTICLE V. GENERAL COVENANTS OF THE SELLER AND SPC
ARTICLE VI. COLLECTIONS AND DISBURSEMENTS
ARTICLE VII. SERVICER PROVISIONS
ARTICLE VIII. GRANT OF SECURITY INTERESTS
ARTICLE IX. TERMINATION EVENTS
ARTICLE X. REMEDIES
ARTICLE XI. SUCCESSOR SERVICER PROVISIONS
ARTICLE XII. INDEMNIFICATION
ARTICLE XIII. AGENT
ARTICLE XIV. MISCELLANEOUS

EX-10.(E)(1)

EXHIBIT 10(e)(1)

ANNEX X

To

SALE AND CONTRIBUTION AGREEMENT,

and

RECEIVABLES PURCHASE AND SERVICING AGREEMENT

each dated as of

March 28, 2002

Definitions and Interpretation

        SECTION 1.    Definitions and Conventions.    Capitalized terms used in the Sale and Contribution Agreement and the Purchase Agreement shall have (unless otherwise provided elsewhere therein) the following respective meanings:

        "Accession Agreement" shall mean an Accession Agreement substantially in the form of Exhibit A to the Collateral Agent Agreement.

        "Accounting Changes" shall mean, with respect to any Person, (a) changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion of the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or any successor thereto or any agency with similar functions); (b) changes in accounting principles concurred in by such Person's certified public accountants; (c) purchase accounting adjustments under A.P.B. 16 or 17 and EITF 88-16, and the application of the accounting principles set forth in FASB 109, including the establishment of reserves pursuant thereto and any subsequent reversal (in whole or in part) of such reserves; and (d) the reversal of any reserves established as a result of purchase accounting adjustments.

        "Accounts" shall mean the Collection Account, the Lockbox Accounts and the Retention Account, collectively.

        "Accrued Monthly Yield" shall mean, as of any date of determination within a Settlement Period, the sum of the Daily Yields for each day from and including the first day of the Settlement Period through and including such date.

        "Accrued Servicing Fee" shall mean, as of any date of determination within a Settlement Period, the sum of the Servicing Fees calculated for each day from and including the first day of the Settlement Period through and including such date.

        "Accrued Unused Commitment Fee" shall mean, as of any date of determination within a Settlement Period, the sum of the Unused Commitment Fees calculated for each day from and including the first day of the Settlement Period through and including such date.

        "Accumulated Funding Deficiency" shall mean an "accumulated funding deficiency" as defined in Section 412 of the IRC and Section 302 of ERISA, whether or not waived.

        "Additional Amounts" shall mean any amounts payable to any Affected Party under Sections 2.09 or 2.10 of the Purchase Agreement.

        "Additional Costs" shall have the meaning assigned to it in Section 2.09(b) of the Purchase Agreement.

        "Administrative Agent" shall have the meaning set forth in the Preamble of the Purchase Agreement.

        "Administrative Services Agreement" shall mean that certain Administrative Services Agreement dated as of March 7, 2000, between Redwood and the Operating Agent.

        "Adverse Claim" shall mean any claim of ownership or any Lien, other than any ownership interest or Lien created under the Sale and Contribution Agreement or the Purchase Agreement or any Lien created under the Collateral Agent Agreement.

        "Affected Party" shall mean each of the following Persons: the Conduit Purchaser, the Committed Purchaser, the Liquidity Agent, each Liquidity Lender, the Administrative Agent, the Operating Agent, the Letter of Credit Agent, each Letter of Credit Provider, the Collateral Agent, the Depositary and each Affiliate of the foregoing Persons.

        "Affiliate" shall mean, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, ten percent (10%) or

2

more of the Stock having ordinary voting power in the election of directors of such Person, (b) each Person that controls, is controlled by or is under common control with such Person, or (c) each of such Person's officers, directors, joint venturers and partners. For the purposes of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

        "Ancillary Services and Lease Agreement" shall mean that certain Ancillary Services and Lease Agreement dated as of March 28, 2002 between the Parent and the Seller.

        "Appendices" shall mean, with respect to any Related Document, all exhibits, schedules, annexes and other attachments thereto, or expressly identified thereto.

        "Applicable Purchaser" shall mean (i) prior to the occurrence of a Committed Purchaser Funding Event, the Conduit Purchaser, and (ii) on and after the occurrence of a Committed Purchaser Funding Event, the Committed Purchaser.

        "Applicable Servicing Fee" shall mean, as of any Settlement Date, with respect to each Servicer other than the Master Servicer, an amount equal to (a) the Servicing Fee received by the Master Servicer or its Successor Servicer on such Settlement Date pursuant to Section 2.07(b) of the Purchase Agreement less the Master Servicer's portion of such Servicing Fee, multiplied by (b) a percentage equal to (i) the Outstanding Balance of Transferred Receivables, as of the last day of the related Settlement Period, sold by such Servicer in its capacity as an Originator under the Sale and Contribution Agreement divided by (ii) the Outstanding Balance of all Transferred Receivables as of the last day of the related Settlement Period.

        "Authorized Officer" shall mean, with respect to any corporation, the Chairman or Vice-Chairman of the Board, the President, any Vice President, the Secretary, the Treasurer, any Assistant Secretary, any Assistant Treasurer and each other officer of such corporation specifically authorized in resolutions of the board of directors of such corporation to sign agreements, instruments or other documents on behalf of such corporation in connection with the transactions contemplated by the Sale and Contribution Agreement, the Purchase Agreement and the other Related Documents.

        "Availability" shall mean, as of any date of determination, the amount equal to the lesser of: (a) (i) the Investment Base multiplied by the Purchase Discount Rate, minus (ii) the Discount and Servicer Fee Reserve and (b) the Maximum Purchase Limit.

        "Available LOC Percentage" shall mean fifteen percent (15.0%)

        "Bankruptcy Code" shall mean the provisions of title 11 of the United States Code, 11 U.S.C. § § 101 et seq.

        "Billed Amount" shall mean, with respect to any Receivable, the amount billed on the Billing Date to the Obligor thereunder.

        "Billing Date" shall mean, with respect to any Receivable, the date on which the invoice with respect thereto was generated.

        "Breakage Costs" shall have the meaning assigned to it in Section 2.10 of the Purchase Agreement.

        "Bringdown Certificate" shall mean and Officer's Certificate substantially in the form of Exhibit 3.01(a)(ii)(B) and 3.01(a)(iii)(B), as applicable, to the Purchase Agreement.

        "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of New York or the State of California.

        "Buyer" shall have the meaning assigned to it in the preamble of the Sale and Contribution Agreement.

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        "Buyer Indemnified Person" shall have the meaning assigned to it in Section 5.01 of the Sale and Contribution Agreement.

        "Canadian Obligor Reserve Amount" shall mean, as of any date of determination after giving effect to all Eligible Receivables to be Transferred on such date and the application of Collections thereon on such date, the amount by which the aggregate Outstanding Balance of Receivables due from Obligors organized and/or domiciled in Canada (exclusive of Receivables owing by any Canadian Subsidiaries of Wal-Mart Stores, Inc., provided, that if Canada shall fail to have a long-term foreign currency rating of AA or higher from S&P or Aa1 or higher from Moody's, inclusive of Receivables owing by any Canadian Subsidiaries of Wal-Mart Stores, Inc.) and payable in Dollars exceeds 5.0% of the aggregate Outstanding Balance of Eligible Receivables.

        "Capital Investment" shall mean, as of any date of determination with respect to any Purchaser, the amount equal to (a) the aggregate deposits made by such Purchaser to the Collection Account pursuant to Section 2.04(b)(i) of the Purchase Agreement on or before such date, plus (b) in the case of the Committed Purchaser only, any amounts advanced by the Committed Purchaser (in its capacity as a Liquidity Lender) to the Conduit Purchaser under the LAPA in respect of Capital Investment when purchasing the Conduit Purchaser's Purchaser Interests, minus (c) in the case of the Conduit Purchaser only, any amounts advanced by the Committed Purchaser to the Conduit Purchaser under the LAPA in respect of Capital Investment when purchasing the Conduit Purchaser's Purchaser Interests, minus (d) the sum of all amounts disbursed to such Purchaser in reduction of Capital Investment pursuant to Sections 6.03, 6.04 or 6.05 of the Purchase Agreement on or before such date.

        "Capital Investment Available" shall mean, as of any date of determination, the amount, if any, by which Availability exceeds Capital Investment, in each case as of the end of the immediately preceding day.

        "Capital Lease" shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, would be required to be classified and accounted for as a capital lease on a balance sheet of such Person.

        "Capital Lease Obligation" shall mean, with respect to any Capital Lease of any Person, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease.

        "Capital Purchase" shall have the meaning assigned to it in Section 2.01 of the Purchase Agreement.

        "Capital Purchase Request" shall have the meaning assigned to it in Section 2.03(b) of the Purchase Agreement.

        "Change of Control" shall mean, with respect to Parent Guarantor, the SPC, any Servicer, and Originator or the Seller, any event, transaction or occurrence as a result of which (a) any person or group of persons (within the meaning of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities Exchange Commission under the Securities Exchange Act of 1934, as amended) of 50% or more of the issued and outstanding shares of capital Stock of the Parent Guarantor having the right to vote for the election of directors of the respective entity under ordinary circumstances; (b) during any twelve (12) consecutive calendar months ending after the Closing Date, individuals who at the beginning of such twelve-month period constituted the board of directors of the Parent or such Person (together with any new directors whose election by such board or whose nomination for election by the shareholders of the Parent or such Person was approved by a vote of a majority of the directors still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) shall cease for any reason to constitute a majority of the board of directors of the Parent or such Person then in office; (c) the Parent shall cease to own and control

4

directly or indirectly all of the economic and voting rights associated with all of the outstanding Stock of the Servicers, the SPC, the Originators or of the Seller, (d) the Parent has sold, transferred, conveyed, assigned or otherwise disposed of all or substantially all of the assets of the Parent, or (e) the Originators, together with the SPC, shall fail to own 100% of the outstanding Stock of the Seller.

        "Charter Documents" shall mean, with respect to any corporation or limited liability company, such Person's articles or certificate of incorporation or formation and such entity's bylaws or operating agreement.

        "Closing Date" shall mean March 28, 2002.

        "Collateral Agent" shall mean GE Capital, in its capacity as collateral agent for the Conduit Purchaser and the Conduit Purchaser Secured Parties pursuant to the Collateral Agent Agreement.

        "Collateral Agent Agreement" shall mean that certain Third Amended and Restated Collateral Agent and Security Agreement dated as of March 7, 2000, among Redwood, the Depositary and GE Capital, in its capacities as (a) the Collateral Agent, (b) the Operating Agent, (c) the Liquidity Agent and (d) the Letter of Credit Agent.

        "Collection Account" shall mean (a) prior to a Committed Purchaser Funding Event, that certain segregated deposit account established by the Conduit Purchaser and maintained with the Depositary designated as the "Redwood Receivables Corporation—Collection Account (K2)," account number 00-386-310, ABA No. 021001033, Attn: Collection Account #33487, or such other account established in accordance with the requirements set forth in Section 6.01(b) of the Purchase Agreement, and (b) following the occurrence of a Committed Purchaser Funding Event, an account established by the Administrative Agent designated as the Purchasers' Collection Account (K2) and otherwise in accordance with the requirements set forth in Section 6.01(b) of the Purchase Agreement.

        "Collections" shall mean, with respect to any Receivable, all cash collections and other proceeds of such Receivable (including late charges, fees and interest arising thereon, and all recoveries with respect thereto that have been written off as uncollectible).

        "Commercial Paper" shall mean those certain short-term promissory notes issued by the Conduit Purchaser (or, with respect to the Committed Purchaser, by GE Capital), from time to time in the United States of America commercial paper market.

        "Committed Purchaser" shall mean GE Capital, its successors and assigns.

        "Committed Purchaser Daily Yield" shall mean, for any day, the product of (i) the sum of the Committed Purchaser Daily Yield Rate for such day, plus the Daily Margin on such day, plus, if a Termination Event has occurred and is continuing, the Daily Default Margin, multiplied by (ii) the Committed Purchaser's Capital Investment outstanding on such day.

        "Committed Purchaser Daily Yield Rate" shall mean, for any day during a Settlement Period after the occurrence of a Committed Purchaser Funding Event, (a) the weighted average Committed Purchaser Yield Rates applicable to the Committed Purchaser's Capital Investment on such day, weighted by outstanding Capital Investment, divided by (b) 360.

        "Committed Purchaser Funding Event" shall mean the occurrence of (a) a Redwood Termination Date, but only if no Termination Event has occurred and is continuing or (b) the Redwood Transfer Date.

        "Committed Purchaser Yield Rate" shall mean, with respect to any portion of the Committed Purchaser's Capital Investment on any day during a Settlement Period, the LIBOR Rate for such Settlement Period or portion thereof, as applicable.

5

        "Commitment Reduction Notice" shall have the meaning assigned to it in Section 2.02(a) of the Purchase Agreement.

        "Commitment Termination Notice" shall have the meaning assigned to it in Section 2.02(b) of the Purchase Agreement.

        "Computer Hardware" shall mean, with respect to any Person, (i) all computer and other electronic data processing hardware, whether now or hereafter owned, licenses or leased by such Person, including, without limitation, all integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware, (ii) all firmware associated with the foregoing, whether now or hereafter owned, licenses or leased by such Debtor, and (iii) all documentation for the hardware and firmware described in the preceding clauses, whether now or hereafter owned, licenses or leased by such Debtor, including, without limitation, flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes.

        "Concentration Discount Amount" shall mean, with respect to any Obligor and its Affiliates, and as of any date of determination after giving effect to all Eligible Receivables to be Transferred on such date and the application of Collections thereon on such date, the amount by which the Outstanding Balance of Eligible Receivables owing by such Obligor and its Affiliates exceeds the product of (a) the larger of (i) the percentage (the "Concentration Limit") set forth in the table below based upon the short-term unsecured senior debt rating and the long-term unsecured senior debt rating assigned to them at such time by S&P and Moody's (and, if such Obligor is rated by both agencies and has a split rating or the long-term debt rating is different from the short-term debt rating, the applicable rating will be the lower rating) and (ii) the Special Limit, if any, applicable to such Obligor, and (b) the Outstanding Balance of all Eligible Receivables on such date.

S&P RATING/MOODY'S SHORT-TERM RATING	S&P RATING/MOODY'S LONG-TERM RATING	CONCENTRATION LIMIT
A-1/P-1	A/A2 or higher	10.0%
A-2/P-2	BBB+/Baa1 or higher	8.0%
A-3/P-3	BBB-/Baa3 or higher	6.0%
Below A-3/P-3 or Not Rated by either S&P or Moody's	Below BBB-/Baa3 or Not Rated by either S&P or Moody's	4.0%

        "Conduit Purchaser" shall mean Redwood and its assigns.

        "Conduit Purchaser Secured Parties" shall mean the Collateral Agent, the CP Holders, the Depositary, the Liquidity Agent, the Liquidity Lenders, the Letter of Credit Agent and the Letter of Credit Providers.

        "Contract" shall mean any agreement (including any invoice or billing statement) pursuant to, or under which, an Obligor shall be obligated to make payments with respect to any Receivable.

        "Contributed Receivables" shall have the meaning assigned to it in Section 2.01(d) of the Sale and Contribution Agreement.

        "CP Holder" shall mean any Person that holds record or beneficial ownership of Commercial Paper.

        "Credit and Collection Policies" shall mean the credit, collection, customer relations and service policies of the Master Servicer and the Originators in effect on the Closing Date, as the same may from time to time be amended, restated, supplemented or otherwise modified with the written consent of the Administrative Agent.

6

        "Credit Facilities" shall mean the Parent Revolver, the 1992 Note Agreement, the 1999 Note Agreement and the other documents executed in connection therewith, together with such amendments, restatements, supplements or modifications thereto or any refinancings, replacements or refundings thereof as may be agreed to in writing by the Purchasers and the Administrative Agent.

        "Credit Facilities' Security Documents" shall mean (i) the Pledge Agreement, dated as of the Closing Date, among the Credit Facility Agent, the Parent and certain subsidiaries thereof, attached as Exhibit D, (ii) the Membership Interest Pledge Agreement, dated as of the Closing Date, among the Credit Facility Agent, the Parent and certain subsidiaries thereof, attached as Exhibit E hereto, and (iii) the Security Agreement, dated as of the Closing Date, among the Credit Facility Agent, the Parent and certain subsidiaries thereof, attached as Exhibit F hereto, and, in each case, without giving effect to any amendments, restatements, supplements or other modifications made without the written consent of Administrative Agent.

        "Credit Facility Agent" shall mean Bank of America, N.A. or its successor appointed as "Collateral Agent" pursuant to the Credit Facility Intercreditor Agreement.

        "Credit Facility Intercreditor Agreement" shall mean that certain Amended and Restated Intercreditor Agreement among various creditors of Parent Guarantor and the Credit Facility Agent, attached as Exhibit C hereto.

        "Daily Default Margin" shall mean, for any day on which a Termination Event has occurred and is continuing, two percent (2.0%) divided by 360.

        "Daily Margin" shall mean, for any day, the Per Annum Daily Margin on such day divided by 360.

        "Daily Yield" shall mean, for any day, the sum of (a) the Redwood Daily Yield for such day, and (b) the Committed Purchaser Daily Yield for such day.

        "Daily Yield Rate" shall mean the Redwood Daily Yield Rate or the Committed Purchaser Daily Yield Rate, as the case may be.

        "Dealer" shall mean any dealer party to a Dealer Agreement.

        "Dealer Agreement" shall mean any dealer agreement entered into by Redwood for the distribution of Commercial Paper.

        "Debt" of any Person shall mean, without duplication, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services payment for which is deferred 90 days or more, but excluding obligations to trade creditors incurred in the ordinary course of business that are not overdue by more than 90 days unless being contested in good faith, (b) all reimbursement and other obligations with respect to letters of credit, bankers' acceptances and surety bonds, whether or not matured, (c) all obligations evidenced by notes, bonds, debentures or similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations and Synthetic Lease Obligations, (f) net obligations under any Swap Contract in an amount equal to (i) if such Swap Contract has been closed out, the termination value thereof or (ii) if such Swap Contract has not been closed out, the mark-to-market value thereof determined on the basis of readily available quotations provided by any recognized dealer in such Swap Contract, (g) all liabilities of such Person under Title IV of ERISA, (h) all Guaranteed Indebtedness of such Person in respect of any of the foregoing, (i) all indebtedness referred to in clauses (a) through (h) above secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property or other assets (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness, (j) the "Obligations" as such term is

7

defined in the Parent Revolver, (k) the obligations under the Note Agreements and (l) the Seller Secured Obligations.

        "Defaulted Receivable" shall mean any Receivable (a) with respect to which any payment, or part thereof, remains unpaid for more than 90 days from its Maturity Date, (b) with respect to which the Obligor thereunder has taken any action, or suffered any event to occur, of the type described in Sections 9.01(c) or 9.01(d) of the Purchase Agreement or (c) that otherwise is determined to be uncollectible and is written off in accordance with the Credit and Collection Policies.

        "Default Ratio" shall mean, as of any date of determination, the ratio (expressed as a percentage) of:

        (a)  (i) the aggregate Outstanding Balances of all Transferred Receivables which constituted Defaulted Receivables as of the last day of the six Settlement Periods immediately preceding such date, plus (ii) the aggregate Outstanding Balances of Transferred Receivables that were written off as uncollectible during such six Settlement Periods.

to

        (b)  the aggregate Outstanding Balances of all Transferred Receivables as of the last day of the six Settlement Periods immediately preceding such date.

        "Delinquency Ratio" shall mean, as of any date of determination, the ratio (expressed as a percentage) of:

        (a)  the aggregate respective Outstanding Balances of all Transferred Receivables which remain unpaid for more than 60 days but less than 91 days from their respective Maturity Date as of the last day of the six Settlement Periods immediately preceding such date

to

        (b)  the aggregate Outstanding Balances of all Transferred Receivables as of the last day of the six Settlement Periods immediately preceding such date.

        "Depositary" shall mean Bankers Trust Company, or any other Person designated as the successor Depositary pursuant to and in accordance with the terms of the Depositary Agreement, in its capacity as issuing and paying agent or trustee in connection with the issuance of Commercial Paper.

        "Depositary Agreement" shall mean that certain Depositary Agreement dated March 15, 1994, by and between Redwood and the Depositary and consented to by the Liquidity Agent.

        "Dilution Factors" shall mean, with respect to any Receivable, any credits, rebates, freight charges, cash discounts, volume discounts, cooperative advertising expenses, royalty payments, warranties, cost of parts required to be maintained by agreement (whether express or implied), warehouse and other allowances, disputes, setoffs, chargebacks, defective returns, other returned or repossessed goods, inventory transfers, allowances for early payments and other similar allowances that are reflected on the books of each Originator and made or coordinated with the usual practices of the Originator thereof; provided, that any allowances or adjustments in accordance with the Credit and Collection Policies made on account of the insolvency of the Obligor thereunder or such Obligor's inability to pay shall not constitute a Dilution Factor.

        "Dilution Ratio" shall mean, as of any date of determination, the ratio (expressed as a percentage) of:

        (a)  the aggregate Dilution Factors during the first Settlement Period immediately preceding such date

8

to

        (b)  the aggregate Billed Amount of all Transferred Receivables originated during the fourth Settlement Period immediately preceding such date.

        "Dilution Reserve Ratio" shall mean, as of any date of determination, the ratio (expressed as a percentage) equal to the greater of (a) 9.0 percent and (b) the ratio calculated in accordance with the following formula:

[(ADR × 2.00) + [(HDR - ADR) × HDR]] ADR × DILHOR NRPB

where:
ADR =	the average of the respective Dilution Ratios as of the last day of the 12 Settlement Periods immediately preceding such date.
HDR =	the highest Two Month Rolling Dilution Ratio during the 12 Settlement Periods immediately preceding such date.
DILHOR =	the aggregate Billed Amount of Transferred Receivables originated during the three Settlement Periods immediately preceding such date.
NRPB =	the Outstanding Balance of Transferred Receivables as of the last day of the first Settlement Period immediately preceding such date.

        "Dilution Trigger Ratio" shall mean, as of any date of determination, the ratio (expressed as a percentage) of:

        (a)  the aggregate Dilution Factors during the six Settlement Periods immediately preceding such date

to

        (b)  the aggregate Billed Amount of all Transferred Receivables originated during the fourth, fifth, sixth, seventh, eighth and ninth Settlement Periods immediately preceding such date.

        "Discount and Servicer Fee Reserve" shall mean, at any time, the product of (a) the Index Rate, (b) Capital Investment and (c) a fraction, the numerator of which is the higher of (i) 30 and (ii) the most recently reported Receivables Collection Turnover, and the denominator of which is 360.

        "Dollars" or "$" shall mean lawful currency of the United States of America.

        "Dynamic Purchase Discount Rate" shall mean, as of any date of determination, the rate equal to (a) 100% minus (b) the sum of (i) the Loss Reserve Ratio plus (ii) the Dilution Reserve Ratio, plus (c) the Available LOC Percentage.

        "EBITDA" shall mean, with respect to any Person for any fiscal period, the amount equal to (a) consolidated net income of such Person for such period, minus (b) the sum of (i) income tax credits, (ii) interest income, (iii) gain from extraordinary items for such period, (iv) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, exchange or other disposition of capital assets by such Person (including any fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities), and (v) any other non-cash gains that have been added in determining consolidated net income (including LIFO adjustments), in each case to the extent included in the calculation of consolidated net income of such Person for such period in accordance with GAAP, but without duplication, plus (c) the sum of (i) any provision for income taxes, (ii) Interest Expense, (iii) loss from extraordinary items for such period, (iv) the amount of depreciation, amortization and LIFO adjustments for such period, (v) amortized

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debt discount for such period, and (vi) the amount of any deduction to consolidated net income as the result of any grant to any members of the management of such Person of any Stock, in each case to the extent included in the calculation of consolidated net income of such Person for such period in accordance with GAAP, but without duplication. For purposes of this definition, the following items shall be excluded in determining consolidated net income of a Person: (A) the income (or deficit) of any other Person accrued prior to the date it became a Subsidiary of, or was merged or consolidated into, such Person or any of such Person's Subsidiaries; (B) the income (or deficit) of any other Person (other than a Subsidiary) in which such Person has an ownership interest, except to the extent any such income has actually been received by such Person in the form of cash dividends or distributions; (C) the undistributed earnings of any Subsidiary of such Person to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation or requirement of law applicable to such Subsidiary; (D) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period; (E) any write-up of any asset; (F) any net gain from the collection of the proceeds of life insurance policies; (G) any net gain arising from the acquisition of any securities, or the extinguishment, under GAAP, of any Debt, of such Person, (H) in the case of a successor to such Person by consolidation or merger or as a transferee of its assets, any earnings of such successor prior to such consolidation, merger or transfer of assets, and (I) any deferred credit representing the excess of equity in any Subsidiary of such Person at the date of acquisition of such Subsidiary over the cost to such Person of the investment in such Subsidiary.

        "Election Notice" shall have the meaning assigned to it in Section 2.01(d) of the Sale and Contribution Agreement.

        "Eligible Receivable" shall mean, as of any "date of determination" (which is the "as of" date for which any Investment Base Certificate claims to report), a Transferred Receivable:

        (a)  that is not a liability of an Excluded Obligor;

        (b)  that is not a liability of an Obligor (i) organized under the laws of any jurisdiction outside of the United States of America (including the District of Columbia but otherwise excluding its territories and possessions) or Canada or (ii) having its principal place of business outside of the United States of America (including the District of Columbia but otherwise excluding its territories and possessions) or Canada;

        (c)  that is only denominated and payable in Dollars in the United States of America;

        (d)  to the extent that it is not and will not be subject to any right of rescission, set-off, recoupment, counterclaim or defense, whether arising out of transactions concerning the Contract therefor or otherwise, except to the extent the Administrative Agent in its reasonable discretion determines that appropriate Reserves have been established therefore;

        (e)  that is not a Defaulted Receivable or an Unapproved Receivable;

        (f)    that (i) does not represent "billed but not yet shipped," "bill and hold" or "progress-billed" goods or merchandise, unperformed services, consigned goods or "sale or return" goods and does not arise from a transaction for which any additional performance by the Originator thereof, or acceptance by or other act of the Obligor thereunder, remains to be performed as a condition to any payments on such Receivable and (ii) is not generated under a drop-shipment arrangement, except to the extent received by the Obligor thereof and such delivery can be evidenced by the Originator thereof in a manner satisfactory to the Administrative Agent in its sole discretion;

        (g)  as to which the representations and warranties of Sections 4.01(v)(ii)-(iv) of the Sale and Contribution Agreement are true and correct in all respects as of the Transfer Date therefor;

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        (h)  to the extent that it is not the liability of an Obligor that has any claim of a material nature against or affecting the Originator thereof or the property of such Originator;

        (i)    that is a true and correct statement of a bona fide indebtedness incurred in the amount of the Billed Amount of such Receivable for merchandise sold to or services rendered and accepted by the Obligor thereunder;

        (j)    that was originated in accordance with and satisfies all applicable requirements of the Credit and Collection Policies;

        (k)  that represents the genuine, legal, valid and binding obligation of the Obligor thereunder enforceable by the holder thereof in accordance with its terms;

        (l)    that is entitled to be paid pursuant to the terms of the Contract therefor, has not been paid in full or been compromised, adjusted, extended, satisfied, subordinated, rescinded or modified, and is not subject to compromise, adjustment, extension, satisfaction, subordination, rescission, or modification by the Originator thereof (except for adjustments to the Outstanding Balance thereof to reflect Dilution Factors made in accordance with the Credit and Collection Policy);

        (m)  with respect to which the Originator thereof has submitted all necessary documentation for payment to the Obligor thereunder and such Originator has fulfilled all of its other obligations in respect thereof;

        (n)  the due date of which, if any, is not greater than 180 days from the date of determination;

        (o)  that was created in compliance with and otherwise does not contravene any laws, rules or regulations applicable thereto (including laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract therefor is in violation of any such law, rule or regulation;

        (p)  with respect to which no proceedings or investigations are pending or threatened before any Governmental Authority (i) asserting the invalidity of such Receivable or the Contract therefor, (ii) asserting the bankruptcy or insolvency of the Obligor thereunder, (iii) seeking payment of such Receivable or payment and performance of such Contract or (iv) seeking any determination or ruling that might materially and adversely affect the validity or enforceability of such Receivable or such Contract;

        (q)  with respect to which the Obligor thereunder is not: (i) bankrupt or insolvent, (ii) unable to make payment of its obligations when due, (iii) a debtor in a voluntary or involuntary bankruptcy proceeding, or (iv) the subject of a comparable receivership or insolvency proceeding;

        (r)  that is an "account" (and is not evidenced by a promissory note or other instrument and does not constitute chattel paper) within the meaning of the UCC of the jurisdictions in which each of the Originators and the Seller are organized;

        (s)  that is payable solely and directly to an Originator and not to any other Person (including any shipper of the merchandise or goods that gave rise to such Receivable), except to the extent that payment thereof may be made to the Collection Account or otherwise as directed pursuant to Article VI of the Purchase Agreement;

        (t)    with respect to which all material consents, licenses, approvals or authorizations of, or registrations with, any Governmental Authority required to be obtained, effected or given in connection with the creation of such Receivable or the Contract therefor have been duly obtained, effected or given and are in full force and effect;

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        (u)  that is created through the provision of merchandise, goods or services by the Originator thereof in the ordinary course of its business in a current transaction;

        (v)  that complies with such other criteria and requirements as the Administrative Agent may from time to time establish using its good faith credit judgment following a detailed analysis of the Receivables (or upon receipt of additional information with respect thereto) and specify (A) to the Seller or the Originator thereof upon advance written notice, provided, that no such notice shall be required upon the occurrence and during the continuation of a Termination Event and (B) if so required by any Rating Agency, upon such notice as may be specified by such Rating Agency;

        (w)  that is not the liability of an Obligor that is receiving or, under the terms of the Credit and Collection Policies, should receive merchandise, goods or services on a "cash on delivery" basis;

        (x)  that does not constitute a rebilled amount arising from a deduction taken by an Obligor with respect to a previously arising Receivable or the balance owed on a Receivable with respect to which one or more partial payments have been made;

        (y)  with respect to which no check, draft or other item of payment has previously been received which was returned unpaid or otherwise dishonored;

        (z)  no portion of which constitutes sales tax, late fees or similar service charges; and

        (aa) that is not subject to any Lien, right, claim, security interest or other interest of any other Person, other than Liens in favor of the Purchasers.

        "Environmental Laws" shall mean all applicable federal, state, local and foreign laws, statutes, ordinances, codes, rules, standards and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree, order or judgment, imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§ 9601 et seq.); the Hazardous Materials Transportation Authorization Act of 1994 (49 U.S.C. §§ 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §§ 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. §§6901 et seq.); the Toxic Substance Control Act (15 U.S.C. §§ 2601 et seq.); the Clean Air Act (42 U.S.C. §§ 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C. §§1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq.); and the Safe Drinking Water Act (42 U.S.C. §§ 300(f) et seq.), each as from time to time amended, and any and all regulations promulgated thereunder, and all analogous state, local and foreign counterparts or equivalents and any transfer of ownership notification or approval statutes.

        "Environmental Permits" shall mean all permits, licenses, authorizations, certificates, approvals, registrations or other written documents required by any Governmental Authority under any Environmental Laws.

        "ERISA" shall mean the Employee Retirement Income Security Act of 1974 and any regulations promulgated thereunder.

        "ERISA Affiliate" shall mean, with respect to Parent Guarantor or any Originator, any trade or business (whether or not incorporated) that, together with Parent Guarantor or such Originator, are treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC.

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        "ERISA Event" shall mean, with respect to Parent Guarantor, any Originator or any ERISA Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to a Title IV Plan; (b) the withdrawal of Parent Guarantor or any Originator or ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a "substantial employer," as defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal of Parent Guarantor, any Originator or any ERISA Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by Parent Guarantor, any Originator or ERISA Affiliate to make when due required contributions to a Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other event or condition that might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a Multiemployer Plan under Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer Plan under Section 4241 of ERISA; (i) the loss of a Qualified Plan's qualification or tax exempt status; or (j) the termination of a Plan described in Section 4064 of ERISA.

        "ESOP" shall mean a Plan that is intended to satisfy the requirements of Section 4975(e)(7) of the IRC.

        "Event of Servicer Termination" shall have the meaning assigned to it in Section 9.02 of the Purchase Agreement.

        "Excluded Obligor" shall mean any Obligor (a) that is an Affiliate of Parent Guarantor, any Originator or the Seller, (b) that is a Governmental Authority, or (c) with respect to which 50.0% or more of the aggregate Outstanding Balance of all Receivables owing by such Obligor are Defaulted Receivables.

        "Extended Terms Reserve Amount" shall mean, with respect to Receivables as of any date of determination after giving effect to all Eligible Receivables to be Transferred on such date and the application of Collections thereon on such date, an amount equal to the sum of (a) the amount by which the aggregate Outstanding Balance of Receivables that are due in more than 150 days but less than 181 days exceeds 7.5% of the aggregate Outstanding Balance of Eligible Receivables plus (b) the amount by which the aggregate Outstanding Balance of Receivables that are due in more than 120 days but less than 151 days exceeds 10.0% of the aggregate Outstanding Balance of Eligible Receivables.

        "Facility Termination Date" shall mean the earliest of (a) the date so designated pursuant to Section 9.01 of the Purchase Agreement, (b) 90 days prior to the Final Purchase Date, and (c) 30 days prior to the date of termination of the Maximum Purchase Limit specified in a notice from the Seller to the Purchaser delivered pursuant to and in accordance with Section 2.02(b) of the Purchase Agreement.

        "Fair Labor Standards Act" shall mean the provisions of the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq.

        "Federal Funds Rate" shall mean, for any day, a floating rate equal to the weighted average of the rates on overnight federal funds transactions among members of the Federal Reserve System, as determined by the Administrative Agent.

        "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System.

        "Fee Letter" shall mean that certain letter agreement dated February 8, 2002, between Parent Guarantor, the Administrative Agent, the Collateral Agent, the Committed Purchaser and the Conduit Purchaser, as amended, restated, supplemented or otherwise modified from time to time.

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        "Final Purchase Date" shall mean the fifth anniversary of the Closing Date.

        "Financial Statements" shall mean, consolidated and consolidating income statements, statements of cash flows and balance sheets of Parent Guarantor delivered in accordance with Section 5.02(a) of the Purchase Agreement.

        "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect on the Closing Date, consistently applied as such term is further defined in Section 2(a) of this Annex X.

        "GE Capital" shall mean General Electric Capital Corporation, a Delaware corporation, and its successors and assigns.

        "General Trial Balance" shall mean, with respect to any Originator and as of any date of determination, such Originator's accounts receivable trial balance (whether in the form of a computer printout, magnetic tape or diskette) as of such date, listing Obligors and the Receivables owing by such Obligors as of such date together with the aged Outstanding Balances of such Receivables, in form and substance satisfactory to the Seller and the Purchasers.

        "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

        "Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligation") of any other Person (the "primary obligor") in any manner, including any obligation or arrangement of such Person to (a) purchase or repurchase any such primary obligation, (b) advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor or any "keep-well" or other arrangement of whatever nature given for the purpose of assuring or holding harmless such primary obligor against loss with respect to any obligation of such primary obligee, (c) purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) indemnify the owner of such primary obligation against loss in respect thereof; provided, however, that the term Guaranteed Indebtedness shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guaranteed Indebtedness at any time shall be deemed to be the amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect of which such Guaranteed Indebtedness is incurred and (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guaranteed Indebtedness; or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof.

        "Incipient Servicer Termination Event" shall mean any event that, with the passage of time or notice or both, would, unless cured or waived, become an Event of Servicer Termination.

        "Incipient Termination Event" shall mean any event that, with the passage of time or notice or both, would, unless cured or waived, become a Termination Event.

        "Indemnified Amounts" shall mean, with respect to any Person, any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including attorneys' fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal).

        "Indemnified Person" shall have the meaning assigned to it in Section 12.01(a) of the Purchase Agreement.

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        "Indemnified Taxes" shall have the meaning assigned to it in Section 2.08(b) of the Purchase Agreement.

        "Index Rate" shall mean, for any day, a floating rate equal to the higher of (i) the rate publicly quoted from time to time by The Wall Street Journal as the "base rate on corporate loans at large U.S. money center commercial banks" (or, if The Wall Street Journal ceases quoting a base rate of the type described, the highest per annum rate of interest published by the Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled "Selected Interest Rates" as the Bank prime loan rate or its equivalent), and (ii) the Federal Funds Rate plus fifty (50) basis points per annum. Each change in any interest rate provided for in the Purchase Agreement based upon the Index Rate shall take effect at the time of such change in the Index Rate.

        "Interest Expense" shall mean, with respect to any Person and any period, the interest expense of such Person, determined on a consolidated basis for such period, including in any event the interest portion or payments under Capital Lease Obligations and interest expense for the relevant period that has been capitalized on the balance sheet of such Person and yield or other amounts due and payable (other than upfront fees) under any accounts receivable securitization facility to which any such Person is a party as seller or issuer.

        "Investment Base" shall mean, as of any date of determination, the amount equal to the Outstanding Balance of Eligible Receivables minus the Reserves with respect thereto, in each case as disclosed in the most recently submitted Investment Base Certificate or as otherwise determined by the Purchaser or the Administrative Agent based on Seller Collateral information available to any of them, including any information obtained from any audit or from any other reports with respect to the Seller Collateral, which determination shall be final, binding and conclusive on all parties to the Purchase Agreement (absent manifest error).

        "Investment Base Certificate" shall have the meaning assigned to it in Section 2.03(a) of the Purchase Agreement.

        "Investment Company Act" shall mean the provisions of the Investment Company Act of 1940, 15 U.S.C. §§ 80a et seq., and any regulations promulgated thereunder.

        "Investment Reports" shall mean the reports with respect to the Transferred Receivables and the Seller Collateral referred to in Section 5.02(b) to the Purchase Agreement.

        "Investments" shall mean, with respect to any Seller Account Collateral, the certificates, instruments, investment property or other investments in which amounts constituting such collateral are invested from time to time.

        "IRC" shall mean the Internal Revenue Code of 1986 and any regulations promulgated thereunder.

        "IRS" shall mean the Internal Revenue Service.

        "K-2 Corp." shall have the meaning assigned to it in the preamble of the Purchase Agreement.

        "LAPA" shall mean that certain Liquidity Loan and Asset Purchase Agreement dated as of March 28, 2002, among Redwood and GE Capital, in its capacities as (a) the Administrative Agent, (b) the Collateral Agent and Operating Agent for Redwood, (c) the initial Liquidity Lender, (d) the Liquidity Agent, and (e) the Committed Purchaser.

        "Letter of Credit" shall mean that certain Irrevocable Letter of Credit No. RRC-3 dated March 7, 2000, issued by the Letter of Credit Providers at the request of Redwood in favor of the Collateral Agent pursuant to the Letter of Credit Agreement.

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        "Letter of Credit Agent" shall mean GE Capital, in its capacity as agent for the Letter of Credit Providers under the Letter of Credit Agreement.

        "Letter of Credit Agreement" shall mean that certain Third Amended and Restated Letter of Credit Reimbursement Agreement dated as of March 7, 2000, among Redwood, the Letter of Credit Agent, the Letter of Credit Providers and the Collateral Agent

        "Letter of Credit Providers" shall mean, initially, GE Capital, in its capacity as issuer of the Letter of Credit under the Letter of Credit Agreement, and thereafter its successors and permitted assigns in such capacity.

        "LIBOR Business Day" shall mean a Business Day on which banks in the city of London are generally open for interbank or foreign exchange transactions.

        "LIBOR Rate" shall mean for each Settlement Period, a rate of interest determined by the Administrative Agent equal to:

        (a)  the offered rate for deposits in Dollars for the applicable Settlement Period which appears on Telerate Page 3750 as of 11:00 a.m., London time, on the second full LIBOR Business Day next preceding the first day of each Settlement Period (unless such date is not a Business Day, in which event the next succeeding Business Day will be used); divided by

        (b)  a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day which is two (2) LIBOR Business Days prior to the beginning of such Settlement Period (including basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve system or other governmental authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board which are required to be maintained by a member bank of the Federal Reserve System;

provided, that if the introduction of or any change in any law or regulation (or any change in the interpretation thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for the Committed Purchaser to agree to make or to make or to continue to fund or maintain any Purchases or Capital Investment at the LIBOR Rate, then, unless the Committed Purchaser is able to make or to continue to fund or to maintain such Purchases or Capital Investment at another branch or office of the Committed Purchaser without, in the Committed Purchaser's opinion, adversely affecting it or its Capital Investment or the income obtained therefrom, the LIBOR Rate shall in all such cases be equal to the Index Rate.

        If such interest rates shall cease to be available from Telerate News Service, the LIBOR Rate shall be determined from such financial reporting service or other information as shall be mutually acceptable to the Administrative Agent and the Seller.

        "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the UCC or comparable law of any jurisdiction).

        "Liquidity Agent" shall mean GE Capital, in its capacity as agent for the Liquidity Lenders pursuant to the LAPA.

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        "Liquidity Lender Expiry Date" shall mean the earlier of (a) March 26, 2003, as such date will be automatically each 364-day period so long as no Termination Event has occurred and is continuing, or as otherwise may be extended in accordance with the LAPA and (b) the Final Purchase Date.

        "Liquidity Lenders" shall mean, collectively, GE Capital and any other provider of Liquidity Loans under the LAPA.

        "Liquidity Loans" shall mean any and all borrowings by Redwood under the LAPA.

        "Litigation" shall mean, with respect to any Person, any action, claim, lawsuit, demand, investigation or proceeding pending or threatened against such Person before any court, board, commission, agency or instrumentality of any federal, state, local or foreign government or of any agency or subdivision thereof or before any arbitrator or panel of arbitrators.

        "Lockbox" shall have the meaning assigned to it in Section 6.01(a)(ii) of the Purchase Agreement.

        "Lockbox Account" shall mean each lockbox account listed on Exhibit 4.01(r) to the Purchase Agreement established in the name of the Seller and held at a Lockbox Account Bank, together with any other segregated deposit account established by the Seller for the deposit of Collections pursuant to and in accordance with Section 6.01(a) of the Purchase Agreement.

        "Lockbox Account Agreement" shall mean any agreement among an Originator, the Seller, Administrative Agent and a Lockbox Account Bank with respect to a Lockbox and Lockbox Account that provides, among other things, that (a) all items of payment deposited in such Lockbox and Lockbox Account are held by such Lockbox Account Bank as custodian for the Administrative Agent, (b) no Lockbox Account Bank has any rights of setoff or recoupment or any other claim against such Lockbox Account other than for payment of its service fees and other charges directly related to the administration of such Account and for returned checks or other items of payment and (c) such Lockbox Account Bank agrees to forward all Collections received in such Lockbox Account to the Collection Account within one Business Day of receipt of available funds, and is otherwise in form and substance acceptable to the Administrative Agent.

        "Lockbox Account Bank" shall mean any bank or other financial institution at which one or more Lockbox Accounts are maintained.

        "Loss Reserve Ratio" shall mean, as of any date of determination, the ratio (expressed as a percentage) calculated in accordance with the following formula:

2 × ARR × DEFHOR NRPB

where:
ARR =	the highest Three Month Aged Receivables Ratio during the 12 Settlement Periods immediately preceding such date.
DEFHOR =	the aggregate Billed Amount of Transferred Receivables originated during the WAH.
NRPB =	the Outstanding Balance of Transferred Receivables as of the last day of the first Settlement Period immediately preceding such date.
WAH =	(i) the weighted average maturity of Transferred Receivables due within the previous 180 days plus (ii) 90.

        "Margin" shall mean, for any day, the product of (i) the Capital Investment and (ii) the sum of the Daily Margin plus Daily Default Margin, if any, for such day.

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        "Master Servicer" shall mean the Parent in its capacity as Master Servicer under the Purchase Agreement, or any other Person designated as a Successor Servicer to the Master Servicer.

        "Material Adverse Effect" shall mean a material adverse effect on (a) the business, assets, liabilities, operations, prospects or financial or other condition of (i) Parent Guarantor or any Originator, or Parent Guarantor and Originators and Seller considered as a whole, (ii) the Seller or (iii) any Servicer and its Subsidiaries considered as a whole, (b) the ability of Parent Guarantor, any Originator, the Seller or any Servicer to perform any of its obligations under the Related Documents in accordance with the terms thereof, (c) the validity or enforceability of any Related Document or the rights and remedies of the Seller, the Purchasers, the Administrative Agent or the Collateral Agent under any Related Document, (d) the federal income tax attributes of the sale, contribution or pledge of the Receivables pursuant to any Related Document or (e) the Transferred Receivables, the Contracts therefor, the Originator Collateral, the Seller Collateral or the ownership interests or Liens of the Seller or the Purchasers or the Administrative Agent thereon or the priority of such interests or Liens.

        "Maturity Date" shall mean, with respect to any Receivable, the due date for payment therefor specified in the Contract therefor, or, if no date is so specified, 30 days from the Billing Date.

        "Maximum Purchase Limit" shall mean $75,000,000, as such amount may be reduced in accordance with Section 2.02(a) of the Purchase Agreement.

        "Monthly Report" shall have the meaning assigned to it in paragraph (a) of Annex 5.02(a) to the Purchase Agreement.

        "Moody's" shall mean Moody's Investors Service, Inc. or any successor thereto.

        "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA with respect to which Parent Guarantor, any Originator or ERISA Affiliate is making, is obligated to make, or has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them.

        "Net Worth Percentage" shall mean a fraction (expressed as a percentage) (a) the numerator of which equals the excess of assets over liabilities, in each case determined in accordance with GAAP consistently applied and (b) the denominator of which equals the Outstanding Balance of Transferred Receivables.

        "1992 Note Agreement" shall mean that certain Note Agreement dated as of October 15, 1992, for $40,000,000 8.39% Senior Notes due November 30, 2004, as amended by that certain First Amendment dated as of May 1, 1996, and that certain Second Amendment dated as of December 1, 1999, and that certain Third Amendment to Note Purchase Agreement dated as of [                        ], without giving effect to any amendments, restatements, supplements or modifications thereto or any refinancings, replacements or refundings thereof unless agreed to in writing by the Purchasers and the Administrative Agent.

        "1999 Note Agreement" shall mean that certain Note Purchase Agreement dated as of December 1, 1999, for $50,000,000 8.41% Series 1999-A Senior Notes due December 1, 2009, as amended by that certain K2 Inc. Fourth Amendment to Note Agreements, dated as of [                        ], without giving effect to any amendments, restatements, supplements or modifications thereto or any refinancings, replacements or refundings thereof unless agreed to in writing by the Purchasers and the Administrative Agent.

        "Note Agreements" shall mean the 1992 Note Agreement and the 1999 Note Agreement.

        "Obligor" shall mean, with respect to any Receivable, the Person primarily obligated to make payments in respect thereof.

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        "Officer's Certificate" shall mean, with respect to any Person, a certificate signed by an Authorized Officer of such Person.

        "Operating Agent" shall mean GE Capital, in its capacity as operating agent for the Conduit Purchaser under the Administrative Services Agreement.

        "Originator" shall have the meaning assigned to it in the preamble of the Sale and Contribution Agreement.

        "Originator Collateral" shall have the meaning assigned to it in Section 7.01 of the Sale and Contribution Agreement.

        "Originator Guaranty" shall mean an Originator Guaranty dated as of the Closing Date, executed by an Originator in favor of Buyer, Purchasers and Administrative Agent, substantially in the form and substance attached as Exhibit B to the Sale and Contribution Agreement.

        "Other Funding Agreements" shall mean any agreements entered into from time to time by the Purchaser for the purchase or financing of receivables.

        "Outstanding Balance" shall mean, with respect to any Receivable and as of any date of determination, the amount (which amount shall not be less than zero) equal to (a) the Billed Amount thereof, minus (b) all Collections received from the Obligor thereunder, minus (c) all discounts to or any other modifications that reduce such Billed Amount.

        "Parent" shall mean K2 Inc., a Delaware corporation.

        "Parent Group" shall mean the Parent and each of its Affiliates other than the Seller.

        "Parent Guarantor" shall have the meaning assigned to it in the preamble of the Sale and Contribution Agreement.

        "Parent Guaranty" shall mean that certain Parent Guaranty dated as of the Closing Date, by Parent Guarantor in favor of Buyer, Purchasers and Administrative Agent, substantially in the form and substance attached as Exhibit A to the Sale and Contribution Agreement.

        "Parent Revolver" shall mean that certain Credit Agreement dated as of December 21, 1999, among Parent, Bank of America, N.A. as administrative agent, swing line lender and letter of credit issuing lender, and the other financial institutions party thereto, as amended by that certain First Amendment to Credit Agreement, dated as of [                        ], in form and substance attached as Annex Z to the Sale and Contribution Agreement, without giving effect to any amendments, restatements, supplements or modifications thereto or any refinancings, replacements or refundings thereof unless agreed to in writing by the Purchasers and the Administrative Agent.

        "PBGC" shall mean the Pension Benefit Guaranty Corporation.

        "Pension Plan" shall mean a Plan described in Section 3(2) of ERISA.

        "Per Annum Daily Margin" shall mean (a) with respect to Capital Investment made by the Conduit Purchaser, the "Per Annum Daily Margin" as defined in the Fee Letter, and (b) with respect to Capital Investment made by the Committed Purchaser, the "Applicable Margin" over "LIBOR" each as defined in and as in effect under the terms of the Parent Revolver.

        "Permitted Investments" shall mean any of the following:

        (a)  obligations of, or guaranteed as to the full and timely payment of principal and interest by, the federal government of the United States or obligations of any agency or instrumentality thereof if such obligations are backed by the full faith and credit of the federal government of the United States, in each case with maturities of not more than 90 days from the date acquired;

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        (b)  repurchase agreements on obligations of the type specified in clause (a) of this definition; provided, that the short-term debt obligations of the party agreeing to repurchase are rated at least A-1+ or the equivalent by S&P and P-1 or the equivalent by Moody's;

        (c)  federal funds, certificates of deposit, time deposits and bankers' acceptances of any depository institution or trust company incorporated under the federal laws of the United States or any state, in each case with original maturities of not more than 90 days or, in the case of bankers' acceptances, original maturities of not more than 365 days; provided, that the short-term obligations of such depository institution or trust company are rated at least A-1+ or the equivalent by S&P and P-1 or the equivalent by Moody's;

        (d)  commercial paper of any corporation incorporated under the laws of the United States of America or any state thereof with original maturities of not more than 30 days that on the date of acquisition are rated at least A-1+ or the equivalent by S&P and P-1 or the equivalent by Moody's;

        (e)  securities of money market funds rated at least Aam or the equivalent by S&P and P-1 or the equivalent by Moody's; and

        (f)    such other investments with respect to which each Rating Agency shall have confirmed in writing to the Purchaser and Collateral Agent that such investments shall not result in a withdrawal or reduction of the then current rating by such Rating Agency of the Commercial Paper.

        "Permitted Originator Encumbrances" shall mean the following encumbrances: (a) Liens for taxes or assessments or other governmental charges not yet due and payable (other than with respect to environmental matters); (b) pledges or deposits securing obligations under workmen's compensation, unemployment insurance, social security or public liability laws or similar legislation (excluding Liens under ERISA); (c) pledges or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which any Originator, the Seller or any Servicer is a party as lessee made in the ordinary course of business; (d) deposits securing statutory obligations of any Originator, the Seller or any Servicer; (e) inchoate and unperfected workers', mechanics', suppliers' or similar Liens arising in the ordinary course of business; (f) carriers', warehousemen's or other similar possessory Liens with respect the Originator Collateral arising in the ordinary course of business and securing liabilities in an outstanding aggregate amount not in excess of $1,000,000 at any one time; (g) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which any Originator, the Seller or any Servicer is a party; (h) any attachment or judgment Lien not constituting a Termination Event under Section 9.01(f) of the Purchase Agreement; (i) Liens existing on the Closing Date and listed on Schedule 4.03(b) of the Sale and Contribution Agreement or Schedule 5.03(b) of the Purchase Agreement; (j) Liens expressly permitted under Section 4.03(b) of the Sale and Contribution Agreement (except that such Liens shall not be deemed "Permitted Originator Encumbrances" until such Liens have satisfied the criteria set forth in such section), and (k) presently existing or hereinafter created Liens in favor of the Buyer, the Seller, the Purchasers, the Administrative Agent or the Collateral Agent.

        "Permitted Seller Encumbrances" shall mean the following encumbrances: (a) Liens for taxes or assessments or other governmental charges not yet due and payable (other than with respect to environmental matters); (b) deposits securing statutory obligations of the Seller; and (c) presently existing or hereinafter created Liens in favor of the Purchasers, the Administrative Agent or the Collateral Agent.

        "Person" shall mean any individual, sole proprietorship, partnership, joint venture, unincorporated organization, trust, association, corporation (including a business trust), limited liability company,

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institution, public benefit corporation, joint stock company, Governmental Authority or any other entity of whatever nature.

        "Plan" shall mean, at any time, an "employee benefit plan," as defined in Section 3(3) of ERISA, that Parent Guarantor, any Originator or ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by Parent Guarantor, any Originator or ERISA Affiliate.

        "Program Documents" shall mean the Letter of Credit Agreement, the LAPA, the Collateral Agent Agreement, the Depositary Agreement, the Commercial Paper, the Administrative Services Agreement, each Accession Agreement and the Dealer Agreements.

        "Purchase" shall have the meaning assigned to it in Section 2.01 of the Purchase Agreement.

        "Purchase Agreement" shall mean that certain Receivables Purchase and Servicing Agreement dated as of March 28, 2002, among the Seller, the Conduit Purchaser, the Committed Purchaser, the Servicers and the Administrative Agent.

        "Purchase Assignment" shall mean that certain Purchase Assignment dated as of the Closing Date by and between the Seller and the Applicable Purchaser in the form attached as Exhibit 2.04(a) to the Purchase Agreement.

        "Purchase Date" shall mean each day on which a Purchase is made.

        "Purchase Discount Rate" shall mean, as of any date of determination, a rate equal to the lesser of (a) the Dynamic Purchase Discount Rate and (b) the Purchase Discount Rate Cap.

        "Purchase Discount Rate Cap" shall mean, as of any date of determination, the amount set forth in the table below opposite the applicable Purchase Rate Ratio:

Purchase Rate Ratio	Purchase Discount Rate Cap
Greater than or equal to 1.25x	80.0	%
Greater than or equal to 1.00x	75.0	%
Greater than or equal to 0.75x	70.0	%
Less than 0.75x	65.0	%

        "Purchase Excess" shall mean, as of any date of determination, the extent to which the Capital Investment exceeds the Availability, in each case as disclosed in the most recently submitted Investment Base Certificate or as otherwise determined by the Applicable Purchaser or the Administrative Agent based on Seller Collateral information available to any of them, including any information obtained from any audit or from any other reports with respect to the Seller Collateral, which determination shall be final, binding and conclusive on all parties to the Purchase Agreement (absent manifest error).

        "Purchase Rate Ratio" shall mean, for Parent Guarantor for any twelve-month period, the ratio of:

        (a)  (i) EBITDA as of the end of such period minus (ii) "Capital Expenditures" (as defined in Annex 4.03(l) to the Sale and Contribution Agreement) incurred during such period minus (iii) cash taxes paid during such period plus (without duplication) (iv) for any twelve-month period prior to or including June 30, 2002, $18,000,000 of restructuring charges

to

        (b)  (i) scheduled principal payments by Parent Guarantor and its Subsidiaries on any Debt (including the principal component of payments with respect to Capital Leases) during such period plus (ii) Interest Expense of Parent Guarantor and its Subsidiaries (including Daily Yield paid under the Purchase Agreement) accrued during such period plus (iii) any dividends or distributions to Parent Guarantor or any Affiliate made during such period.

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        "Purchaser Interest" shall mean the undivided percentage ownership interest of the Purchasers in the Transferred Receivables which are purchased under the Purchase Agreement. The Purchaser Interest of the Purchasers shall be expressed as a fraction of the total Transferred Receivables computed as follows:

PI = C + DR IB × PDR

        where:

PI =	the Purchaser Interest at the time of determination;
C =	the aggregate Capital Investment at such time;
DR =	the Discount and Servicer Fee Reserve;
IB =	the Investment Base at such time; and
PDR =	the Purchase Discount Rate at such time.

The Purchaser Interest shall be calculated (or deemed to be calculated) on each Business Day from the Closing Date through the Facility Termination Date; from and after the Facility Termination Date, the Purchaser Interest of the Purchasers shall be 100% until the Termination Date, at which time the Purchaser Interest shall equal zero.

        "Purchasers" shall mean the Conduit Purchaser and the Committed Purchaser

        "Qualified Plan" shall mean a Pension Plan that is intended to be tax-qualified under Section 401(a) of the IRC.

        "Rating Agency" shall mean Moody's and S&P.

        "Rating Agency Condition" shall mean, with respect to any action, that each Rating Agency has notified the Conduit Purchaser and the Administrative Agent in writing that such action will not result in a reduction or withdrawal of the rating of any outstanding Commercial Paper.

        "Ratios" shall mean, collectively, the Default Ratio, the Delinquency Ratio, the Dilution Ratio, the Dilution Reserve Ratio, the Dilution Trigger Ratio, the Loss Reserve Ratio, the Purchase Rate Ratio, the Receivables Collection Turnover, the Three Month Aged Receivables Ratio and the Two Month Rolling Ratio.

        "Receivable" shall mean, with respect to any Obligor:

        (a)  indebtedness of such Obligor (whether constituting an account, chattel paper, document, instrument or general intangible) arising from the provision of merchandise, goods or services to such Obligor, including the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto;

        (b)  all Liens and property subject thereto from time to time securing or purporting to secure any such indebtedness of such Obligor;

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        (c)  all guaranties, indemnities and warranties, insurance policies, financing statements and other agreements or arrangements of whatever character from time to time supporting or securing payment of any such indebtedness;

        (d)  all Collections with respect to any of the foregoing;

        (e)  all Records with respect to any of the foregoing; and

        (f)    all proceeds (including returned goods) (whether constituting accounts, chattel paper, inventory, goods, documents, instruments or general intangibles) with respect to the foregoing;

provided, however, the defined term "Receivables" shall exclude Receivables for which the Obligor is Gershwitz.

        "Receivables Assignment" and "Receivables Assignments" shall have the meaning assigned to it in Section 2.01(a) of the Sale and Contribution Agreement.

        "Receivables Collection Turnover" shall mean, as of any date of determination, the amount (expressed in days) equal to:

        (a)  a fraction, (i) the numerator of which is equal to the aggregate Outstanding Balances of Transferred Receivables on the first day of the twelve Settlement Periods immediately preceding such date and (ii) the denominator of which is equal to aggregate Collections received during such twelve Settlement Periods with respect to all Transferred Receivables,

multiplied by

        (b)  the average number of days contained in each such twelve Settlement Periods.

        "Records" shall mean all Contracts and other documents, books, records and other information (including tapes, disks and related property and rights) prepared and maintained by any Originator, any Servicer, any Sub-Servicer or the Seller with respect to the Receivables and the Obligors thereunder, the Originator Collateral and the Seller Collateral.

        "Redwood" shall mean Redwood Receivables Corporation, a Delaware corporation.

        "Redwood Daily Yield" shall mean, for any day, the product of (a) the Redwood Daily Yield Rate for such day, multiplied by (b) Redwood's Capital Investment outstanding on such day.

        "Redwood Daily Yield Rate" shall mean, on any day, a floating per annum rate equal to the sum of (a) the Daily Margin on such day, plus (b) if a Termination Event has occurred and is continuing, the Daily Default Margin, plus (c)(i) to the extent the Conduit Purchaser's Purchases hereunder are being funded by the sale of Commercial Paper, (A) the per annum rate equivalent to the weighted average of the rates paid or payable by the Conduit Purchaser from time to time as interest on or otherwise (by means of interest rate hedges or otherwise) in respect of Commercial Paper that is allocated, in whole or in part, to fund or maintain the Conduit Purchaser's Capital Investment during the relevant Settlement Period, which rates shall reflect and give effect to Dealer fees, commissions of placement agents and other issuance costs in respect of such Commercial Paper, divided by (B) 360 days; provided, however, that if any component of such rate is a discount rate the rate used shall be the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum and (ii) to the extent the Conduit Purchaser's Purchases hereunder are not being financed by the sale of Commercial Paper, the daily rate to the Conduit Purchaser of borrowing such funds under the LAPA.

        "Redwood Termination Date" shall mean the date elected by Redwood or the Collateral Agent (which election shall be mandatory and immediate upon the occurrence of an event set forth in clause (c) below), by notice to the Seller and the Administrative Agent as the Redwood Termination Date; provided, that on such date, one or more of the following events shall have occurred and be continuing: (a) a Seller LOC Draw; (b) the obligations of the Liquidity Lenders to make Liquidity

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Loans shall have terminated and such Liquidity Lenders shall not have otherwise been replaced or the Liquidity Lender Expiry Date shall have occurred; (c) an event of default under the Collateral Agent Agreement or any other Program Document shall have occurred; (d) the short-term debt rating of a Liquidity Lender shall have been downgraded by a Rating Agency and such Liquidity Lender shall not have been replaced in accordance with the terms of the LAPA within 30 days thereafter; (e) Redwood or the Collateral Agent shall have determined that the funding of Transferred Receivables under the Purchase Agreement is impracticable for any reason whatsoever, including as a result of (i) a drop in or withdrawal of any of the ratings assigned to the Commercial Paper by any Rating Agency, (ii) the imposition of Additional Amounts, (iii) restrictions on the amount of Transferred Receivables Redwood may finance or (iv) the inability of Redwood to issue Commercial Paper; (f) any change in accounting standards shall occur or any pronouncement or release of any accounting or regulatory body (including FASB, AICPA or the Securities and Exchange Commission) shall be issued, or any other change in the interpretation of accounting standards shall occur, such that all or any portion of the Conduit Purchaser's assets and liabilities are deemed to be consolidated with the assets and liabilities of GE Capital or any of its affiliates; (g) a Termination Event shall have occurred and be continuing; or (h) the outstanding loans to the Conduit Purchaser under the LAPA equal or exceed the Conduit Purchaser's Capital Investment at such time and no interest or other amounts are owed to the Conduit Purchaser under the Purchase Agreement or the other Related Documents.

        "Redwood Transfer Date" means the date on which the Conduit Purchaser transfers to the Liquidity Lenders all of the Conduit Purchaser's right, title and interest in and to its Purchaser Interest in the Transferred Receivables, which transfer may be made at any time when any of the following has occurred: (i) a Termination Event is continuing, (ii) the Redwood Termination Date or (iii) both (a) the outstanding loans made to the Conduit Purchaser pursuant to the LAPA equal or exceed the Conduit Purchaser's Capital Investment at such time and (b) no other amounts are owed to the Conduit Purchaser under the Purchase Agreement.

        "Regulatory Change" shall mean any change after the Closing Date in any federal, state or foreign law or regulation (including Regulation D of the Federal Reserve Board) or the adoption or making after such date of any interpretation, directive or request under any federal, state or foreign law or regulation (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof that, in each case, is applicable to any Affected Party.

        "Reinvestment Purchase" shall have the meaning assigned to it in Section 2.01 of the Purchase Agreement.

        "Rejected Amount" shall have the meaning assigned to it in Section 4.04 of Sale and Contribution Agreement.

        "Related Documents" shall mean each Lockbox Account Agreement, the Fee Letter, the Side Letter, the Sale and Contribution Agreement, the Purchase Agreement, each Receivables Assignment, the Purchase Assignment, the Parent Guaranty, each Originator Guaranty, and all other agreements, instruments, documents and certificates identified in the Schedule of Documents and including all other pledges, powers of attorney, consents, assignments, contracts, notices, and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Person, or any employee of any Person, and delivered in connection with the Sale and Contribution Agreement, the Purchase Agreement or the transactions contemplated thereby. Any reference in the Sale and Contribution Agreement, the Purchase Agreement or any other Related Document to a Related Document shall include all Appendices thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to such Related Document as the same may be in effect at any and all times such reference becomes operative.

        "Repayment Notice" shall have the meaning assigned to it in Section 2.03(c) of the Purchase Agreement.

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        "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA.

        "Reserves" shall mean (a) the aggregate Concentration Discount Amount for all Obligors of Transferred Receivables, (b) the Extended Terms Reserve Amount, (c) the Canadian Obligor Reserve Amount and (d) such other reserves as the Administrative Agent may establish from time to time in its reasonable good faith credit judgment following a detailed analysis of the Receivables (or upon receipt of additional information with respect thereto); provided, that, so long as no Termination Event has occurred and is continuing, the Administrative Agent shall give advance written notice to the Seller in respect of such new reserves.

        "Retained Monthly Yield" shall mean, as of any date of determination within a Settlement Period, the sum of all amounts transferred to or retained in the Retention Account with respect to Daily Yield from and including the first day of such Settlement Period through and including such date pursuant to Sections 6.03(a)(ii)(A) and (B) of the Purchase Agreement.

        "Retained Servicing Fee" shall mean, as of any date of determination within a Settlement Period, the sum of all amounts transferred to or retained in the Retention Account with respect to the Servicing Fee from and including the first day of such Settlement Period through and including such date pursuant to Sections 6.03(a)(ii)(C) and (D) of the Purchase Agreement.

        "Retained Unused Commitment Fee" shall mean, as of any date of determination within a Settlement Period, the sum of all amounts transferred to or retained in the Retention Account with respect to the Unused Commitment Fee from and including the first day of such Settlement Period through and including such date in accordance with Sections 6.03(a)(ii)(E) and (F) of the Purchase Agreement.

        "Retention Account" shall mean, (i) with respect to the Conduit Purchaser, that certain segregated deposit account established by the Administrative Agent and maintained with the Depositary designated as the "GE Capital/Redwood Receivables Corporation—Retention Account (K2)," account number 00-386-310, ABA No. 021001033, Attn: Retention Account #33488, and (ii) with respect to the Committed Purchaser, such other segregated deposit account as may be established by the Administrative Agent for the Committed Purchaser.

        "Retention Account Deficiency" shall mean, as of any Settlement Date, (A) prior to the occurrence of a Committed Purchaser Funding Event, the amount, if any, by which (1) the amounts necessary to make the payments required under Sections 6.04(a)(i), (ii) and (iii) of the Purchase Agreement exceeds (2) the amounts on deposit in the Retention Account or (B) after the occurrence of a Committed Purchaser Funding Event, the amount, if any, by which (1) the amounts necessary to make the payments required under Sections 6.04(a)(i), (ii) and (iii) of the Purchase Agreement exceeds (2) the amounts actually disbursed to the Administrative Agent pursuant to Sections 6.04(a)(i), (ii) and (iii) of the Purchase Agreement.

        "Retiree Welfare Plan" shall mean, at any time, a Welfare Plan that provides for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant.

        "Revolving Period" shall mean the period from and including the Closing Date through and including the day immediately preceding the Facility Termination Date.

        "S&P" shall mean Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

        "Sale" shall mean a sale of Receivables by an Originator to the Seller in accordance with the terms of the Sale and Contribution Agreement.

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        "Sale and Contribution Agreement" shall mean that certain Receivables Sale and Contribution Agreement dated as of March 28, 2002, between Parent Guarantor, the Originators and the Seller as the Buyer thereunder.

        "Sale Price" shall mean, with respect to any Sale of Sold Receivables, the price calculated by the Seller and approved from time to time by the Administrative Agent equal to:

        (a)  the Outstanding Balance of such Sold Receivables, minus

        (b)  the costs expected to be incurred by the Seller in financing the purchase of such Sold Receivables until the Outstanding Balance of such Sold Receivables is paid in full, minus

        (c)  the portion of such Sold Receivables that are reasonably expected by such Originator to be reduced by means other than the receipt of Collections thereon, minus

        (d)  amounts expected to be paid to the Servicers with respect to the servicing, administration and collection of such Sold Receivables;

provided, that such calculations shall be determined based on the historical experience of (y) such Originator, with respect to the calculations required in each of clause (c) above, and (z) the Seller, with respect to the calculations required in clauses (b) and (d) above.

        "Satisfactory Intercreditor Agreement" shall mean an intercreditor agreement in form and substance satisfactory to Buyer, Administrative Agent and Purchasers among (a) each Person holding Debt secured by property of any Originator, or such Person's agent, (b) Parent Guarantor and such Originator, (c) Seller and (d) Administrative Agent and the Purchasers.

        "Schedule of Documents" shall mean the schedule, including all appendices, exhibits or schedules thereto, listing certain documents and information to be delivered in connection with the Sale and Contribution Agreement, the Purchase Agreement and the other Related Documents and the transactions contemplated thereunder, substantially in the form attached as Annex Y to the Purchase Agreement and the Sale and Contribution Agreement.

        "Securities Act" shall mean the provisions of the Securities Act of 1933, 15 U.S.C. Sections 77a et seq., and any regulations promulgated thereunder.

        "Securities Exchange Act" shall mean the provisions of the Securities Exchange Act of 1934, 15 U.S.C. Sections 78a et seq., and any regulations promulgated thereunder.

        "Seller" shall have the meaning assigned to it in the preamble of the Purchase Agreement.

        "Seller Account" shall mean a deposit account maintained in the name of the Seller at a commercial bank in the United States of America, as designated by the Seller from time to time.

        "Seller Assigned Agreements" shall have the meaning assigned to it in Section 8.01(b) of the Purchase Agreement.

        "Seller Collateral" shall have the meaning assigned to it in Section 8.01 of the Purchase Agreement.

        "Seller Account Collateral" shall have the meaning assigned to it in Section 8.01(c) of the Purchase Agreement.

        "Seller LOC Draws" shall mean any payments made to the Purchaser in connection with the Letter of Credit and allocated to the Seller.

        "Seller Secured Obligations" shall mean all loans, advances, debts, liabilities, indemnities and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or such amounts are liquidated or determinable) owing by the Seller to any Affected Party under the Purchase Agreement and any

26

document or instrument delivered pursuant thereto, and all amendments, extensions or renewals thereof, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising thereunder, including Capital Investment, Daily Yield, Yield Shortfall, Unused Commitment Fees, Unused Commitment Fee Shortfall, Margin, amounts in reduction of Purchase Excess, Successor Servicing Fees and Expenses, Additional Amounts and Indemnified Amounts. This term includes all principal, interest (including all interest that accrues after the commencement of any case or proceeding by or against the Seller in bankruptcy, whether or not allowed in such case or proceeding), fees, charges, expenses, attorneys' fees and any other sum chargeable to the Seller thereunder, whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations that are paid to the extent all or any portion of such payment is avoided or recovered directly or indirectly from any Purchaser or the Administrative Agent or any transferee of the Purchaser or the Administrative Agent as a preference, fraudulent transfer or otherwise.

        "Seller's Share" shall mean the ratio of (a) the Maximum Purchase Limit under the Purchase Agreement to (b) the aggregate maximum purchase limits or commitments under the Purchase Agreement and all Other Funding Agreements.

        "Servicer" shall mean any of the Originators in their capacity as Servicer under the Purchase Agreement and the Parent, in its capacity as Master Servicer under the Purchase Agreement, or any other Person designated as a Successor Servicer.

        "Servicer's Certificate" shall mean an Officer's Certificate substantially in the form of Exhibit 3.01(a)(iii) to the Purchase Agreement.

        "Servicer Termination Notice" shall mean any notice by the Administrative Agent to any Servicer that (a) an Event of Servicer Termination has occurred and (b) such Servicer's appointment under the Purchase Agreement has been terminated.

        "Servicing Fee" shall mean, for any day within a Settlement Period, the amount equal to (a) (i) the Servicing Fee Rate divided by (ii) 360, multiplied by (b) the Outstanding Balance of Receivables on such day.

        "Servicing Fee Rate" shall mean 1.00%.

        "Servicing Fee Shortfall" shall mean, as of any date of determination within a Settlement Period, the amount, if any, by which the Accrued Servicing Fee exceeds the Retained Servicing Fee, in each case as of such date.

        "Servicing Officer" shall mean any officer of any Servicer involved in, or responsible for, the administration and servicing of the Transferred Receivables and whose name appears on any Officer's Certificate listing servicing officers furnished to the Administrative Agent by such Servicer, as such certificate may be amended from time to time.

        "Servicing Records" shall mean all documents, books, Records and other information (including Servicing Software, computer programs, tapes, disks, data processing software and related property and rights) prepared and maintained by the Servicers with respect to the Transferred Receivables and the Obligors thereunder.

        "Servicing Software" shall mean the data processing software used by the Originators, Servicers and/or Seller for the purpose of servicing, monitoring, and retaining data regarding the Transferred Receivables and the Obligors thereunder.

        "Settlement Date" shall mean the tenth Business Day following the end of each Settlement Period.

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        "Settlement Period" shall mean (a) solely for purposes of determining the Ratios other than the Purchase Rate Ratio, (i) with respect to all Settlement Periods other than the final Settlement Period, each calendar month, whether occurring before or after the Closing Date, and (ii) with respect to the final Settlement Period, the period ending on the Termination Date and beginning with the first day of the calendar month in which the Termination Date occurs, and (b) for all other purposes, (i) with respect to the initial Settlement Period, the period from and including the Closing Date through and including the last day of the calendar month in which the Closing Date occurs, (ii) with respect to the final Settlement Period, the period ending on the Termination Date and beginning with the first day of the calendar month in which the Termination Date occurs, and (iii) with respect to all other Settlement Periods, each calendar month; provided, however, that upon the occurrence of the Committed Purchaser Funding Event, such Settlement Period shall terminate on the day prior to the Committed Purchaser Funding Event, and the next Settlement Period shall be the period from and including the day of the Committed Purchaser Funding Event through and including the last day of the calendar month in which the Committed Purchaser Funding Event occurs.

        "Shakespeare" shall have the meaning assigned to it in the preamble of the Purchase Agreement.

        "Side Letter" shall mean that certain letter agreement dated as of the Closing Date between the Credit Facility Agent and the Administrative Agent relating to certain rights of access to the real property of the Parent Guarantor, the Originators and the Seller.

        "Sold Receivable" shall have the meaning assigned to it in Section 2.01(b) of the Sale and Contribution Agreement.

        "Solvency Certificate" shall mean an Officer's Certificate substantially in the form of Exhibit 3.01(a)(i) to the Purchase Agreement.

        "Solvent" shall mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person; (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its Debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur Debts or liabilities beyond such Person's ability to pay as such Debts and liabilities mature; (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person's property would constitute an unreasonably small capital; and (e) such Person generally is not paying its Debts or liabilities as such Debts or liabilities become due. The amount of contingent liabilities (such as Litigation, guaranties and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that can reasonably be expected to become an actual or matured liability.

        "SPC" shall have the meaning assigned to it in Recital A to the Sale and Contribution Agreement and in the preamble to the Purchase Agreement.

        "Special Limit" means (a) for Wal-Mart Stores, Inc. and its Affiliates, 15.0%; provided, however, that such Special Limit automatically shall be deemed revoked at the time, if any, when Wal-Mart Stores, Inc. and its Affiliates fail to have a short-term unsecured senior debt rating of higher than "A-1" by S&P and "P-2" by Moody's, and (b) such other "Special Limits" as shall be agreed to in writing by the Administrative Agent for other Obligors from time to time upon satisfaction of the Rating Agency Condition with respect thereto.

        "Stearns" shall have the meaning assigned to it in the preamble of the Purchase Agreement.

        "Stock" shall mean all shares, options, warrants, membership interests, general or limited partnership interests or other equivalents (regardless of how designated) of or in a corporation, limited liability company, partnership or equivalent entity whether voting or nonvoting, including common

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stock, preferred stock or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act).

        "Stockholder" shall mean, with respect to any Person, each holder of Stock of such Person.

        "Sub-Servicer" shall mean any Person with whom any Servicer enters into a Sub-Servicing Agreement.

        "Sub-Servicing Agreement" shall mean any written contract entered into between any Servicer and any Sub-Servicer pursuant to and in accordance with Section 7.01 of the Purchase Agreement relating to the servicing, administration or collection of the Transferred Receivables.

        "Subsidiary" shall mean, with respect to any Person, any corporation or other entity (a) of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person or (b) that is directly or indirectly controlled by such Person within the meaning of control under Section 15 of the Securities Act.

        "Successor Servicer" shall have the meaning assigned to it in Section 11.02 of the Purchase Agreement.

        "Successor Servicing Fees and Expenses" shall mean the fees and expenses payable to any Successor Servicer as agreed to by the Seller, the Purchasers and the Administrative Agent.

        "Swap Contract" shall mean (a) any and all rate swap transactions, basis swaps, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross- currency rate swap transactions, currency options, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not such transaction is governed by or subject to any master agreement, or (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., or any other master agreement (any such master agreement, together with any related schedules, as amended, restated, extended, supplemented or otherwise modified in writing from time to time, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement.

        "Synthetic Lease Obligations" shall mean all monetary obligations of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations which do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the Debt of such Person (without regard to accounting treatment).

        "Termination Date" shall mean the date on which (a) Capital Investment has been permanently reduced to zero, (b) all other Seller Secured Obligations under the Purchase Agreement and the other Related Documents have been indefeasibly repaid in full and completely discharged and (c) the Maximum Purchase Limit has been irrevocably terminated in accordance with the provisions of Section 2.02(b) of the Purchase Agreement.

        "Termination Event" shall have the meaning assigned to it in Section 9.01 of the Purchase Agreement.

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        "Three Month Aged Receivables Ratio" shall mean, as of any date of determination, the ratio (expressed as a percentage) of:

        (a)  the sum of the respective Outstanding Balances of Transferred Receivables (without giving effect to any credits other than Collections on or after March 1, 2002) with respect to which any payment, or part thereof, remained unpaid for more than 90 but less than 121 days from their respective Billing Dates as of the last day of the three Settlement Periods immediately preceding such date

to

        (b)  the aggregate Billed Amount of Transferred Receivables originated during the eighth, ninth and tenth Settlement Periods immediately preceding such date.

        "Title IV Plan" shall mean a Pension Plan (other than a Multiemployer Plan) that is covered by Title IV of ERISA and that Parent Guarantor, any Originator or ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them.

        "Transfer" shall mean any Sale or capital contribution of Transferred Receivables by any Originator to the Seller pursuant to the terms of the Sale and Contribution Agreement.

        "Transfer Date" shall have the meaning assigned to it in Section 2.01(a) of the Sale and Contribution Agreement.

        "Transferred Receivable" shall mean any Sold Receivable or Contributed Receivable; provided, that any Receivable repurchased by the Originator thereof pursuant to Section 4.04 of the Sale and Contribution Agreement shall not be deemed to be a Transferred Receivable from and after the date of such repurchase unless such Receivable has subsequently been repurchased by or contributed to the Seller.

        "Two Month Rolling Dilution Ratio" shall mean, as of any date of determination, the ratio (expressed as a percentage) of:

        (a)  the aggregate Dilution Factors during the two Settlement Periods immediately preceding such date

to

        (b)  the aggregate Billed Amount of Transferred Receivables originated during the fourth and fifth Settlement Periods immediately preceding such date.

        "UCC" shall mean, with respect to any jurisdiction, the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in such jurisdiction.

        "Unapproved Receivable" shall mean any receivable (a) with respect to which the obligor thereunder is not an Obligor on any Transferred Receivable and whose customer relationship with an Originator arises as a result of the acquisition by such Originator of another Person or (b) that was originated in accordance with standards established by another Person acquired by an Originator, in each case, solely with respect to any such acquisitions that have not been approved in writing by the Administrative Agent and then only for the period prior to any such approval. Following completion by the Administrative Agent of an audit of such Unapproved Receivables with results satisfactory to the Administrative Agent, such Receivables shall no longer be deemed "Unapproved Receivables".

        "Underfunded Plan" shall mean any Plan that has an Underfunding.

        "Underfunding" shall mean, with respect to any Plan, the excess, if any, of (a) the present value of all benefits under the Plan (based on the assumptions used to fund the Plan pursuant to Section 412 of

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the IRC) as of the most recent valuation date over (b) the fair market value of the assets of such Plan as of such valuation date.

        "United States" shall mean the United States of America (including the District of Columbia but otherwise excluding its territories and possessions).

        "Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if any, of the sum of (a) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions for funding purposes in effect under such Title IV Plan, and (b) for a period of five years following a transaction that might reasonably be expected to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by Parent Guarantor, any Originator or any ERISA Affiliate as a result of such transaction.

        "Unrelated Amounts" shall have the meaning assigned to it in Section 7.03(b) of the Purchase Agreement.

        "Unused Commitment Fee" shall have the meaning assigned to it in the Fee Letter.

        "Unused Commitment Fee Shortfall" shall mean, as of any date of determination within a Settlement Period, the amount, if any, by which the Accrued Unused Commitment Fee exceeds the Retained Unused Commitment Fee, in each case as of such date.

        "Welfare Plan" shall mean a Plan described in Section 3(1) of ERISA.

        "Yield Shortfall" shall mean, as of any date of determination within a Settlement Period, the amount, if any, by which the Accrued Monthly Yield exceeds the Retained Monthly Yield, in each case as of such date.

        SECTION 2.    Other Terms and Rules of Construction.

        (a)    Accounting Terms.    Unless otherwise specifically provided therein, any accounting term used in any Related Document shall have the meaning customarily given such term in accordance with GAAP, and all financial computations thereunder shall be computed in accordance with GAAP consistently applied. That certain items or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. If any Accounting Changes occur and such changes result in a change in the calculation of the financial covenants, standards or terms used in any Related Document, then the parties thereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the financial condition of such Persons and their Subsidiaries shall be the same after such Accounting Changes as if such Accounting Changes had not been made. If the parties thereto agree upon the required amendments thereto, then after appropriate amendments have been executed and the underlying Accounting Change with respect thereto has been implemented, any reference to GAAP contained therein shall, only to the extent of such Accounting Change, refer to GAAP consistently applied after giving effect to the implementation of such Accounting Change. If such parties cannot agree upon the required amendments within 30 days following the date of implementation of any Accounting Change, then all financial statements delivered and all calculations of financial covenants and other standards and terms in accordance with the Related Documents shall be prepared, delivered and made without regard to the underlying Accounting Change.

        (b)    Other Terms.    All other undefined terms contained in any of the Related Documents shall, unless the context indicates otherwise, have the meanings provided for by the UCC as in effect in the State of New York from time to time to the extent the same are used or defined therein.

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        (c)    Rules of Construction.    Unless otherwise specified, references in any Related Document or any of the Appendices thereto to a Section, subsection or clause refer to such Section, subsection or clause as contained in such Related Document. The words "herein," "hereof" and "hereunder" and other words of similar import used in any Related Document refer to such Related Document as a whole, including all annexes, exhibits and schedules, as the same may from time to time be amended, restated, modified or supplemented, and not to any particular section, subsection or clause contained in such Related Document or any such annex, exhibit or schedule. Any reference to or definition of any document, instrument or agreement shall, unless expressly noted otherwise, include the same as amended, restated, supplemented or otherwise modified from time to time. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter genders. The words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation"; the word "or" is not exclusive; references to Persons include their respective successors and assigns (to the extent and only to the extent permitted by the Related Documents) or, in the case of Governmental Authorities, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of the same and any successor statutes and regulations.

        (d)    Rules of Construction for Determination of Ratios.    The Ratios as of the last day of the Settlement Period immediately preceding the Closing Date shall be established by the Administrative Agent on or prior to the Closing Date and the underlying calculations for periods immediately preceding the Closing Date to be used in future calculations of the Ratios shall be established by the Administrative Agent on or prior to the Closing Date in accordance with Schedule 1 attached to this Annex X. For purposes of calculating the Ratios, (i) averages shall be computed by rounding to the third decimal place and (ii) the Settlement Period in which the date of determination thereof occurs shall not be included in the computation thereof and the first Settlement Period immediately preceding such date of determination shall be deemed to be the Settlement Period immediately preceding the Settlement Period in which such date of determination occurs.

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EX-10.(F)

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EXHIBIT 10(f)

RECEIVABLES SALE AND CONTRIBUTION AGREEMENT

Dated as of March 28, 2002

by and between

K2 INC.
AS PARENT GUARANTOR,

THE ENTITIES PARTY HERETO
AS ORIGINATORS

and

K2 FINANCE COMPANY, LLC
AS BUYER

TABLE OF CONTENTS

			Page
ARTICLE I    DEFINITIONS AND INTERPRETATION			1
	Section 1.01.	Definitions	1
	Section 1.02.	Rules of Construction	1
ARTICLE II    TRANSFERS OF RECEIVABLES			1
	Section 2.01.	Agreement to Transfer	1
	Section 2.02.	Grant of Security Interest	2
ARTICLE III    CONDITIONS PRECEDENT			3
	Section 3.01.	Conditions to Initial Transfer	3
	Section 3.02.	Conditions to all Transfers	4
ARTICLE IV    REPRESENTATIONS, WARRANTIES AND COVENANTS			4
	Section 4.01.	Representations and Warranties of the Originators	4
	Section 4.02.	Affirmative Covenants of the Originators	10
	Section 4.03.	Negative Covenants of the Originators	15
	Section 4.04.	Breach of Representations, Warranties or Covenants	17
ARTICLE V    INDEMNIFICATION			17
	Section 5.01.	Indemnification	17
ARTICLE VI    BUYER LOANS			19
	Section 6.01.	Buyer Loans	19
	Section 6.02.	Notices Relating to Buyer Loans
	Section 6.03.	Disbursement of Loan Proceeds
	Section 6.04.	The Originator Note
	Section 6.05.	Principal Repayments
	Section 6.06.	Interest
	Section 6.07.	Receipt of Payments
	Section 6.08.	Separateness of Buyer Loans From Transfer of Receivables
	Section 6.09.	Dividends
ARTICLE VII    COLLATERAL SECURITY			19
	Section 7.01.	Security Interest	19
	Section 7.02.	Other Collateral; Rights in Receivables	20

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ARTICLE VIII    MISCELLANEOUS			20
	Section 8.01.	Notices	20
	Section 8.02.	No Waiver; Remedies	21
	Section 8.03.	Successors and Assigns	21
	Section 8.04.	Termination; Survival of Obligations	22
	Section 8.05.	Complete Agreement; Modification of Agreement	22
	Section 8.06.	Amendments and Waivers	22
	Section 8.07.	GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL	23
	Section 8.08.	Counterparts	24
	Section 8.09.	Severability	24
	Section 8.10.	Section Titles	24
	Section 8.11.	No Setoff	24
	Section 8.12.	Confidentiality	24
	Section 8.13.	Further Assurances	25
	Section 8.14.	Fees and Expenses	25

INDEX OF APPENDICES

Exhibit 2.01(a)	Form of Receivables Assignment
Exhibit 2.01(b)	Form of Request Notice
Exhibit A	Form of Parent Guaranty
Exhibit B	Form of Originator Guaranty
Schedule 4.01(a)	Jurisdictions of Incorporation/Organization
Schedule 4.01(b)	Executive Offices; Collateral Locations; Corporate Names
Schedule 4.01(d)	Litigation
Schedule 4.01(h)	Ventures, Subsidiaries and Affiliates; Outstanding Stock; Debt
Schedule 4.01(i)	Tax Matters
Schedule 4.01(j)	Intellectual Property
Schedule 4.01(m)	ERISA
Schedule 4.01(t)	Deposit and Disbursement Accounts
Schedule 4.02(g)	Trade Names
Schedule 4.03(b)	Existing Liens
Annex X	Definitions
Annex 4.03(l)	Financial Covenants
Annex Y	Schedule of Documents
Annex Z	Parent Revolver

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        THIS RECEIVABLES SALE AND CONTRIBUTION AGREEMENT (as amended, supplemented or otherwise modified and in effect from time to time, this "Agreement") is entered into as of March 28, 2002, by and among K2 FINANCE COMPANY, LLC, a Delaware limited liability company (the "Buyer"), K2 INC., a Delaware corporation, in its capacity as "Parent Guarantor" ("Parent Guarantor"), and each of the subsidiaries of Parent Guarantor, listed on the signature pages hereto as an "Originator" (each an "Originator").

RECITALS

        A.    The Originators, together with K2 Receivables Corporation, a Delaware corporation (the "SPC"), own all of the outstanding membership interests of Buyer.

        B.    Buyer has been formed for the sole purpose of purchasing, or otherwise acquiring by capital contribution, and reselling to the Purchasers (as defined below), all Receivables (as defined below) originated by the Originators.

        C.    Each Originator intends to sell, and Buyer intends to purchase, all Receivables originated by such Originator, from time to time, as described herein.

        D.    In addition, each Originator may, from time to time, contribute capital to Buyer in the form of Contributed Receivables (as defined below) or cash.

        E.    Parent Guarantor is the parent of each Originator and as such will receive direct and indirect economic benefits from the sale of the trade receivables described in Recital C.

AGREEMENT

        NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS AND INTERPRETATION

        Section 1.01.    Definitions.    Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in Annex X.

        Section 1.02.    Rules of Construction.    For purposes of this Agreement, the rules of construction set forth in Annex X shall govern. All Appendices hereto, or expressly identified to this Agreement, are incorporated herein by reference and, taken together with this Agreement, shall constitute but a single agreement.

ARTICLE II
TRANSFERS OF RECEIVABLES

        Section 2.01.    Agreement to Transfer.

        (a)    Receivables Transfers.    Subject to the terms and conditions hereof, each Originator agrees to sell (without recourse except to the extent specifically provided herein) or contribute to Buyer on the Closing Date and on each Business Day thereafter until the occurrence of the Facility Termination Date (each such date, a "Transfer Date") all Receivables owned by it on each such Transfer Date, and Buyer agrees to purchase or acquire as a capital contribution all such Receivables on each such Transfer Date. Each such Transfer shall be evidenced by a certificate of assignment substantially in the form of Exhibit 2.01(a) (each, a "Receivables Assignment," and collectively, the "Receivables Assignments"), and each Originator and Buyer shall execute and deliver a Receivables Assignment on or before the Closing Date.

        (b)    Determination of Sold Receivables.    On and as of each Transfer Date, all Receivables owned by each Originator and not previously acquired by Buyer shall be identified for sale to Buyer such that

the Sale Price to be paid by Buyer therefor does not exceed the amount of cash available to Buyer for the payment thereof (each such Receivable identified for sale, individually, a "Sold Receivable" and, collectively, the "Sold Receivables"). The Sold Receivables will be identified by reference to the General Trial Balance of each Originator.

        (c)    Payment of Purchase Price.    In consideration for each Sale of Sold Receivables hereunder, Buyer shall pay to the Originator thereof on the Transfer Date therefor the Sale Price therefor in Dollars in immediately available funds. All such payments by Buyer under this Section 2.01(c) shall be effected by means of a wire transfer on the day when due to such account or accounts as the applicable Originator may designate.

        (d)    Determination of Contributed Receivables.    To the extent that, on and as of any Transfer Date, Receivables owned by any Originator which do not constitute Sold Receivables pursuant to Section 2.01(b) then such Originator shall, unless it has delivered an Election Notice (as defined below) to Buyer, contribute such Receivables to Buyer as a capital contribution (each such contributed Receivable, individually, a "Contributed Receivable," and collectively, the "Contributed Receivables"). If any Originator elects not to contribute Receivables to Buyer on any Transfer Date, or if any Receivables eligible for sale and owned by such Originator are not sold on any Transfer Date, such Originator shall deliver to Buyer not later than 5:00 p.m. (New York time) on the Business Day immediately preceding such Transfer Date a notice of election thereof (each such notice, an "Election Notice").

        (e)    Ownership of Transferred Receivables.    On and after each Transfer Date and after giving effect to the Transfers to be made on each such date, Buyer shall own the Transferred Receivables and no Originator shall take any action inconsistent with such ownership nor shall any Originator claim any ownership interest in such Transferred Receivables.

        (f)    Reconstruction of General Trial Balance.    If at any time any Originator fails to generate its General Trial Balance, Buyer shall have the right to reconstruct such General Trial Balance so that a determination of the Transferred Receivables can be made pursuant to Section 2.01(b). Each Originator agrees to cooperate with such reconstruction, including by delivery to Buyer, upon Buyer's request, of copies of all Contracts and Records.

        (g)    Servicing of Receivables.    With respect to each Servicer, so long as no Event of Servicer Termination shall have occurred and be continuing, and no Successor Servicer has assumed the responsibilities and obligations of such Servicer pursuant to Section 9.02 of the Purchase Agreement, each Servicer shall (i) conduct the servicing, administration and collection of the Transferred Receivables and shall take, or cause to be taken, all such actions as may be necessary or advisable to service, administer and collect the Transferred Receivables, all in accordance with (A) the terms of the Purchase Agreement, (B) customary and prudent servicing procedures for trade receivables of a similar type and (C) all applicable laws, rules and regulations, and (ii) hold all Contracts and other documents and incidents relating to the Transferred Receivables in trust for the benefit of Buyer, as the owner thereof, and for the sole purpose of facilitating the servicing of the Transferred Receivables in accordance with the terms of the Purchase Agreement.

        Section 2.02.    Grant of Security Interest.    The parties hereto intend that each Transfer shall constitute a purchase and sale or capital contribution, as applicable, and not a loan. Notwithstanding the foregoing, in addition to and not in derogation of any rights now or hereafter acquired by Buyer under Section 2.01 hereof, the parties hereto intend that this Agreement shall constitute a security agreement under applicable law and that each Originator shall be deemed to have granted, and each Originator does hereby grant, to the Buyer a continuing security interest in all of such Originator's right, title and interest in, to and under the Receivables whether now owned or hereafter acquired by such Originator (whether constituting Transferred Receivables or otherwise) to secure the obligations of such Originator to the Buyer hereunder (including, if and to the extent that any Transfer is

2

recharacterized as a transfer for security, the repayment of a loan deemed to have been made by the Buyer in the amount of the Sale Price with respect thereto and which secures the Buyer's right to receive all Collections of the Transferred Receivables as otherwise contemplated under this Agreement).

        Section 2.03.    License for Use of Software and Other Intellectual Property.    Unless expressly prohibited by the licensor thereof or any provision of applicable law, if any, each Originator hereby grants to the Buyer a non-exclusive license to use, without charge:

        (a)  such Originator's computer programs, software, printouts and other computer materials, technical knowledge or processes, data bases, materials, and licenses thereto, and

        (b)  such Originator's trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, patent applications, trade names, rights of use of any name, labels fictitious names, inventions, designs, trade secrets, goodwill, registrations, copyrights, copyright applications, permits, franchises, customer lists, credit files, correspondence, and advertising materials or any property of a similar nature,

in each case, as it pertains to the Originator Collateral, or any rights to any of the foregoing, in the advertising for sale, and selling any of the Originator Collateral, or exercising of any other remedies hereto. Each Originator agrees that such Originator's rights under all licenses and franchise agreements shall inure to the Buyer's benefit. To the extent the grant of the aforesaid license described in clause (a) is expressly prohibited by the licensor thereof or the grant of the aforesaid license described in clause (b) is expressly prohibited by the licensor thereof and such licensor is an Affiliate of Parent Guarantor, the applicable Originator shall obtain the consent of such licensor to Originator's grant to the Buyer of such license. The Buyer agrees not to use any such license without giving the applicable Originator prior written notice and unless a Termination Event has occurred and is continuing. Each Originator acknowledges and consents to the grant of a parallel license by the Buyer to the Servicers, the Administrative Agent and the Purchasers pursuant to the Purchase Agreement; and, to the extent third party consent is required in connection with the grant by the Buyer to the Servicers, Administrative Agent or the Purchasers of the license (i) described in clause (a) or (ii) described in clause (b) where the third party licensor to the Originator is an Affiliate of Parent Guarantor, each Originator agrees to exercise its best efforts to obtain such third party consent.

ARTICLE III
CONDITIONS PRECEDENT

        Section 3.01.    Conditions to Initial Transfer.    The initial Transfer hereunder shall be subject to satisfaction of each of the following conditions precedent (any one or more of which may be waived in writing by each of Buyer and the Administrative Agent):

        (a)    Sale and Contribution Agreement; Other Documents.    This Agreement or counterparts hereof shall have been duly executed by, and delivered to, Parent Guarantor, the Originators and Buyer, and Buyer shall have received such documents, instruments, agreements and legal opinions as Buyer shall request in connection with the transactions contemplated by this Agreement, including all those identified in the Schedule of Documents, each in form and substance satisfactory to Buyer.

        (b)    Governmental Approvals.    Buyer shall have received (i) satisfactory evidence that Parent Guarantor and each Originator have obtained all required consents and approvals of all Persons, including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Related Documents and the consummation of the transactions contemplated hereby and thereby or (ii) an Officer's Certificate from Parent Guarantor and each Originator in form and substance satisfactory to Buyer affirming that no such consents or approvals are required.

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        (c)    Compliance with Laws.    Parent Guarantor and each Originator shall be in compliance with all applicable foreign, federal, state and local laws and regulations, including those specifically referenced in Section 4.02(f), except to the extent that any failure to so comply would not have a Material Adverse Effect.

        (d)    Purchase Agreement Conditions.    Each of those conditions precedent set forth in Sections 3.01 and 3.02 of the Purchase Agreement shall have been satisfied or waived in writing as provided therein.

        Section 3.02.    Conditions to all Transfers.    Each Transfer hereunder (including the initial Transfer) shall be subject to satisfaction of the following further conditions precedent as of the Transfer Date therefor:

        (a)  the representations and warranties of Parent Guarantor and each Originator contained herein or in any other Related Document shall be true and correct as of such Transfer Date, both before and after giving effect to such Transfer and to the application of the Sale Price therefor, except to the extent that any such representation or warranty expressly relates to an earlier date and except for changes therein expressly permitted by this Agreement;

        (b)  no Incipient Termination Event or Termination Event shall have occurred and be continuing or would result after giving effect to such Transfer or the application of the Sale Price therefor;

        (c)  Parent Guarantor and the Originators shall have taken such other action, including delivery of approvals, consents, opinions, documents and instruments to Buyer as Buyer may reasonably request.

The acceptance by any Originator of the Sale Price for any Sold Receivables on any Transfer Date shall be deemed to constitute, as of any such Transfer Date, a representation and warranty by such Originator that the conditions in this Section 3.02 have been satisfied. On each Transfer Date, Parent Guarantor shall be deemed to have made a representation and warranty that the conditions in this Section 3.02 have been satisfied. Upon any such acceptance, title to the Transferred Receivables sold or contributed on such Transfer Date shall be vested absolutely in Buyer, whether or not such conditions were in fact so satisfied.

ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS

        Section 4.01.    Representations and Warranties of Parent Guarantor and the Originators.    To induce Buyer to purchase the Sold Receivables and to acquire the Contributed Receivables, Parent Guarantor and each Originator makes the following representations and warranties to Buyer, each and all of which shall survive the execution and delivery of this Agreement.

        (a)    Corporate Existence; Compliance with Law.    Parent Guarantor and each Originator (i) is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization as set forth on Schedule 4.01(a) attached hereto; (ii) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified is not reasonably likely to result in a Material Adverse Effect; (iii) has the requisite power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business, in each case, as now, heretofore and proposed to be conducted; (iv) has all licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct, except where the failure to obtain such licenses, permits, consents or approvals is not reasonably likely to result in a Material Adverse Effect; (v) is in compliance with its Charter Documents; and (vi) subject

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to specific representations set forth herein regarding ERISA, Environmental Laws, tax laws and other laws, is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

        (b)    Executive Offices; Collateral Locations; Corporate or Other Names; FEIN.    As of the Closing Date, the current location of the Originators' chief executive offices, sole jurisdiction of organization, principal places of business, other offices, the warehouses and premises within which any Originator Collateral is stored or located, and the locations of all records of the Originators and Parent Guarantor concerning the Originator Collateral are set forth in Schedule 4.01(b) and none of such locations have changed within the past 12 months. During the prior five years, except as set forth in Schedule 4.01(b), no Originator has not been known as or used any corporate, fictitious or trade name. In addition, Schedule 4.01(b) lists the organizational identification number issued by each Originator's state of organization or states that no such number has been issued and lists the federal employer identification number of each Originator.

        (c)    Corporate Power, Authorization, Enforceable Obligations.    The execution, delivery and performance by Parent Guarantor and each Originator of this Agreement and the execution, delivery and performance by Parent Guarantor and each Originator of any other Related Documents to which it is a party and the creation and perfection of all Transfers and Liens provided for herein and therein: (i) are within such Person's power; (ii) have been duly authorized by all necessary or proper action (corporate, shareholder or otherwise); (iii) do not contravene any provision of such Person's Charter Documents; (iv) do not violate any law or regulation, or any order or decree of any court or Governmental Authority; (v) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound; (vi) do not result in the creation or imposition of any Adverse Claim upon any of the property of such Person; and (vii) do not require the consent or approval of any Governmental Authority or any other Person, except those which will have been duly obtained, made or complied with prior to the Closing Date as provided Section 3.01(b). The exercise by Buyer of any of its rights and remedies under any Related Document to which it is a party, do not require the consent or approval of any Governmental Authority or any other Person (other than consents or approvals solely relating to or required to be obtained by the Buyer, and subject to the Bankruptcy Code), except those which will have been duly obtained, made or complied with prior to the Closing Date as provided in Section 3.01(b). On or prior to the Closing Date, each of the Related Documents shall have been duly executed and delivered by Parent Guarantor and each Originator that is a party thereto and each such Related Document shall then constitute a legal, valid and binding obligation of such Person enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights and by general principles of equity.

        (d)    No Litigation.    No Litigation is now pending or, to the knowledge of Parent Guarantor or any Originator, threatened against any Originator or Parent Guarantor that (i) challenges such Originator's or Parent Guarantor's right or power to enter into or perform any of its obligations under the Related Documents to which it is a party, or the validity or enforceability of any Related Document or any action taken thereunder, (ii) seeks to prevent the Transfer, Purchase, contribution or pledge of any Receivable or the consummation of any of the transactions contemplated under this Agreement or the other Related Documents or (iii) if determined adversely to any Originator or Parent Guarantor, could reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 4.01(d), as of the Closing Date there is no Litigation pending or threatened that seeks damages in excess of $5,000,000 or injunctive relief against, or alleges criminal misconduct by, any Originator or Parent Guarantor.

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        (e)    Solvency.    Both before and after giving effect to (i) the transactions contemplated by this Agreement and the other Related Documents and (ii) the payment and accrual of all transaction costs in connection with the foregoing, each Originator and Parent Guarantor is and will be Solvent.

        (f)    Material Adverse Effect.    Between December 31, 2000, and the Closing Date, (i) neither Parent Guarantor nor any Originator has incurred any obligations, contingent or non-contingent liabilities, liabilities for charges, long-term leases or unusual forward or long-term commitments that, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect, (ii) no contract, lease or other agreement or instrument has been entered into by Parent Guarantor or any Originator or has become binding upon Parent Guarantor's or such Originator's assets and no law or regulation applicable to Parent Guarantor or any Originator has been adopted that has had or could reasonably be expected to have a Material Adverse Effect; and (iii) neither Parent Guarantor nor any Originator is in default and no third party is in default under any material contract, lease or other agreement or instrument to which any of Parent Guarantor or the Originators is a party that alone or in the aggregate could reasonably be expected to have a Material Adverse Effect. Between December 31, 2000, and the Closing Date no event has occurred that alone or together with other events could reasonably be expected to have a Material Adverse Effect.

        (g)    Ownership of Receivables; Liens.    Each Originator owns each Receivable originated or acquired by it free and clear of any Adverse Claim and, from and after each Transfer Date, Buyer will acquire valid and properly perfected title to and the sole record and beneficial ownership interest in each Transferred Receivable purchased or otherwise acquired on such date, free and clear of any Adverse Claim or restrictions on transferability. As of the Closing Date, none of the Originator Collateral is subject to any Adverse Claims other than Permitted Originator Encumbrances, and there are no facts, circumstances or conditions known to any Originator that may result in any Adverse Claims on the Originator Collateral (including Adverse Claims arising under Environmental Laws) other than Permitted Originator Encumbrances. Each Originator has received all assignments, bills of sale and other documents, and has duly effected all recordings, filings and other actions necessary to establish, protect and perfect such Originator's right, title and interest in and to the Receivables originated by it and its other properties and assets. Each Originator has rights in and the power to transfer the Receivables. Each Originator has rights in and the power to transfer each item of the Originator Collateral upon which it purports to grant a Lien hereunder free and clear of any and all Liens other than Permitted Originator Encumbrances. The Liens granted to Buyer pursuant to Section 7.01 will at all times be fully perfected first priority Liens in and to the Originator Collateral, subject only to Permitted Originator Encumbrances.

        (h)    Ventures, Subsidiaries and Affiliates; Outstanding Stock; Debt.    Except as set forth in Schedule 4.01(h), neither Parent Guarantor nor any Originator has any Subsidiaries, is engaged in any joint venture or partnership with any other Person, or is an Affiliate of any other Person. All of the issued and outstanding Stock of each Originator is owned (directly or indirectly) by Parent Guarantor. There are no outstanding rights to purchase, options, warrants or similar rights or agreements pursuant to which any Originator may be required to issue, sell, repurchase or redeem any of its Stock or other equity securities or any Stock or other equity securities of its Subsidiaries. All outstanding Debt of each Originator and Parent Guarantor as of the Closing Date is described in Schedule 4.01(h).

        (i)    Taxes.    All material tax returns, reports and statements, including information returns, required by any Governmental Authority to be filed by Parent Guarantor and its Subsidiaries have been filed with the appropriate Governmental Authority and all charges shown thereon to be due have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid), excluding charges or other amounts being contested in accordance with Section 4.02(l). Proper and accurate amounts have been withheld by Parent Guarantor and each Originator from its respective employees for all periods in full and complete compliance with all applicable federal, state, local and foreign laws

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and such withholdings have been timely paid to the respective Governmental Authorities. Schedule 4.01(i) sets forth as of the Closing Date (i) those taxable years for which Parent Guarantor's and Originators' tax returns are currently being audited by the IRS or any other applicable Governmental Authority and (ii) any assessments or threatened assessments in connection with such audit or otherwise currently outstanding. Except as described on Schedule 4.01(i), neither Parent Guarantor nor any Originator has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any charges. Neither Parent Guarantor nor any of the Originators and their respective predecessors are liable for any charges: (A) under any agreement (including any tax sharing agreements) or (B) to the best of Parent Guarantor's and each Originator's knowledge, as a transferee. As of the Closing Date, neither Parent Guarantor nor any Originator has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise, that would have a Material Adverse Effect.

        (j)    Intellectual Property.    As of the Closing Date, each Originator owns or has rights to use all intellectual property necessary to continue to conduct its business as now or heretofore conducted by it or proposed to be conducted by it. To the knowledge of each Originator and the Parent Guarantor after diligent inquiry, each Originator conducts its business and affairs without infringement of or interference with any intellectual property of any other Person. Except as set forth in Schedule 4.01(j), no Originator is aware of any infringement or claim of infringement by others of any intellectual property of the Originators.

        (k)    Full Disclosure.    All information contained in this Agreement, any of the other Related Documents, or any written statement furnished by or on behalf of Parent Guarantor or the Originators to Buyer, any Purchaser or the Administrative Agent pursuant to the terms of this Agreement or any of the other Related Documents is true and accurate in every material respect, and none of this Agreement, any of the other Related Documents, or any written statement furnished by or on behalf of Parent Guarantor or any Originator to Buyer any Purchaser or the Administrative Agent pursuant to the terms of this Agreement or any of the other Related Documents (including any such statement furnished by Parent Guarantor or an Originator in its capacity as a Servicer), is misleading as a result of the failure to include therein a material fact.

        (l)    Notices to Obligors.    Each Originator has directed all Obligors of Transferred Receivables originated by it to remit all payments with respect to such Receivables for deposit in a Lockbox or Lockbox Account.

        (m)    ERISA.

          (i)  Schedule 4.01(m) lists all Plans and separately identifies all Pension Plans, including all Title IV Plans, Multiemployer Plans, ESOPs and Welfare Plans, including all Retiree Welfare Plans. Each Qualified Plan has been determined by the IRS to qualify under Section 401 of the IRC, the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the IRC, and nothing has occurred that would cause the loss of such qualification or tax-exempt status. Except as otherwise provided in Schedule 4.01(m), (x) each Plan is in compliance with the applicable provisions of ERISA and the IRC, including the timely filing of all reports required under the IRC or ERISA, (y) neither Parent Guarantor nor any ERISA Affiliate has failed to make any contribution or pay any amount due as required by either Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan and (z) neither Parent Guarantor, any Originator nor any ERISA Affiliate has engaged in a "prohibited transaction," as defined in Section 4975 of the IRC, in connection with any Plan that would subject Parent Guarantor or any Originator to a material tax on prohibited transactions imposed by Section 4975 of the IRC.

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        (ii)  Except as set forth in Schedule 4.01(m): (A) no Title IV Plan has any Unfunded Pension Liability; (B) no ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur; (C) there are no pending or, to the knowledge of Parent Guarantor or any Originator, threatened claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or any Person as fiduciary or sponsor of any Plan; (D) neither Parent Guarantor nor any ERISA Affiliate has incurred or reasonably expects to incur any liability as a result of a complete or partial withdrawal from a Multiemployer Plan; (E) within the last five years no Title IV Plan with Unfunded Pension Liabilities has been transferred outside of the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of Parent Guarantor, any Originator or any ERISA Affiliate; (F) Stock of Parent Guarantor and its ERISA Affiliates makes up, in the aggregate, no more than 10% of the assets of any Plan, measured on the basis of fair market value as of the last valuation date of any Plan; and (G) no liability under any Title IV Plan has been satisfied with the purchase of a contract from an insurance company that is not rated AAA by S&P or an equivalent rating by another nationally recognized rating agency.

        (n)    Brokers.    No broker or finder acting on behalf of Parent Guarantor or any Originator was employed or utilized in connection with this Agreement or the other Related Documents or the transactions contemplated hereby or thereby and neither Parent Guarantor nor any Originator has any obligation to any Person in respect of any finder's or brokerage fees in connection therewith.

        (o)    Margin Regulations.    None of the Originators or Parent Guarantor is engaged, nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin security" as such terms are defined in Regulations T or U of the Federal Reserve Board as now and from time to time hereafter in effect (such securities being referred to herein as "Margin Stock"). No Originator nor Parent Guarantor owns any Margin Stock, and no portion of the proceeds of the Sale Price for any Sale hereunder will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Debt that was originally incurred to purchase or carry any Margin Stock or for any other purpose that might cause any portion of such proceeds to be considered a "purpose credit" within the meaning of Regulations T, U or X of the Federal Reserve Board. No Originator nor Parent Guarantor will take or permit to be taken any action that might cause any Related Document to violate any regulation of the Federal Reserve Board.

        (p)    Nonapplicability of Bulk Sales Laws.    No transaction contemplated by this Agreement or any of the other Related Documents requires compliance with any bulk sales act or similar law.

        (q)    Securities Act and Investment Company Act Exemptions.    Each purchase of Transferred Receivables under this Agreement constitutes (i) a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act and (ii) a purchase or other acquisition of notes, drafts, acceptances, open accounts receivable or other obligations representing part or all of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act.

        (r)    Government Regulation.    None of the Originators nor Parent Guarantor is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act. None of the Originators nor Parent Guarantor is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, or any other federal or state statute that restricts or limits its ability to incur Debt or to perform its obligations hereunder or under the other Related Documents. The purchase or acquisition of the Transferred Receivables by Buyer hereunder, the application of the Sale Price for either of the foregoing and the consummation of the transactions contemplated by this Agreement and

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the other Related Documents will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission.

        (s)    Books and Records; Minutes.    The Charter Documents of Parent Guarantor and each Originator require it to maintain (i) books and records of account and (ii) minutes of the meetings and other proceedings of its Stockholders and board of directors.

        (t)    Deposit and Disbursement Accounts.Schedule 4.01(t) lists all banks and other financial institutions at which the Originators maintain any deposit accounts established for the receipt of collections on accounts receivable as of the Closing Date, including any Lockbox Accounts, and such schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor, in each case as of the Closing Date.

        (u)    Representations and Warranties in Other Related Documents.    Each of the representations and warranties of Parent Guarantor and the Originators contained in the Related Documents (other than this Agreement) is true and correct in all material respects and Parent Guarantor and each Originator hereby makes each such representation and warranty to, and for the benefit of, the Purchasers and the Administrative Agent as if the same were set forth in full herein, and Parent Guarantor and each Originator consents to the assignment of Buyer's rights to the Purchasers and the Administrative Agent (and their successors and assigns) as contemplated in Section 4.02(e).

        (v)    Receivables.    With respect to each Transferred Receivable designated as an Eligible Receivable in any Investment Base Certificate delivered on or after the Transfer Date of such Transferred Receivable:

          (i)  such Receivable satisfies the criteria for an Eligible Receivable;

        (ii)  prior to its Transfer to Buyer such Receivable was owned by the Originator thereof free and clear of any Adverse Claim, and such Originator had the full right, power and authority to sell, contribute, assign, transfer and pledge its interest therein as contemplated under this Agreement and the other Related Documents and, upon such Transfer, Buyer will acquire valid and properly perfected title to and the sole record and beneficial ownership interest in such Receivable, free and clear of any Adverse Claim and, following such Transfer, such Receivable will not be subject to any Adverse Claim as a result of any action or inaction on the part of such Originator;

        (iii)  the Transfer of each such Receivable pursuant to this Agreement and the Receivables Assignment executed by each Originator constitutes, as applicable, a valid sale, contribution, transfer, assignment, setover and conveyance to Buyer of all right, title and interest of such Originator in and to such Receivable; and

        (iv)  the Originator of such Receivable does not have any knowledge of any fact (including any defaults by the Obligor thereunder on any other Receivable) that would cause it or should have caused it to expect that any payments on such Receivable will not be paid in full when due or to expect any other Material Adverse Effect.

The representations and warranties described in this Section 4.01 shall survive the Transfer of the Transferred Receivables to Buyer, any subsequent assignment of the Transferred Receivables by Buyer, and the termination of this Agreement and the other Related Documents and shall continue until the indefeasible payment in full of all Transferred Receivables.

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        Section 4.02.    Affirmative Covenants of Parent Guarantor and each Originator.    Parent Guarantor and each Originator covenants and agrees that, unless otherwise consented to by Buyer and the Administrative Agent, from and after the Closing Date and until the Termination Date:

        (a)    Offices and Records.    Each Originator shall maintain its principal place of business and chief executive office and the office at which it keeps its Records at the respective locations specified in Schedule 4.01(b) or, upon 30 days' prior written notice to Buyer and the Administrative Agent, at such other location in a jurisdiction where all action requested by Buyer, any Purchaser or the Administrative Agent pursuant to Section 8.13 shall have been taken with respect to the Transferred Receivables. Each Originator shall, at its own cost and expense, for not less than three years from the date on which each Transferred Receivable was originated, or for such longer period as may be required by law, maintain adequate Records with respect to such Transferred Receivable, including records of all payments received, credits granted and merchandise returned with respect thereto. Each Originator will, (A) at all times from and after the date hereof, clearly and conspicuously mark its computer and master data processing books and records with a legend describing the Buyer's interest in the Receivables, (B) segregate (from all other receivables then owned or being serviced by the Originators) all contracts relating to each Receivable, (C) from and after the date hereof, so mark the original copy of all chattel paper and instruments constituting Receivables with any appropriate endorsement or assignment, (D) execute an endorsement to the Buyer for each instrument representing a Receivable, and (E) hold in trust and safely keep all invoices constituting chattel paper and all other instruments constituting Receivables in separate filing cabinets or other suitable containers at the Originators' locations or at such other location as Buyer may reasonably specify from time to time, provided that from and after a Termination Event, the Buyer may, in its sole discretion, specify any other location.

        (b)    Access.    Parent Guarantor and each Originator shall, during normal business hours, from time to time upon five Business Days' prior notice and as frequently as Buyer, any Servicer or the Administrative Agent determines to be appropriate: (i) provide Buyer, each Servicer or the Administrative Agent and any of their respective officers, employees and agents access to its properties (including properties utilized in connection with the collection, processing or servicing of the Transferred Receivables), facilities, advisors and employees (including officers) and to the Originator Collateral, (ii) permit Buyer, the Servicers or the Administrative Agent and any of their respective officers, employees and agents, to inspect, audit and make extracts from its books and records, including all Records, (iii) permit Buyer, the Servicers or the Administrative Agent and their respective officers, employees and agents, to inspect, review and evaluate the Transferred Receivables and other Originator Collateral, as applicable, and (iv) permit Buyer, the Servicers or the Administrative Agent and their respective officers, employees and agents to discuss matters relating to the Transferred Receivables or Parent Guarantor's or any Originator's performance under this Agreement or the affairs, finances and accounts of Parent Guarantor and the Originators with any of their respective officers, directors, and, so long as Buyer, the Servicers, or the Administrative Agent notifies Parent Guarantor or the applicable Originator, as the case may be, and gives Parent Guarantor or the applicable Originator the opportunity to participate in any such communications, with its employees, representatives or agents (in each case, with those Persons having knowledge of such matters), and, so long as Buyer, the Servicers, or the Administrative Agent notifies Parent Guarantor or the applicable Originator, as the case may be, and gives Parent Guarantor or the applicable Originator the opportunity to participate in any such communications, with its independent certified public accountants. If an Incipient Termination Event or a Termination Event shall have occurred and be continuing, or the Administrative Agent, in good faith, believes that an Incipient Termination Event or a Termination Event is imminent or deems any Purchaser's rights or interests in the Transferred Receivables or the Seller Collateral insecure, Parent Guarantor and each Originator shall provide such access at all times and without advance notice, each Originator shall provide Buyer, the Servicers or the Administrative Agent with access to its customers and, so long as Buyer, the Servicers, or the

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Administrative Agent notifies Parent Guarantor or the applicable Originator, as the case may be, and gives Parent Guarantor or the applicable Originator the opportunity to be present, to Parent Guarantor's or such Originator's suppliers. Parent Guarantor and each Originator shall make available to Buyer, the Servicers or the Administrative Agent and their respective counsel, as quickly as is possible under the circumstances, originals or copies of all books and records, including Records, that Buyer, the Servicers or the Administrative Agent may reasonably request. Parent Guarantor and the Originators shall deliver any document or instrument necessary for Buyer, the Servicers or the Administrative Agent, as they may from time to time reasonably request, to obtain records from any service bureau or other Person that maintains records for Parent Guarantor and the Originators, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by Parent Guarantor and the Originators.

        (c)    Communication with Accountants.    So long as Buyer, the applicable Servicer, or the Administrative Agent, as applicable, notifies Parent Guarantor or the applicable Originator, as the case may be, and gives Parent Guarantor or the applicable Originator the opportunity to participate in any such communications, Parent Guarantor and each Originator authorizes each such Person to communicate directly with its independent certified public accountants, and authorizes and shall instruct those accountants and advisors to disclose and make available to Buyer, the Servicers and the Administrative Agent any and all financial statements and other supporting financial documents, schedules and information relating to Parent Guarantor, Originators and their Affiliates (including copies of any issued management letters) with respect to the business, financial condition and other affairs of Parent Guarantor, Originators and their Affiliates. Parent Guarantor and each Originator agrees to render to Buyer, the Servicers and the Administrative Agent at Parent Guarantor's or such Originator's, as applicable, own cost and expense, such clerical and other assistance as may be reasonably requested with regard to the foregoing. If any Termination Event shall have occurred and be continuing, Parent Guarantor and each Originator shall, promptly upon request therefor, assist Buyer in delivering to the Administrative Agent Records reflecting activity through the close of business on the Business Day immediately preceding the date of such request.

        (d)    Compliance With Credit and Collection Policies.    Each Originator shall comply in all respects with the Credit and Collection Policies applicable to each Transferred Receivable and the Contracts therefor, and with the terms of such Receivables and Contracts.

        (e)    Assignment.    Parent Guarantor and each Originator agrees that, to the extent permitted under the Purchase Agreement, Buyer may assign all of its right, title and interest in, to and under the Transferred Receivables, and this Agreement, including its right to exercise the remedies set forth in Section 4.04. Parent Guarantor and each Originator agrees that, upon any such assignment, the assignee thereof may enforce directly, without joinder of Buyer, all of the obligations of Parent Guarantor and the Originators hereunder, including any obligations of Parent Guarantor or the Originators set forth in Sections 4.02(o), 4.04, 5.01 and 8.14.

        (f)    Compliance with Agreements and Applicable Laws.    Parent Guarantor shall and shall cause each of its Subsidiaries to, and each Originator shall and shall cause each other Originator to, perform each of its obligations under this Agreement and the other Related Documents and comply with all federal, state and local laws and regulations applicable to it and the Receivables, including those relating to truth in lending, retail installment sales, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices, privacy, licensing, taxation, ERISA and labor matters and Environmental Laws and Environmental Permits, except to the extent that the failure to so comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

        (g)    Maintenance of Existence and Conduct of Business.    Parent Guarantor and each Originator shall: (i) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises; (ii) continue to conduct its business substantially as

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now conducted or as otherwise permitted hereunder and in accordance with the terms of its Charter Documents; (iii) at all times maintain, preserve and protect all of its assets and properties used or useful in the conduct of its business, including all licenses, permits, charters and registrations, except to the extent that the failure to so comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with past practices; and (iv) with respect to the Originators only, transact business only in such corporate and trade names as are set forth in Schedule 4.02(g) or, upon 30 days' prior written notice to Buyer, the Administrative Agent and each Rating Agency, in such other corporate or trade names with respect to which all action requested by Buyer, any Purchaser or the Administrative Agent pursuant to Section 8.13 shall have been taken with respect to the Transferred Receivables. No Originator shall change the type of entity it is, its jurisdiction of incorporation or organization, or its organization number, if any, issued by its state of incorporation or organization, except upon 30 days' prior written notice to Buyer and the Administrative Agent, and with respect to which jurisdiction all action requested by Buyer, any Purchaser or the Administrative Agent pursuant to Section 8.13 shall have been taken with respect to the Transferred Receivables.

        (h)    Notice of Material Event.    Parent Guarantor and each Originator shall promptly inform Buyer in writing of the occurrence of any of the following, in each case setting forth the details thereof and what action, if any, Parent Guarantor or such Originator proposes to take with respect thereto:

          (i)  any Litigation commenced or threatened in writing against Parent Guarantor or any Originator or with respect to or in connection with all or any portion of the Transferred Receivables that (A) seeks damages or penalties in an uninsured amount in excess of $5,000,000 in any one instance or in the aggregate, (B) seeks injunctive relief, (C) is asserted or instituted against any Plan, its fiduciaries or its assets or against Parent Guarantor or any ERISA Affiliate in connection with any Plan, (D) alleges criminal misconduct by Parent Guarantor or any Originator, (E) alleges the violation of any law regarding, or seeks remedies in connection with, any Environmental Law or Environmental Permit, or (F) would, if determined adversely, have a Material Adverse Effect;

        (ii)  the commencement of a case or proceeding by or against Parent Guarantor or any Originator seeking a decree or order in respect of such Person (A) under the Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or other similar law, (B) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for Parent Guarantor or any Originator or for any substantial part of such Person's assets, or (C) ordering the winding-up or liquidation of the affairs of Parent Guarantor or any Originator;

        (iii)  the receipt of notice that (A) Parent Guarantor or an Originator is being placed under regulatory supervision, (B) any charter or material license, permit, registration or approval necessary for the conduct of Parent Guarantor's or an Originator's business is to be, or may be, suspended or revoked, (C) Parent Guarantor, an Originator or any Subsidiary of Parent has received a material notice relating to ERISA, Environmental Laws or Environmental Permits or (D) Parent Guarantor or any Originator is to cease and desist any practice, procedure or policy employed by such Person in the conduct of its business if such cessation may have a Material Adverse Effect;

        (iv)  (A) any Adverse Claim made or asserted against any of the Transferred Receivables of which it becomes aware or (B) any determination that a Transferred Receivable designated as an Eligible Receivable in an Investment Base Certificate or otherwise was not an Eligible Receivable at the time of such designation; or

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        (v)  any other event, circumstance or condition that has had or could reasonably be expected to have a Material Adverse Effect.

        (i)    Use of Proceeds.    Each Originator shall utilize the proceeds of the Sale Price obtained by it for each Sale made by it hereunder solely for general corporate purposes (including the retirement or repayment of third party debt and loans made to Affiliates) and to pay any related expenses payable by such Originator under this Agreement and the other Related Documents in connection with the transactions contemplated hereby and thereby and for no other purpose.

        (j)    Separate Identity.

          (i)  Parent Guarantor and each Originator shall, and shall cause each of its Affiliates included in the Parent Group to, maintain corporate records and books of account separate from those of Buyer.

        (ii)  The financial statements of Parent Guarantor and its consolidated Subsidiaries shall disclose the effects of the Originators' transactions in accordance with GAAP and, in addition, disclose that (A) Buyer's sole business consists of the purchase or acceptance through capital contribution of the Receivables from the Originators and the subsequent resale of such Receivables to the Purchasers, (B) Buyer is a separate corporate entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of Buyer's assets prior to any value in Buyer becoming available to Buyer's equity holders and (C) the assets of Buyer are not available to pay creditors of Parent Guarantor, the Originators or any of their Affiliates.

        (iii)  The resolutions, agreements and other instruments underlying the transactions described in this Agreement shall be continuously maintained by Parent Guarantor and the Originators as official records.

        (iv)  Parent Guarantor and each Originator shall, and shall cause each Affiliate included in the Parent Group to, maintain an arm's-length relationship with Buyer and shall not hold itself out as being liable for the Debts of Buyer.

        (v)  Parent Guarantor and each Originator shall, and shall cause each member of the Parent Group to, keep its assets and its liabilities wholly separate from those of Buyer.

        (vi)  Parent Guarantor and each Originator shall, and shall cause each Affiliate included in the Parent Group to, conduct its business solely in its own name through its duly Authorized Officers or agents and in a manner designed not to mislead third parties as to the separate identity of the Buyer.

      (vii)  Parent Guarantor and each Originator shall not, and shall cause each Affiliate included in the Parent Group not to, mislead third parties by conducting or appearing to conduct business on behalf of Buyer or expressly or impliedly representing or suggesting that Parent Guarantor or any Originator or Affiliate thereof is liable or responsible for the Debts of Buyer or that the assets of Parent Guarantor or any Originator or any Affiliate are available to pay the creditors of Buyer.

      (viii)  Parent Guarantor and each Originator shall cause operating expenses and liabilities of Buyer to be paid from Buyer's own funds.

        (ix)  Parent Guarantor and each Originator shall at all times have, and cause each Affiliate included in the Parent Group at all times to have, stationery and other business forms and a telephone number separate from those of Buyer.

        (x)  Parent Guarantor and each Originator shall, and shall cause each Affiliate included in the Parent Group to, at all times limit its transactions with Buyer only to those expressly permitted hereunder or under any other Related Document.

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        (xi)  Parent Guarantor and each Originator shall, and cause each Affiliate included in the Parent Group to, comply with (and cause to be true and correct) each of the facts and assumptions contained in the opinion of Gibson Dunn & Crutcher LLP delivered pursuant to the Schedule of Documents.

        (k)    ERISA.    Parent Guarantor and each Originator shall give Buyer and the Administrative Agent prompt written notice of any event that could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA.

        (l)    Payment, Performance and Discharge of Obligations.

          (i)  Subject to Section 4.02(l)(ii), Parent Guarantor and each Originator shall, and Parent Guarantor shall cause each of its Subsidiaries to, pay, perform and discharge or cause to be paid, performed and discharged all of its obligations and liabilities, including all taxes, assessments and governmental charges upon its income and properties and all lawful claims for labor, materials, supplies and services, promptly when due.

        (ii)  Parent Guarantor, its Subsidiaries and any Originator may in good faith contest, by appropriate proceedings, the validity or amount of any charges or claims described in Sections 4.01(i) and 4.02(l)(i); provided, that (A) adequate reserves with respect to such contest are maintained on the books of such Person, in accordance with GAAP, (B) such contest is maintained and prosecuted continuously and with diligence, (C) none of the Originator Collateral could reasonably be expected to become subject to forfeiture or loss as a result of such contest, (D) no Lien could reasonably be expected to be imposed to secure payment of such charges or claims other than inchoate tax liens and (E) Buyer has affirmatively advised such Parent Guarantor (with respect to Parent Guarantor or its Subsidiaries) or Originator in writing that Buyer reasonably believes that nonpayment or nondischarge thereof could not reasonably be expected to have or result in a Material Adverse Effect.

        (m)    Deposit of Collections and Notices to Obligors.    Parent Guarantor and each Originator shall deposit and cause its Subsidiaries to deposit or cause to be deposited promptly into a Lockbox Account, and in any event no later than the first Business Day after receipt thereof, all Collections it may receive in respect of Transferred Receivables. Each Originator shall direct all Obligors of Transferred Receivables originated by it to remit all payments with respect to such Receivables for deposit in a Lockbox or Lockbox Account and shall not make any change in its instructions to such Obligors.

        (n)    Accounting Changes.    If any Accounting Changes occur and such changes result in a change in the standards or terms used herein, then the parties hereto agree to enter into negotiations in order to amend such provisions so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the financial condition of such Persons and their Subsidiaries shall be the same after such Accounting Changes as if such Accounting Changes had not been made. If the parties hereto agree upon the required amendments to this Agreement, then after appropriate amendments have been executed and the underlying Accounting Change with respect thereto has been implemented, any reference to GAAP contained herein shall, only to the extent of such Accounting Change, refer to GAAP consistently applied after giving effect to the implementation of such Accounting Change. If such parties cannot agree upon the required amendments within 30 days following the date of implementation of any Accounting Change, then all financial statements delivered and all standards and terms used herein shall be prepared, delivered and used without regard to the underlying Accounting Change.

        (o)    Adjustments to Sale Price.    If on any day the Billed Amount of any Transferred Receivable is reduced as a result of any Dilution Factors, and the amount of such reduction exceeds the amount, if any, of Dilution Factors taken into account in the calculation of the Sale Price for such Transferred

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Receivable, the Originator thereof shall make a cash payment to Buyer in the amount of such excess by remitting such amount to the Collection Account in accordance with the terms of the Purchase Agreement.

        (p)    Debt.    Prior to any Originator securing any Debt or granting a Lien on its properties in connection thereto, such Originator shall, and Parent Guarantor shall cause such Originator to, require the creditor or lender of such Debt to execute and deliver a Satisfactory Intercreditor Agreement to Buyer, unless Buyer and the Administrative Agent determine that execution and delivery of a Satisfactory Intercreditor Agreement is unnecessary.

        Section 4.03.    Negative Covenants of the Originators.    Parent Guarantor and each Originator covenants and agrees that, without the prior written consent of Buyer and the Administrative Agent, from and after the Closing Date and until the Termination Date:

        (a)    Sale of Stock and Assets.    No Originator shall, nor shall any Originator permit any other Originator to, and Parent Guarantor shall not permit any Originator to, sell, transfer, convey, assign (by operation of law or otherwise) or otherwise dispose of, or assign any right to receive income in respect of, any Transferred Receivable or Contract therefor, any of its rights with respect to any Lockbox or Lockbox Account or any other Originator Collateral. Parent Guarantor will not, nor will it permit its Subsidiaries to, and no Originator shall, make any Dispositions (as defined in the Parent Revolver), except as permitted by Section 7.05 of the Parent Revolver. Notwithstanding the foregoing, each Originator may pledge its equity interest in the SPC and Buyer to the Credit Facility Agent pursuant to the terms set forth in the Credit Facilities' Security Documents.

        (b)    Liens.    No Originator shall, nor shall Parent Guarantor permit any Originator to, create, incur, assume or permit to exist any Adverse Claim on or with respect to its Receivables or any other Originator Collateral (whether now owned or hereafter acquired) except for the Liens set forth in Schedule 4.03(b) and other Permitted Originator Encumbrances. In addition, no Originator shall, nor shall Parent Guarantor permit any Originator to, become a party to any agreement, note, indenture or instrument or take any other action that would prohibit the creation of a Lien on any of the Originator Collateral in favor of Buyer as additional collateral for the recourse and indemnity obligations of such Originator to Buyer hereunder, including those obligations set forth in Sections 4.02(o), 4.04 and 5.01, except as otherwise expressly permitted by this Agreement or any of the other Related Documents).

        (c)    Modifications of Receivables or Contracts.    The Originators shall not, and Parent Guarantor shall not permit any Originator to, extend, amend, forgive, discharge, compromise, cancel or otherwise modify the terms of any Transferred Receivable, or amend, modify or waive any term or condition of any Contract therefor to the extent that any such amendment, modification or waiver materially impairs the collectibility of the Receivables; provided, that any Originator acting as a Servicer may, in its capacity as a Servicer, take such of the foregoing actions to the extent that they are expressly permitted by the terms of Section 8.06(d) of the Purchase Agreement.

        (d)    Sale Characterization.    Neither Parent Guarantor nor the Originators shall make statements or disclosures or prepare any financial statements for any purpose, including for federal income tax, reporting or accounting purposes, that shall account for the transactions contemplated by this Agreement in any manner other than (i) with respect to the Sale of each Receivable, as a true sale or absolute assignment of its full right, title and ownership interest in such Receivable and (ii) with respect to the Transfer of each Contributed Receivable under this Agreement, as a contribution to the capital of Buyer.

        (e)    Capital Structure and Business.    Parent Guarantor shall not, nor shall permit its Subsidiaries to, and no Originator shall, nor shall permit its Subsidiaries to, (i) make any changes in any of its business objectives, purposes or operations, that could have or result in a Material Adverse Effect; or (ii) amend, supplement or otherwise modify its Charter Documents in a manner that could have or

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result in a Material Adverse Effect. Parent Guarantor shall not, nor shall it permit any Originator to, and no Originator shall, change its structure, the type of entity that it is, its official name, or its jurisdiction of organization except as permitted by Section 4.02(g). No Originator shall make any change in its capital structure as described on Schedule 4.01(h), including the issuance of any shares of Stock, warrants or other securities convertible into Stock or any revision of the terms of its outstanding Stock.

        (f)    Actions Affecting Rights.    Parent Guarantor shall not, and shall not permit any Originator to, and no Originator shall, (i) take any action, or fail to take any action, if such action or failure to take action may interfere with the enforcement of any rights hereunder or under the other Related Documents, including rights with respect to the Transferred Receivables; (ii) waive or alter any rights with respect to the Transferred Receivables (or any agreement or instrument relating thereto); or (iii) subject to Section 4.02(l)(ii), fail to pay any tax, assessment, charge, fee or other obligation of any Originator with respect to the Transferred Receivables, or fail to defend any action, if such failure to pay or defend may adversely affect the priority or enforceability of the perfected title of Buyer to and the sole record and beneficial ownership interest of Buyer in the Transferred Receivables or, prior to their Transfer hereunder, the right, title or interest therein of the Originator thereof.

        (g)    ERISA.    Parent Guarantor shall not, nor shall cause or permit any ERISA Affiliate to, and no Originator shall, cause or permit to occur an event that could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA or cause or permit to cause an ERISA Event to the extent such ERISA Event could reasonably be expected to have a Material Adverse Effect.

        (h)    Change to Credit and Collection Policies.    Each Originator shall comply with the Credit and Collection Policies, and no change shall be made to the Credit and Collection Policies without the prior written consent of Buyer and the Administrative Agent.

        (i)    Adverse Tax Consequences.    Parent Guarantor shall not, and shall not permit any Originator to, and no Originator shall, take or permit to be taken any action (other than with respect to actions taken or to be taken solely by a Governmental Authority), or fail or neglect to perform, keep or observe any of its obligations hereunder or under the other Related Documents, that would have the effect directly or indirectly of subjecting any payment to Buyer, any Purchaser or holders of the Commercial Paper who are residents of the United States of America to withholding taxation.

        (j)    No Proceedings.    From and after the Closing Date and until the date one year plus one day following the date on which the Commercial Paper with the latest maturity has been paid in full in cash, Parent Guarantor shall not, and shall not permit any Originator to, and no Originator shall, directly or indirectly, institute or cause to be instituted against Buyer or Conduit Purchaser any proceeding of the type referred to in Sections 9.01(c) and 9.01(d) of the Purchase Agreement.

        (k)    Commingling.    No Originator shall, nor shall Parent Guarantor permit any Originator to, deposit or permit the deposit of any funds that do not constitute Collections of Transferred Receivables into any Lockbox Account. If such funds are nonetheless deposited into a Lockbox Account and any Originator so notifies the Applicable Purchaser, the Applicable Purchaser shall notify the Administrative Agent to promptly remit any such amounts as directed by such Originator.

        (l)    Financial Covenants.    Parent Guarantor shall not breach or fail to comply with any of the financial covenants set forth in Annex 4.03(l).

        (m)    Debt.    Parent Guarantor shall not, nor shall it permit its Subsidiaries to, nor shall the Originators create, assume, suffer to exist or incur or in any manner become liable in respect of any Debt for borrowed money or other Debt described in clauses (a) through (f) of the definition thereof, except as permitted by Section 7.02 of the Parent Revolver, provided, that no secured Debt refinancing any such permitted Debt shall be permitted unless the refinancier thereof shall have entered into a

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Satisfactory Intercreditor Agreement, unless Buyer and the Administrative Agent determine that execution and delivery of a Satisfactory Intercreditor Agreement is unnecessary.

        (n)    Fundamental Changes.    Parent Guarantor shall not, nor shall it permit any of its Subsidiaries to, and no Originator shall, merge or consolidate with or into any Person or liquidate, wind-up or dissolve itself, or permit or suffer any liquidation or dissolution or sell all or substantially all of its assets, except, that so long as no Termination Event or Incipient Termination Event exists or would result therefrom, as permitted by Section 7.04 of the Parent Revolver.

        (o)    Acquisitions.    Parent Guarantor will not, nor will it suffer or permit any of its Subsidiaries to, and no Originator shall make any Acquisition unless permitted by Section 7.06 of the Parent Revolver.

        (p)    Credit Facilities' Security Documents.    Neither Parent Guarantor nor any Originator shall consent to any amendment, restatement, supplement or other modification to any Credit Facility Security Document to the extent such Credit Facility Security Document requires the consent of the Administrative Agent to such amendment and such consent is not received by Parent Guarantor and Originators.

        Section 4.04.    Breach of Representations, Warranties or Covenants.    Upon discovery by Parent Guarantor, any Originator or Buyer of any breach of any representation, warranty or covenant described in Sections 4.01, 4.02 or 4.03 (other than a representation, warranty or covenant relating to the absence of Dilution Factors), which breach is reasonably likely to have a material adverse effect on the value of a Transferred Receivable or the interests of Buyer therein, the party discovering the same shall give prompt written notice thereof to the other parties hereto. The Originator that breached such representation, warranty or covenant may, at any time on any Business Day, or shall, if requested by notice from Buyer, on the first Business Day following receipt of such notice, either (a) repurchase such Transferred Receivable from Buyer for cash, (b) transfer ownership of a new Eligible Receivable or new Eligible Receivables to Buyer on such Business Day, or (c) make a capital contribution in cash to Buyer by remitting the amount (the "Rejected Amount") of such capital contribution to the Collection Account in accordance with the terms of the Purchase Agreement, in each case in an amount equal to the Billed Amount of such Transferred Receivable minus the sum of (A) Collections received in respect thereof and (B) the amount of any Dilution Factors taken into account in the calculation of the Sale Price therefor. Notwithstanding the foregoing, if any Receivable is not paid in full on account of any Dilution Factors, the applicable Originator's repurchase obligation under this Section 4.04 with respect to such Receivable shall be reduced by the amount of any such Dilution Factors taken into account in the calculation of the Sale Price therefor. Each Originator shall ensure that (x) no Collections or other proceeds with respect to a Transferred Receivable so reconveyed to it are paid or deposited into any Lockbox Account and (y) such reconveyed Transferred Receivables are not included in the reporting materials identifying Eligible Receivables or Transferred Receivables provided by the Originator to the Buyer or the Administrative Agent and the Purchasers.

ARTICLE V
INDEMNIFICATION

        Section 5.01.    Indemnification.    Without limiting any other rights that Buyer or any of its Stockholders, officers, directors, employees, attorneys, agents or representatives (each, a "Buyer Indemnified Person") may have hereunder or under applicable law, Parent Guarantor and each Originator hereby agrees to indemnify and hold harmless each Buyer Indemnified Person from and against any and all Indemnified Amounts that may be claimed or asserted against or incurred by any such Buyer Indemnified Person in connection with or arising out of the transactions contemplated under this Agreement or under any other Related Document, any actions or failures to act in connection therewith, including any and all legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Related Documents, or in respect

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of any Transferred Receivable or any Contract therefor or the use by Originators of the Sale Price therefor; provided, that neither Parent Guarantor nor the Originators shall be liable for any indemnification to a Buyer Indemnified Person to the extent that any such Indemnified Amounts result solely from (a) such Buyer Indemnified Person's gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction, (b) recourse for uncollectible or uncollected Transferred Receivables due to the lack of creditworthiness of the Obligor or the occurrence of any event of bankruptcy with respect to such Obligor, or (c) any income tax or franchise tax incurred by any Buyer Indemnified Person, except to the extent that the incurrence of any such tax results from a breach of or default under this Agreement or any other Related Document. Subject to the exceptions set forth in clauses (a), (b) and (c) of the immediately preceding sentence but otherwise without limiting the generality of the foregoing, each Originator and Parent Guarantor shall pay on demand to each Buyer Indemnified Person any and all Indemnified Amounts relating to or resulting from:

          (i)  reliance on any representation or warranty made or deemed made by Parent Guarantor or any Originator (or any of its respective officers) under or in connection with this Agreement or any other Related Document or on any other information delivered by Parent Guarantor or an Originator pursuant hereto or thereto that shall have been incorrect in any material respect when made or deemed made or delivered;

        (ii)  the failure by Parent Guarantor or any Originator to comply with any term, provision or covenant contained in this Agreement, any other Related Document or any agreement executed in connection herewith or therewith, any applicable law, rule or regulation with respect to any Transferred Receivable or Contract therefor, or the nonconformity of any Transferred Receivable or the Contract therefor with any such applicable law, rule or regulation;

        (iii)  the failure to vest and maintain vested in Buyer, or to Transfer to Buyer, valid and properly perfected title to and sole record and beneficial ownership of the Receivables that constitute Transferred Receivables, together with all Collections in respect thereof, free and clear of any Adverse Claim;

        (iv)  any dispute, claim, offset or defense of any Obligor (other than its discharge in bankruptcy) to the payment of any Receivable that is the subject of a Transfer hereunder (including a defense based on such Receivable or the Contract therefor not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services giving rise to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by Parent Guarantor or any Affiliate acting as the Servicer or a Sub-Servicer), except to the extent that such dispute, claim, offset or defense results solely from any action or inaction on the part of Buyer;

        (v)  any products liability claim or other claim arising out of or in connection with merchandise, insurance or services that is the subject of any Contract;

        (vi)  the commingling of Collections with respect to Transferred Receivables by Parent Guarantor or any Originator at any time with its other funds or the funds of any other Person;

      (vii)  any failure by any Originator to cause the filing of, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or any other applicable laws with respect to any Receivable that is the subject of a Transfer hereunder, whether at the time of any such Transfer or at any subsequent time;

      (viii)  any failure by Parent Guarantor, any Originator or any Servicer to perform, keep or observe any of their respective duties or obligations hereunder, under any other Related Document or under any Contract related to a Transferred Receivable;

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        (ix)  any failure of a Lockbox Account Bank to comply with the terms of the applicable Lockbox Agreement;

        (x)  any investigation, Litigation or proceeding related to this Agreement or the use of the Sale Price obtained in connection with any Sale or the ownership of Receivables or Collections with respect thereto or in respect of any Receivable or Contract, except to the extent any such investigation, Litigation or proceeding relates to a matter involving a Buyer Indemnified Person for which neither Parent Guarantor nor any Originator nor any of their Affiliates is at fault, as finally determined by a court of competent jurisdiction; or

        (xi)  any claim brought by any Person other than a Buyer Indemnified Person arising from any activity by Parent Guarantor, Originators or any of their Affiliates in servicing, administering or collecting any Transferred Receivables.

NO BUYER INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A RESULT OF ANY TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

ARTICLE VI
LIMITATIONS ON BUYER

        Section 6.01.    Dividends.    The Buyer may declare or pay dividends or make other distributions at any time that, after giving effect to such dividends or other distributions, Buyer's Net Worth Percentage shall be equal to or greater than five percent (5.0%).

ARTICLE VII
COLLATERAL SECURITY

        Section 7.01.    Security Interest.    To secure the prompt and complete payment, performance and observance of any and all recourse and indemnity obligations of each Originator to Buyer, including those set forth in Sections 4.02(o), 4.04, 5.01 and 8.14, and to induce Buyer to enter into this Agreement in accordance with the terms and conditions hereof, each Originator hereby grants, assigns, conveys, pledges, hypothecates and transfers to Buyer a Lien upon all of such Originator's right, title and interest in, to and under the following property, whether now owned by or owing to, or hereafter acquired by or arising in favor of, such Originator (including under any trade names, styles or derivations of such Originator), and whether owned by or consigned by or to, or leased from or to, such Originator, and regardless of where located (all of which being hereinafter collectively referred to as the "Originator Collateral"):

        (a)  all Receivables, Collections, and Contracts,

        (b)  such Originator's rights in the merchandise (including returned goods) relating to the Receivables,

        (c)  all of the Buyer's credits and balances with such Originator existing at such time,

        (d)  all deposit accounts and lockboxes into which Collections are deposited (other than accounts into which Collections are mistakenly deposited) (including, but not limited to, the Lockboxes and Lockbox Accounts),

        (e)  such Originator's rights in the Sale and Contribution Agreement and the Related Documents to which it is a party,

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        (f)    all books and records pertaining to the foregoing (including customer lists and other related property and rights), and

        (g)  all proceeds and products of the foregoing and all accessions to, and substitutions and replacements for, each of the foregoing (whether constituting accounts, deposit accounts, equipment, inventory, general intangibles, investment property, chattel paper, documents, supporting obligations and letter of credit rights, or instruments, whether or not constituting Receivables).

        Section 7.02.    Other Collateral; Rights in Receivables.    Nothing contained in this Article VII shall limit the rights of Buyer in and to any other collateral that may have been or may hereafter be granted to Buyer by any Originator or any third party pursuant to any other agreement or the rights of Buyer under any of the Transferred Receivables.

        Section 7.03.    Originators Remain Liable.    It is expressly agreed by each Originator that, anything herein to the contrary notwithstanding, such Originator shall remain liable under any and all of the Receivables originated by it, the Contracts therefor and all other Originator Collateral to observe and perform all the conditions and obligations to be observed and performed by it thereunder. The Buyer shall not have any obligation or liability under any such Receivables, Contracts or Originator Collateral by reason of or arising out of this Agreement or the granting herein of a Lien thereon or the receipt by the Buyer of any payment relating thereto pursuant hereto. The exercise by the Buyer of any of its respective rights under this Agreement shall not release any Originator from any of its respective duties or obligations under any such Receivables, Contracts or Originator Collateral. The Buyer shall not be required or obligated in any manner to perform or fulfill any of the obligations of any Originator under or pursuant to any such Receivable, Contract or Originator Collateral, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any such Receivable, Contract or Originator Collateral, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times.

ARTICLE VIII
MISCELLANEOUS

        Section 8.01.    Notices.    Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three Business Days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 8.01), (c) one Business Day after deposit with a reputable overnight courier with all charges prepaid or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the

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address or facsimile number set forth below in this Section 8.01 or to such other address (or facsimile number) as may be substituted by notice given as herein provided:

Parent Guarantor:	4900 South Eastern Avenue, #200 Los Angeles, CA 90040 Attention: John J. Rangel Facsimile: (323) 724-0470
Buyer:	4900 South Eastern Avenue, #200 Los Angeles, CA 90040 Attention: John J. Rangel Facsimile: (323) 724-0355
Each Originator:	To the notice address specified on its signature page

provided, that each such declaration or other communication shall be deemed to have been validly delivered to the Administrative Agent under this Agreement upon delivery to the Administrative Agent in accordance with the terms of the Purchase Agreement. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Buyer) designated in any written communication provided hereunder to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. Notwithstanding the foregoing, whenever it is provided herein that a notice is to be given to any other party hereto by a specific time, such notice shall only be effective if actually received by such party prior to such time, and if such notice is received after such time or on a day other than a Business Day, such notice shall only be effective on the immediately succeeding Business Day.

        Section 8.02.    No Waiver; Remedies.    Buyer's failure, at any time or times, to require strict performance by any Originator or Parent Guarantor of any provision of this Agreement or any Receivables Assignment shall not waive, affect or diminish any right of Buyer thereafter to demand strict compliance and performance herewith or therewith. Any suspension or waiver of any breach or default hereunder shall not suspend, waive or affect any other breach or default whether the same is prior or subsequent thereto and whether the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of the Originators or Parent Guarantor contained in this Agreement or any Receivables Assignment, and no breach or default by any Originator or Parent Guarantor hereunder or thereunder, shall be deemed to have been suspended or waived by Buyer unless such waiver or suspension is by an instrument in writing signed by an officer of or other duly authorized signatory of Buyer and directed to Parent Guarantor or such Originator, as applicable, specifying such suspension or waiver. Buyer's rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies that Buyer may have under any other agreement, including the other Related Documents, by operation of law or otherwise. Recourse to the Originator Collateral shall not be required.

        Section 8.03.    Successors and Assigns.    This Agreement shall be binding upon and shall inure to the benefit of the Originators, Parent Guarantor and Buyer and their respective successors and permitted assigns, except as otherwise provided herein. Neither Parent Guarantor nor any Originator may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder without the prior express written consent of Buyer, the Purchasers and the Administrative Agent and unless the Rating Agency Condition shall have been satisfied with respect to any such assignment. Any such purported assignment, transfer, hypothecation or other conveyance by any Originator or Parent Guarantor without the prior express written consent of Buyer, the Purchasers and the Administrative Agent shall be void. Each Originator and Parent Guarantor acknowledges that, to

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the extent permitted under the Purchase Agreement, Buyer may assign its rights granted hereunder, including the benefit of any indemnities under Article V and any of its rights in the Originator Collateral granted under Article VII, and the license granted under Article II, and upon such assignment, such assignee shall have, to the extent of such assignment, all rights of Buyer hereunder and, to the extent permitted under the Purchase Agreement, may in turn assign such rights. Each Originator and Parent Guarantor agrees that, upon any such assignment, such assignee may enforce directly, without joinder of Buyer, the rights set forth in this Agreement. All such assignees, including parties to the Purchase Agreement in the case of any assignment to such parties, shall be third party beneficiaries of, and shall be entitled to enforce Buyer's rights and remedies under, this Agreement to the same extent as if they were parties hereto. Without limiting the generality of the foregoing, all notices to be provided to the Buyer hereunder shall be delivered to both the Buyer and the Administrative Agent under the Purchase Agreement, and shall be effective only upon such delivery to the Administrative Agent. The terms and provisions of this Agreement are for the purpose of defining the relative rights and obligations of each Originator, Parent Guarantor and Buyer with respect to the transactions contemplated hereby and, except for the Purchasers and the Administrative Agent, no Person shall be a third party beneficiary of any of the terms and provisions of this Agreement.

        Section 8.04.    Termination; Survival of Obligations.

        (a)  This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Termination Date.

        (b)  Except as otherwise expressly provided herein or in any other Related Document, no termination or cancellation (regardless of cause or procedure) of any commitment made by Buyer under this Agreement shall in any way affect or impair the obligations, duties and liabilities of any Originator, Parent Guarantor or the rights of Buyer relating to any unpaid portion of any and all recourse and indemnity obligations of Originators and Parent Guarantor to Buyer, including those set forth in Sections 4.02(o), 4.04, 5.01 and 8.14, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Facility Termination Date. Except as otherwise expressly provided herein or in any other Related Document, all undertakings, agreements, covenants, warranties and representations of or binding upon Originators and Parent Guarantor, and all rights of Buyer hereunder, all as contained in the Related Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, that the rights and remedies pursuant to Sections 4.02(o), 4.04, the indemnification and payment provisions of Article V, and the provisions of Sections 4.03(j), 8.03, 8.12 and 8.14 shall be continuing and shall survive any termination of this Agreement.

        Section 8.05.    Complete Agreement; Modification of Agreement.    This Agreement and the other Related Documents constitute the complete agreement between the parties with respect to the subject matter hereof and thereof, supersede all prior agreements and understandings relating to the subject matter hereof and thereof, and may not be modified, altered or amended except as set forth in Section 8.06.

        Section 8.06.    Amendments and Waivers.    No amendment, modification, termination or waiver of any provision of this Agreement or any of the other Related Documents, or any consent to any departure by any Originator or Parent Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by each of the parties hereto and the Purchasers and the Administrative Agent. No consent or demand in any case shall, in itself, entitle any party to any other consent or further notice or demand in similar or other circumstances.

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        Section 8.07.    GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.

        (a)  THIS AGREEMENT AND EACH RELATED DOCUMENT (EXCEPT TO THE EXTENT THAT ANY RELATED DOCUMENT EXPRESSLY PROVIDES TO THE CONTRARY) AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES), EXCEPT TO THE EXTENT THAT THE PERFECTION, EFFECT OF PERFECTION OR PRIORITY OF THE INTERESTS OF THE BUYER IN THE RECEIVABLES OR REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

        (b)  EACH PARTY HERETO HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THEM PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY RELATED DOCUMENT; PROVIDED, THAT EACH PARTY HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE BOROUGH OF MANHATTAN IN NEW YORK CITY; PROVIDED FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE BUYER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE ORIGINATOR COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OF ORIGINATORS OR PARENT GUARANTOR ARISING HEREUNDER, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF BUYER. EACH PARTY HERETO SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH PARTY HERETO HEREBY WAIVES ANY OBJECTION THAT SUCH PARTY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH PARTY HERETO HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PARTY AT THE ADDRESS SET FORTH BENEATH ITS NAME ON THE SIGNATURE PAGES HEREOF AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH PARTY'S ACTUAL RECEIPT THEREOF OR THREE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL, PROPER POSTAGE PREPAID. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

        (c)  BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,

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WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

        Section 8.08.    Counterparts.    This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement.

        Section 8.09.    Severability.    Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

        Section 8.10.    Section Titles.    The section titles and table of contents contained in this Agreement are provided for ease of reference only and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

        Section 8.11.    No Setoff.    Except as set forth in Section 6.05, the Originators' and Parent Guarantor's obligations under this Agreement shall not be affected by any right of setoff, counterclaim, recoupment, defense or other right any Originator or Parent Guarantor might have against Buyer, any Purchaser or the Administrative Agent, all of which rights are hereby expressly waived by the Originators and Parent Guarantor.

        Section 8.12.    Confidentiality.

        (a)  Except to the extent otherwise required by applicable law, as required to be filed publicly with the Securities and Exchange Commission, or unless each Affected Party shall otherwise consent in writing, the Originators, Parent Guarantor and Buyer agree to maintain the confidentiality of this Agreement (and all drafts hereof and documents ancillary hereto) in its communications with third parties other than any Affected Party or any Buyer Indemnified Person and otherwise and not to disclose, deliver or otherwise make available to any third party (other than its directors, officers, employees, accountants or counsel) the original or any copy of all or any part of this Agreement (or any draft hereof and documents ancillary hereto) except to an Affected Party or an Buyer Indemnified Person.

        (b)  Each Originator and Parent Guarantor agrees that it shall not (and shall not permit any of its Subsidiaries to) issue any news release or make any public announcement pertaining to the transactions contemplated by this Agreement and the Related Documents without the prior written consent of Buyer and each of the Committed Purchaser and the Conduit Purchaser (which consent shall not be unreasonably withheld) unless such news release or public announcement is required by law, in which case such Originator or Parent Guarantor shall consult with Buyer and each of the Committed Purchaser and the Conduit Purchaser prior to the issuance of such news release or public announcement. The Originators and Parent Guarantor may, however, disclose the general terms of the transactions contemplated by this Agreement and the Related Documents to trade creditors, suppliers and other similarly-situated Persons so long as such disclosure is not in the form of a news release or public announcement.

        (c)  Except to the extent otherwise required by applicable law, or in connection with any judicial or administrative proceedings, as required to be filed publicly with the Securities Exchange Commission, or unless the Originators and Parent Guarantor otherwise consents in writing, the Buyer agrees (i) to maintain the confidentiality of (A) this Agreement (and all drafts hereof and documents ancillary hereto) and (B) all other confidential proprietary information with respect to Parent Guarantor and its Affiliates and each of their respective businesses obtained by the Buyer in connection with the structuring, negotiation and execution of the transactions contemplated herein and

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in the other documents ancillary hereto, in each case, in its communications with third parties other than any Affected Party, Originators or Parent Guarantor and (ii) not to disclose, deliver, or otherwise make available to any third party (other than its directors, officers, employees, accountants or counsel) the original or any copy of all or any part of this Agreement (or any draft hereof and documents ancillary hereto) except to an Affected Party, an Originator or Parent Guarantor.

        Section 8.13.    Further Assurances.

        (a)  Parent Guarantor shall, and shall cause each Originator to, and each Originator shall, at its sole cost and expense, upon request of Buyer, any Purchaser or the Administrative Agent, promptly and duly execute and deliver any and all further instruments and documents and take such further actions that may be necessary or desirable or that Buyer, any Purchaser or the Administrative Agent may request to carry out more effectively the provisions and purposes of this Agreement or any other Related Document or to obtain the full benefits of this Agreement and of the rights and powers herein granted, including (i) using its best efforts to secure all consents and approvals necessary or appropriate for the assignment to or for the benefit of Buyer of any Transferred Receivable or Originator Collateral held by such Originator or in which such Originator has any rights not heretofore assigned, (ii) filing any financing or continuation statements under the UCC, with respect to the ownership interests or Liens granted hereunder or under any other Related Document, (iii) transferring Originator Collateral to Buyer's possession if such collateral consists of chattel paper or instruments or if a Lien upon such collateral can be perfected only by possession, or if otherwise requested by Buyer; and (iv) entering into "control agreements" (as defined in the UCC with respect to any Originator Collateral to the extent that a first priority Lien upon such Originator Collateral can be perfected only by control. Each Originator hereby authorizes Buyer, each Purchaser and the Administrative Agent to file any such financing or continuation statements without the signature of such Originator to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Agreement or of any notice or financing statement covering the Transferred Receivables, the Originator Collateral or any part thereof shall be sufficient as a notice or financing statement where permitted by law. If any amount payable under or in connection with any of the Originator Collateral is or shall become evidenced by any instrument, such instrument, other than checks and notes received in the ordinary course of business, shall be duly endorsed in a manner satisfactory to Buyer immediately upon any Originator's receipt thereof and promptly delivered to Buyer.

        (b)  If any Originator or Parent Guarantor fails to perform any agreement or obligation under this Section 8.13, Buyer, any Purchaser or the Administrative Agent may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the reasonable expenses of Buyer, such Purchaser or the Administrative Agent incurred in connection therewith shall be payable by such Originator or Parent Guarantor upon demand of Buyer, such Purchaser or the Administrative Agent.

        Section 8.14.    Fees and Expenses.    In addition to its indemnification obligations pursuant to Article V, each Originator and Parent Guarantor agrees, jointly and severally, to pay on demand all costs and expenses incurred by Buyer in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Related Documents, including the fees and out-of-pocket expenses of Buyer's counsel, advisors, consultants and auditors retained in connection with the transactions contemplated thereby and advice in connection therewith, and each Originator and Parent Guarantor agrees, jointly and severally, to pay all costs and expenses, if any (including attorneys' fees and expenses but excluding any costs of enforcement or collection of the Transferred Receivables), in connection with the enforcement of this Agreement and the other Related Documents.

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        IN WITNESS WHEREOF, the parties have caused this Sale and Contribution Agreement to be executed by their respective duly authorized representatives, as of the date first above written.

BUYER:
	K2 FINANCE COMPANY, LLC
	By
		Name: John J. Rangel Title: Vice President
ORIGINATORS:
	K-2 CORPORATION
	By
		Name: John Rangel Title: Senior Vice President
	Address: 19215 Vashon Highway, SW Vashon, Washington 98070 Attention: John J. Rangel Telecopy: (323) 724-0470
	With a copy to: 4900 South Eastern Avenue, #200 Los Angeles, California 90040 Attention: John J. Rangel

SHAKESPEARE COMPANY, LLC By K2 INC., its Manager
By
	Name: John J. Rangel Title: Senior Vice President—Finance
Address: 4900 South Eastern Avenue, #200 Los Angeles, California 90040 Attention: John J. Rangel Telecopy: (323) 724-0470
STEARNS INC.
By
	Name: John J. Rangel Title: Senior Vice President
Address: 1100 Stearns Drive Sauk Rapids, Minnesota 56379 Attention: John J. Rangel Telecopy: (323) 724-0470
With a copy to: 4900 South Eastern Avenue, #200 Los Angeles, California 90040 Attention: John J. Rangel

EXHIBIT 2.01(a)

Form of

RECEIVABLES ASSIGNMENT

        THIS RECEIVABLES ASSIGNMENT (the "Receivables Assignment") is entered into as of March 28, 2002, by and between [                        ] (the "Originator") and K2 FINANCE COMPANY, LLC ("Buyer").

        1.    We refer to that certain Receivables Sale and Contribution Agreement (as amended, restated, supplemented or otherwise modified from time to time, the "Sale and Contribution Agreement") of even date herewith among Originator, the other persons signatory thereto as "Originator", K2 Inc., in its capacity as parent guarantor, and Buyer. All of the terms, covenants and conditions of the Sale and Contribution Agreement are hereby made a part of this Receivables Assignment and are deemed incorporated herein in full. Unless otherwise defined herein, capitalized terms or matters of construction defined or established in the Sale and Contribution Agreement shall be applied herein as defined or established therein.

        2.    For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Originator hereby sells, or sells or contributes, to Buyer, without recourse, except as provided in Sections 4.02(o) and 4.04 of the Sale and Contribution Agreement, all of the Originator's right, title and interest in, to and under all of its Receivables (including all Collections, Records and proceeds with respect thereto) existing as of the Closing Date and thereafter created or arising at any time until the Facility Termination Date.

        3.    Subject to the terms and conditions of the Sale and Contribution Agreement, the Originator hereby covenants and agrees to sign, sell or contribute, as applicable, execute and deliver, or cause to be signed, sold or contributed, executed and delivered, and to do or make, or cause to be done or made, upon request of Buyer and at the Originator's expense, any and all agreements, instruments, papers, deeds, acts or things, supplemental, confirmatory or otherwise, as may be reasonably required by Buyer for the purpose of or in connection with acquiring or more effectively vesting in Buyer or evidencing the vesting in Buyer of the property, rights, title and interests of the Originator sold or contributed hereunder or intended to be sold or contributed hereunder.

        4.    Wherever possible, each provision of this Receivables Assignment shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Receivables Assignment shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Receivables Assignment.

        5.    THIS RECEIVABLES ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW BUT OTHERWISE WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

        IN WITNESS WHEREOF, the parties have caused this Receivables Assignment to be executed by their respective officers thereunto duly authorized, as of the day and year first above written.

[ORIGINATOR]	K2 FINANCE COMPANY, LLC
By:	By:
Name: Title:	Name: Title:

ANNEX-1

ANNEX 4.03(l)

Financial Covenants

        Parent Guarantor shall not breach or fail to comply with any of the following financial covenants, each of which shall be calculated in accordance with GAAP consistently applied:

        (a)    Fixed Charge Coverage Ratio.    Parent Guarantor and its Subsidiaries shall not permit the ratio of Consolidated Income Available for Fixed Charges to Fixed Charges for the most recently ended period of four consecutive fiscal quarters of Parent Guarantor ending on the last day of each fiscal quarter set forth below to be less than the ratio set forth below opposite such day:

Fiscal Quarter(s) Ending	Minimum Fixed Charges Coverage Ratio
December 31, 2001	1.25 to 1
March 31, 2002	0.70 to 1
June 30, 2002	0.80 to 1
September 30, 2002	0.95 to 1
December 31, 2002	1.25 to 1
March 31, 2003	1.35 to 1
June 30, 2003	1.45 to 1
September 30, 2003	1.55 to 1
December 31, 2003 and thereafter	1.75 to 1.

        (b)    Leverage Ratio.    Parent Guarantor shall not permit the Leverage Ratio at any time during any period set forth below to be greater than the ratio set forth below opposite such period:

Period	Maximum Leverage Ratio
Prior to 6/29/02	7.80 to 1
6/30/02 - 9/29/02	7.30 to 1
9/30/02 - 12/30/02	6.75 to 1
12/30/02 - 3/30/02	5.50 to 1
3/31/03 - 6/29/03	5.00 to 1
6/30/03 - 9/29/03	4.75 to 1
9/30/03 and thereafter	4.25 to 1.

        (c)    Capital Expenditures.    Parent Guarantor will not, nor will it suffer or permit any of its Subsidiaries to, make, or become legally obligated to make, any Capital Expenditures, except Capital Expenditures in any fiscal year of Parent Guarantor not exceeding $20,000,000 in the aggregate.

        Capitalized terms used in this Annex 4.03(l) and not otherwise defined below shall have the respective meanings ascribed to them in Annex X.

        "Capital Expenditures" shall have the meaning set forth in the Parent Revolver.

        "Consolidated Income Available for Fixed Charges" shall have the meaning set forth in the Parent Revolver.

        "Fixed Charges" shall have the meaning set forth in the Parent Revolver.

        "Leverage Ratio" shall have the meaning set forth in the Parent Revolver.

ANNEX-2

ANNEX Z

Parent Revolver

[see attached]

ANNEX-3

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Form of RECEIVABLES ASSIGNMENT
Financial Covenants

EX-10.(G)

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Exhibit 10(g)

SECURITY AGREEMENT

        THIS SECURITY AGREEMENT (this "Agreement") dated as of March 28, 2002 is among K2 INC., a Delaware corporation (the "Company"), each subsidiary of the Company listed on the signature pages hereof, such other subsidiaries of the Company as from time to time become parties hereto (together with the Company, each individually a "Debtor" and collectively the "Debtors") and BANK OF AMERICA, N.A. ("Bank of America"), in its capacity as collateral agent (in such capacity, the "Collateral Agent") under the Intercreditor Agreement referred to below.

W I T N E S S E T H:

        WHEREAS, the Company, various financial institutions (the "Lenders") and Bank of America, as Administrative Agent (in such capacity, the "Administrative Agent"), have entered into a Credit Agreement dated as of December 21, 1999 (as amended, restated or otherwise modified from time to time, the "Credit Agreement");

        WHEREAS, the Company is a party to separate Note Agreements dated as of October 15, 1992 (as amended, restated or otherwise modified from time to time, the "1992 Note Agreements") with various purchasers (the "1992 Noteholders");

        WHEREAS, the Company is a party to a Note Purchase Agreement dated as of December 1, 1999 (as amended, restated or otherwise modified from time to time, the "1999 Note Agreement"; together with the 1992 Note Agreements, the "Note Agreements") with various purchasers (the "1999 Noteholders"; together with the 1992 Noteholders, collectively the "Noteholders");

        WHEREAS, each of the Debtors (other than the Company) has guarantied all obligations of the Company under the Credit Agreement, the Note Agreements and certain other financing arrangements;

        WHEREAS, pursuant to (i) the Continuing Guaranty dated August 19, 2000, (ii) the Amended and Restated Continuing Guaranty (Multicurrency) dated March 28, 2002 and (iii) the Continuing Guaranty (Multicurrency) dated July 31, 1998, the Company has guaranteed all of the obligations of K-2 Corporation, K2 Ski Sport + Mode GmbH and Shakespeare Company (UK) Limited, respectively, under various financing arrangements made available to such entities by Bank of America and various subsidiaries and affiliates thereof;

        WHEREAS, pursuant to the Continuing Guaranty (Foreign Currency) dated October 29, 1998, the Company has guaranteed all of the obligations of K2 Japan Co. Ltd. under a financing arrangement made available to such entity by Union Bank of California, N.A.;

        WHEREAS, pursuant to an Amended and Restated Intercreditor Agreement dated as of the date hereof (as amended, restated or otherwise modified from time to time, the "Intercreditor Agreement"), the Administrative Agent, on behalf of itself and the Lenders, the Noteholders, various other parties from time to time party thereto and the Collateral Agent have agreed that (i) the Benefited Obligations (as defined in the Intercreditor Agreement) shall be secured and guarantied pari passu and (ii) Bank of America shall act as collateral agent for the Benefited Parties (as defined in the Intercreditor Agreement); and

        WHEREAS, the Benefited Obligations of each Debtor are to be secured pursuant to this Agreement;

        NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

        1.    Definitions; Interpretation.     When used herein, (a) the terms Account, Account Debtor, Certificated Security, Commodity Account, Commodity Contract, Chattel Paper, Deposit Account, Document, Equipment, Fixture, Goods, Inventory, Investment Property, Instrument, Payment Intangible,

Security, Security Entitlement, Securities Account and Uncertificated Security shall have the respective meanings assigned to such terms in the UCC (as defined below), (b) the terms Benefited Obligations, Benefited Parties, Collateral Release Date, Event of Default and Financing Agreement shall have the respective meanings assigned to such terms in the Intercreditor Agreement, (c) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Financing Agreement and (d) the following terms have the following meanings (such definitions to be applicable to both the singular and plural forms of such terms):

Administrative Agent—see the Recitals.

Agreement—see the Preamble.

Assignee Deposit Account—see Section 4.

Bank of America—see the Preamble.

Business Day means any day on which Bank of America is open for commercial banking business in Los Angeles, New York and Charlotte.

Collateral means, with respect to any Debtor, all property and rights of such Debtor in which a security interest is granted hereunder.

Collateral Agent—see the Preamble.

Company—see the Preamble.

Computer Hardware and Software means, with respect to any Debtor, (i) all computer and other electronic data processing hardware, whether now or hereafter owned, licensed or leased by such Debtor, including, without limitation, all integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware; (ii) all software programs, whether now or hereafter owned, licensed or leased by such Debtor, designed for use on the computers and electronic data processing hardware described in clause (i) above, including, without limitation, all operating system software, utilities and application programs in whatsoever form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever); (iii) all firmware associated with the foregoing, whether now or hereafter owned, licensed or leased by such Debtor; and (iv) all documentation for the hardware, software and firmware described in the preceding clauses (i), (ii) and (iii) above, whether now or hereafter owned, licensed or leased by such Debtor, including, without limitation, flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes.

Costs and Expenses means, with respect to any Debtor, all reasonable out-of-pocket costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Collateral Agent in connection with (i) the execution, delivery and performance of this Agreement by such Debtor, (ii) protecting, preserving or maintaining any Collateral of such Debtor and (iii) enforcing any rights of the Collateral Agent hereunder in respect of the Collateral of such Debtor.

Credit Agreement—see the Recitals.

Debtor—see the Preamble.

Default means the occurrence of any of the following events: (a) any Unmatured Event of Default under Section 8.01(g) of the Credit Agreement, Section 6.1(i), (j) or (k) of the 1992 Note Agreements or Section 11(h) of the 1999 Note Agreement; (b) any Event of Default; or (c) any warranty of any

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Debtor herein is untrue or misleading in any material respect and, as a result thereof, the Collateral Agent's security interest for the benefit of the Benefited Parties in any material portion of the Collateral is not perfected or the Collateral Agent's rights and remedies with respect to any material portion of the Collateral is materially impaired or otherwise materially adversely affected.

Excluded Asset means all Originator Collateral (as defined in the Receivables Sale and Contribution Agreement); provided that no Inventory shall constitute an Excluded Asset unless it is related to a Transferred Account and is in transit to, has been returned by or has been reclaimed from an Account Debtor; no Equipment shall constitute an Excluded Asset unless it is identifiable proceeds of other Excluded Assets; and no customer list or Securitization Hardware or Software shall constitute an Excluded Asset.

General Intangibles means, with respect to any Debtor, all of such Debtor's "general intangibles" as defined in UCC and, in any event, includes (without limitation) all of such Debtor's trademarks, trade names, patents, copyrights, trade secrets, customer lists, inventions, designs, software programs, mask works, goodwill, registrations, licenses, franchises, tax refund claims, guarantee claims, security interests and rights to indemnification.

Intellectual Property means all past, present and future: trade secrets and other proprietary information; trademarks, service marks, business names, designs, logos, indicia, and/or other source and/or business identifiers and the goodwill of the business relating thereto and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights (including, without limitation, copyrights for computer programs) and copyright registrations or applications for registrations which have heretofore been or may hereafter be issued throughout the world and all tangible property embodying the copyrights; unpatented inventions (whether or not patentable); patent applications and patents; industrial designs, industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; mask works, books, records, writings, computer tapes or disks, flow diagrams, specification sheets, source codes, object codes and other physical manifestations, embodiments or incorporations of any of the foregoing; the right to sue for all past, present and future infringements of any of the foregoing; and all common law and other rights throughout the world in and to all of the foregoing.

Intercreditor Agreement—see the Recitals.

Lenders—see the Recitals.

Liabilities means, as to each Debtor, all Benefited Obligations of such Debtor.

1992 Note Agreements—see the Recitals.

1992 Noteholders—see the Recitals.

1999 Note Agreement—see the Recitals.

1999 Noteholders—see the Recitals.

Non-Tangible Collateral means, with respect to any Debtor, such Debtor's Accounts and General Intangibles which constitute Collateral hereunder.

Note Agreements—see the Recitals.

Noteholders—see the Recitals.

Permitted Accounts Receivable Financing Facility means a "Permitted Accounts Receivable Financing Facility" under and as defined in each of the Credit Agreement, the 1992 Note Agreements and the 1999 Note Agreement.

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Permitted Deposit Account means each Deposit Account established pursuant to (and intended to be used exclusively in connection with) any Permitted Accounts Receivable Financing Facility.

Permitted Liens means (a) liens and claims expressly permitted by each Financing Agreement and (b) liens arising in connection with non-exclusive licenses of Securitization Hardware and Software.

Receivables Sale and Contribution Agreement means the Receivables Sale and Contribution Agreement dated as of March 28, 2002 among the Company, as parent guarantor, Stearns Inc., Shakespeare Company, LLC and K-2 Corporation, as originators, and K2 Finance Company, LLC, as buyer, as such Agreement is in effect on the date hereof.

Securitization Hardware and Software means the Computer Hardware and Software used to service and/or monitor the accounts and payments intangibles of the Company and its Subsidiaries; the Computer Hardware and Software and other computer materials otherwise relating to the Excluded Assets; and the printouts and other computer materials, technical knowledge or processes, data bases, customer lists, credit files, correspondence, and advertising materials or any property of a similar nature relating to the Excluded Assets.

Transferred Account means any Account or Payment Intangible of a Debtor which has been sold or in which a security interest has been granted pursuant to a Permitted Accounts Receivable Financing Facility.

UCC means the Uniform Commercial Code as in effect from time to time in the State of California.

Unmatured Event of Default means any event which if it continues uncured will, with lapse of time or notice or both, constitute an Event of Default.

        2.    Grant of Security Interest.    As security for the payment of all of its Liabilities, each Debtor hereby assigns to the Collateral Agent for the benefit of the Benefited Parties, and grants to the Collateral Agent for the benefit of the Benefited Parties a continuing security interest in, all of such Debtor's right, title and interest in the following:

(i)

Accounts;



(ii)

Chattel Paper;



(iii)

Computer Hardware and Software and all rights with respect thereto, including, without limitation, any and all licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications, and any substitutions, replacements, additions or model conversions of any of the foregoing;



(iv)

Deposit Accounts;



(v)

Documents;



(vi)

General Intangibles (including Payment Intangibles);



(vii)

Goods (including, without limitation, all of its Equipment, Fixtures and Inventory), together with all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor;



(viii)

Instruments (together with all guaranties thereof and security therefor);



(ix)

Intellectual Property;



(x)

money (of every jurisdiction whatsoever);

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(xi)

Investment Property (including Commodity Accounts, Commodity Contracts, Securities (whether Certificated Securities or Uncertificated Securities), Security Entitlements and Security Accounts); and



(xii)

to the extent not included in the foregoing, other personal property of any kind or description;

in each case whether now or hereafter existing or acquired, together with all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to any of the foregoing, all proceeds, products, offspring, rents, issues, profits and returns of and from any of the foregoing, all distributions on or rights arising out of any of the foregoing, and all claims and/or insurance payments arising out of the loss, nonconformity or interference with the use of, or infringements of rights in, or damage to, any of the foregoing; provided that the Collateral shall not include (A) any Excluded Asset or (B) any other asset (including, without limitation, any General Intangible) to the extent, and only to the extent, that such asset is subject to a contract or other agreement which contains a legally enforceable provision which would be breached by the grant of the security interest to the Collateral Agent pursuant to the terms of this Agreement (except that if and when any such prohibition is removed, the Collateral Agent will be deemed to have been granted a security interest in the applicable contract or asset as of the date hereof, and the Collateral will be deemed to include such contract or asset).

        3.    Warranties.    Each Debtor warrants that: (i) no financing statement (other than any which may have been filed on behalf of the Collateral Agent for the benefit of the Benefited Parties) covering any of the Collateral is on file in any public office, other than financing statements related to Permitted Liens; (ii) such Debtor is and will be the lawful owner of all Collateral, free of all liens and claims whatsoever, other than the security interest hereunder and Permitted Liens, with full power and authority to execute and deliver this Agreement, to perform such Debtor's obligations hereunder and to subject the Collateral to the security interest hereunder; (iii) all information with respect to Collateral and Account Debtors set forth in any schedule, certificate or other writing at any time heretofore or hereafter furnished by such Debtor to the Collateral Agent or any other Benefited Party will be true and correct in all material respects as of the date furnished; (iv) such Debtor's true legal name as registered in the jurisdiction in which such Debtor is organized or incorporated, state of organization or incorporation, federal employer identification number, organizational identification number as designated by the state of its organization or incorporation, chief executive office and principal place of business are as set forth on Schedule I (and such Debtor has not maintained its chief executive office and principal place of business at any other location at any time after June 30, 2001); (v) each other location where such Debtor maintains a place of business or has any Goods is set forth on Schedule II hereto; (vi) except as disclosed on Schedule III, such Debtor is not now known and during the five years preceding the date hereof has not previously been known by any trade name; (vii) except as disclosed on Schedule III, during the five years preceding the date hereof, such Debtor has not been known by any legal name different from the one set forth on the signature page of this Agreement, nor has such Debtor been the subject of any merger or other corporate reorganization; (viii) Schedule IV hereto contains a complete listing of all of such Debtor's Intellectual Property which is subject to registration statutes and (ix) upon the filing of financing statements on Form UCC-1 in the appropriate governmental offices, the Collateral Agent will have a valid lien upon and perfected security interest in all of the Collateral in which a security interest can be perfected by filing under the UCC (subject only to Permitted Liens).

        4.    Collections, etc.    The Collateral Agent may, at any time that a Default exists, whether before or after the maturity of any of the Liabilities, notify any parties obligated on any of the Non-Tangible Collateral to make payment to the Collateral Agent of any amounts due or to become due thereunder and enforce collection of any of the Non-Tangible Collateral by suit or otherwise and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder or evidenced thereby. Promptly following

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any request of the Collateral Agent during the existence of a Default, each Debtor will, at its own expense, notify any parties obligated on any of the Non-Tangible Collateral to make payment to the Collateral Agent of any amounts due or to become due thereunder.

        Upon request by the Collateral Agent during the existence of a Default, each Debtor will forthwith, upon receipt, transmit and deliver to the Collateral Agent, in the form received, all cash, checks, drafts and other instruments or writings for the payment of money (properly endorsed, where required, so that such items may be collected by the Collateral Agent) which may be received by such Debtor at any time in full or partial payment or otherwise as proceeds of any of the Collateral. Except as the Collateral Agent may otherwise consent in writing, any such items which may be so received by any Debtor will not be commingled with any other of its funds or property, but will be held separate and apart from its own funds or property and upon express trust for the Collateral Agent for the benefit of the Benefited Parties until delivery is made to the Collateral Agent. Each Debtor will comply with the terms and conditions of any consent given by the Collateral Agent pursuant to the foregoing sentence.

        Upon request by the Collateral Agent during the existence of a Default, all items or amounts which are delivered by any Debtor to the Collateral Agent on account of partial or full payment or otherwise as proceeds of any of the Collateral shall be deposited to the credit of a deposit account (each an "Assignee Deposit Account") of such Debtor maintained with the Collateral Agent, as security for payment of the Liabilities. No Debtor shall have any right to withdraw any funds deposited in the applicable Assignee Deposit Account. The Collateral Agent may, from time to time, in its discretion, and shall upon request of the applicable Debtor made not more than once in any week, apply all or any of the then balance, representing collected funds, in the Assignee Deposit Account, toward payment of the Liabilities, whether or not then due, in accordance with the terms of the Intercreditor Agreement, and the Collateral Agent may, from time to time, in its discretion, release all or any of such balance to the applicable Debtor.

        During the existence of a Default, the Collateral Agent is authorized to endorse, in the name of the applicable Debtor, any item, howsoever received by the Collateral Agent, representing any payment on or other proceeds of any of the Collateral.

        From and after May 15, 2002, no Debtor shall maintain any Deposit Account or deposit any items or amounts in any Deposit Account, except (i) Deposit Accounts maintained with the Collateral Agent, (ii) Permitted Deposit Accounts and (iii) Deposit Accounts as to which such Debtor, the Collateral Agent and the depository bank have entered into an agreement that the depositary bank will comply with instructions originated by the Collateral Agent directing disposition of the funds in the account without further consent by such Debtor.

        Each Debtor hereby appoints the Collateral Agent as the attorney-in-fact for such Debtor for the purpose of carrying out the provisions of this Agreement and taking any action and executing or completing any instruments which the Collateral Agent may deem reasonably necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest; provided that the Collateral Agent shall not exercise its rights as such attorney-in-fact unless a Default exists.

        5.    Certificates, Schedules and Reports.    Each Debtor will, from time to time, deliver to the Collateral Agent and any Benefited Party such schedules, certificates and reports respecting all or any of the Collateral at the time subject to the security interest hereunder, and the items or amounts received by such Debtor in full or partial payment of any of the Collateral, as the Collateral Agent or such Benefited Party may reasonably request.

        6.    Agreements of the Debtors.    Each Debtor (a) will, from time to time, deliver to the Collateral Agent such financing statements and other documents (and pay the cost of filing or recording the same

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in all public offices reasonably deemed appropriate by the Collateral Agent) and do such other acts and things (including, without limitation, delivery to the Collateral Agent of any Instruments or Certificated Securities which constitute Collateral), as are necessary or as the Collateral Agent may reasonably request, to establish and maintain a valid security interest in the Collateral (free of all other liens, claims and rights of third parties whatsoever, other than Permitted Liens) to secure the payment of the Liabilities (and each Debtor hereby authorizes the Collateral Agent to file any financing statement without its signature, to the extent permitted by applicable law, and/or to file a copy of this Agreement as a financing statement in any jurisdiction); (b) will keep all its Inventory (other than in-transit Inventory) at, and will not maintain any place of business at any location other than, its address(es) shown on Schedules I and II hereto or at such other addresses of which such Debtor shall have given the Collateral Agent not less than 10 days' prior written notice; (c) will not change its state of organization or incorporation or its name, identity or corporate structure such that any financing statement filed to perfect the Collateral Agent's interests under this Agreement would become seriously misleading, unless such Debtor shall have given the Collateral Agent not less than 30 days' prior notice of such change; (d) will keep its records concerning the Non-Tangible Collateral in such a manner as will enable the Collateral Agent or its designees to determine at any time the status of the Non-Tangible Collateral; (e) will furnish the Collateral Agent such information concerning such Debtor, the Collateral and the Account Debtors of such Debtor as the Collateral Agent may from time to time reasonably request; (f) will, upon request of the Collateral Agent, stamp on its records concerning the Collateral and add on all Chattel Paper constituting a portion of the Collateral, a notation, in form satisfactory to the Collateral Agent, of the security interest of the Collateral Agent hereunder; (g) without limiting the provisions of Section 6.04 of the Credit Agreement, will at all times keep all its Inventory and other Goods insured under policies maintained with reputable, financially sound insurance companies against loss, damage, theft and other risks to such extent as is customarily maintained by companies similarly situated, and cause all such policies to provide that loss thereunder shall be payable to the Collateral Agent as its interest may appear (it being understood that (A) so long as no Default shall be existing, the Collateral Agent shall deliver any proceeds of such insurance which may be received by it to such Debtor and (B) whenever a Default shall be existing, the Collateral Agent may apply any proceeds of such insurance which may be received by it toward payment of the Liabilities, whether or not due, in accordance with the terms of the Intercreditor Agreement) and such policies or certificates thereof shall, if the Collateral Agent so requests, be deposited with or furnished to the Collateral Agent; (h) will take such actions as are reasonably necessary to keep its Inventory in good repair and condition, ordinary wear and tear excepted; (i) will take such actions as are reasonably necessary to keep its Equipment in good repair and condition and in good working or running order, ordinary wear and tear excepted; (j) will promptly pay when due all license fees, registration fees, taxes, assessments and other charges which may be levied upon or assessed against the ownership, operation, possession, maintenance or use of its Equipment and other Goods (as applicable); provided that such Debtor shall not be required to pay any such fee, tax, assessment or other charge if the validity thereof is being contested by such Debtor in good faith by appropriate proceedings; (k) will, promptly upon request of the Collateral Agent, (I) cause the security interest of the Collateral Agent to be noted on each certificate of title covering Equipment specified by the Collateral Agent and (II) deliver all such certificates to the Collateral Agent or its designee; (l) will take all steps reasonably necessary to protect, preserve and maintain all of its rights in the Collateral; (m) will keep all of such Debtor's Deposit Accounts and Investment Property in the continental United States; (n) will permit the Collateral Agent and its designees, from time to time, on reasonable notice and at reasonable times and intervals during normal business hours (or at any time without notice during the existence of a Default) to inspect such Debtor's Inventory and other Goods, and to inspect, audit and make copies of and extracts from all records and other papers in the possession of such Debtor pertaining to the Collateral and the Account Debtors, and will, upon reasonable request of the Collateral Agent during the existence of a Default, deliver to the Collateral Agent all of such records and papers; (o) will not create or permit to exist any lien on or security interest in any Collateral other than Permitted Liens

7

and liens and security interests in favor of the Collateral Agent; and (p) will, promptly upon any officer of such Debtor obtaining knowledge that such Debtor has acquired a commercial tort claim (as defined in Section 9-102 of the UCC), notify the Collateral Agent in a writing signed by such Debtor of the details of such commercial tort claim and grant to the Collateral Agent in such writing a security interest therein and in the proceeds thereof, with such writing to be in form and substance reasonably satisfactory to the Collateral Agent.

        Whenever a Default shall be existing, the Collateral Agent shall have the right to bring suit to enforce any or all of the Intellectual Property or licenses thereunder, in which event the applicable Debtor shall at the request of the Collateral Agent do any and all lawful acts and execute any and all proper documents required by the Collateral Agent in aid of such enforcement and such Debtor shall promptly, upon demand, reimburse and indemnify the Collateral Agent for all Costs and Expenses. Notwithstanding the foregoing, neither the Collateral Agent nor any other Benefited Party shall have any obligation or liability regarding the Collateral or any thereof by reason of, or arising out of, this Agreement.

        7.    Default.    (a) Whenever a Default shall be existing, the Collateral Agent may exercise from time to time any rights and remedies available to it under the UCC and any other applicable law (in addition to those described below).

        (b)  Each Debtor agrees, in case of Default, (i) to assemble, at its expense, all its Inventory and other Goods (other than Fixtures) at a convenient place or places acceptable to the Collateral Agent, and (ii) at the Collateral Agent's request, to execute all such documents and do all such other things which may be necessary or desirable in order to enable the Collateral Agent or its nominee to be registered as owner of the Intellectual Property with any competent registration authority.

        (c)  Notice of the intended disposition of any Collateral may be given by first-class mail, hand-delivery (through a delivery service or otherwise), facsimile or E-mail, and shall be deemed to have been "sent" upon deposit in the United States mail with adequate postage properly affixed, upon delivery to an express delivery service or upon the electronic submission through telephonic or Internet services, as applicable. Each Debtor hereby agrees and acknowledges that (i) with respect to Collateral that is: (A) perishable or threatens to decline speedily in value or (B) is of a type customarily sold on a recognized market, no notice of disposition need be given; and (ii) with respect to Collateral not described in clause (i) above, notification sent after default and ten days before any proposed disposition provides notice with a reasonable time before disposition.

        (d)  Each Debtor hereby agrees and acknowledges that a commercially reasonable disposition of Inventory, Equipment, Computer Hardware and Software or Intellectual Property may be by lease or license of, in addition to the sale of, such Collateral. Each Debtor further agrees and acknowledges that a disposition (i) made in the usual manner on any recognized market, (ii) at the price current in any recognized market at the time of disposition or (iii) in conformity with reasonable commercial practices among dealers in the type of property subject to the disposition shall, in each case, be deemed commercially reasonable.

        (e)  Any cash proceeds of any disposition by the Collateral Agent of any of the Collateral shall be applied by the Collateral Agent to payment of Costs and Expenses and thereafter to the payment of any and all of the other Liabilities in accordance with the terms of the Intercreditor Agreement, and thereafter any surplus will be paid to the applicable Debtor or as a court of competent jurisdiction shall direct. The Collateral Agent need not apply or pay over for application noncash proceeds of collection and enforcement unless (i) the failure to do so would be commercially unreasonable and (ii) the applicable Debtor has provided the Collateral Agent with a written demand to apply or pay over such noncash proceeds on such basis.

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        8.    Grant of License; etc.

        (a)  The Collateral Agent, on behalf of the Benefited Parties, hereby grants a license, to the extent that the Collateral Agent has the power and right to grant such license without the consent of any third party other than the Company or any Affiliate thereof, to each Person (other than the Company or any of its Subsidiaries) which is a party to a Permitted Accounts Receivables Financing Facility (the "Receivables Purchasers") to use the trademarks, registered trademarks, trademark applications, service marks, registered service marks, service mark applications, patents, patent applications, trade names, fictitious names, inventions, designs, trade secrets, goodwill, registrations, copyrights, copyright applications, permits, licenses and franchises, in each case to the extent any of the foregoing pertains to the Excluded Assets (collectively the "Receivables Intellectual Property"), in the advertising for sale and selling of any of the Excluded Assets, or exercising of any other remedies pursuant to the applicable Permitted Accounts Receivable Financing Facility; provided that no such licensee shall exercise such license except upon both (i) the occurrence and continuation of a default under the applicable Permitted Accounts Receivables Financing Facility and (ii) after giving prior written notice thereof to the Company and the Collateral Agent.

        (b)  The Collateral Agent, on behalf of the Benefited Parties, hereby acknowledges and agrees that the license granted hereby shall survive and continue in the Receivables Intellectual Property notwithstanding the exercise by the Collateral Agent of its default remedies in respect of the Collateral upon the occurrence and during the continuance of an Event of Default.

        (c)  The Debtors and the Collateral Agent, on behalf of the Benefited Parties, hereby agree that, without the prior written consent of the Receivables Purchasers (or, if at any time there is more than one Receivables Purchaser, the requisite number of Receivables Purchasers required to amend the applicable Permitted Accounts Receivable Financing Facility), they will not amend the definition of "Excluded Assets" or otherwise amend, supplement or modify this Agreement or any other Collateral Document in a manner that materially impacts the ability of (i) the Debtors to service and/or monitor the Transferred Accounts or (ii) the Receivables Purchasers to exercise default remedies in respect of any other item included in the Excluded Assets.

        (d)  The Receivables Purchasers shall be third-party beneficiaries of this Section 8.

This Section 8 may not be amended without the written consent of the "Administrative Agent" as defined in the Receivables Sale and Contribution Agreement.

        9.    General.    The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral in its possession if it takes such action for that purpose as any applicable Debtor requests in writing, but failure of the Collateral Agent to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and no failure of the Collateral Agent to preserve or protect any rights with respect to the Collateral against prior parties, or to do any act with respect to the preservation of the Collateral not so requested by any Debtor, shall be deemed a failure to exercise reasonable care in the custody or preservation of the Collateral.

        Any notice hereunder shall be in writing (including facsimile transmission) and shall be sent to the applicable party at the address of its chief executive office shown on Schedule I (or, in the case of the Collateral Agent, underneath its signature hereto) or at such other address as such party may have designated as its address for such purpose by (i) written notice received by the Collateral Agent or (ii) in the case of a change of the Collateral Agent's address, written notice received by the Company (which shall be conclusively presumed to have been received by all other parties).

        No delay on the part of the Collateral Agent in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Collateral Agent of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy.

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        Unless released in writing by the Agent, this Agreement shall remain in full force and effect until all Liabilities have been paid in full and all commitments to create Liabilities have terminated. If at any time all or any part of any payment theretofore applied by the Collateral Agent or any other Benefited Party to any of the Liabilities is or must be rescinded or returned by the Collateral Agent or any other Benefited Party for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of any Debtor), such Liabilities shall, for the purposes of this Agreement, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by the Collateral Agent or such Benefited Party, and this Agreement shall continue to be effective or be reinstated, as the case may be, as to such Liabilities, all as though such application by the Collateral Agent or such Benefited Party had not been made.

        This Agreement shall be construed in accordance with and governed by the laws of the State of California applicable to contracts made and to be performed entirely within such State (except to the extent that, pursuant to California law, the perfection, the effect of perfection or nonperfection or the priority of any security interest granted hereunder may be determined in accordance with the laws of a different jurisdiction). Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

        This Agreement shall remain in full force and effect until the earlier to occur of (a) the payment in full in cash of all Liabilities and the termination of all commitments to create Liabilities and (b) the Collateral Release Date. Upon any such termination, the Collateral Agent will, upon any Debtor's request and at such Debtor's sole expense, (i) deliver to such Debtor, without any representation, warranty or recourse of any kind whatsoever, all of such Debtor's Collateral held by the Collateral Agent hereunder as shall not have been sold or otherwise applied pursuant to the terms hereof, and (ii) execute and deliver to such Debtor such documents as such Debtor shall reasonably request to evidence such termination and the release of any security interest granted hereby. If the Collateral Agent reasonably determines that it is permitted to release any Collateral in accordance with Section 3(f) or 9(g) of the Intercreditor Agreement, then the Collateral Agent will, upon any Debtor's request and at such Debtor's sole expense, execute and deliver such releases as may be necessary to terminate of record the Collateral Agent's security interest (for the benefit of the Benefited Parties) in such Collateral.

        The rights and privileges of the Collateral Agent hereunder shall inure to the benefit of its successors and assigns.

        This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. At any time after the date of this Agreement, one or more additional Persons may become parties hereto by executing and delivering a counterpart to the Collateral Agent of this Agreement (including supplements to the Schedules hereto). Immediately upon such execution and delivery (and without any further action), each such additional Person will become a party to, and will be bound by all the terms of, this Agreement.

ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER FINANCING AGREEMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF CALIFORNIA OR IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER

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PROPERTY MAY BE FOUND OR IN ANY JURISDICTION IN WHICH A BANKRUPTCY, INSOLVENCY OR OTHER SIMILAR LEGAL OR EQUITABLE PROCEEDING IS PENDING AGAINST ANY ONE OR MORE OF THE DEBTORS. EACH DEBTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH DEBTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, TO THE ADDRESS SET FORTH ON SCHEDULE I HERETO (OR SUCH OTHER ADDRESS AS IT SHALL HAVE SPECIFIED IN WRITING TO THE COLLATERAL AGENT AS ITS ADDRESS FOR NOTICES HEREUNDER) OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIA. EACH DEBTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY DEBTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH DEBTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND EACH OTHER FINANCING AGREEMENT.

EACH DEBTOR, THE COLLATERAL AGENT AND (BY ACCEPTING THE BENEFITS HEREOF) EACH OTHER BENEFITED PARTY HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER FINANCING AGREEMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

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        IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written.

K2 INC.
By:
	Title:
SHAKESPEARE COMPANY, LLC SHAKESPEARE CONDUCTIVE FIBERS, LLC SITCA CORPORATION K2 CORPORATION KATIN, INC. PLANET EARTH SKATEBOARDS, INC. K-2 INTERNATIONAL, INC. MORROW SNOWBOARDS INC. SMCA, INC. STEARNS INC. K2 BIKE INC. RIDE, INC.
By:
	Title:
BANK OF AMERICA, N.A., as Collateral Agent
By:
	Title:
Agency Management CA9-706-11-03 555 S. Flower Street, 11th Floor Los Angeles, CA 90071 Attention: Gina Meador

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ADDITIONAL SIGNATURE PAGE to the Security Agreement dated as of March 28, 2002 (the "Security Agreement") among K2 Inc. (the "Company"), Bank of America, N.A., as Collateral Agent, and various Subsidiaries of the Company.
The undersigned is executing a counterpart of this Security Agreement for purposes of becoming a party hereto (and attached hereto are supplemental schedules setting forth information with respect to the undersigned required to make the representations and warranties with respect to the undersigned set forth in this Security Agreement accurate as of the date hereof):
[	]
By:
Name:
Title:

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SCHEDULE I
TO SECURITY AGREEMENT

Corporate Information

[TO BE COMPLETED FOR ALL DEBTORS]

Debtor's federal employment identification number:

Debtor's state organizational identification number:                                       

Debtor's state of organization:

Debtor's true and correct name as registered in its state of organization:

Debtor's chief executive office:

[Address]
Attention:
Facsimile:
E-mail:

Debtor's principal place of business:

        [Address]

SCHEDULE II
TO SECURITY AGREEMENT

Addresses Of All Locations At Which Goods Are Located
(Specify whether such location is owned or leased by the applicable Debtor)

SCHEDULE III
TO SECURITY AGREEMENT

Tradenames, etc.

SCHEDULE IV
TO SECURITY AGREEMENT

Intellectual Property; Trademarks; Patents; Copyrights; etc.

QuickLinks

SCHEDULE I TO SECURITY AGREEMENT
SCHEDULE II TO SECURITY AGREEMENT
SCHEDULE III TO SECURITY AGREEMENT
SCHEDULE IV TO SECURITY AGREEMENT

EX-10.(H)

Exhibit 10(h)

PLEDGE AGREEMENT

        THIS PLEDGE AGREEMENT (this "Agreement") dated as of March 28, 2002 is among K2 INC., a Delaware corporation (the "Company"), each subsidiary of the Company listed on the signature pages hereof, such other subsidiaries of the Company as from time to time become parties hereto (collectively, including the Company, the "Pledgors" and each individually a "Pledgor") and BANK OF AMERICA, N.A. ("Bank of America"), in its capacity as collateral agent (in such capacity, the "Collateral Agent") under the Intercreditor Agreement referred to below.

W I T N E S S E T H:

        WHEREAS, the Company, various financial institutions (the "Lenders") and Bank of America, as Administrative Agent (in such capacity, the "Administrative Agent"), have entered into a Credit Agreement dated as of December 21, 1999 (as amended, restated or otherwise modified from time to time, the "Credit Agreement");

        WHEREAS, the Company is a party to separate Note Agreements dated as of October 15, 1992 (as amended, restated or otherwise modified from time to time, the "1992 Note Agreements") with various purchasers (the "1992 Noteholders");

        WHEREAS, the Company is a party to a Note Purchase Agreement dated as of December 1, 1999 (as amended, restated or otherwise modified from time to time, the "1999 Note Agreement"; together with the 1992 Note Agreements, the "Note Agreements") with various purchasers (the "1999 Noteholders"; together with the 1992 Noteholders, collectively the "Noteholders");

        WHEREAS, each of the Pledgors (other than the Company) has guarantied all obligations of the Company under the Credit Agreement, the Note Agreements and certain other financing arrangements referenced below;

        WHEREAS, pursuant to (i) the Continuing Guaranty dated August 19, 2000, (ii) the Amended and Restated Continuing Guaranty (Multicurrency) dated March 28, 2002 and (iii) the Continuing Guaranty (Multicurrency) dated July 31, 1998, the Company has guaranteed all of the obligations of K-2 Corporation, K2 Ski Sport + Mode GmbH and Shakespeare Company (UK) Limited, respectively, under various financing arrangements made available to such entities by Bank of America and various subsidiaries and affiliates thereof;

        WHEREAS, pursuant to the Continuing Guaranty (Foreign Currency) dated October 29, 1998, the Company has guaranteed all of the obligations of K2 Japan Co. Ltd. under a financing arrangement made available to such entity by Union Bank of California, N.A.;

        WHEREAS, pursuant to an Amended and Restated Intercreditor Agreement dated as of the date hereof (as amended, restated or otherwise modified from time to time, the "Intercreditor Agreement"), the Administrative Agent, on behalf of itself and the Lenders, the Noteholders, various other parties from time to time thereto and the Collateral Agent have agreed that (i) the Benefited Obligations (as defined in the Intercreditor Agreement) shall be secured and guarantied pari passu and (ii) Bank of America shall act as collateral agent for the Benefited Parties (as defined in the Intercreditor Agreement); and

        WHEREAS, the Benefited Obligations of each Pledgor are to be secured pursuant to this Agreement;

        NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

        1.    Definitions.    When used herein, (a) the terms Benefited Obligations, Benefited Parties, Collateral Release Date, Event of Default, Financing Agreement and Person shall have the respective meanings assigned thereto in the Intercreditor Agreement; (b) references to agreements (including this

Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Financing Agreement; and (c) the following terms have the following meanings (such meanings to be applicable to both the singular and plural forms of such terms):

Administrative Agent—see the Recitals.

Agreement—see the Preamble.

Bank of America—see the Preamble.

Collateral—see Section 2.

Collateral Agent—see the Preamble.

Company—see the Preamble.

Credit Agreement—see the Recitals.

Default means the occurrence of any of the following events: (a) any Unmatured Event of Default under Section 8.01(g) of the Credit Agreement, Section 6.1(i), (j) or (k) of the 1992 Note Agreements or Section 11(h) of the 1999 Note Agreement; (b) any Event of Default; or (c) any warranty of any Pledgor herein is untrue or misleading in any material respect and, as a result thereof, the Collateral Agent's security interest for the benefit of the Benefited Parties in any material portion of the Collateral is not perfected or the Collateral Agent's rights and remedies with respect to any material portion of the Collateral are materially impaired or otherwise materially adversely affected.

Foreign Issuer means each Issuer which is a Foreign Subsidiary (as such term is defined in the Credit Agreement and each of the Note Agreements).

Intercreditor Agreement—see the Recitals.

Issuer means the issuer of any of the shares of stock or other securities representing all or any portion of the Collateral.

Lenders—see the Recitals.

Liabilities means, as to each Pledgor, all Benefited Obligations of such Pledgor.

1992 Note Agreements—see the Recitals.

1992 Noteholders—see the Recitals.

1999 Note Agreement—see the Recitals.

1999 Noteholders—see the Recitals.

Note Agreement—see the Recitals.

Noteholder—see the Recitals.

Permitted Liens means (i) the security interest created hereunder and (ii) inchoate tax and ERISA liens.

Pledgor—see the Preamble.

Unmatured Event of Default means any event which if it continues uncured will, with lapse of time or notice or both, constitute an Event of Default.

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        2.    Pledge.    As security for the payment of all Liabilities, each Pledgor hereby pledges to the Collateral Agent for the benefit of the Benefited Parties, and grants to the Collateral Agent for the benefit of the Benefited Parties a continuing security interest in, all of the following:

        A.    All of the shares of stock or other securities set forth under such Pledgor's name on Schedule I hereto, all of the certificates and/or instruments representing such shares of stock and other securities, and all cash, securities, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares or other securities;

        B.    All additional shares of stock of any of the Issuers listed in Schedule I hereto (as such schedule may be supplemented from time to time) at any time and from time to time acquired by such Pledgor in any manner, all of the certificates representing such additional shares, and all cash, securities, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; provided that in the case of Foreign Issuers, the Collateral Agent's security interest hereunder shall not at any time extend to more than 65% of the outstanding shares of any class of stock of any such Foreign Issuer;

        C.    All other property hereafter delivered to the Collateral Agent in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such property, and all cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and

        D.    All products and proceeds of all of the foregoing.

All of the foregoing are herein collectively called the "Collateral".

        Each Pledgor agrees to deliver to the Collateral Agent, promptly upon receipt and in due form for transfer (i.e., endorsed in blank or accompanied by stock or bond powers executed in blank), any Collateral (other than dividends which such Pledgor is entitled to receive and retain pursuant to Section 5 hereof) which may at any time or from time to time be in or come into the possession or control of such Pledgor; and prior to the delivery thereof to the Collateral Agent, such Collateral shall be held by such Pledgor separate and apart from its other property and in express trust for the Collateral Agent and for the benefit of the Benefited Parties.

        3.    Warranties; Further Assurances.    Each Pledgor warrants to the Collateral Agent for the benefit of each Benefited Party that: (a) such Pledgor is (or at the time of any future delivery, pledge, assignment or transfer thereof will be) the legal and equitable owner of such Pledgor's Collateral free and clear of all liens, security interests and encumbrances of every description whatsoever other than Permitted Liens; (b) the pledge and delivery of such Pledgor's Collateral to the Collateral Agent pursuant to this Agreement will create a valid first priority perfected security interest in such Collateral in favor of the Collateral Agent for the benefit of the Benefited Parties (except to the extent that, with respect to any Foreign Issuer, additional steps are required under the laws of the jurisdiction of such Foreign Issuer's organization to create or perfect a security interest or the equivalent thereof); (c) all shares of stock or other securities pledged by such Pledgor referred to in Schedule I hereto are duly authorized, validly issued, fully paid and non-assessable; (d) as to each Issuer whose name appears in Schedule I hereto, such Pledgor's Collateral represents on the date hereof not less than the applicable percentage (as shown in Schedule I hereto) of the total shares of capital stock issued and outstanding of such Issuer; and (e) the information contained in Schedule I hereto with respect to such Pledgor is true and accurate in all respects.

        So long as any of the Liabilities shall be outstanding or any commitment shall exist on the part of any Benefited Party with respect to the creation of any Liabilities, each Pledgor (i) shall deliver such

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financing statements and other documents (and pay the costs of filing and recording the same in all public offices reasonably deemed necessary or appropriate by the Collateral Agent) and do such other acts and things, all as the Collateral Agent may from time to time reasonably request, to establish and maintain a valid, perfected security interest in the Collateral (free of all other liens, claims and rights of third parties whatsoever, other than Permitted Liens) to secure the performance and payment of the Liabilities; (ii) will execute and deliver to the Collateral Agent such stock powers and similar documents relating to such Pledgor's Collateral, satisfactory in form and substance to the Collateral Agent, as the Collateral Agent may reasonably request; and (iii) will furnish each Benefited Party such information concerning such Pledgor's Collateral as such Benefited Party may from time to time reasonably request, and will permit any Benefited Party or any designee of a Benefited Party, from time to time at reasonable times and on reasonable notice, to inspect, audit and make copies of and extracts from all records and other papers in the possession of such Pledgor which pertain to the Collateral, and will, upon the reasonable request of the Collateral Agent, deliver to the Collateral Agent all of such records and papers.

        4.    Holding in Name of Collateral Agent, etc.    The Collateral Agent may from time to time during the existence of a Default, without notice to any Pledgor, take all or any of the following actions: (a) transfer all or any part of such Pledgor's Collateral into the name of the Collateral Agent or any nominee or sub-agent for the Collateral Agent, with or without disclosing that such Collateral is subject to the lien and security interest hereunder; (b) notify the parties obligated on any of the Collateral to make payment to the Collateral Agent of any amounts due or to become due thereunder; (c) endorse any checks, drafts or other writings in the name of the applicable Pledgor to allow collection of the Collateral; (d) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or renew for any period (whether or not longer than the original period) any obligation of any nature of any party with respect thereto; and (e) take control of any proceeds of the Collateral. The Collateral Agent may at any time and from time to time appoint one or more sub-agents or nominees for the purpose of retaining physical possession of the Collateral.

        5.    Voting Rights, Dividends, etc.    (a) So long as the Collateral Agent has not given the notice referred to in paragraph (b) below:

        A.    The Pledgors shall be entitled to exercise any and all voting or consensual rights and powers and stock purchase or subscription rights relating or pertaining to the Collateral or any part thereof for any purpose; provided that each Pledgor agrees that it will not exercise any such right or power in any manner which would have a material adverse effect on the Collateral Agent's rights with respect to any material portion of the Collateral.

        B.    The Pledgors shall be entitled to receive and retain any and all lawful dividends payable in respect of the Collateral which are paid in cash by any Issuer if such dividends are permitted by each of the Financing Agreements, but all dividends and distributions in respect of the Collateral or any part thereof made in shares of stock or other property or representing any return of capital, whether resulting from a subdivision, combination or reclassification of Collateral or any part thereof or received in exchange for Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which any Issuer may be a party or otherwise or as a result of any exercise of any stock purchase or subscription right, shall be and become part of the Collateral hereunder and, if received by any Pledgor, shall be forthwith delivered to the Collateral Agent in due form for transfer (i.e., endorsed in blank or accompanied by stock or bond powers executed in blank) to be held for the purposes of this Agreement.

        C.    The Collateral Agent shall execute and deliver, or cause to be executed and delivered, to the applicable Pledgor all such proxies, powers of attorney, dividend orders and other instruments as such Pledgor may reasonably request for the purpose of enabling such Pledgor to exercise the

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rights and powers which it is entitled to exercise pursuant to clause (A) above and to receive the dividends which it is authorized to retain pursuant to clause (B) above.

        (b)  Upon written notice to the Company from the Collateral Agent during the existence of a Default, and so long as the same shall be continuing, all rights and powers which the Pledgors are entitled to exercise pursuant to Section 5(a)(A) hereof, and all rights of the Pledgors to receive and retain dividends pursuant to Section 5(a)(B) hereof, shall forthwith cease, and all such rights and powers shall thereupon become vested in the Collateral Agent which shall have, during the existence of such Default, the sole and exclusive authority to exercise such rights and powers and to receive such dividends. Any and all money and other property paid over to or received by the Collateral Agent pursuant to this paragraph (b) shall be retained by the Collateral Agent as additional Collateral hereunder and applied in accordance with the provisions hereof.

        6.    Remedies.    Whenever a Default exists, the Collateral Agent may exercise from time to time any rights and remedies available to it under the Uniform Commercial Code as in effect in California or otherwise available to it. Without limiting the foregoing, whenever a Default exists the Collateral Agent (a) may, to the fullest extent permitted by applicable law, without notice, advertisement, hearing or process of law of any kind, (i) sell any or all of the Collateral, free of all rights and claims of the Pledgors therein and thereto, at any public or private sale or brokers' board and (ii) bid for and purchase any or all of the Collateral at any such public sale and (b) shall have the right, for and in the name, place and stead of the applicable Pledgor, to execute endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. Each Pledgor hereby expressly waives, to the fullest extent permitted by applicable law, any and all notices, advertisements, hearings or process of law in connection with the exercise by the Collateral Agent of any of its rights and remedies during the existence of a Default. If any notification of intended disposition of any of the Collateral is required by law, such notification, if mailed, shall be deemed reasonably and properly given if mailed, postage prepaid to the address of the applicable Pledgor set forth below its signature hereto (or such other address as it shall have specified to the Collateral Agent as its address for notices hereunder) at least ten (10) days before such disposition. Any proceeds of any of the Collateral may be applied by the Collateral Agent to the payment of expenses in connection with the Collateral, including, without limitation, reasonable attorneys' fees and legal expenses, and any balance of such proceeds may be applied by the Collateral Agent toward the payment of the Liabilities in accordance with the terms of the Intercreditor Agreement (and, after payment in full of all Liabilities, any excess shall be delivered to the applicable Pledgor or as a court of competent jurisdiction shall direct).

        The Collateral Agent is hereby authorized to comply with any limitation or restriction in connection with any sale of Collateral as it may be advised by counsel is necessary in order to (a) avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers and/or further restrict such prospective bidders or purchasers to Persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral) or (b) obtain any required approval of the sale or of the purchase by any governmental regulatory authority or official, and each Pledgor agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner and that the Collateral Agent shall not be liable or accountable to any Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction.

        Each Pledgor hereby appoints the Collateral Agent as the attorney-in-fact for such Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing or completing any instruments which the Collateral Agent may deem reasonably necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with

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an interest; provided that the Collateral Agent shall not exercise its rights as such attorney-in-fact unless a Default exists.

        7.    Restrictions on Pledge.    The parties hereto acknowledge that K2 Finance Company, LLC (the "Receivables Seller"), various affiliates of the Receivables Seller and certain of its subsidiaries have entered into a structured receivables financing transaction with Redwood Receivables Corporation ("Redwood") and General Electric Capital Corporation (the "Redwood Agent") pursuant to a Receivables Purchase and Servicing Agreement (the "Purchase Agreement"). To induce Redwood and the Redwood Agent to permit the pledge of the capital stock of K2 Receivables Corporation ("SPC") (the "Pledged Collateral"), the parties hereto agree to the following limitations. Capitalized terms used in this Section 7 shall have the meanings ascribed to such terms in the Purchase Agreement.

        (a)  Anything herein or in the Parent Revolver, 1992 Note Agreement or 1994 Note Agreement to the contrary notwithstanding:

          (i)  Until 91 days after the date on which the Purchaser Interest and all other amounts owed under the Related Documents have been paid in full in cash in accordance with the terms of the Related Documents, the Collateral Agent, for itself and as agent for the Benefited Parties, agrees that, upon exercising its rights with respect to the Pledged Collateral, it will not take any action with respect thereto which is adverse to the interests of Redwood and/or the Redwood Agent, including, without limitation, (A) causing the Receivables Seller to violate or breach any term or provision in any Related Documents, (B) making any dividends or distributions on the Pledged Collateral, (C) amending or altering any of the Receivables Seller's organizational documents, or (D) causing the Receivables Seller to incur any debt, other than, in each case, as may be allowed in the Related Documents; provided that any prepayment or termination of the Purchase Agreement in accordance with the terms of the Related Documents shall not be deemed adverse to the interests of Redwood and/or the Redwood Agent;

        (ii)  If the Collateral Agent or any other Benefited Party receives any payments or funds relating to the Receivables (the "Receivables Assets") prior to the date on which the Purchaser Interest and all other amounts owed under the Related Documents have been paid in full in cash in accordance with the terms of the Related Documents, such Person shall hold such payments or funds in trust for the benefit of the Redwood Agent, and shall promptly transfer such payments or funds to the Redwood Agent;

        (iii)  The provisions of this Section 7 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of the Purchaser Interest or any other amount owed under the Related Documents is rescinded or must otherwise be returned by the Redwood Agent or the Purchasers upon the insolvency, bankruptcy or reorganization of the Receivables Seller, SPC or otherwise, all as though such payment had not been made; and

        (iv)  Prior to the date on which the Purchaser Interest and all other amounts owed under the Related Documents have been indefeasibly paid in full in cash in accordance with the terms of the Related Documents, neither the Collateral Agent nor any other Benefited Party shall object to or contest in any administrative, legal or equitable action or proceeding (including, without limitation, any insolvency, bankruptcy, receivership, liquidation, reorganization, winding up, readjustment, composition or other similar proceeding relating to Parent Guarantor, any Originator, SPC or the Receivables Seller or their respective property) or object to or contest in any other manner (A) the interests of the Receivables Seller and its successors and assigns in any of the Receivables Assets transferred by each Originator or its affiliates to the Receivables Seller pursuant to the Related Documents and/or (B) the interests of the Redwood Agent or the Purchasers in the Receivables Assets. Neither the Collateral Agent nor any other Benefited Party shall object to or contest in any manner the receipt of any payment by the Redwood Agent and/or the Purchasers with respect to the Receivables Assets for the satisfaction of the Purchaser Interest.

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        (b)  The Redwood Agent and Redwood shall be third-party beneficiaries with respect to this Section 7.

        (c)  So long as the Purchaser Interest and all other amounts owed under the Related Documents have not been indefeasibly paid in full in cash in accordance with the terms of the Related Documents, this Section 7 shall not be amended, modified or supplemented without the prior written consent of the Redwood Agent, which consent shall not be unreasonably withheld, and the provisions of this Section 7 shall be contained in any agreement that amends and restates this Agreement. The Collateral Agent and, by accepting the benefits hereof, each of the other Benefited Parties agree that no such party shall enter into any additional agreement that would be contrary to the provisions of this Section 7.

        (d)  Until the Purchaser Interest and all other amounts owed under the Related Documents have been indefeasibly paid in full in cash in accordance with the terms of the Related Documents, the Collateral Agent shall not sell, transfer or otherwise assign their its in the Pledged Collateral unless such assignee agrees in writing to be bound by this Section and a copy of such writing has been delivered to the Redwood Agent.

        8.    General.    The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if it takes such action for that purpose as the applicable Pledgor shall request in writing, but failure of the Collateral Agent to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and no failure of the Collateral Agent to preserve or protect any rights with respect to the Collateral against prior parties shall be deemed a failure to exercise reasonable care in the custody or preservation of any Collateral.

        No delay on the part of the Collateral Agent in exercising any right, power or remedy shall operate as a waiver thereof, and no single or partial exercise of any such right, power or remedy shall preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement shall be effective unless the same shall be in writing and signed and delivered by the Collateral Agent, and then such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

        All obligations of the Pledgors and all rights, powers and remedies of the Benefited Parties expressed herein are in addition to all other rights, powers and remedies possessed by them, including, without limitation, those provided by applicable law or in any other written instrument or agreement relating to any of the Liabilities or any security therefor.

        This Agreement shall be construed in accordance with and governed by the internal laws of the State of California. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

        This Agreement shall be binding upon the Pledgors and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of the Pledgors and the Collateral Agent and the successors and assigns of the Collateral Agent.

        This Agreement shall remain in full force and effect until the earlier to occur of (a) the payment in full in cash of all Liabilities and the termination of all commitments to create Liabilities and (b) the Collateral Release Date. Upon any such termination, the Collateral Agent will, upon any Pledgor's request and at such Pledgor's sole expense, (i) deliver to such Pledgor, without any representation, warranty or recourse of any kind whatsoever, all of such Pledgor's Collateral held by the Collateral Agent hereunder as shall not have been sold or otherwise applied pursuant to the terms hereof, and (ii) execute and deliver to such Pledgor such documents as such Pledgor shall reasonably request to

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evidence such termination and the release of any security interest granted hereby. If the Collateral Agent reasonably determines that it is permitted to release any Collateral in accordance with Section 3(f) or 9(g) of the Intercreditor Agreement, then the Collateral Agent will, upon the applicable Pledgor's request and at such Pledgor's sole expense, execute and deliver such releases as may be necessary to terminate the Collateral Agent's security interest (for the benefit of the Benefited Parties), in such Collateral.

        This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, and each such counterpart shall be deemed an original but all such counterparts shall together constitute but one and the same Agreement. At any time after the date of this Agreement, one or more additional Persons may become parties hereto by executing and delivering to the Collateral Agent a counterpart of this Agreement together with a supplement to Schedule I hereto setting forth all relevant information with respect to such Person as of the date of such delivery. Immediately upon such execution and delivery (and without any further action), each such additional Person will become a party to, and will be bound by all the terms of, this Agreement.

ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER FINANCING AGREEMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF CALIFORNIA OR IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA; PROVIDED THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH PLEDGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, TO THE ADDRESS OF SUCH PLEDGOR SET FORTH BELOW ITS SIGNATURE HERETO (OR SUCH OTHER ADDRESS AS IT SHALL HAVE SPECIFIED IN WRITING TO THE COLLATERAL AGENT AS ITS ADDRESS FOR NOTICES HEREUNDER), OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIA. EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

EACH PLEDGOR, THE COLLATERAL AGENT AND (BY ACCEPTING THE BENEFITS HEREOF) EACH OTHER BENEFITED PARTY HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER FINANCING AGREEMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

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        IN WITNESS WHEREOF, this Agreement has been duly executed and delivered as of the day and year first written above.

K2 INC.
By:
	Title:
4900 South Eastern Avenue Los Angeles, CA 90040 Attention: John Rangel
SHAKESPEARE COMPANY, LLC SITCA CORPORATION K-2 CORPORATION SMCA, INC. RIDE, INC.
By:
	Title:
4900 South Eastern Avenue Los Angeles, CA 90040 Attention: John Rangel
BANK OF AMERICA, N.A., as Collateral Agent for the Benefited Parties
By:
	Title:
Agency Management CA9-706-11-03 555 S. Flower Street, 11th Floor Los Angeles, CA 90071 Attention: Gina Meador

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Signature page for the Pledge Agreement dated as of March 28, 2002 among K2 Inc., various subsidiaries thereof, and Bank of America, N.A., as Collateral Agent for the Benefited Parties referred to herein.

The undersigned is executing a counterpart hereof for purposes of becoming a party hereto (and attached to this signature page is a supplement to Schedule I to the Pledge Agreement setting forth all relevant information with respect to the undersigned):

[ADDITIONAL PLEDGOR]

By:

Title:

Address:

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SCHEDULE I
TO PLEDGE AGREEMENT

STOCK

Pledgor
Issuer
Certificate No.
No. of Pledged Shares
Total Shares of Issuer
Pledged Shares as % of Total Shares Issued and Outstanding

EX-10.(I)

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Exhibit 10(i)

MEMBERSHIP INTEREST PLEDGE AGREEMENT

        THIS MEMBERSHIP INTEREST PLEDGE AGREEMENT (this "Agreement") dated as of March 28, 2002 is given by K2 INC., a Delaware corporation (the "Company"), and each subsidiary of the Company which from time to time becomes a party hereto (collectively, together with the Company, the "Pledgors" and each individually a "Pledgor") in favor of BANK OF AMERICA, N.A. ("Bank of America"), in its capacity as collateral agent (in such capacity, the "Collateral Agent") under the Intercreditor Agreement referred to below, and the other Benefited Parties (as defined in such Intercreditor Agreement).

W I T N E S S E T H:

        WHEREAS, the Company, various financial institutions (the "Lenders") and Bank of America, as Administrative Agent (in such capacity, the "Administrative Agent"), have entered into a Credit Agreement dated as of December 21, 1999 (as amended, restated or otherwise modified from time to time, the "Credit Agreement");

        WHEREAS, the Company is a party to separate Note Agreements dated as of October 15, 1992 (as amended, restated or otherwise modified from time to time, the "1992 Note Agreements") with various purchasers (the "1992 Noteholders");

        WHEREAS, the Company is a party to a Note Purchase Agreement dated as of December 1, 1999 (as amended, restated or otherwise modified from time to time, the "1999 Note Agreement"; together with the 1992 Note Agreements, the "Note Agreements") with various purchasers (the "1999 Noteholders"; together with the 1992 Noteholders, collectively the "Noteholders");

        WHEREAS, each Pledgor other than the Company (if any) has guarantied all obligations of the Company under the Credit Agreement, the Note Agreements and certain other financing arrangements;

        WHEREAS, pursuant to (i) the Continuing Guaranty dated August 19, 2000, (ii) the Amended and Restated Continuing Guaranty (Multicurrency) dated March 28, 2002 and (iii) the Continuing Guaranty (Multicurrency) dated July 31, 1998, the Company has guaranteed all of the obligations of K-2 Corporation, K2 Ski Sport + Mode GmbH and Shakespeare Company (UK) Limited, respectively, under various financing arrangements made available to such entities by Bank of America and various subsidiaries and affiliates thereof;

        WHEREAS, pursuant to the Continuing Guaranty (Foreign Currency) dated October 29, 1998, the Company has guaranteed all of the obligations of K2 Japan Co. Ltd. under a financing arrangement made available to such entity by Union Bank of California, N.A.;

        WHEREAS, pursuant to an Amended and Restated Intercreditor Agreement dated as of the date hereof (as amended, restated or otherwise modified from time to time, the "Intercreditor Agreement"), the Administrative Agent, on behalf of itself and the Lenders, the Noteholders, various other parties from time to time party thereto and the Collateral Agent have agreed that (i) the Benefited Obligations (as defined in the Intercreditor Agreement) shall be secured and guarantied pari passu and (ii) Bank of America shall act as collateral agent for the Benefited Parties; and

        WHEREAS, the Benefited Obligations of each Pledgor are to be secured pursuant to this Agreement;

        NOW, THEREFORE, for and in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

        1.    Definitions.    When used herein, (a) capitalized terms used but not defined in this Agreement have the respective meanings assigned to such terms in the Intercreditor Agreement, (b) all terms defined in the Uniform Commercial Code as in effect on the date hereof in the State of California and

used herein shall have the same definitions herein as specified therein, (c) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Financing Agreement and (d) the following terms have the following meanings (such meanings to be applicable to both the singular and plural forms of such terms):

Administrative Agent—see the Recitals.

Agreement—see the Preamble.

Bank of America—see the Preamble.

Business Day means any day on which Bank of America is open for commercial banking business in Los Angeles, New York and Charlotte.

Collateral—see Section 2.

Collateral Agent—see the Preamble.

Company—see the Preamble.

Costs and Expenses means, with respect to any Pledgor, all reasonable out-of-pocket costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Collateral Agent in connection with (i) the execution, delivery and performance of this Agreement by such Pledgor, (ii) protecting, preserving or maintaining any Collateral of such Pledgor, (iii) enforcing any rights of the Collateral Agent hereunder in respect of the Collateral of such Pledgor.

Credit Agreement—see the Recitals.

Default means the occurrence of any of the following events: (a) any Unmatured Event of Default under Section 8.01(f) or (g) of the Credit Agreement, Section 6.1(i), (j) or (k) of the 1992 Note Agreements or Section 11(g) or (h) of the 1999 Note Agreement; (b) any Event of Default; or (c) any warranty of any Pledgor herein is untrue or misleading in any material respect and, as a result thereof, the Collateral Agent's security interest for the benefit of the Benefited Parties in any material portion of the Collateral is not perfected or the Collateral Agent's rights and remedies with respect to any material portion of the Collateral is materially impaired or otherwise materially adversely affected.

Intercreditor Agreement—see the Recitals.

Lenders—see the Recitals.

Liabilities means, as to each Pledgor, all Benefited Obligations of such Pledgor.

LLC means a limited liability company in which any Pledgor is a member or otherwise has any equity interest.

LLC Agreement means the limited liability company agreement, operating agreement or similar basic agreement for any LLC, together with any certificate of formation, articles of organization or similar constituent document, if any, required to be filed with the secretary of state, or equivalent office, in any applicable jurisdiction for the legal and valid creation of such LLC (as amended, supplemented, restated or otherwise modified from time to time).

LLC Interests means all right, title and interest of any Pledgor in and to the following: each LLC in which such Pledgor has any interest, all profits, income, surplus, compensation, return of capital, distributions and other disbursements and payments from any LLC to such Pledgor (including, without limitation, specific properties of any LLC upon dissolution or otherwise), and all interests in any LLC now owned or hereafter acquired by such Pledgor as a result of exchange offers, direct investments, contributions or otherwise, and all accounts, general intangibles and other rights to payment or

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reimbursement now existing or hereafter arising from loans, advances or other extensions of credit by such Pledgor from time to time to or for the account of any LLC, or from services rendered by such Pledgor from time to time to or for the account of any LLC; but excluding any obligation or liability of such Pledgor with respect to any LLC or any duty of such Pledgor as a member of any LLC.

1992 Note Agreements—see the Recitals.

1992 Noteholders—see the Recitals.

1999 Note Agreement—see the Recitals.

1999 Noteholders—see the Recitals.

Note Agreements—see the Recitals.

Noteholders—see the Recitals.

Permitted Liens means (i) liens arising hereunder and (ii) inchoate tax and ERISA liens.

Pledged Property means all LLC Interests, all property received in exchange or substitution for any LLC Interest, all dividends, distributions and other returns from any LLC Interest, all other property delivered by any Pledgor to the Collateral Agent for the purpose of pledge under this Agreement, and all proceeds of any of the foregoing.

Pledgor—see the Preamble.

UCC means the Uniform Commercial Code as in effect from time to time in any applicable jurisdiction.

        2.    Pledge.    As security for the payment of all Liabilities, each Pledgor hereby pledges and assigns to the Collateral Agent for the benefit of the Benefited Parties, and grants to the Collateral Agent for the benefit of the Benefited Parties a continuing security interest in, all of the following:

        A.    the LLC Interests;

        B.    all cash and other property, real, personal or mixed, distributed or payable at any time or from time to time to such Pledgor from any LLC, as a distribution or otherwise in complete or partial liquidation or otherwise, including, without limitation, such Pledgor's share of any revenues of any LLC derived from any contract;

        C.    all other Pledged Property; and

        D.    all products and proceeds of all of the foregoing.

All of the foregoing are herein collectively called the "Collateral".

        3.    Delivery of Pledged Property.    (a) All certificates or instruments representing or evidencing any Collateral, including those representing or evidencing any LLC Interest, shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary endorsements or instruments of transfer or assignment, duly executed in blank.

        (b)  To the extent any of the Collateral constitutes an "uncertificated security" (as defined in Section 8-102(a)(18) of the UCC), the applicable Pledgor shall cause the issuer thereof to acknowledge to the Collateral Agent the registration on the books of such issuer of the pledge and security interest hereby created in the manner required by Section 8-301(b) of the UCC.

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        4.    Warranties.    Each Pledgor warrants to the Collateral Agent for the benefit of each Benefited Party, as to itself and its Collateral, that:

        (a)    Ownership, No Liens, etc.    Such Pledgor is the legal and beneficial owner of, and has good title to (and has full right and authority to pledge and assign) such Collateral, free and clear of all Liens, options or other charges or encumbrances, except Permitted Liens. No UCC financing statement covering any of the Collateral is presently on file in any public office other than those in favor of the Collateral Agent for the benefit of the Benefited Parties. This Agreement creates a legal and valid security interest in the Collateral which has been perfected as a first and prior Lien on the Collateral. No "control" as defined in Article 8 of the UCC has been given to any Person other than the Collateral Agent.

        (b)    LLC Interests.    The character of such Pledgor's interest in each LLC, and such Pledgor's percentage interest in each LLC's profits as of the date hereof, are as set forth in Exhibit A. Such Pledgor has provided to the Collateral Agent true, correct and complete copies of each LLC Agreement as in effect on the date hereof.

        (c)    Authorization, Approval, etc.    Except for the filing of UCC financing statements, no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other Person is required for (i) the pledge by such Pledgor of any Collateral pursuant to this Agreement, (ii) the execution, delivery and performance of this Agreement by such Pledgor, (iii) the exercise by the Collateral Agent of the voting or other rights provided for in this Agreement or (iv) except as may be required in connection with a disposition of any LLC Interest by laws affecting the offering and sale of securities generally, the exercise by the Collateral Agent of remedies in respect of the Collateral pursuant to this Agreement.

        (d)    Uncertificated Nature of LLC Interests.    No right, title or interest of such Pledgor in any LLC is represented by a certificate or other instrument, except such certificates or instruments, if any, as have been delivered to the Collateral Agent and are held in its possession, together with transfer documents as required in this Agreement (and such Pledgor covenants and agrees that any such certificates or instruments hereafter received by such Pledgor with respect to any of the Collateral will be held in trust for the Collateral Agent for the benefit of the Benefited Parties and promptly delivered to the Collateral Agent). No Collateral is held in a securities account. No LLC is an investment company and no LLC has expressly elected to have membership interests in such LLC treated as securities governed by Article 8 of the UCC.

        (e)    Other.    (i) The assignment and pledge of the Collateral pursuant to this Agreement, together with the filing of appropriate UCC financing statements, will create a valid perfected security interest in the Collateral in favor of the Collateral Agent; and (ii) all LLC Interests referred to on Exhibit A are duly authorized, validly issued, fully paid and non-assessable.

        5.    Covenants.    (a) No Pledgor will assign, pledge, grant any security interest in or, except to the extent permitted by all of the Financing Agreements, sell or otherwise transfer any of the Collateral of such Pledgor or grant any option, warrant or other right to purchase the Collateral of such Pledgor (except in favor of the Collateral Agent and the Benefited Parties hereunder). Each Pledgor will warrant and defend the right and title herein granted unto the Collateral Agent in and to the Collateral (and all right, title and interest represented by the Collateral) against the claims and demands of all other Persons. Each Pledgor agrees that at any time, and from time to time, at the expense of such Pledgor, such Pledgor will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Each Pledgor shall provide the Collateral Agent with copies of all written information received from any securities intermediary of such Pledgor with respect to any Collateral.

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        (b)  Each Pledgor agrees that it will: (i) execute such additional UCC financing statements and other documents (and pay the cost of filing or recording the same in all public offices reasonably deemed necessary or appropriate by the Collateral Agent) and do such other acts and things, all as the Collateral Agent may from time to time reasonably request, as are necessary to establish and maintain a valid, perfected pledge (including, without limitation, a perfected pledge by means of control) of, and security interest in, the Collateral (free of all other Liens other than Permitted Liens) to secure the payment and performance of the Liabilities; (ii) not make any change in the name or jurisdiction of organization of such Pledgor without giving the Collateral Agent at least 30 days' prior written notice thereof; (iii) furnish the Collateral Agent such information concerning the Collateral as the Collateral Agent may from time to time reasonably request; (iv) provide the Collateral Agent, not less than 10 days after entering into same, a copy of each LLC Agreement and any amendment or supplement to, or modification or waiver of, any term or provision of any LLC Agreement; (v) upon learning of the occurrence of any Default, promptly upon request of the Collateral Agent transfer any LLC Interest constituting Collateral into the name of any nominee or sub-agent designated by the Collateral Agent; and (vi) upon learning of the occurrence of any event which could reasonably be expected to cause termination and/or dissolution of any LLC, notify the Collateral Agent in writing thereof.

        6.    Holding in Name of Collateral Agent, etc.    The Collateral Agent may from time to time after the occurrence and during the continuance of a Default, without notice to any Pledgor, take all or any of the following actions: (a) transfer all or any part of the Collateral into the name of the Collateral Agent or any nominee or sub-agent for the Collateral Agent, with or without disclosing that such Collateral is subject to the lien and security interest hereunder; (b) appoint one or more sub-agents or nominees for the purpose of retaining physical possession of the Collateral; (c) notify the parties obligated on any of the Collateral to make payment to the Collateral Agent of any amounts due or to become due thereunder; (d) endorse any checks, drafts or other writings in the name of any Pledgor to allow collection of the Collateral; (e) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto; and (f) take control of any proceeds of the Collateral.

        7.    Voting Rights, Dividends, etc.    (a) So long as the Collateral Agent has not given the notice referred to in paragraph (b) below:

        A.    Each Pledgor shall be entitled to exercise any and all voting or consensual rights and powers with respect to any LLC Interest or other Pledged Property of such Pledgor or any part thereof for any purpose; provided that each Pledgor agrees that it will not exercise any such right or power in any manner which would have a material adverse effect on the Collateral Agent's rights with respect to any material portion of the Collateral.

        B.    Each Pledgor shall be entitled to receive and retain any and all lawful dividends or other distributions payable in respect of the Collateral of such Pledgor which are paid in cash by any LLC if such dividends or distributions are permitted by each of the Financing Agreements.

        C.    The Collateral Agent shall execute and deliver, or cause to be executed and delivered, to the Pledgors, all such proxies, powers of attorney, dividend orders and other instruments as any Pledgor may request for the purpose of enabling such Pledgor to exercise the rights and powers which it is entitled to exercise pursuant to clause (A) above and to receive the dividends and distributions which it is authorized to retain pursuant to clause (B) above.

        (b)  Upon written notice to the Company from the Collateral Agent during the existence of a Default, and so long as the same shall be continuing, all rights and powers which the Pledgors are entitled to exercise pursuant to Section 7(a)(A) hereof, and all rights of the Pledgors to receive and retain dividends and distributions pursuant to Section 7(a)(B) hereof, shall forthwith cease, and all such rights and powers shall thereupon become vested in the Collateral Agent which shall have, during the

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continuance of such Default, the sole and exclusive authority to exercise such rights and powers and to receive such dividends and distributions. Any and all money and other property paid over to or received by the Collateral Agent pursuant to this paragraph (b) shall be retained by the Collateral Agent as additional Collateral hereunder and applied in accordance with the provisions hereof.

        8.    Additional LLC Interests.    No Pledgor will (a) permit the issuance of (i) any additional limited liability company interests or any class of limited liability company interests of any LLC, (ii) any securities convertible into, or exchangeable for, any such limited liability company interests, or (iii) any warrants, options, contracts or other commitments entitling any Person to purchase or otherwise acquire any such limited liability company interests or (b) enter into any agreement creating, or otherwise permit to exist, any restriction or condition upon the transfer, voting or control of any interest in any LLC.

        9.    Remedies.    Whenever a Default exists, the Collateral Agent may exercise from time to time any rights and remedies available to it under the UCC or otherwise available to it. Without limiting the foregoing, whenever a Default exists, the Collateral Agent (a) may, to the fullest extent permitted by applicable law, without notice, advertisement, hearing or process of law of any kind, (i) sell any or all of the Collateral of any Pledgor, free of all rights and claims of such Pledgor therein and thereto, at any public or private sale or brokers' board, and (ii) bid for and purchase any or all of the Collateral at any such public sale and (b) shall have the right, for and in the name, place and stead of such Pledgor, to execute endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. Each Pledgor hereby expressly waives, to the fullest extent permitted by applicable law, any and all notices, advertisements, hearings or process of law in connection with the exercise by the Collateral Agent of any of its rights and remedies during the continuance of a Default. Any notification of intended disposition of any of the Collateral shall be deemed reasonably and properly given if given at least 10 Business Days before such disposition. Any proceeds of any of the Collateral may be applied by the Collateral Agent to the payment of Costs and Expenses, and any balance of such proceeds may be applied by the Collateral Agent toward the payment of the Liabilities in accordance with the terms of the Intercreditor Agreement (and, after payment in full of all Liabilities, any excess shall be delivered to the applicable Pledgor or as a court of competent jurisdiction shall direct).

        The Collateral Agent is hereby authorized to comply with any limitation or restriction in connection with any sale of Collateral as it may be advised by counsel is necessary in order to (a) avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers and/or further restrict such prospective bidders or purchasers to Persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral) or (b) obtain any required approval of the sale or of the purchase by any governmental or regulatory authority or official, and each Pledgor agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner and that the Collateral Agent shall not be liable or accountable to any Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction.

        Each Pledgor hereby appoints the Collateral Agent as the attorney-in-fact for such Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing or completing any instruments which the Collateral Agent may deem reasonably necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest; provided that the Collateral Agent shall not exercise its rights as such attorney-in-fact unless a Default exists.

        This Agreement shall remain in full force and effect until the earlier to occur of (a) the payment in full in cash of all Liabilities and the termination of all commitments to create Liabilities and (b) the

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Collateral Release Date. Upon any such termination, the Collateral Agent will, upon any Pledgor's request and at such Pledgor's sole expense, (i) deliver to such Pledgor, without any representation, warranty or recourse of any kind whatsoever, all of such Pledgor's Collateral held by the Collateral Agent hereunder as shall not have been sold or otherwise applied pursuant to the terms hereof, and (ii) execute and deliver to such Pledgor such documents as such Pledgor shall reasonably request to evidence such termination and the release of any security interest granted hereby. If the Collateral Agent reasonably determines that it is permitted to release any Collateral in accordance with Section 3(f) or 9(g) of the Intercreditor Agreement, then the Collateral Agent will, upon the applicable Pledgor's request and at such Pledgor's sole expense, execute and deliver such releases as may be necessary to terminate the Collateral Agent's security interest (for the benefit of the Benefited Parties), in such Collateral.

        10.    Acknowledgment of Control.    By its signature below, each Pledgor (i) acknowledges that it has not previously granted "control" over the Collateral of such Pledgor to any other Person and (ii) agrees that it will not grant any Person other than the Collateral Agent "control" over any Collateral.

        11.    Restrictions on Pledge.    The parties hereto acknowledge that K2 Finance Company, LLC (the "Receivables Seller"), various affiliates of the Receivables Seller and certain of its subsidiaries have entered into a structured receivables financing transaction with Redwood Receivables Corporation ("Redwood") and General Electric Capital Corporation (the "Redwood Agent") pursuant to a Receivables Purchase and Servicing Agreement (the "Purchase Agreement"). To induce Redwood and the Redwood Agent to permit the pledge of the membership interests of the Receivables Seller (the "Pledged Collateral"), the parties hereto agree to the following limitations. Capitalized terms used in this Section 11 shall have the meanings ascribed to such terms in the Purchase Agreement.

        (a)  Anything herein or in the Parent Revolver, 1992 Note Agreement or 1994 Note Agreement to the contrary notwithstanding:

          (i)  Until 91 days after the date on which the Purchaser Interest and all other amounts owed under the Related Documents have been paid in full in cash in accordance with the terms of the Related Documents, the Collateral Agent, for itself and as agent for the Benefited Parties, agrees that, upon exercising its rights with respect to the Pledged Collateral, it will not take any action with respect thereto which is adverse to the interests of Redwood and/or the Redwood Agent, including, without limitation, (A) causing the Receivables Seller to violate or breach any term or provision in any Related Documents, (B) making any dividends or distributions on the Pledged Collateral, (C) amending or altering any of the Receivables Seller's organizational documents, or (D) causing the Receivables Seller to incur any debt, other than, in each case, as may be allowed in the Related Documents; provided that any prepayment or termination of the Purchase Agreement in accordance with the terms of the Related Documents shall not be deemed adverse to the interests of Redwood and/or the Redwood Agent;

        (ii)  If the Collateral Agent or any other Benefited Party receives any payments or funds relating to the Receivables (the "Receivables Assets") prior to the date on which the Purchaser Interest and all other amounts owed under the Related Documents have been paid in full in cash in accordance with the terms of the Related Documents, such Person shall hold such payments or funds in trust for the benefit of the Redwood Agent, and shall promptly transfer such payments or funds to the Redwood Agent;

        (iii)  The provisions of this Section 11 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of the Purchaser Interest or any other amount owed under the Related Documents is rescinded or must otherwise be returned by the Redwood Agent or the Purchasers upon the insolvency, bankruptcy or reorganization of the Receivables Seller, SPC or otherwise, all as though such payment had not been made; and

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        (iv)  Prior to the date on which the Purchaser Interest and all other amounts owed under the Related Documents have been indefeasibly paid in full in cash in accordance with the terms of the Related Documents, neither the Collateral Agent nor any other Benefited Party shall object to or contest in any administrative, legal or equitable action or proceeding (including, without limitation, any insolvency, bankruptcy, receivership, liquidation, reorganization, winding up, readjustment, composition or other similar proceeding relating to Parent Guarantor, any Originator, SPC or the Receivables Seller or their respective property) or object to or contest in any other manner (A) the interests of the Receivables Seller and its successors and assigns in any of the Receivables Assets transferred by each Originator or its affiliates to the Receivables Seller pursuant to the Related Documents and/or (B) the interests of the Redwood Agent or the Purchasers in the Receivables Assets. Neither the Collateral Agent nor any other Benefited Party shall object to or contest in any manner the receipt of any payment by the Redwood Agent and/or the Purchasers with respect to the Receivables Assets for the satisfaction of the Purchaser Interest.

        (b)  The Redwood Agent and Redwood shall be third-party beneficiaries with respect to this Section 11.

        (c)  So long as the Purchaser Interest and all other amounts owed under the Related Documents have not been indefeasibly paid in full in cash in accordance with the terms of the Related Documents, this Section 11 shall not be amended, modified or supplemented without the prior written consent of the Redwood Agent, which consent shall not be unreasonably withheld, and the provisions of this Section 11 shall be contained in any agreement that amends and restates this Agreement. The Collateral Agent and, by accepting the benefits hereof, each of the other Benefited Parties agree that no such party shall enter into any additional agreement that would be contrary to the provisions of this Section 11.

        (d)  Until the Purchaser Interest and all other amounts owed under the Related Documents have been indefeasibly paid in full in cash in accordance with the terms of the Related Documents, the Collateral Agent shall not sell, transfer or otherwise assign it rights in the Pledged Collateral unless such assignee agrees in writing to be bound by this Section and a copy of such writing has been delivered to the Redwood Agent.

        13.    General.    The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if it takes such action for that purpose as the applicable Pledgor shall request in writing, but failure of the Collateral Agent to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and no failure of the Collateral Agent to preserve or protect any rights with respect to the Collateral against prior parties, or to do any act with respect to preservation of the Collateral not so requested by any Pledgor, shall be deemed a failure to exercise reasonable care in the custody or preservation of any Collateral.

        No delay on the part of the Collateral Agent in exercising any right, power or remedy shall operate as a waiver thereof, and no single or partial exercise of any such right, power or remedy shall preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement shall be effective unless the same shall be in writing and signed and delivered by the Collateral Agent, and then such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

        All obligations of each Pledgor and all rights, powers and remedies of the Collateral Agent and the Benefited Parties expressed herein are in addition to all other rights, powers and remedies possessed by them, including, without limitation, those provided by applicable law or in any other written instrument or agreement relating to any of the Liabilities or any security therefor.

8

        This Agreement shall be construed in accordance with and governed by the internal laws of the State of California. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

        This Agreement shall be binding upon each Pledgor and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of each Pledgor and the Collateral Agent and the successors and assigns of the Collateral Agent.

        This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, and each such counterpart shall be deemed an original but all such counterparts shall together constitute but one and the same Agreement. At any time after the date of this Agreement, one or more additional Persons may become parties hereto by executing and delivering to the Collateral Agent a counterpart of this Agreement (together with a supplement to Exhibit A hereto). Immediately upon such execution and delivery (and without any further action), each such additional Person will become a party to, and will be bound by all of the terms of, this Agreement.

ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER FINANCING AGREEMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF CALIFORNIA OR IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA; PROVIDED THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH PLEDGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, TO THE ADDRESS OF SUCH PLEDGOR SET FORTH BELOW ITS SIGNATURE HERETO (OR SUCH OTHER ADDRESS AS IT SHALL HAVE SPECIFIED IN WRITING TO THE COLLATERAL AGENT AS ITS ADDRESS FOR NOTICES HEREUNDER), OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIA. EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

EACH PLEDGOR, THE COLLATERAL AGENT AND (BY ACCEPTING THE BENEFITS HEREOF) EACH OTHER BENEFITED PARTY HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER FINANCING AGREEMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

9

        IN WITNESS WHEREOF, this Agreement has been duly executed and delivered as of the day and year first written above.

K2 INC.

By:

Name Printed:

Title:

Address:

4900 South Eastern Avenue
Los Angeles, CA 90040
Attention: John Rangel
Facsimile: (323) 724-0470

STEARNS INC.
SHAKESPEARE COMPANY, LLC
K-2 CORPORATION

By:

Name Printed:

Title:

Address:

4900 South Eastern Avenue
Los Angeles, CA 90040
Attention: John Rangel
Facsimile: (323) 724-0470

S-1

BANK OF AMERICA, N.A., as Collateral Agent

By:

Name Printed:

Title:

Address:

Agency Management
CA9-706-11-03
555 S. Flower Street, 11^th Floor
Los Angeles, CA 90071
Attention: Gina Meador
Facsimile: (213) 228-2299

S-2

Additional signature page for the Membership Interest Pledge Agreement dated as of March 28, 2002 issued by K2 Inc. (the "Company") and various subsidiaries of the Company.

The undersigned is executing a counterpart hereof for purposes of becoming a party hereto (and attached to this signature page is a supplement to Exhibit A of the Membership Interest Pledge Agreement setting forth all relevant information with respect to the undersigned).

[NAME OF SUBSIDIARY]

By:

Name:

Title:

Address:

S-3

EXHIBIT A
TO MEMBERSHIP INTEREST PLEDGE AGREEMENT

DESCRIPTION OF LLC INTERESTS and LLC AGREEMENTS

The Company is pledging the following:

1.

100% of the membership interests of Shakespeare Company, LLC owned by it pursuant to the Limited Liability Company Agreement dated as of March 1, 2001



2.

100% of the membership interests of Shakespeare Conductive Fibers, LLC owned by it pursuant to the Limited Liability Company Agreement dated as of December 14, 2000

Shakespeare Company, LLC, a Delaware limited liability company, K-2 Corporation, an Indiana corporation, and Stearns Inc., a Minnesota corporation, all wholly-owned subsidiaries of the Company, are pledging the following:

        1.    100% of the membership interests of K2 Finance Company, LLC owned by them pursuant to the Limited Liability Company Agreement of K2 Finance Company, LLC dated as of March 26, 2002.

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MEMBERSHIP INTEREST PLEDGE AGREEMENT

EX-21

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EXHIBIT (21)

SUBSIDIARIES OF K2 INC.

			Percentage of voting securities owned or subject to voting control by
			Company		Other
Shakespeare Conductive Fibers, LLC a Delaware limited liability company			100	%
Shakespeare Company, LLC a Delaware limited liability company			100	%
Subsidiaries of Shakespeare Company, LLC:
	Shakespeare (Hong Kong) Ltd., a Hong Kong corporation				100	%
	Subsidiary of Shakespeare (Hong Kong) Ltd.:
		Pacific Rim Metallic Products Ltd., a Hong Kong corporation			100	%
	Shakespeare International Ltd., a British corporation				100	%
	Subsidiaries of Shakespeare International Ltd.:
		Shakespeare Company (UK) Ltd., a British corporation			100	%
		Shakespeare Monofilament U.K. Ltd., a British corporation			100	%
	Shakespeare Hengelsport, B.V., a Dutch corporation				100	%
	Shakespeare (Australia) Pty. Ltd., an Australian corporation				100	%
	K2 Ski Sport und Mode GmbH, a German corporation				100	%
Sitca Corporation, a Washington corporation			100	%
Subsidiaries of Sitca Corporation:
	K-2 Corporation, an Indiana corporation				100	%
	Subsidiaries of K-2 Corporation:
		Planet Earth Skateboards, Inc., a California corporation			100	%
		K-2 International, Inc., an Indiana corporation			100	%
		K2 Japan Corporation, a Japanese corporation			100	%
		Madshus A.S., a Norwegian corporation			100	%
SMCA, Inc., a Minnesota corporation			100	%
Subsidiary of SMCA, Inc.:
	Stearns Inc., a Minnesota corporation		100	%
Ride, Inc., a Washington corporation					100	%
Subsidiaries of Ride, Inc.:
	Ride Snowboard Company, a Washington corporation				100	%
	Ride Manufacturing, Inc, a California corporation				100	%
	SMP Clothing, Inc., a Washington corporation				100	%
	Smiley Hats, Inc., a Nevada corporation				100	%
	Carve, Inc., a Washington corporation				100	%
	Preston Binding Company, a Washington corporation				100	%
K2 Corporation of Canada, a Canadian corporation			100	%
K2 Funding, Inc., a Delaware corporation			100	%
K2 Worldwide Company, a Cayman Island limited company			100	%

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EXHIBIT (21)
SUBSIDIARIES OF K2 INC.

EX-23

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EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

        We consent to the incorporation by reference in the Registration Statements (Form S-8 dated October 14, 1988 and Form S-8 dated December 28, 1994) pertaining to the 1988 Incentive Stock Option Plan and the 1994 Incentive Stock Option Plan of K2 Inc. of our report dated February 15, 2002, except for Note 6 which is March 28, 2002, with respect to the consolidated financial statements of K2 Inc. included in the Annual Report on Form 10-K for the year ended December 31, 2001. We also consent to the incorporation by reference in the Registration Statement (Form S-4 dated August 9, 1999) of K2 Inc. and in the related Proxy Statement of our report dated February 15, 2002, except for Note 6 which is March 28, 2002, with respect to the consolidated financial statements of K2 Inc. included in this Annual Report on Form 10-K for the year ended December 31, 2001.

        Our audits also include the financial statement schedule of K2 Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Los Angeles, California
March 28, 2002

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EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS