8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date Of Report (Date of earliest event reported): December 10, 2002

K2 INC.

(Exact name of the registrant as specified in its charter)

Delaware State or other jurisdiction of incorporation) 1-4290 (Commission File Number) 95-2077125 (I.R.S. Employer Identification Number)

4900 South Eastern Avenue, Los Angeles, CA (Address of principal executive offices) 90040 (Zip Code)

(323) 724-2800

Registrant’s telephone number, including area code:

N/A

(Former name or former address, if changed since last report)

Item 5. Other Events.

On December 10, 2002, K2 Inc., a Delaware corporation (the “Company”), announced that it had entered into a securities purchase agreement pursuant to which it agreed to sell $25,000,000 aggregate principal amount of its 7.25% convertible subordinated debentures due March 3, 2010 (the “Debentures”) and warrants to purchase an aggregate of 524,329 shares of common stock of the Company (the “Warrants”). On February 14, 2003, the Company consummated the issuance of the Debentures and the Warrants.

The Debentures are convertible at the option of the holders at any time prior to maturity into the Company’s common stock, par value $1.00 (“Common Stock”), at an initial conversion price of $11.92 per share, subject to customary adjustments. The Company, at its option, may compel the holders to convert the Debentures into common stock under certain circumstances after the third anniversary of the date of issuance if the trading price of the Common Stock exceeds 140% of the conversion price for a specified trading period prior to the conversion.

Upon the occurrence of certain events, including a breach by the Company of its obligations under the Debentures, the Company’s default under certain other indebtedness or a Change in Control of the Company (as defined), the Debentures are subject to mandatory redemption by the Company at a redemption price equal to the greater of 105% of the principal balance then outstanding plus accrued and unpaid interest thereon, or an amount based on the maximum number of shares of Common Stock issuable upon conversion of the Debentures and the highest trading price of the Common Stock during a specified period. The Company at its option may redeem the Debentures any time after the third anniversary of their issuance at an initial redemption price of 105% of the principal amount being redeemed plus accrued and unpaid interest, declining to 100% of the principal amount plus accrued interest after the sixth anniversary of the date of issuance. The Company will also have the right to redeem the Debentures following a Change of Control at a redemption price equal to 105% of the principal amount of the Debentures plus accrued and unpaid interest.

While the Debentures are outstanding, subject to certain exceptions provided therefor, the Company is prohibited from incurring certain indebtedness, making distributions on its Common Stock, loaning money to unaffiliated persons or assuming or guaranteeing indebtedness of unaffiliated persons. So long as $12,500,000 in aggregate principal amount of Debentures is outstanding, the holders of the Debentures have the right to appoint one member to the Company’s Board of Directors (the “Board”), subject to the approval of the Board. The holders have designated Steven Green to be their designee on the Board.

The Warrants entitle the holders to purchase shares of Common Stock at an initial exercise price of $13.91 per share, subject to customary adjustments. The Warrants are exercisable at any time within five years of their issuance. The Company has agreed to file a registration statement with the SEC on Form S-3 within 60 days of the issuance to register the Common Stock issuable upon conversion of the Debentures or upon the exercise of the Warrants. A copy of the Company’s press release dated February 14, 2003 announcing the completion of the transaction is filed as an exhibit to this Current Report on Form 8-K.

Item 7.     Financial Statements, Pro Forma Financial Information and Exhibits.

(c)     Exhibits

4.1	Securities Purchase Agreement dated as of November____, 2002, among K2 Inc. and the parties set forth on the signature pages thereto.
4.2	Form of Convertible Subordinated Debenture—Exhibit A to the Securities Purchase Agreement.
4.3	Form of Stock Purchase Warrant—Exhibit B to the Securities Purchase Agreement.
4.4	Registration Rights Agreement—Exhibit C to the Securities Purchase Agreement.
99.1	Press release dated February 14, 2003 announcing the execution of the Securities Purchase Agreement.

SIGNATURES

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

Date:  February 24, 2003	K2 INC.
	By:	/s/    John J. Rangel
		John J. Rangel Senior Vice President—Finance

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EX-4.1

Exhibit 4.1

SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of November     , 2002, by and among K2 Inc., a Delaware corporation (“Company”), and the purchasers set forth on the signature pages hereto (collectively, the “Buyers”).

WHEREAS:

A. The Company and the Buyers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 under Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);

B. The Buyers desire to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement, (i) convertible subordinated debentures of the Company, in the form attached hereto as Exhibit “A”, in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) (together with any debenture(s) issued in replacement thereof or otherwise with respect thereto in accordance with the terms thereof, the “Debentures”), convertible into shares of common stock, $1.000 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Debentures and (ii) warrants, in the form attached hereto as Exhibit “B”, to purchase Five Hundred Twenty Four Thousand Three Hundred and Twenty Nine (524,329) shares of Common Stock (the “Warrants”);

C. The Buyers wish to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Debentures and number of Warrants as is set forth immediately below its name on the signature pages hereto;

D. Contemporaneous with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit “C” (the “Registration Rights Agreement”), pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws; and

NOW THEREFORE, the Company and the Buyers hereby agree as follows:

1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.

(a) Purchase of Debentures and Warrants. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 6 and Section 7 below, on the Closing Date (as defined below), the Company shall issue and sell to the Buyers, and each Buyer severally (but not jointly) agrees to purchase from the Company, such principal amount of Debentures and number of Warrants for the aggregate purchase price as is set forth immediately below such Buyer’s name on the signature pages hereto. The Company shall issue the Debentures and the Warrants to each Buyer for an aggregate purchase price equal to the principal amount of Debentures which such Buyer is purchasing hereunder (the “Purchase Price”), which aggregate Purchase Price to be paid by the

Buyers hereunder is expected to be Twenty-Five Million Dollars ($25,000,000). The issuance, sale and purchase of the Debentures and the Warrants shall take place at the closing (the “Closing”).

(b) Form of Payment. On the Closing Date (as defined below), (i) each Buyer shall pay the purchase price for the Debentures and the Warrants to be issued and sold to it at the Closing by wire transfer of immediately available funds to the Company in accordance with the Company’s written wiring instructions, against delivery of duly executed Debentures and Warrants which such Buyer is purchasing and (ii) the Company shall deliver such certificates duly executed on behalf of the Company, to each Buyer, against delivery of such Purchase Price.

(c) Closing Date. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Debentures and the Warrants pursuant to this Agreement shall be 12:00 noon Eastern Daylight Time on the earlier to occur of (a) the date set forth in the written notice (the “Call Notice”) delivered to the Buyers by the Company, such date to be a date no earlier than five (5) business days following receipt of such Call Notice, and (b) June 1, 2003 (the earlier of such dates, the “Closing Date”). The Closing shall occur on the Closing Date at the offices of Akerman Senterfitt, One Southeast Third Avenue, Miami, Florida 33131, or at such other location as may be agreed to by the parties.

2. BUYER’S REPRESENTATIONS AND WARRANTIES. Each Buyer represents and warrants to the Company solely as to such Buyer that:

(a) Investment Purpose. As of the date hereof and as of the Closing Date, such Buyer is purchasing the (i) Debentures and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Debentures or the Registration Rights Agreement (such shares of Common Stock being collectively referred to herein as the “Conversion Shares”) and (ii) Warrants and the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants (the “Warrant Shares” and, collectively with the Debentures, Warrants and Conversion Shares, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

(b) Accredited Investor Status. Such Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).

(c) Reliance on Exemptions. Such Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the Securities.

(d) Information. Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating

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to the offer and sale of the Securities which have been requested by such Buyer or its advisors. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigation conducted by any Buyer or any of its advisors or representatives shall modify, amend or affect such Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a significant degree of risk.

(e) Governmental Review. Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

(f) Transfer or Re-sale. Such Buyer understands that (i) except as provided in the Registration Rights Agreement, the sale or re-sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope reasonably satisfactory to the Company) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case, other than pursuant to the Registration Rights Agreement). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

(g) Legends. Such Buyer understands that the Debentures and the Warrants and, until such time as the Conversion Shares and Warrant Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares and Warrant Shares, may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):

“The securities represented by this certificate have not been registered

under the Securities Act of 1933, as amended. The securities may not

be sold, transferred or assigned in the absence of an effective registration

statement for the securities under said Act, or an opinion of counsel,

in form, substance and scope reasonably satisfactory to the

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Company, that registration is not required under said Act or unless

sold pursuant to Rule 144 under said Act.”

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope reasonably satisfactory to the Company, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act and such sale or transfer is effected or (c) such holder provides the Company with reasonable assurances that such Security can be sold pursuant to Rule 144. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any.

(h) Authorization; Enforcement. This Agreement and the Registration Rights Agreement have been duly and validly authorized. This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes, and upon execution and delivery by the Buyer of the Registration Rights Agreement, such agreement will constitute, valid and binding agreements of the Buyer enforceable in accordance with their terms.

(i) Residency. The Buyer is a resident of the jurisdiction set forth immediately below such Buyer’s name on the signature pages hereto.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Buyer that:

(a) Organization and Qualification. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, or financial condition of the Company and its Subsidiaries, if any, taken as a whole, the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith or the authority or the ability of the Company to perform its obligation under this Agreement, the Registration Rights Agreement, the Debentures or the Warrants. “Subsidiary” means any corporation or other organization that would be a “significant subsidiary” as defined in Article I, Rule 1-02 of Regulation S-X, promulgated under the 1933 Act, as such Regulation is in effect on the date hereof.

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(b) Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to file and perform its obligations under the Debentures and to enter into and perform this Agreement, the Registration Rights Agreement and the Warrants and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Debentures, the Registration Rights Agreement and the Warrants by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Debentures and the Warrants and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion of or otherwise pursuant to the Debentures and the Warrant Shares issuable upon exercise of or otherwise pursuant to the Warrants) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its stockholders is required, (iii) this Agreement has been duly executed and delivered by the Company, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Registration Rights Agreement, the Debentures and the Warrants, each of such agreements and instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

(c) “Capitalization. As of the date hereof, the authorized capital stock of the Company consists of (i) 40,000,000 shares of Common Stock of which 18,679,146 shares are issued and outstanding, 2,526,786 shares are reserved for issuance pursuant to the Company’s stock option plans, and zero shares are reserved for issuance pursuant to securities (other than the Debentures and the Warrants) exercisable for, or convertible into or exchangeable for shares of Common Stock; and (ii) 12,500,000 shares of preferred stock, none of which are designated as Series A Junior Participating Cumulative Preferred Stock of which none are issued and outstanding. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and nonassessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the stockholders of the Company. Except as disclosed in Schedule 3(c), as of the effective date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act (except the Registration Rights Agreement) and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Debentures, the Warrants, the Conversion Shares or Warrant Shares.

(d) Issuance of Shares. As of the Closing Date, the Conversion Shares and Warrant Shares are duly authorized and reserved for issuance, and, when issued upon conversion of or otherwise pursuant to the Debentures and upon exercise of or otherwise pursuant to the Warrants in accordance with the terms thereof, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances and will not be subject to preemptive rights or other

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similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof.

(e) Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of or otherwise pursuant to the Debentures and upon issuance of the Warrant Shares upon exercise of or otherwise pursuant to the Warrants. The Company’s directors and executive officers have studied and fully understand the nature of the Securities being sold hereunder. The Company further acknowledges that its obligation to issue Conversion Shares and Warrant Shares upon conversion of the Debentures or exercise of the Warrants in accordance with this Agreement, the Debentures and the Warrants is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. Taking the foregoing into account, the Company’s Board of Directors has determined, in its good faith business judgment, that the issuance of the Securities hereunder and under the Debentures and the Warrants and the consummation of the transactions contemplated hereby and thereby are in the best interest of the Company and its stockholders.

(f) No Conflicts. The execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Warrants by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance, as applicable, of the Debentures, Conversion Shares and Warrant Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (in each case, except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyers owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity the violation of which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or

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make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, the Debentures, the Registration Rights Agreement or the Warrants in accordance with the terms hereof or thereof or to issue and sell the Debentures and Warrants in accordance with the terms hereof and to issue the Conversion Shares upon conversion of or otherwise pursuant to the Debentures and the Warrant Shares upon exercise of or otherwise pursuant to the Warrants. Except as disclosed in Schedule 3(f), all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence will have been obtained or effected on or prior to the Closing Date. The Company is not in violation of the listing requirements of the New York Stock Exchange (“NYSE”) and does not reasonably anticipate that the Common Stock will be delisted by the NYSE in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

(g) SEC Documents; Financial Statements. Since December 31, 1999, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to as the “SEC Documents”). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior to the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 31, 2001 and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company.

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(h) Absence of Certain Changes. Since December 31, 2001, to our knowledge, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, or results of operations of the Company and its Subsidiaries taken as a whole.

(i) Absence of Litigation. Except as set forth on Schedule 3(i), there are no proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or its Subsidiaries in any court or before any governmental authority or arbitration board or tribunal which, if adversely determined, could reasonably be expected to have a Material Adverse Effect.

(j) Patents, Copyrights, etc. The Company and its Subsidiaries own or have the right to use all the material patents, trademarks, trade names, service marks, copyrights, licenses and rights with respect to the foregoing necessary for the present and planned future conduct of their business, without any known conflict with the rights of others.

(k) No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect.

(l) Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.

(m) Certain Transactions. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options disclosed on Schedule 3(c), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

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(n) Disclosure. All written information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists, nor is the Company in possession of any information, with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which has not been publicly announced or disclosed but under applicable law, rule or regulation, requires public disclosure or announcement by the Company (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).

(o) Acknowledgment Regarding Each Buyer’s Purchase of Securities. The Company acknowledges and agrees that each Buyer is acting solely in the capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that each Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and that any statement made by any Buyer or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to such Buyer’s purchase of the Securities and has not been relied upon by the Company, its officers or directors in any way. The Company further represents to each Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.

(p) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyers. The issuance of the Securities to the Buyers will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any stockholder approval provisions applicable to the Company or its securities.

(q) No Additional Fees. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder’s fees or similar payments relating to this Agreement or the transactions contemplated hereby, except for dealings with K-1 USA Ventures, Inc., whose fees will be paid for by the Company.

(r) Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”) the failure of which to obtain would have a Material Adverse Effect, and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since December 31, 2001, neither the Company nor any of its Subsidiaries

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has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

(s) Environmental Matters. Neither the Company nor any of its Subsidiaries is in violation of any environmental laws relating to public health, safety or the environment, including, without limitation, relating to releases, discharges, emissions or disposals of air, water, land or ground water, to the withdrawal or use of ground water, to the use, handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to the treatment, storage, disposal or management of hazardous substances (including, without limitation, petroleum, crude oil or any fraction thereof, or other hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or other controlled, prohibited or regulated substances which violation could reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 3(s), the Company does not know of any liability or class of liability of the Company or any of its Subsidiaries under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 9601 et seq.) which liability could reasonably be expected to have a Material Adverse Effect.

(t) Title to Property. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.

(u) Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

(v) Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(w) Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the

10

Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

(x) Solvency. The Company and its Subsidiaries taken as a whole (both before and after giving effect to the transactions contemplated by this Agreement) are solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. The Company did not receive a qualified opinion from its auditors with respect to its most recent fiscal year end and does not anticipate or know of any basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year.

(y) No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement and the Debentures will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Company is not controlled by an Investment Company.

4. COVENANTS.

(a) Best Efforts. Upon delivery of the Call Notice, the parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement and to otherwise agree on the amount of the Purchase Price paid by each Buyer that is to be allocated to the Warrants to be issued by the Company on the Closing Date.

(b) Form D; Blue Sky Laws. Promptly following the Closing Date, the Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Buyers promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date.

(c) Reporting Status; Eligibility to Use Form S-3; Press Release. The Company’s Common Stock is registered under Section 12(g) of the 1934 Act. So long as the Buyers beneficially own any of the Securities, the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination. The Company will take all necessary action to meet the “registrant eligibility” requirements set forth in the general instructions to Form S-3. As soon as practicable after the Closing Date, the Company shall issue a press release describing the material

11

terms of the transactions contemplated and shall file with the SEC a Current Report on Form 8-K describing the material terms of the transactions contemplated hereby (and attaching as exhibits thereto this Agreement, the Registration Rights Agreement, the form of Debenture and the form of Warrant).

(d) Use of Proceeds. The Company shall use the proceeds from the sale of the Debentures and the Warrants for working capital and general corporate purposes.

(e) Expenses. In connection with the transactions contemplated hereby, the Company shall provide to the Buyers a nonaccountable expense allowance in an aggregate amount not to exceed Seventy Five Thousand Dollars ($75,000).

(f) Financial Information. From and after the Closing Date, the Company agrees to send the following reports to the Buyers until the Buyers hold Debentures of less than $12,500,000 in principal amount: (i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) promptly after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously with the making available or giving to the stockholders of the Company, copies of any notices or other information the Company makes available or gives to such stockholders.

(g) Reservation of Shares. The Company shall at all times from and after the Closing Date have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Debentures and issuance of the Conversion Shares in connection with the conversion of the Debentures (based on the Conversion Price (as defined in the Debentures) in effect from time to time) and as otherwise required by the Debentures and the full exercise of the Warrants and issuance of the Warrant Shares in connection therewith (based on the Exercise Price (as defined in the Warrants) of the Warrants in effect from time to time). The Company shall use its best efforts at all times from and after the Closing Date to maintain the number of shares of Common Stock so reserved for issuance at no less than one hundred twenty percent of the number that is then actually issuable upon full conversion of the Debentures (based on the Conversion Price (as defined in the Debentures) in effect from time to time) and full exercise of the Warrants (based on the Exercise Price (as defined in the Warrants) of the Warrants in effect from time to time). If at any time from and after the Closing Date the number of shares of Common Stock authorized and reserved for issuance is below the number of Conversion Shares issued and issuable upon conversion of or otherwise pursuant to the Debentures (based on the Conversion Price (as defined in the Debentures) in effect from time to time) and the aggregate number of Warrant Shares issued and issuable upon exercise of or otherwise pursuant to the Warrants (based on the Exercise Price (as defined in the Warrants) of the Warrants in effect from time to time), the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company’s obligations under this Section 4(g), in the case of an insufficient number of authorized shares, and using its best efforts to obtain stockholder approval of an increase in such authorized number of shares.

(h) Listing. The Company shall promptly following the Closing Date secure the listing of the Conversion Shares and Warrant Shares upon each national securities exchange or

12

automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as any Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares and Warrant Shares from time to time issuable upon conversion of or otherwise pursuant to the Debentures or exercise of or otherwise pursuant to the Warrants. From and after the Closing Date, the Company will obtain and, so long as any Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the NYSE, NASDAQ or AMEX (except in the case of a merger or consolidation where the Company has complied with its obligations), and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers (“NASD”) and such exchanges, as applicable. From and after the Closing Date, the Company shall promptly provide to each Buyer copies of any notices it receives from the NYSE regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.

(i) Corporate Existence. So long as a Buyer beneficially owns any Debenture or Warrants, the Company shall maintain its corporate existence except in the case of a merger or consolidation where the Company has complied with its obligations set forth in the Debentures with respect to the occurrence of such merger or consolidation.

(j) No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.

(k) Board of Directors. From and after the Closing Date, the Buyers shall have the right to appoint one (1) member to the Company’s board of directors (the “Appointment Right”); provided, however, that any board member appointed by the Buyers hereunder shall be subject to the approval of the Company’s board of directors. Upon the receipt of such approval, the Company shall take all actions necessary to insure election or appointment to the Company’s board of directors of the person appointed by the Buyers. The Appointment Right shall automatically terminate when the Buyers no longer holds in excess of $12,500,000 in principal amount of Debentures. The Appointment Right is not assignable by the Buyers and any unconsented assignment shall be void ab initio. The Buyers hereby appoint Steven Green as their initial designee to the Company’s board of directors.

5. TRANSFER AGENT INSTRUCTIONS. Promptly following the Closing Date, the Company shall issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in such amounts as specified from time to time by each Buyer to the Company upon conversion of its Debenture or exercise of the Warrants in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). Prior to registration of the Conversion Shares and Warrant Shares under the 1933 Act or the date on which the Conversion Shares or Warrant Shares may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. So long as a Buyer holds any Securities, the Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and

13

stop transfer instructions to give effect to Section 2(f) hereof (in the case of the Conversion Shares and Warrant Shares, prior to registration of the Conversion Shares and Warrant Shares under the 1933 Act or the date on which the Conversion Shares or Warrant Shares may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold), will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. Nothing in this Section shall affect in any way each Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If a Buyer provides the Company with (i) an opinion of counsel, in form, substance and scope reasonably satisfactory to the Company, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares and Warrant Shares, promptly instruct its transfer agent to issue one or more certificates, free from any restrictive legend, in such name and in such denominations as specified by such Buyer.

6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Debentures and Warrants to the Buyers at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

(a) Each Buyer shall have executed the Registration Rights Agreement and delivered the same to the Company.

(b) Each Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.

(c) The representations and warranties of each Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), and each Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the applicable Buyer at or prior to the Closing Date and the Company shall have received a certificate from each Buyer duly executed by an officer thereof to the foregoing effect.

(d) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

(e) The Company shall have received any consents necessary for the consummation of the transactions contemplated hereby including without limitation any consents required from the Company’s lenders. The Company shall have received from the Company’s

14

existing noteholders confirmation that the Debentures constitute “Junior Capital”, as such term is defined in the documentation governing the terms and conditions of the Company’s Senior Notes due 2004 and the Company’s Series 1999-A Senior Notes due 2009.

(f) The Company shall have made all filings under all applicable federal or state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws and shall have obtained all authorizations, approvals and permits necessary to consummate the transactions contemplated hereby and such authorizations, approvals and permits shall be effective as of the Closing Date.

7. CONDITIONS TO BUYER’S OBLIGATION TO PURCHASE. The obligation of each Buyer hereunder to purchase its Debentures and Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for such Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion:

(a) The Company shall have executed the Debentures and the Registration Rights Agreement, and delivered the same to the such Buyer.

(b) The Company shall have delivered to such Buyer duly executed certificates representing the Warrants in accordance with Section 1(b) above.

(c) The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to such Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.

(d) The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Each Buyer shall have received a certificate or certificates, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and attaching thereto certified copies of the Company’s Certificate of Incorporation, By-laws and board of directors’ resolutions relating to the transactions contemplated hereby.

(e) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

(f) An additional listing application to authorize the Conversion Shares and the Warrant Shares for quotation on the NYSE shall have been filed with the NYSE no later than five (5) Trading Days after Closing and trading in the Common Stock on the NYSE shall not have been suspended by the SEC or the NYSE.

15

(g) Such Buyer shall have received an opinion of the Company’s counsel, dated as of the Closing Date, in form, scope and substance reasonably satisfactory to such Buyer and in substantially the same form as Exhibit “D” attached hereto.

(h) No material adverse change in the business, operations, assets, financial condition, results of operations, or properties of the Company and its Subsidiaries, if any, taken as a whole, shall have occurred from the date of this Agreement to the Closing Date.

(i) Such Buyer shall have received reasonably satisfactory evidence that not less than a number of shares of Common Stock equal to 120% of the Conversion Shares and the Warrant Shares have been reserved for issuance upon the conversion of the Debentures and the exercise of the Warrants.

8. GOVERNING LAW; MISCELLANEOUS.

(a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in the State of New York (without regard to principles of conflict of laws). Both parties irrevocably consent to the non-exclusive jurisdiction of the United States federal courts and the state courts located in the City of New York, borough of Manhattan, with respect to any suit or proceeding based on or arising under this Agreement, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. Both parties irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding. Both parties further agree that service of process upon a party mailed by first class mail shall be deemed in every respect effective service of process upon the party in any such suit or proceeding. Nothing herein shall affect either party’s right to serve process in any other manner permitted by law. Both parties agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

(b) Counterparts; Signatures by Facsimile. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

(c) Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

(d) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

(e) Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered

16

herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the Company and the holders of at least 50% of the outstanding principal amount of the Debentures or Conversion Shares, as the case may be.

(f) Notices. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications shall be:

If to the Company:

K2 Inc.

4900 South Eastern Avenue

Los Angeles, California 90040

Attention: Chief Financial Officer

Facsimile: (323) 724-0470

With copy to:

Gibson, Dunn & Crutcher LLP

333 South Grand Avenue

Los Angeles, California 90071

Attention: Andy Bogen, Esq.

Facsimile: (213) 229-7520

If to a Buyer: To the address set forth immediately below such Buyer’s name on the signature pages hereto.

With copy to:

Martin T. Schrier, Esq.

Akerman Senterfitt

One Southeast Third Avenue

Miami, Florida 33131

Facsimile: (305) 374-5095

Each party shall provide notice to the other party of any change in address.

(g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its rights

17

hereunder to any person that purchases Securities in a private transaction from a Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.

(h) Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

(i) Survival. The representations and warranties of the Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyers; provided, however, that the representations and warranties of the Company contained in Section 3 hereof shall expire on December 31, 2003, to the extent the subject of a disclosure item in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and otherwise on May 1, 2004. The Company agrees to indemnify and hold harmless each Buyer and all of its officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in Sections 3 and 4 hereof or any of its covenants and obligations under this Agreement or the Registration Rights Agreement, including, subject to the limitation set forth in Section 4(e), advancement of expenses as they are incurred.

(j) Publicity. The Company and each Buyer shall have the right to review a reasonable period of time before issuance of any press releases, filings with the SEC, NYSE or any stock exchange or interdealer quotation system, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Buyer, to make any press release or public filings with respect to such transactions as is required by applicable law and regulations (although each Buyer shall be consulted by the Company in connection with any such press release or public filing prior to its release or public filing and shall be provided with a copy thereof and be given an opportunity to comment thereon). In addition, the Company agrees that it will not disclose, and will not include in any public filing or other announcement, the name of any Buyer, unless expressly agreed to in writing by such Buyer or unless and until such disclosure is, in the reasonable opinion of counsel to the Company, required by law or applicable regulation, and then only to the extent of such requirement.

(k) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

(l) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

(m) Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyers by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach or threatened breach in writing of its obligations under this Agreement will be

18

inadequate and agrees, in the event of a breach by the Company of the provisions of this Agreement, that the Buyers shall be entitled, in addition to all other available remedies in law or in equity, to an injunction or injunctions to prevent or cure any breaches of the provisions of this Agreement and to enforce specifically the terms and provisions of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this Agreement to be duly executed as of the date first above written.

K2 INC.
By:	/s/    John J. Rangel
	Name: John J. Rangel Title:   Senior Vice President - Finance

Counterpart Signature Page to Securities Purchase Agreement dated as of November         , 2002 among K2 Inc.,

the undersigned, and the other persons identified therein as “Buyers”

SPORTING GOODS INVESTMENT I, LP
By:	K-1 USA VENTURES, INC., its sole general partner

By:	/s/    K-1 USA VENTURES, INC.
	Name: Title:

RESIDENCE:

ADDRESS:

AGGREGATE SUBSCRIPTION AMOUNT:

Number of Debentures:		12,500,000
Number of Warrants:		262,164
Aggregate Purchase Price:	$	12,500,000

Counterpart Signature Page to Securities Purchase Agreement dated as of November         , 2002 among K2 Inc.,

the undersigned, and the other persons identified therein as “Buyers”

SPORTING GOODS INVESTMENT II, LP
By:	K-1 Holdings Equity I, Inc., its general partner

By:	/s/ K-I Holdings Equity I, Inc.
	Name: Title:

RESIDENCE:

ADDRESS:

AGGREGATE SUBSCRIPTION AMOUNT:

Number of Debentures:		12,500,000
Number of Warrants:		262,165
Aggregate Purchase Price:	$	12,500,000

EX-4.2

Exhibit 4.2

EXHIBIT A

to

Securities

Purchase

Agreement

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO K2 INC. THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.

CONVERTIBLE SUBORDINATED DEBENTURE

                              ,          $            

FOR VALUE RECEIVED, K2, INC., a corporation organized under the laws of the State of Delaware (hereinafter called the “Borrower”), hereby promises to pay to the order of                                                   or its registered assigns (the “Holder”) the sum of                                                                       Dollars ($                 ) on March 3, 2010 (the “Maturity Date”) and to pay interest on the unpaid principal balance hereof at the rate of seven and one quarter percent (7.25%) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable (which interest shall accrue on a daily basis), whether on any payment date, maturity or upon conversion, acceleration or otherwise. Any amount of principal of or interest on this Debenture which, to the extent not converted in accordance with the provisions hereof, is not paid when due (after giving effect to any applicable cure periods) shall bear interest at the rate of ten percent (10%) per annum (“Default Interest”) from the due date thereof, if no cure period is applicable, and otherwise after the lapse of any applicable cure periods until the same is paid. The interest to be paid pursuant to this Debenture shall be calculated based on a 360-day year and shall commence accruing on the Issue Date and shall be payable quarterly. All payments of principal and interest (to the extent not converted into shares of the Borrower’s common stock, par value $1.00 per share (“Common Stock”), in accordance with the terms hereof) shall be made in, and all references herein to monetary denominations shall refer to, lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Debenture. The Maturity Date is subject to extension, at the option of the Holder, as provided in Article IV hereof. This Debenture is being issued by the Borrower pursuant to the Securities Purchase Agreement, dated as of November     , 2002, among the Borrower and the persons identified on the signature pages thereof as “Buyers” (the “Purchase Agreement”). Each capitalized term used, but not otherwise defined, herein shall have the

meaning ascribed thereto in the Purchase Agreement. For purposes hereof, the term “Debentures” shall be deemed to refer to this Debenture, all other convertible subordinated debentures issued pursuant to the Purchase Agreement and all convertible subordinated debentures issued in replacement hereof or thereof or otherwise with respect hereto or thereto.

I. REDEMPTION

A. Mandatory Redemption. If any of the following events (each, a “Mandatory Redemption Event”) shall occur:

1. The Borrower fails to pay the principal hereof or interest thereon or any fee when due on this Debenture (and, in the case of the failure to pay any accrued interest or fee when due, such failure continues for a period of 30 days following the due date thereof), whether at maturity, on the quarterly payment date, upon acceleration or otherwise;

2. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for all or substantially all of its property or business; or such a receiver or trustee shall otherwise be appointed;

3. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower (and, in the case of any proceeding filed against the Borrower, such proceeding is not dismissed within 60 days of its commencement);

4. (i) The consolidation, merger or other business combination of the Borrower with or into another person (other than a consolidation, merger or other business combination in which holders of the Borrower’s voting power immediately prior to the transaction continue after the transaction to hold, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities), (ii) the sale or transfer of all or substantially all of the Borrower’s assets, or (iii) a purchase, tender or exchange offer made to and accepted by the holders of more than 50% of the aggregate voting power of the outstanding Common Stock unless holders of the Borrower’s voting power immediately prior to the transaction continue after the transaction to hold, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity (the occurrence of an event described in the preceding clauses (i), (ii) or (iii), being referred to herein as a “Change of Control”);

5. The Borrower breaches any covenant contained in Article II.A.2 or Article III hereof or Sections 2(g), 4(c), 4(d), 4(h), 4(i), 4(k) or 5 of the Purchase Agreement or Section 2(a) of the Registration Rights Agreement or the registration statement required to be filed pursuant to Section 2(a) of the Registration Rights Agreement has not been declared effective by the date that is 270 days following the Closing Date and any such breach continues uncured for a period of thirty (30) days after written notice thereof to the Borrower from any holder of Debentures; or

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6. The Borrower is in default in the payment of any principal or interest on any indebtedness for borrowed money that is outstanding in .an aggregate principal amount of at least $5,000,000 beyond any period of grace provided with respect thereto and as a consequence of such default such indebtedness has become, or has been declared, due and payable before its stated maturity.

then, upon the occurrence and during the continuation of any Mandatory Redemption Event specified in subparagraphs 1, 4, 5 or 6 at the option of the holders of at least 50% of the then outstanding principal amount of the Debentures exercisable by the delivery of written notice (the “Mandatory Redemption Notice”) to the Borrower of such Mandatory Redemption Event, or upon the occurrence of any Mandatory Redemption Event specified in subparagraphs 2 or 3, the then outstanding Debentures shall become immediately redeemable and the Borrower shall purchase each holder’s outstanding Debentures for an amount equal to the greater of:

(i) 105% multiplied by the sum of (a) the then outstanding principal amount of the Debentures, plus (b) all accrued and unpaid interest thereon for the period beginning on the Issue Date and ending on the date of payment of the Mandatory Redemption Amount (the “Mandatory Redemption Date”), plus (c) Default Interest, if any, on the amounts referred to in clauses (a) and/or (b), plus (d) all other amounts owed to such holder pursuant to the terms of this Agreement, the Purchase Agreement or the Registration Rights Agreement, and

(ii) the “parity value” of the Debentures to be redeemed, where parity value means, as of any date of determination, the product of (x) the number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Debentures in accordance with the terms hereof (without giving any effect to any limitations on conversions of Debentures contained herein) multiplied by (y) the highest Closing Price (as defined below) for the Common Stock during the period beginning on the date of first occurrence of the Mandatory Redemption Event and ending one day prior to the Mandatory Redemption Date (the greater of such amounts set forth in clauses (i) and (ii) above being referred to as the “Mandatory Redemption Amount”).

The Mandatory Redemption Amount, together with all other ancillary amounts payable hereunder, shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, reasonable legal fees and expenses of collection, and Holder shall be entitled to exercise all other rights and remedies available at law or in equity. “Closing Price,” as of any date, means the last sale price of the Common Stock on the NYSE as reported by Bloomberg Financial Markets or an equivalent reliable reporting service mutually acceptable to and hereafter designated by the holders of a majority of the outstanding principal amount of the Debentures and the Borrower (“Bloomberg”) or, if the NYSE is not the principal trading market for such security, the last sale price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or, if no last sale price of such security is available in any of the foregoing manners, the average of the bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Closing Price cannot be calculated for such security on such date in the manner provided above, the Closing Price shall be the fair market value as determined in good faith by the Board of Directors of the Borrower (and set forth in a resolution).

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B. Failure to Pay Redemption Amounts. In the case of a Mandatory Redemption Event, if the Borrower fails to pay the Mandatory Redemption Amount within five (5) business days of written notice that such amount is due and payable, then (assuming there are sufficient authorized shares) in addition to all other available remedies, the Holder shall have the right (and the Borrower shall have the obligation) at anytime, and from time to time after the failure to timely pay the Mandatory Redemption Amount, so long as the Mandatory Redemption Event continues, to require the Borrower, upon written notice, to immediately issue (in accordance with and subject to the terms of Article II below), in lieu of the portion of the Mandatory Redemption Amount with respect to which such election is made, the number of shares of Common Stock of the Borrower equal to such applicable redemption amount divided by the Conversion Price (as defined below).

C. Optional Redemption by the Borrower. From and after                          , 200             1 and so long as a Registration Statement (as defined in the Registration Rights Agreement) has been effective for the thirty (30) day period prior to the proposed redemption date, the Borrower may, at its option, redeem all but not less than all of this Debenture, upon notice as set forth in Article I.E hereof, and the Borrower shall pay the Holder the appropriate redemption price (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest thereon, if any, to, but not including, the date of redemption, if redeemed during the 12-month period beginning on                              of the years indicated below:

Year	Redemption Price
2006	105%
2007	103.5%
2008	102.5%
2009	100%
2010	100%

D. Optional Redemption by the Borrower Upon a Change of Control. The Borrower, or the successor entity as the case may be, shall have the right to redeem all but not less than all of this Debenture, upon notice as set forth in Article I.E hereof, at any time on or after the occurrence of a Change of Control and so long as a Registration Statement (as defined in the Registration Rights Agreement) has been effective for the thirty (30) day period prior to the proposed redemption date, at a price equal to 105% of the principal amount of the Debenture called for redemption, plus accrued and unpaid interest thereon, if any, to, but not including, the date of redemption.

E. Notice of Optional Redemption; Payment of Optional Redemption. In case the Borrower shall desire to exercise the right to redeem this Debenture pursuant to subsection (c) or (d) hereof, it shall fix a date for redemption, and it shall mail or cause to be mailed a notice of such redemption at least fifteen (15) and not more than forty-five (45) days prior to the date fixed for redemption to the Holder. Such mailing shall be by first class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or

     1             3 years from date of issuance.

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any defect in the notice to the Holder shall not affect the validity of the proceedings for the redemption of this Debenture.

Each such notice of redemption shall specify the aggregate principal amount of this Debenture to be redeemed (which shall be not less than the principal amount then outstanding), the date fixed for redemption, the redemption price at which this Debenture is to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of this Debenture, that interest accrued to, but excluding, the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon redeemed will cease to accrue. Such notice shall also state the current Conversion Price and the date on which the right to convert this Debenture into Common Stock will expire (which date shall not be sooner than the date fixed for redemption of this Debenture).

If notice of redemption has been given as above provided, this Debenture shall, unless converted into Common Stock pursuant to the terms hereof, become due and payable on the date and at the place or places stated in such notice at the applicable redemption price, and interest accrued to, but excluding, the date fixed for redemption, and on and after said date (unless the Borrower shall default in the payment of the Debenture at the redemption price and interest accrued to, but excluding, said date) interest on this Debenture shall cease to accrue and the Debenture shall cease after the close of business on the Business Day next preceding the date fixed for redemption to be convertible into Common Stock and the Holder shall have no rights in respect of this Debenture except the right to receive the redemption price thereof and unpaid interest to, but excluding, the date fixed for redemption. On presentation and surrender of this Debenture at a place of payment specified in said notice, this Debenture shall be paid and redeemed by the Borrower at the applicable redemption price and interest accrued thereon to, but excluding, the date fixed for redemption; provided that, if the applicable redemption date is an interest payment date, the quarterly payment of interest becoming due on such date shall be payable to the Holder on the relevant record date.

II. CONVERSION AT THE OPTION OF HOLDER

A. Optional Conversion

1. Conversion Amount. Subject to the restrictions set forth in Article II.A.2 below, the Holder may, at its option at any time and from time to time prior to 5:00 pm, Eastern Standard Time, on the Maturity Date, convert all or any portion of this Debenture into Common Stock as set forth below (an “Optional Conversion”). This Debenture shall be convertible into such number of fully paid and nonassessable shares of Common Stock as such Common Stock exists on the Issue Date, or any other shares of capital stock or other securities of the Borrower into which such Common Stock is thereafter changed or reclassified, as is determined by dividing (a) the Conversion Amount (as defined below) by (b) the Conversion Price (as defined in Article II.B below); provided, however, that in no event shall Holder be entitled to convert this Debenture in exercise of that dollar amount of Debentures upon conversion of which the sum of (x) the number of shares of Common Stock beneficially owned by Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Debenture or the unexercised or unconverted portion of any

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other securities of the Borrower (including, without limitation, the warrants issued by the Borrower pursuant to the Purchase Agreement (the “Warrants”)) subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (y) the number of shares of Common Stock issuable upon the conversion of the portion of this Debenture with respect to which the determination of this proviso is being made, would result in beneficial ownership by Holder and Holder’s affiliates of more than 9.9% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, (i) beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in clause (x) of such proviso and (ii) such proviso may not be amended without (a) the written consent of the Holder and the Borrower and (b) the approval of the holders of a majority of Borrower’s Common Stock present, or represented by proxy, and voting at any meeting called to vote on such proviso. “Conversion Amount” means (i) the portion of the principal amount of this Debenture being converted, plus (ii) all accrued and unpaid interest thereon for the period beginning on the Issue Date and ending on the Conversion Date (as defined in Article II.B.1), plus (iii) Default Interest, if any, on the amounts referred to in the immediately preceding clauses (i) and/or (ii), plus (iv) all other amounts owed to Holder pursuant to this Debenture or the Registration Rights Agreement.

2. Trading Market Limitation. Unless the Borrower either (i) is permitted (or not prohibited) by the applicable rules and regulations of the principal securities market on which the Common Stock is listed or traded to issue shares of Common Stock upon conversion of or otherwise pursuant to the Debentures in excess of the Maximum Share Amount (as defined below) or (ii) has obtained stockholder approval of the issuance of shares of Common Stock upon conversion of or otherwise pursuant to the Debentures in excess of the Maximum Share Amount in accordance with applicable law and the rules and regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities (the “Stockholder Approval”), in no event shall the total number of shares of Common Stock issued upon conversion of or otherwise pursuant to the Debentures (including any shares of capital stock or rights to acquire shares of capital stock issued by the Borrower which are aggregated or integrated with the Common Stock issued or issuable upon conversion of or otherwise pursuant to the Debentures for purposes of any such rule or regulation) exceed the maximum number of shares of Common Stock which the Borrower can so issue pursuant to any rule or regulation of the NYSE (or any other principal United States securities market on which the Common Stock trades) (the “Maximum Share Amount”), which as of the Issue Date shall be                  (19.99% of the total shares of Common Stock outstanding on the Issue Date), subject to equitable adjustments from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the Issue Date. With respect to each Holder of Debentures, the Maximum Share Amount shall refer to such Holder’s pro rata share thereof determined in accordance with Article V.I below. In the event that the sum of (x) the aggregate number of shares of Common Stock actually issued upon conversion of or otherwise pursuant to the Debentures, plus (y) the aggregate number of shares of Common Stock that remain issuable upon conversion of or otherwise pursuant to the then outstanding Debentures at the then effective Conversion Price represents at least one hundred percent (100%) of the Maximum Share Amount (the “Triggering Event”), the Borrower will use its best efforts to seek and obtain Stockholder

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Approval (or obtain such other relief as will allow conversions hereunder in excess of the Maximum Share Amount) as soon as practicable following the Triggering Event.

B. Conversion Price

1. Calculation of Conversion Price. Subject to subparagraph 2 below, the “Conversion Price” shall mean 11.92. The Conversion Price shall be subject to adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the Issue Date. “Closing Bid Price” means, for any security as of any date, the closing bid price on the NYSE as reported by Bloomberg or, if the NYSE is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or, if no closing bid price of such security is available in any of the foregoing manners, the average of the bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date in the manner provided above, the Closing Bid Price shall be the fair market value as determined in good faith by the Board of Directors of the Borrower (and set forth in a resolution). “Trading Day” shall mean any day on which the Common Stock is traded for any period on the NYSE, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

2. Conversion Price During Major Announcements. Notwithstanding anything contained in subparagraph 1 of this Paragraph B to the contrary, if any time prior to the date that is 90 days following the Closing Date, the Borrower makes a public announcement that it intends to consummate a Change of Control, other than a Change of Control involving the acquisition by the Borrower of any person or all or substantially all of the assets of any person (the date of such an announcement is referred to hereinafter as the “Announcement Date”), then the Conversion Price shall, effective on the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal, for each such date, to the lower of (x) the Closing Bid Price on the Announcement Date and (y) the Conversion Price that would otherwise be in effect on such date. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in subparagraph 1 of this Article II.B. For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this subparagraph 2 has been made, the date upon which the Borrower or such other counterpart to the proposed Change of Control transaction consummates or publicly announces the termination or abandonment of the proposed Change of Control transaction which caused this subparagraph 2 to become operative.

C. Adjustments to Conversion Price. The Conversion Price shall be subject to adjustment from time to time as follows:

1. Adjustment to Conversion Price Due to Stock Split, Stock Dividend, Etc. If, at any time when this Debenture is outstanding, the number of outstanding shares of Common Stock is increased or decreased by a stock split, stock dividend, combination, reclassification or other similar event, which event shall have taken place during the reference period for determination of the Conversion Price for any Optional Conversion, then the

7

Conversion Price shall be calculated giving appropriate effect to the stock split, stock dividend, combination, reclassification or other similar event. In such event, the Borrower shall notify the Transfer Agent of such change on or before the effective date thereof.

2. Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Debenture is outstanding and prior to the conversion of all Debentures, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower (each, a “Change of Control Transaction”), then Holder shall thereafter have the right to receive upon conversion of this Debenture, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon such conversion, such stock, securities or assets which Holder would have been entitled to receive in such transaction had this Debenture been converted in full immediately prior to such transaction (without regard to any limitations on conversion or exercise contained herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of Holder to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares of Common Stock issuable upon conversion of this Debenture) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion of this Debenture. The Borrower shall give, to the extent practical, thirty (30) days’ prior written notice (but in any event at least fifteen (15) business days prior written notice) of the record date of the special meeting of stockholders to approve, or if there is no such record date, the consummation of, such Change of Control Transaction (during which time Holder shall be entitled to convert this Debenture). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

3. Other Securities Offerings. If, on or after the Closing Date through the date that is 90 days following such date, the Borrower sells Common Stock or securities convertible into, or exchangeable for, Common Stock, other than an Excluded Issuance (collectively, the “Full Ratchet Common Stock”), then, if the effective or maximum sales price of the Common Stock with respect to such transaction (including the effective or maximum conversion, or exchange price) (the “Full Ratchet Price”) is less than the effective Conversion Price of the Debentures at such time and such Full Ratchet Common Stock is eligible for resale prior to November     , 2007, at the option of the Holder, the Borrower shall adjust the Conversion Price applicable to the portion of this Debenture not yet converted in form and substance reasonably satisfactory to the Holder so that the Conversion Price applicable to this Debenture shall not, in any event, be greater, after giving effect to all other adjustments contained herein, than the Full Ratchet Price.

If, at any time after the date that is 90 days following the Closing Date, the Borrower sells Common Stock or securities convertible into, or exchangeable for, Common Stock, other than an Excluded Issuance (collectively, the “Other Common Stock”), then, if the effective or maximum sales price of the Common Stock with respect to such transaction (including the effective or maximum conversion, or exchange price) (the “Other Price”) is less than the

8

effective Conversion Price of the Debentures at such time and such Other Common Stock is eligible for resale prior to November         , 2007, at the option of the Holder, the Conversion Price applicable to the portion of this Debenture not yet converted will be reduced to a price determined by multiplying the Conversion Price in effect immediately prior to such transaction by a fraction, (i) the numerator of which is an amount equal to the sum of (x) the number of shares of Common Stock Deemed Outstanding (as defined below) immediately prior to such transaction, plus (y) the quotient of the aggregate consideration received by the Borrower in connection with such transaction divided by the Conversion Price in effect immediately prior to such transaction, and (ii) the denominator of which is the total number of shares of Common Stock Deemed Outstanding immediately after such transaction.

(a) Effect on Exercise Price of Certain Events. For purposes of determining the adjusted Conversion Price under Article C.3 hereof, the following will be applicable:

(i) Issuance of Rights or Options. If the Borrower in any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price on the date of issuance or grant of such Options, then the maximum total number of shares of Common Stock issuable upon the exercise of all such Options will, as of the date of the issuance or grant of such Options, be deemed to be outstanding and to have been issued and sold by the Borrower for such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

(ii) Issuance of Convertible Securities. If the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options) and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price on the date of issuance of such Convertible Securities, then the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities will, as of the date of the issuance of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Borrower for such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable

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upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

(iii) Change in Option Price or Conversion Rate. If there is a change at any time in (i) the amount of additional consideration payable to the Borrower upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange of any Convertible Securities; or (iii) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock (other than under or by reason of provisions designed to protect against dilution), the Conversion Price in effect at the time of such change will be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold.

(iv) Treatment of Expired Options and Unexercised Convertible Securities. If, in any case, the total number of shares of Common Stock issuable upon exercise of any Option or upon conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to exercise such Option or to convert or exchange such Convertible Securities shall have expired or terminated, the Conversion Price then in effect will be readjusted to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise or conversion thereof), never been issued.

(v) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued, granted or sold for cash, the consideration received therefor for purposes of this Debenture will be the amount received by the Borrower therefor, before deduction of reasonable commissions, underwriting discounts or allowances or other reasonable expenses paid or incurred by the Borrower in connection with such issuance, grant or sale. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Borrower will be the fair value of such consideration. In case any Common Stock, Options or Convertible Securities are issued in connection with any acquisition, merger or consolidation in which the Borrower is the surviving corporation, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving corporation as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined in good faith by the Board of Directors of the Borrower and set forth in a resolution.

As used herein:

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“Common Stock Deemed Outstanding” shall mean the number of shares of Common Stock actually outstanding (not including shares of Common Stock held in the treasury of the Borrower), plus (x) the maximum total number of shares of Common Stock issuable upon the exercise of options, as of the date of such issuance or grant of such options, if any, and (y) the maximum total number of shares of Common Stock issuable upon conversion or exchange of convertible securities, as of the date of issuance of such convertible securities, if any.

“Excluded Issuance” shall mean (i) a sale pursuant to a bona fide firm commitment underwritten public offering of Common Stock by the Borrower (not including a continuous offering pursuant to Rule 415 under the Securities Act), (ii) a sale in an aggregate amount not exceeding                  shares2 (subject to adjustment for stock splits, stock dividends, stock combination and similar transactions), (iii) any securities deemed to have been issued by the Borrower in connection with any stock option plan, restricted stock plan, or employee benefit plan which has been approved by the Board of Directors of the Borrower, (iv) any securities deemed to have been issued upon issuance of the Debentures or issued upon conversion of the Debentures or the warrants issued pursuant to the Purchase Agreement or issued upon the exercise thereof, (v) securities issued upon exercise of options or convertible securities which are outstanding on the date immediately preceding the Closing Date, (vi) securities issued by the Company in connection with an acquisition of a business, operating assets or a person, and (vii) securities issued to any strategic investors, vendors, financial institutions or other lenders in connection with commercial credit arrangements and similar financings, lessors, customers or suppliers, lease or similar arrangements the primary purpose of which is not to raise equity capital.

4. Purchase Rights. If, at any time this Debenture is outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock and the record date for the issuance of such Purchase Rights is a date prior to the date of the Borrower’s declaration of its issuance of such Purchase Rights or within ten (10) days of such declaration, then Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which Holder could have acquired if Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on conversion or exercise contained herein and based upon the Conversion Price as would then be in effect) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

D. Mechanics of Conversion. In order to convert this Debenture into shares of Common Stock, Holder shall: (1) submit a copy of the fully executed notice of conversion in the form attached hereto as Exhibit A (“Notice of Conversion”) to the Borrower by facsimile dispatched prior to 10 A.M., New York City time (the “Conversion Notice Deadline”), on the date specified therein as the Conversion Date (as defined in Article II.D.5) (or by other means resulting in, or reasonably expected to result in, written notice to the Borrower on the date specified therein as the Conversion Date) to the office of the Borrower or its designated Transfer

2        3.0% of outstanding Common Stock

11

Agent for the Debentures, which notice shall specify the principal amount of this Debenture to be converted, the applicable Conversion Price and a calculation of the number of shares of Common Stock issuable upon such conversion; and (2) subject to Article II.D.1 below, surrender this Debenture along with a copy of the Notice of Conversion to the office of the Borrower as soon as practicable thereafter. In the case of a dispute as to the calculation of the Conversion Price, the Borrower shall promptly issue that number of shares of Common Stock as is not disputed in accordance with subparagraph (3) below. The Borrower shall submit the disputed calculations to its outside accountant via facsimile within five (5) business days of receipt of the Notice of Conversion. The accountant shall audit the calculations and notify the Borrower and Holder of the results no later than two (2) business days from the time it receives the disputed calculations. The accountant’s calculation shall be deemed conclusive absent manifest error.

1. Surrender of Debenture Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Debenture in accordance with the terms hereof, Holder shall not be required to physically surrender this Debenture to the Borrower unless the entire unpaid principal amount of this Debenture is so converted. Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to Holder and the Borrower, so as not to require physical surrender of this Debenture upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Debenture is converted as aforesaid, Holder may not transfer this Debenture unless Holder first physically surrenders this Debenture to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of Holder a new Debenture of like tenor, registered as Holder may request, representing in the aggregate the remaining unpaid principal amount of this Debenture. Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

2. Lost or Stolen Debentures. Upon receipt by the Borrower of evidence of the loss, theft, destruction or mutilation of this Debenture, and (in the case of loss, theft or destruction) of indemnity reasonably satisfactory to the Borrower, and upon surrender and cancellation of this Debenture, if mutilated, the Borrower shall execute and deliver a new Debenture of like tenor and date.

3. Delivery of Common Stock Upon Conversion. Upon the submission of a Notice of Conversion, the Borrower shall, within three (3) business days after the Conversion Date (the “Delivery Period”), issue and deliver (or cause its Transfer Agent to so issue and deliver) in accordance with the terms hereof and the Purchase Agreement to or upon the order of Holder that number of shares of Common Stock for the portion of this Debenture converted as shall be determined in accordance herewith. In the event the Borrower or the Transfer Agent, as applicable, fails to issue and deliver the number of shares of Common Stock for the portion of this Debenture converted hereby, the Borrower shall pay to Holder $2,000 per day in cash for each day beyond a two (2) day grace period following the Delivery Period that the Borrower fails to deliver Common Stock (a “Delivery Default”) issuable upon conversion of this Debenture pursuant to the Notice of Conversion until such time as the Borrower has delivered all such

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Common Stock (the “Delivery Default Payments”). Such Delivery Default Payments shall be paid to Holder by the fifth (5th) day of the month following the month in which they have accrued or, at the option of Holder (by written notice to the Borrower by the first day of the month following the month in which they have accrued), shall be convertible into Common Stock in accordance with the terms of this Article II. The payment of the Delivery Default Payments shall be the Holder’s sole remedy for the failure of the Borrower or the Transfer Agent, as the case may be, to issue and deliver the requisite number of shares of Common Stock upon the conversion of this Debenture; provided, however, that if the Delivery Default giving rise to the payment of Delivery Default Payments continues for more than thirty (30) days, the Holder may exercise its right to seek an order of specific performance with respect to such Delivery Default and otherwise seek to obtain a judgment with respect to any consequential damages resulting from the occurrence and continuance of such Delivery Default.

In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower’s Transfer Agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon written request of Holder and its compliance with the provisions contained in Article II.A and in this Article II.D, the Borrower shall use its best efforts to cause its Transfer Agent to electronically transmit the Common Stock issuable upon conversion to Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system. The time periods for delivery and penalties described in the immediately preceding paragraph shall apply to the electronic transmittals described herein.

4. No Fractional Shares. If any conversion of this Debenture would result in a fractional share of Common Stock or the right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon conversion of this Debenture.

5. Conversion Date. The “Conversion Date” shall be the date specified in the Notice of Conversion, provided that the Notice of Conversion is submitted by facsimile (or by other means resulting in, or reasonably expected to result in, written notice) to the Borrower or its Transfer Agent before Midnight, New York City time, on the date so specified, otherwise the Conversion Date shall be the first business day after the date so specified on which the Notice of Conversion is actually received by the Borrower or its Transfer Agent. The person or persons entitled to receive the shares of Common Stock issuable upon conversion of this Debenture shall be treated for all purposes as the record holder or holders of such securities as of the Conversion Date and all rights with respect to this Debenture (or portion thereof) surrendered shall forthwith terminate except the right to receive the shares of Common Stock or other securities or property issuable on such conversion (or exercise) and except that the holders preferential rights as a Holder of this Debenture shall survive to the extent the Borrower fails to deliver such securities.

E. [Intentionally Omitted]

F. Reservation of Shares. A number of shares of the authorized but unissued Common Stock sufficient to provide for the conversion in full of the Debentures outstanding (based on the Conversion Price in effect from time to time) shall at all times be reserved by the

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Borrower, free from preemptive rights, for such conversion or exercise. As of the Issue Date, 3,144,774 authorized and unissued shares of Common Stock have been duly reserved for issuance upon conversion of the Debentures (the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement. In addition, if the Borrower shall issue any securities or make any change in its capital structure which would change the number of shares of Common Stock into which the Debentures shall be convertible, the Borrower shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the Debentures.

If at any time Holder submits a Notice of Conversion, and the Borrower does not have sufficient authorized but unissued shares of Common Stock duly reserved and available for issuance to effect such conversion in accordance with the provisions of this Article II (a “Conversion Default”), subject to Article V.I, the Borrower shall issue to Holder all of the shares of Common Stock which are available to effect such conversion and exercise, if applicable. The portion of the principal amount of this Debenture (or the number of shares of Common Stock included in the Notice of Conversion which exceeds the amount which is then convertible (or exercisable) into available shares of Common Stock (the “Excess Amount”) shall, notwithstanding anything to the contrary contained herein, not be convertible (or exercisable) into Common Stock in accordance with the terms hereof until (and at Holder’s option at any time after) the date additional shares of Common Stock are authorized and duly reserved by the Borrower to permit such conversion (or exercise). The Borrower shall use its best efforts to effect an increase in the authorized number of shares of Common Stock as soon as possible following the earlier of (x) such time that Holder notifies the Borrower or that the Borrower otherwise becomes aware that there are or likely will be insufficient authorized and unissued shares to allow full conversion hereof and (y) a Conversion Default. In the event of the occurrence of a Conversion Default, the Borrower shall pay to Holder an amount equal to $2,000 per diem (“Conversion Default Payments”) for each day commencing with the date of the occurrence of the Conversion Default (the “Conversion Default Date”) through but not including the date (the “Authorization Date”) that the Borrower authorizes a sufficient number of shares of Common Stock to effect conversion of the Debentures. The Borrower shall send notice to Holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of Holder’s accrued Conversion Default Payments. The accrued Conversion Default Payment for each calendar month shall be paid in cash or shall be convertible into Common Stock at the applicable Conversion Price, at the Holder’s option, as follows:

1. In the event the Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth (5th) day of the month following the month in which it has accrued.

2. In the event the Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at the Conversion Price (as in effect at the time of Conversion) at any time after the fifth day of the month following the month in which it has accrued in accordance with the terms of this Article II (so long as there is then a sufficient number of authorized shares of Common Stock).

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Holder’s election shall be made in writing to the Borrower at any time prior to 5:00 p.m., New York City time, on the third (3rd) day of the month following the month in which Conversion Default Payments have accrued. If no election is made, Holder shall be deemed to have elected to receive cash. The payment of the Conversion Default Payments shall be the Holder’s sole remedy for the failure of the Borrower to have reserved a sufficient number of shares of Common Stock to effect a Conversion; provided, however, that if the Conversion Default giving rise to the payment of Conversion Default Payments continues for more than sixty (60) days, the Holder may exercise its right to seek an order of specific performance with respect to such Conversion Default and otherwise seek to obtain a judgment with respect to any consequential damages resulting from the occurrence and continuance of such Conversion Default.

G. Notice of Conversion Price Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Article II, the Borrower, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of Holder, furnish or cause to be furnished to Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of this Debenture.

III. CERTAIN COVENANTS

A. Distributions on Capital Stock. So long as any payment obligation is outstanding under this Debenture, the Borrower shall not, without the prior written consent of the holders of a majority of the then outstanding principal amount of the Debentures, pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of its capital stock.

B. Advances and Loans. So long as any payment obligation is outstanding under this Debenture, the Borrower shall not, without the prior written consent of the holders of a majority of the then outstanding principal amount of the Debentures, lend money, give credit or make advances to any unaffiliated person, firm, joint venture or corporation, except loans, credits or advances (a) in existence or committed on the date hereof or (b) made in the ordinary course of business.

C. Contingent Liabilities. So long as any payment obligation is outstanding under this Debenture, the Borrower shall not, without the prior written consent of the holders of a majority of the then outstanding principal amount of the Debentures, assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any unaffiliated person, firm, partnership, joint venture or corporation, except for (a) the endorsement of negotiable instruments for deposit or collection, (b) assumptions, guarantees, endorsements and

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contingencies that are either (i) in existence or committed on the date hereof or (b) transactions made in the ordinary course of business.

D. Borrowings. So long as any payment obligation is outstanding under this Debenture, the Borrower shall not, without the written consent of the holders of a majority of the then outstanding principal amount of the Debentures, create, incur, assume or suffer to exist any indebtedness for borrowed money, except (a) indebtedness in existence or contractually committed on the date of the date hereof (together with refinancings, replacements, extensions, refundings or consolidations thereof so long as the principal amount outstanding, in the case of an uncommitted facility, or the committed amount, in the case of a committed facility, of such indebtedness after giving effect to such refinancing, replacement, extension, refunding or consolidation does not exceed 120% of the principal amount previously outstanding or committed to be provided, as the case may be), (b) indebtedness to trade creditors incurred in the ordinary course of business, (c) indebtedness, the proceeds of which shall be used to repay this Debenture at maturity, upon optional redemption or following the occurrence of a Mandatory Redemption Event, (d) indebtedness represented by mortgage refinancings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Borrower so long as the aggregate principal amount thereof does not exceed 15% of the Borrower’s Consolidated Net Worth at any time or (e) additional indebtedness so long as the aggregate principal amount thereof does not exceed 15% of the Borrower’s Consolidated Net Worth after giving effect to the incurrence thereof.

As used in this Article III:

“Affiliate” shall mean, with respect to a specified person, a person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.

“Consolidated Net Worth” shall mean, as of the date of determination thereof, the total consolidated assets of the Borrower and its subsidiaries on a consolidated basis less the total liabilities of the Borrower and its subsidiaries on a consolidated basis determined in accordance with generally accepted accounting principles.

E. Stock Repurchases. So long as any payment obligation is outstanding under this Debenture, the Borrower shall not repurchase or otherwise acquire any of its capital stock unless such repurchase is permitted by the Borrower’s then existing senior credit facility.

IV. MATURITY

The entire principal amount of the Debentures then outstanding (together with any accrued and unpaid interest thereon, Default Interest and all other amounts due and payable by the Borrower) on the Maturity Date, shall be paid by the Borrower to the Holder in immediately available funds. At the option of the Holder, the Maturity Date shall be delayed by one (1) Trading Day for each Trading Day occurring prior thereto and prior to the full conversion of the Debentures that (i) any Registration Statement required to be filed and to be effective pursuant to

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the Registration Rights Agreement is not effective or sales of all of the Registrable Securities otherwise cannot be made thereunder during the Registration Period (whether by reason of the Borrower’s failure to properly supplement or amend the prospectus included therein in accordance with the terms of the Registration Rights Agreement or otherwise), (ii) any Mandatory Redemption Event exists, without regard to whether any cure periods shall have run or (iii) the Borrower is in breach of any of its obligations pursuant to Section 4(g) of the Purchase Agreement.

V. CONVERSION AT THE OPTION OF THE BORROWER

Subject to the limitations on conversion set forth in Article II.A, the Borrower may, at its option, automatically convert this Debenture (an “Mandatory Conversion”) at any time after                      , 200     3 if (i) the Trade Price per share of the Common Stock has exceeded 140% of the Conversion Price then in effect for at least fifteen (15) Trading Days within a period of twenty (20) consecutive Trading Days ending five (5) Trading Days prior to the mandatory conversion date, (ii) a registration statement covering the resale of the Common Stock issuable upon such conversion is effective (and has been effective for the thirty (30) days prior to the automatic conversion date set forth in the Mandatory Conversion Notice described below) and available for resale of the Common Stock issuable upon conversion of this Debenture, (iii) the Common Stock issuable upon conversion of this Debenture is authorized and reserved for issuance, (iv) the shares of Common Stock issuable upon conversion are listed for trading on the NYSE and (v) no Mandatory Redemption Event then exists. Unless the Borrower shall have theretofore called for redemption this Debenture in full, the Borrower shall give to the Holder by mailing, first class postage prepaid, a notice (the “Mandatory Conversion Notice”) of the Mandatory Conversion not more than thirty (30) days and not less than five (5) days before the automatic conversion date. Any notice that is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. Each Mandatory Conversion Notice shall state: (a) the automatic conversion date, (b) the place or places where the Debenture is to be surrendered for conversion and (c) the Conversion Price then in effect. If any of the foregoing provisions or other provisions of this Section are inconsistent with applicable law, such law shall govern. In the event of a Mandatory Conversion, the Borrower shall issue and deliver a certificate or certificates for the number of full shares of Common Stock issuable upon conversion of this Debenture along with any cash in respect of any fractional shares of Common Stock otherwise issuable upon conversion as promptly after the Mandatory Conversion Date as practicable in accordance with the provisions of this Article V. The Debenture subject to the Mandatory Conversion shall be delivered to the Borrower to be canceled. Notwithstanding notice of a Mandatory Conversion, the Holder shall at all times prior to the Mandatory Conversion Date maintain the right to convert all or any portion of this Debenture in accordance with Article II. “Trade Price” means, for any security as of any date, the highest sale price of the Common Stock on the NYSE as reported by Bloomberg or, if NYSE is not the principal trading market for such security, the sale price of such security on the principal securities exchange or trading market where such security is listed

3        3 years from Issue Date.

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or traded as reported by Bloomberg, or, if no sale price of such security is available in any of the foregoing manners, the bid price of any market maker for such security that is listed in the “pink sheet” by the National Quotation Bureau, Inc. If the Trade Price cannot be calculated for such security on such date in the manner provided above, the Trade Price shall be the fair market value as determined in good faith by the Board of Directors of the Borrower and set forth in a resolution. If, due to the limitations set forth in Article II.A, the holder of this Debenture is unable to convert any portion of this Debenture pursuant to this Article V, holder shall not convert any such portion of this Debenture not converted as a result of such limitation until the holder’s beneficial ownership (as calculated in accordance with Article II.A) of Borrower is below 9.9% of the outstanding shares of Common Stock. If (i) a Mandatory Conversion Notice has been delivered, (ii) holder’s beneficial ownership (as calculated in accordance with Article II.A.1) of Borrower decreases below 9.9% of the outstanding shares of Common Stock, and (iii) amounts (either principal or interest) remain outstanding under this Debenture, at any time the holder’s beneficial ownership of Borrower decreases below 9.9% of the outstanding shares of Common Stock, without any further notice to the Borrower, the holder shall resume conversion of this Debenture pursuant to this Article V until (i) holder’s beneficial ownership (as calculated in accordance with Article II.A.1) of Borrower increases to 9.9% of the outstanding shares of Common Stock or (ii) all amounts outstanding under this Debenture have been converted.

VI. SUBORDINATION

A. Subordination to Senior Indebtedness. The Borrower covenants and agrees, and each Holder of this Debenture, by his or her acceptance thereof, likewise covenants and agrees, that this Debenture shall be issued subject to the provisions of this Article VI and to the extent and in the manner hereinafter set forth in this Article VI, the indebtedness represented by this Debenture and the payment of the principal amount, and interest thereon, or any other amounts in respect of this Debenture are hereby expressly made subordinate and junior and subject in right of payment to the prior payment in full in cash or cash equivalents of all Senior Indebtedness of the Borrower now outstanding or hereinafter incurred. “Senior Indebtedness” means the principal of, make-whole amount, if any, and premium, if any, and interest on, fees, costs and expenses in connection with and other amounts due on (i) all indebtedness and other obligations of the Borrower under the Credit Agreement dated as of December 21, 1999, among the Borrower, the lenders from time to time party thereto, and Bank of America, as administrative agent (the “Administrative Agent”), as amended by the First Amendment to Credit Agreement dated as of March 28, 2002 (said agreement as hereafter amended, restated, refinanced or replaced from time to time the “Credit Agreement”), (ii) all indebtedness and other obligations of the Borrower under the Note Agreements dated as of October 15, 1992 among the Borrower and the institutional investors named therein as amended by the Fourth Amendment to the Note Agreements, dated as of March 27, 2002 (said agreements as from time to time hereafter amended or restated, the “1992 Note Agreements”), (iii) all indebtedness and other obligations of the Borrower under the Note Purchase Agreement dated as of December 1, 1999 among the Borrower and the institutional investors named therein amended by the Third Amendment dated as of March 27, 2002 (said agreement as from time to time hereafter amended and restated, the “1999 Note Agreements”), (iv) all indebtedness of the Borrower for monies borrowed, including, without limitation, accounts receivable sold or assigned by the Borrower,

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(v) all obligations of the Borrower evidenced by any notes, debentures, bonds or other instruments issued to banks, trust companies, insurance companies, other financial institutions and other entities that in the ordinary course of business make loans, (vi) all obligations of the Borrower under any interest or currency swap agreements, hedging agreements, cap, floor and collar agreements, spot and forward contracts and other similar agreements, (vii) obligations in respect of letters of credit, bank guarantees and bankers acceptances, (viii) principal of, and interest on any indebtedness or obligations of others of the kinds described in (i) through (vii) above assumed or guaranteed in any manner by the Borrower, and (ix) deferrals, renewals, extensions and refundings of any such indebtedness or obligations described in (i) through (viii) above, in each case unless the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that the same is not senior in right of payment to this Debenture. Senior Indebtedness includes, with respect to the foregoing, interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Borrower, whether or not post-filing interest is allowed in such proceeding. Notwithstanding the foregoing, “Senior Indebtedness” shall not include (a) indebtedness of the Borrower evidenced by any other Debenture issued pursuant to the Purchase Agreement, each of which shall rank equally and ratably with this Debenture, (b) any obligation of the Borrower to any subsidiary of the Borrower, (c) any liability for Federal, state, local or other taxes owed or owing by the Borrower, (d) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (e) any indebtedness or obligation of the Borrower (and any accrued and unpaid interest in respect thereof) that by its terms is subordinate or junior in right of payment to any other indebtedness or obligation of the Borrower (but excluding the effect of intercreditor arrangements among the Borrower and the holders of Designated Senior Debt (as hereinafter defined)), or (f) any obligation with respect to any shares, interest, rights to purchase, warrants, options, participations or other equivalents of, or interests in, the equity of the Borrower or any subsidiary, including any preferred stock or other preferred equity.

B. No Payment or Enforcement Actions if Default in Senior Indebtedness. No payment on account of principal of, or interest on this Debenture shall be made, and this Debenture shall not be redeemed or purchased directly or indirectly by the Borrower (or any of its subsidiaries), if at the time of such payment or purchase or immediately after giving effect thereto, (i) a default in the payment of principal, make-whole amount, if any, premium, if any, interest, or other obligations in respect of any Senior Indebtedness occurs and is continuing (a “Payment Default”), unless and until such Payment Default shall have been cured or waived or shall have ceased to exist or (ii) the Borrower shall have received notice (a “Payment Blockage Notice”) from the holder or holders of Designated Senior Debt that there exists under such Designated Senior Debt a default, which shall not have been cured or waived in writing by the holders of the requisite percentage of the Senior Indebtedness in accordance with the terms of such Senior Indebtedness, permitting the holder or holders thereof to declare such Designated Senior Debt due and payable, but only for the period (the “Payment Blockage Period”) commencing on the date of receipt of the Payment Blockage Notice and ending on the earlier of (a) the date such default shall have been cured or waived in writing by the holders of the requisite percentage of the Senior Indebtedness in accordance with the terms of such Senior Indebtedness, or (b) the 180th day immediately following the Borrower’s receipt of such Payment Blockage Notice. The Borrower shall resume payments on and distributions in respect of this Debenture, including any past scheduled payments of interest on such Debentures to

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which the Holder would have been entitled but for the provisions of this Article VI(B) in the case of a Payment Default, on the date upon which such Payment Default is cured or waived or ceases to exist. In addition, notwithstanding clauses (i) and (ii), unless the holders of Designated Senior Debt shall have accelerated the maturity of such Designated Senior Debt, the Borrower shall resume payments on this Debenture after the end of each Payment Blockage Period. Not more than one Payment Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Debt during such period. “Designated Senior Debt” means any (i) Senior Indebtedness outstanding under the Credit Agreement, the 1992 Note Agreements and the 1999 Note Agreement and (ii) Senior Indebtedness the instruments or agreements creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Borrower is a party) expressly provides that such indebtedness shall be “Designated Senior Debt” for purposes of this Debenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of the holders of such Senior Indebtedness to exercise the rights of holders of Designated Senior Debt). If any payment made to any holder of any Designated Senior Debt with respect to such Designated Senior Debt is rescinded or must otherwise be returned by such holder upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the reinstated indebtedness of the Borrower arising as a result of such rescission or return shall constitute Designated Senior Debt effective as of the date of such rescission or return. So long as either a Payment Default shall exist or a Payment Blockage Period is then in effect, the Holder shall not (i) deliver any Mandatory Redemption Notice (unless the requisite percentage of the holders of the Senior Indebtedness have accelerated the Senior Indebtedness), (ii) reduce any claim to judgment or otherwise institute any suit to enforce or collect any amount payable under this Debenture or the Purchase Agreement, (iii) commence or join with any other creditor of the Borrower in commencing any bankruptcy, reorganization, receivership or insolvency proceeding against the Borrower or (iv) otherwise ask, demand, sue for, take or receive from the Borrower, by set off or in any other manner, the whole or any part of any monies which may now or hereafter be owing by the Borrower to the Holder on account of any amounts payable under this Debenture (any such action being hereinafter referred to as an “Enforcement Action”). The Holder shall not take any Enforcement Action unless the Holder shall have given the holders of Designated Senior Debt not less than 15 days prior written notice of such proposed Enforcement Action.

C. Payment upon Dissolution, Etc.

(a) In the event of any bankruptcy, insolvency, reorganization, receivership, composition, assignment for benefit of creditors or other similar proceeding initiated by or against the Borrower or any dissolution or winding up or total or partial liquidation or reorganization of the Borrower (being hereinafter referred to as a “Proceeding”), the Holder, by his or her acceptance thereof, agrees that such Holder shall, upon request of a holder of Senior Indebtedness, and at such Holder’s own expense take all reasonable actions (including but not limited to the execution and filing of documents and the giving of testimony in any Proceeding, whether or not such testimony could have been compelled by process) necessary to prove the full amount of all their claims in any Proceeding and the holders of the other Debentures shall not waive any claim in any Proceeding without the written consent of such Holder. The Holder hereby irrevocably authorizes, empowers and appoints each holder of the Designated Senior Debt as its attorney in fact to execute, verify and deliver or file any such proof of claim.

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(b) Upon payment or distribution to creditors in a Proceeding of assets of the Borrower of any kind or character, whether in cash, property or securities, all Senior Indebtedness shall first be paid in full in cash or cash equivalents before the Holder shall be entitled to receive or, if received, to retain any payment or distribution on account of this Debenture, and upon any such Proceeding, any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities, to which the Holder would be entitled except for the provisions of this Article VI shall be paid by the Borrower or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holder, if the Holder shall have received such payment or distribution, directly to the holders of the Senior Indebtedness (pro rata to each such holder on the basis of the respective amounts of such Senior Indebtedness held by such holder) or their representatives to the extent necessary to pay all such Senior Indebtedness in full in cash or cash equivalents after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the Holder.

D. Payments on Debenture. Subject to Article VI.C, the Borrower may make payments of the principal of, and any interest or premium on, or any other amounts due in respect of, this Debenture, if at the time of payment, and immediately after giving effect thereto, (i) there exists no Payment Default or a Payment Blockage Period and (ii) the Borrower is permitted to make payments under Article VI.C.

E. Certain Conversions Deemed Payment. For the purposes of this Article VI only (a) the issuance and delivery of junior securities upon conversion of this Debenture in accordance with Articles II or V shall not be deemed to constitute a payment of distribution on account of the principal of or interest on this Debenture or on account of the purchase or other acquisition of this Debenture, and (b) the payment, issuance or delivery of cash (except in satisfaction of fractional shares), property or securities (other than junior securities) upon conversion of this Debenture shall be deemed to constitute payment on account of the principal of this Debenture. For the purposes of this Article VI.E, the term “junior securities” means (i) shares of any stock of any class of the Borrower which are not subject to mandatory redemption or purchase by the Borrower, or (ii) securities of the Borrower which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, this Debenture is so subordinated as provided in this Article VI as determined in good faith by the requisite holder of Designated Senior Debt in accordance with the terms of such Designated Senior Debt. Nothing contained in this Article VI or elsewhere in this Debenture is intended to or shall impair, as among the Borrower, its creditors other than holders of Senior Indebtedness and the Holder, the right, which is absolute and unconditional, of the Holder to convert this Debenture in accordance with Article II.

F. Subrogation. Subject to payment in full in cash or cash equivalents of all Senior Indebtedness, the Holder shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of the assets of the Borrower made on such Senior Indebtedness until all principal and interest on this Debenture shall be paid in full; and for purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property or securities to which any Holders of the Debentures would be entitled except for the subordination provisions of this Article VI shall, as between the Holder and the

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Borrower and/or its creditors other than the holders of the Senior Indebtedness, be deemed to be a payment on account of the Senior Indebtedness. Each Holder waives and agrees not to assert against any holder of Senior Indebtedness any rights that a guarantor or surety could exercise; provided, however that nothing herein is intended or shall be deemed to cause the Holder to be a guarantor or surety of the Borrower’s obligations to the holders of the Senior Indebtedness.

G. Rights of Holder Unimpaired. The provisions of this Article VI are and are intended solely for the purposes of defining the relative rights of the Holder and the holders of Senior Indebtedness and nothing in this Article VI shall impair, as between the Borrower and the Holder, the obligation of the Borrower, which is unconditional and absolute, to pay to the Holder the principal thereof (and premium, if any) and interest thereon, in accordance with the terms hereof.

H. Holders of Senior Indebtedness. These provisions regarding subordination will constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness; such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are hereby made obligees under such provisions to the same extent as if they were named therein, and they or any of them individually or through their representatives may proceed to enforce such subordination. The holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to any of the Holder, without incurring responsibility to the Holder and without impairing or releasing the subordination provisions of this Article VI, (i) change the manner, terms or place of payment of, or renew or alter, any Senior Indebtedness, or otherwise amend (including any amendment which has the effect of extending the maturity of the Senior Indebtedness or increasing the rate of interest thereon) or supplement the same, (ii) sell, exchange or release any collateral mortgaged, pledged or otherwise securing the Senior Indebtedness, (iii) release any person liable in any manner for the Senior Indebtedness and (iv) exercise or refrain from exercising any rights against the Borrower or any other Person.

I. Amendments to Debenture. Without the prior written consent of the Required Holders (as defined in the 1992 Note Agreements and the 1999 Note Agreement) of Designated Senior Debt and the Administrative Agent, neither the Holder nor the Borrower will amend, supplement, alter or modify any provision of this Debenture or the Purchase Agreement which (i) changes the dates upon which payments of principal or interest on this Debenture are due, (ii) changes, or adds any Mandatory Redemption Event to this Debenture, (iii) changes the redemption or prepayment provisions of this Debenture, (iv) alters the provisions of this Article VI, or (v) shortens the maturity date of this Debenture or otherwise alters the repayment terms of this Debenture.

VII. MISCELLANEOUS

A. Failure of Indulgence Not Waiver. No failure or delay on the part of Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

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B. Notices. Any notices required or permitted to be given under the terms of this Debenture shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or by facsimile, in each case addressed to a party. The addresses for such communications shall be:

If to the Borrower:

K2 Inc.

4900 South Eastern Avenue

Los Angeles, California 90040

Attention: Chief Financial Officer

Facsimile: (323) 724-0470

With copy to:

Gibson, Dunn & Crutcher LLP

333 South Grand Avenue

Los Angeles, California 90071

Attention: Andy Bogen, Esq.

Facsimile: (213) 229-7520

If to Holder, to the address set forth immediately below Holder’s name on the signature pages to the Purchase Agreement or such other address as is communicated to the Borrower by notice by Holder in accordance with the terms hereof.

With copy to:

Martin T. Schrier, Esq.

Akerman Senterfitt

One Southeast Third Avenue

Miami, Florida 33131

Facsimile: (305) 374-5095

C. Amendment Provision. The Debentures may be amended only by an instrument in writing signed by the Borrower and the holders of a majority of the then outstanding principal amount of the Debentures.

D. Assignability. This Debenture shall be binding upon the Borrower and its successors and assigns and, in the case of Article VI, the holders of Senior Indebtedness and their respective successors and assigns, and shall inure to the benefit of Holder and its successors and assigns. In the event Holder shall sell or otherwise transfer any portion of this Debenture, each transferee shall be allocated a pro rata portion of such transferor’s Maximum Share Amount and

23

Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount which remains allocated to any person or entity which does not hold any Debentures shall be allocated to the remaining holders of Debentures, pro rata based on the total principal amount of Debentures then held by such holders.

E. Cost of Collection. If default is made in the payment of this Debenture, the Borrower shall pay Holder costs of collection, including reasonable attorneys’ fees.

F. Governing Law. This Debenture shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York (without regard to principles of conflict of laws). The Borrower and Holder irrevocably consent to the exclusive jurisdiction of the United States federal courts and state courts located in the City of New York, Borough of Manhattan, in any suit or proceeding based on or arising under this Debenture, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The Borrower and Holder irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Borrower and Holder further agree that service of process upon a party mailed by first class mail shall be deemed in every respect effective service of process upon the party in any such suit or proceeding. Nothing herein shall affect Holder’s right to serve process in any other manner permitted by law. The Borrower and Holder agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

G. Denominations. At the request of Holder, upon surrender of this Debenture, the Borrower shall promptly issue new Debentures in the aggregate outstanding principal amount hereof, in the form hereof, in such denominations of at least $25,000 as Holder shall request.

H. Pro Rata Allocations. The Maximum Share Amount and the Reserved Amount (including any increases thereto) shall be allocated by the Borrower pro rata among the holders of the Debentures based on the total principal amount of Debentures originally issued to each holder of the Debentures. Each increase to the Maximum Share Amount and the Reserved Amount shall be allocated pro rata among the holders of the Debentures based on the total principal amount of Debentures held by each holder at the time of the increase in the Maximum Share Amount or Reserved Amount. In the event a holder shall sell or otherwise transfer any of such holder’s shares of the Debentures, each transferee shall be allocated a pro rata portion of such transferor’s Maximum Share Amount and Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount which remains allocated to any person or entity which does not hold any the Debentures shall be allocated to the remaining holders of shares of the Debentures, pro rata based on the total principal amount of Debentures held by such holders.

I. Status as Debentureholder. Upon submission of a Notice of Conversion by Holder, the principal amount of this Debenture and the interest thereon covered thereby (other than any portion of this Debenture, if any, which cannot be converted because the conversion thereof would exceed such holder’s allocated portion of the Maximum Share Amount or Reserved Amount) shall be deemed converted into shares of Common Stock as of the Conversion Date and Holder’s rights as a holder of this Debenture shall cease and terminate,

24

excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such holder because of a failure by the Borrower to comply with the terms of this Debenture. Notwithstanding the foregoing, if Holder has not received certificates for all shares of Common Stock prior to the tenth business day after the expiration of the Delivery Period with respect to a conversion for any reason, then (unless Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the portion of the principal amount and interest thereon subject to such conversion shall be deemed outstanding under this Debenture and the Borrower shall, as soon as practicable, return this Debenture to Holder.

In all cases, Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Article II.F to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Article II.F) for the Borrower’s failure to convert this Debenture.

J. Remedies Cumulative. The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance giving rise to such remedy and nothing herein shall limit Holder’s right to pursue actual damages for any failure by the Borrower to comply with the terms of this Debenture. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Holder and that the remedy at law for any such breach may be inadequate. The Borrower therefore agrees, in the event of any such breach or threatened breach, Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

K. Board Determinations. In the event the Board of Directors of the Borrower exercises its obligation to determine the fair market value of the Common Stock in accordance with the terms of this Debenture, the Borrower shall provide to the Holder hereof together with a copy of resolution setting forth the Board of Directors’ good faith determination of the fair market value of such Common Stock a certificate setting forth in reasonable detail the process by which the Board of Directors of the Borrower made its determination.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in its name by its duly authorized officer as of the date first above written.

K2 INC., a Delaware corporation
By:
	Name: Title:

26

EXHIBIT A

NOTICE OF CONVERSION

(To be Executed by the Registered Holder

in order to Convert the Debentures)

The undersigned hereby irrevocably elects to convert $                  principal amount of the Debenture (defined below) into shares of common stock, par value $1.00 per share (“Common Stock”), of K2 Inc., a Delaware corporation (the “Borrower”) according to the conditions of the convertible subordinated debentures of the Borrower dated as of                  , 200_ (the “Debentures”), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

The undersigned irrevocably elects to convert [$                  representing all principal, accrued but unpaid interest and other amounts due] [$                  representing a portion of the principal outstanding under the Debenture held by the undersigned] at the Conversion Price set forth below.

The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

Name of DTC Prime Broker:                                                                                                                                                                                                     

Account Number:                                                                                                                                                                                                                          

¨ In lieu of receiving shares of Common Stock issuable pursuant to this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

Name:                                                                                                                                                                                                                                                

Address:                                                                                                                                                                                                                                            

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Debentures shall be made pursuant to registration of the securities under the Securities Act of 1933, as amended (the “Act”), or pursuant to an exemption from registration under the Act.

Date of Conversion:                                                         

Conversion Price:                                         

Number of Shares of Common Stock to be Issued                                              

Signature:                                                                           

Name:                                                                                  

Address:                                                                              

A-1

EX-4.3

Exhibit 4.3

EXHIBIT B

TO THE

SECURITIES

PURCHASE

AGREEMENT

THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS OF NOVEMBER         , 2002, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, REASONABLY SATISFACTORY TO K2 INC. THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

Right to

Purchase

Shares of

Common Stock,

par value $1.00

per share

STOCK PURCHASE WARRANT

THIS CERTIFIES THAT, for value received,                              or its registered assigns, is entitled to purchase from K2 Inc., a Delaware corporation (the “Company”), at any time or from time to time during the period specified in Paragraph 2 hereof, Five Hundred Twenty Four Thousand Three Hundred Twenty Nine (524,329)1 [$25,000,000 divided by the Conversion Price multiplied by [0.25] [the “Conversion Price” shall mean the average of the closing prices over the fifteen trading days ending on the trading day preceding the effective date of the Securities Purchase Agreement multiplied by 120%]] fully paid and nonassessable shares of the Company’s common stock, par value $1.00 per share (the “Common Stock”), at an exercise price of $13.91 [140% of the Closing Price (the “Closing Price” shall mean the average of the closing prices over the fifteen trading days ending on the trading day preceding the closing date)] per share (the “Exercise Price”). The term “Warrant Shares,” as used herein, refers to the shares of Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price are subject to adjustment as provided in Paragraph 4 hereof. The term Warrants means this Warrant and the other warrants issued pursuant to that certain Securities Purchase Agreement, dated

     1             Pro-rata for each purchaser to be indicated.

November     , 2002, among the Company and the Buyers listed on the execution page thereof (the “Securities Purchase Agreement”).

This Warrant is subject to the following terms, provisions, and conditions:

1. Manner of Exercise; Issuance of Certificates; Payment for Shares. Subject to the provisions hereof, this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant, together with a completed exercise agreement in the form attached hereto (the “Exercise Agreement”), to the Company during normal business hours on any business day at the Company’s principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), and upon payment to the Company in cash, by certified or official bank check or by wire transfer for the account of the Company of the Exercise Price for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder’s designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Exercise Agreement shall have been delivered, and payment shall have been made for such shares as set forth above. Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised.

Notwithstanding anything in this Warrant to the contrary, in no event shall the Holder of this Warrant be entitled to exercise a number of Warrants (or portions thereof) in excess of the number of Warrants (or portions thereof) upon exercise of which the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unexercised Warrants and the unexercised or unconverted portion of any other securities of the Company (including the Debentures (as defined in the Securities Purchase Agreement)) subject to a limitation on conversion or exercise analogous to the limitation contained herein) and (ii) the number of shares of Common Stock issuable upon exercise of the Warrants (or portions thereof) with respect to which the determination described herein is being made, would result in beneficial ownership by the Holder and its affiliates of more than 9.9% of the outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in clause (i) hereof. Notwithstanding anything in this Warrant to the contrary, the restrictions on exercise of this Warrant set forth in this paragraph shall not be amended without (i) the written consent of the Holder and the Company and (ii) the approval of the holders of a majority of the Common Stock present, or represented by proxy, and voting at any meeting called to vote on the amendment of such restriction.

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2. Period of Exercise. This Warrant is exercisable at any time or from time to time on or after the date on which this Warrant is issued and delivered pursuant to the terms of the Securities Purchase Agreement (the “Issue Date”) and before 5:00 p.m., New York City time on the fifth (5th) anniversary of the Closing Date (the “Exercise Period”).

3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows:

(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all taxes, liens, and charges with respect to the issue thereof.

(b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant.

(c) Listing. The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of the Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system.

(d) Certain Actions Prohibited. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(e) Successors and Assigns. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation, or acquisition of all or substantially all the Company’s assets.

4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares shall be subject to adjustment from time to time as provided in this Paragraph 4.

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In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up to the nearest cent.

(a) Adjustment of Exercise Price and Number of Shares upon Issuance of Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e) hereof, if and whenever on or after the Issue Date of this Warrant, the Company issues or sells, or in accordance with Paragraph 4(b) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the then effective Exercise Price on the date of issuance (or deemed issuance) of such Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Exercise Price will be reduced to a price determined by multiplying the Exercise Price in effect immediately prior to the Dilutive Issuance by a fraction, (i) the numerator of which is an amount equal to the sum of (x) the number of shares of Common Stock Deemed Outstanding immediately prior to the Dilutive Issuance, plus (y) the quotient of the aggregate consideration, calculated as set forth in Paragraph 4(b) hereof, received by the Company upon such Dilutive Issuance divided by the Exercise Price in effect immediately prior to the Dilutive Issuance, and (ii) the denominator of which is the total number of shares of Common Stock Deemed Outstanding (as defined below) immediately after the Dilutive Issuance.

(b) Effect on Exercise Price of Certain Events. For purposes of determining the adjusted Exercise Price under Paragraph 4(a) hereof, the following will be applicable:

(i) Issuance of Rights or Options. If the Company in any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Exercise Price on the date of issuance or grant of such Options, then the maximum total number of shares of Common Stock issuable upon the exercise of all such Options will, as of the date of the issuance or grant of such Options, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Exercise Price will be made upon the actual issuance of such Common Stock upon the exercise of such

4

Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options) and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Exercise Price on the date of issuance of such Convertible Securities, then the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities will, as of the date of the issuance of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Exercise Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

(iii) Change in Option Price or Conversion Rate. If there is a change at any time in (i) the amount of additional consideration payable to the Company upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Company upon the conversion or exchange of any Convertible Securities; or (iii) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock (other than under or by reason of provisions designed to protect against dilution), the Exercise Price in effect at the time of such change will be readjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold.

(iv) Treatment of Expired Options and Unexercised Convertible Securities. If, in any case, the total number of shares of Common Stock issuable upon exercise of any Option or upon conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to exercise such Option or to convert or exchange such Convertible Securities shall have expired or terminated, the Exercise Price then in effect will be readjusted to the Exercise Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise or conversion thereof), never been issued.

5

(v) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued, granted or sold for cash, the consideration received therefor for purposes of this Warrant will be the amount received by the Company therefor, before deduction of reasonable commissions, underwriting discounts or allowances or other reasonable expenses paid or incurred by the Company in connection with such issuance, grant or sale. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Market Price thereof as of the date of receipt. In case any Common Stock, Options or Convertible Securities are issued in connection with any acquisition, merger or consolidation in which the Company is the surviving corporation, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving corporation as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined in good faith by the Board of Directors of the Company and set forth in a resolution.

(vi) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise Price will be made (i) upon the exercise of any warrants, options or convertible securities granted, issued and outstanding on the date of issuance of this Warrant; (ii) upon the grant or exercise of any stock or options which may hereafter be granted or exercised under any stock option plan, restricted stock plan or employee benefit plan of the Company now existing or to be implemented in the future, so long as the issuance of such stock or options is approved by a majority of the independent members of the Board of Directors of the Company or a majority of the members of a committee of independent directors established for such purpose; (iii) upon the exercise of the Warrants; (iv) the issuance or conversion of the Debentures; (v) upon a sale pursuant to a bona fide firm commitment underwritten public offering of Common Stock by the Company (not including a continuous offering pursuant to Rule 415 under the Securities Act); (vi) sales in an aggregate amount not exceeding                         2 shares (subject to adjustment for stock splits, stock dividends, stock combination and similar transactions), (vii) securities issued by the Company in connection with an acquisition of a business, operating assets or a person, or (viii) securities issued to any strategic investors, vendors, financial institutions or other lenders in connection with commercial credit arrangements and similar financings, lessors, customers or suppliers, lease or similar arrangements the primary purpose of which is not to raise equity capital.

(c) Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by reverse stock split, recapitalization, reorganization, reclassification or

     2             3.0% of outstanding Common Stock as of the effective date of the SPA.

6

otherwise) the shares of Common Stock acquirable hereunder into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionately increased.

(d) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Paragraph 4, the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price.

(e) Consolidation, Merger or Sale. In case of any consolidation of the Company with, or merger of the Company into any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company, adequate provision will be made whereby the holder of this Warrant will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant had such consolidation, merger or sale or conveyance not taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this Paragraph 4 hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant.

(f) Notice of Adjustment. Upon the occurrence of any event which requires any adjustment of the Exercise Price, then, and in each such case, the Company shall give notice thereof to the holder of this Warrant, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such price upon exercise, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Company.

(g) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price.

(h) No Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant. If the exercise of this Warrant would result in a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon exercise of the Warrant shall be the next higher number of shares.

(i) Other Notices. In case at any time:

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(i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of any class or make any other distribution (including dividends or distributions payable in cash out of retained earnings) to the holders of the Common Stock;

(ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights;

(iii) there shall be any capital reorganization of the Company, or reclassification of the Common Stock, or consolidation or merger of the Company with or into, or sale of all or substantially all its assets to, another corporation or entity; or

(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company;

then, in each such case, the Company shall give to the holder of this Warrant (a) notice of the date on which the books of the Company shall close or a record shall be taken for determining the holders of Common Stock entitled to receive any such dividend, distribution, or subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation thereof by the Company) when the same shall take place. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least 30 days prior to the record date or the date on which the Company’s books are closed in respect thereto. Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above.

(j) Certain Definitions.

(i) “Common Stock Deemed Outstanding” shall mean the number of shares of Common Stock actually outstanding (not including shares of Common Stock held in the treasury of the Company), plus (x) pursuant to Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon the exercise of Options, as of the date of such issuance or grant of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum total number of shares of Common Stock issuable upon conversion or exchange of Convertible Securities, as of the date of issuance of such Convertible Securities, if any.

(ii) “Market Price,” as of any date, (i) means the average of the last reported sale prices for the shares of Common Stock on the New York Stock Exchange (the “NYSE”) for the five (5) trading days immediately preceding such date as reported by Bloomberg Financial Markets or an equivalent reliable reporting service mutually acceptable to and hereafter designated by the holder of this Warrant and the Company

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(“Bloomberg”), or (ii) if NYSE is not the principal trading market for the shares of Common Stock, the average of the last reported sale prices on the principal trading market for the Common Stock during the same period as reported by Bloomberg, or (iii) if market value cannot be calculated as of such date on any of the foregoing bases, the Market Price shall be the fair market value as reasonably determined in good faith by the Board of Directors of the Company and set forth in a resolution. The manner of determining the Market Price of the Common Stock set forth in the foregoing definition shall apply with respect to any other security in respect of which a determination as to market value must be made hereunder.

(iii) “Common Stock,” for purposes of this Paragraph 4, includes the Common Stock, par value $1.00 per share, and any additional class of stock of the Company having no preference as to dividends or distributions on liquidation, provided that the shares purchasable pursuant to this Warrant shall include only shares of Common Stock, par value $1.00 per share, in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of the character referred to in Paragraph 4(e) hereof, the stock or other securities or property provided for in such Paragraph.

5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the holder of this Warrant or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the holder of this Warrant.

6. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company. No provision of this Warrant, in the absence of affirmative action by the holder hereof to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

7. Transfer, Exchange, and Replacement of Warrant.

(a) Restriction on Transfer. This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office or agency of the Company referred to in Paragraph 7(e) below, provided, however, that any transfer or assignment shall be subject to the conditions set forth in Paragraph 7(f) hereof and to the applicable provisions of the Securities Purchase Agreement. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights described in Paragraph 8 are assignable only in accordance with the provisions of that certain Registration Rights Agreement, dated as of                              ,         , by

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and among the Company and the other signatories thereto (the “Registration Rights Agreement”).

(b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the holder hereof at the office or agency of the Company referred to in Paragraph 7(e) below, for new Warrants of like tenor representing in the aggregate the right to purchase the number of shares of Common Stock which may be purchased hereunder, each of such new Warrants to represent the right to purchase such number of shares as shall be designated by the holder hereof at the time of such surrender.

(c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor.

(d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in connection with any transfer, exchange, or replacement as provided in this Paragraph 7, this Warrant shall be promptly canceled by the Company. The Company shall pay all taxes (other than securities transfer taxes) and all other expenses (other than legal expenses, if any, incurred by the Holder or transferees) and charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Paragraph 7.

(e) Register. The Company shall maintain, at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant.

(f) Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel, which opinion and counsel are acceptable to the Company, to the effect that such exercise, transfer, or exchange may be made without registration under said Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter or status as an “accredited investor” shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. The first holder of this Warrant, by taking and holding the same, represents to the Company that such holder is acquiring this Warrant for investment and not with a view to the distribution thereof.

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8. Registration Rights. The initial holder of this Warrant (and certain assignees thereof) is entitled to the benefit of such registration rights in respect of the Warrant Shares as are set forth in Section 2 of the Registration Rights Agreement.

9. Notices. All notices, requests, and other communications required or permitted to be given or delivered hereunder to the holder of this Warrant shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to such holder at the address shown for such holder on the books of the Company, or at such other address as shall have been furnished to the Company by notice from such holder. All notices, requests, and other communications required or permitted to be given or delivered hereunder to the Company shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to the office of the Company at 4900 South Eastern Avenue, Los Angeles, California 90040, Attention: Chief Financial Officer, or at such other address as shall have been furnished to the holder of this Warrant by notice from the Company. Any such notice, request, or other communication may be sent by facsimile, but shall in such case be subsequently confirmed by a writing personally delivered or sent by certified or registered mail or by recognized overnight mail courier as provided above. All notices, requests, and other communications shall be deemed to have been given either at the time of the receipt thereof by the person entitled to receive such notice at the address of such person for purposes of this Paragraph 9, or, if mailed by registered or certified mail or with a recognized overnight mail courier upon deposit with the United States Post Office or such overnight mail courier, if postage is prepaid and the mailing is properly addressed, as the case may be.

10. Governing Law. THE CORPORATE LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS UNDER THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS AND THE STATE COURTS LOCATED IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, WITH RESPECT TO ANY SUIT OR PROCEEDING BASED ON OR ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY AND IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT OR PROCEEDING MAY BE DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND

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MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.

11. Miscellaneous.

(a) Amendments. This Warrant and any provision hereof may only be amended by an instrument in writing signed by the Company and the holder hereof.

(b) Descriptive Headings. The descriptive headings of the several paragraphs of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof.

(c) Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holder of this Warrant by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Warrant will be inadequate and agrees, in the event of a breach or a threatened breach in writing by the Company of the provisions of this Warrant, that the holder of this Warrant shall be entitled, in addition to all other available remedies in law or in equity, to an injunction or injunctions to prevent or cure any breaches of the provisions of this Agreement and to enforce specifically the terms and provisions of this Warrant, without the necessity of showing economic loss and without any bond or other security being required.

(d) Board Determinations. In the event the Board of Directors of the Company exercises its obligation to determine the fair market value of the Common Stock in accordance with the terms of this Warrant, the Company shall provide to the holder hereof together with a copy of resolution setting forth the Board of Directors’ good faith determination of the fair market value of such Common Stock a certificate setting forth in reasonable detail the process by which the Board of Directors of the Company made its determination.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer.

K2 INC.

By:

Name:

Title:

Dated as of                                      ,         .

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FORM OF EXERCISE AGREEMENT

Dated:                                      ,         

To:                                           

The undersigned, pursuant to the provisions set forth in the within Warrant, hereby agrees to purchase                      shares of Common Stock covered by such Warrant, and makes payment herewith in full therefor at the price per share provided by such Warrant in cash or by certified or official bank check in the amount of. Please issue a certificate or certificates for such shares of Common Stock in the name of and pay any cash for any fractional share to:

By:
Signature:
Address:
Note:	The above signature should correspond exactly with the name on the face of the within Warrant.

and, if said number of shares of Common Stock shall not be all the shares purchasable under the within Warrant, a new Warrant is to be issued in the name of said undersigned covering the balance of the shares purchasable thereunder less any fraction of a share paid in cash.

FORM OF ASSIGNMENT

FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth hereinbelow, to:

    Name of Assignee Address No of Shares

, and hereby irrevocably constitutes and appoints                                                                                   as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises.

Dated:                          , 200_

In the presence of:

Name:
Signature:
Title of Signing Officer or Agent (if any):
Address:
Note:	The above signature should correspond exactly with the name on the face of the within Warrant.

EX-4.4

Exhibit 4.4

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of February             , 2003 by and among K2 Inc., a Delaware corporation (the “Company”), and the undersigned (together with their respective affiliates and any assignee or transferee of all of their respective rights hereunder, the “Initial Investors”).

WHEREAS:

A. In connection with the Securities Purchase Agreement by and among the parties hereto of even date herewith (the “Securities Purchase Agreement”), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell to the Initial Investors (i) convertible subordinated debentures (the “Debentures”) that are convertible into shares of the Company’s common stock, par value $1.00 per share (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Debentures and (ii) warrants (the “Warrants”) to acquire Five Hundred Twenty Four Thousand Three Hundred Twenty Nine (524,329) shares of Common Stock, upon the terms and conditions and subject to the limitations and conditions set forth in the Stock Purchase Warrant, dated February             , 2003, issuable in connection with the Debentures; and

B. To induce the Initial Investors to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “1933 Act”), and applicable state securities laws;

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Initial Investors hereby agree as follows:

1. DEFINITIONS.

a. As used in this Agreement, the following terms shall have the following meanings:

(i) “Investors” means, collectively, the Initial Investors and any transferee or assignee of an Initial Investor who agrees to become bound by the provisions of this Agreement in accordance with Section 9 hereof.

(ii) “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the “SEC”).

(iii) “Registrable Securities” means (A) the Conversion Shares (as defined in the Securities Purchase Agreement) issued or issuable upon conversion of or otherwise pursuant to the Debenture and Section 2(c) herein; (B) the Warrant Shares (as defined in the Securities Purchase Agreement) issued or issuable and any shares of capital stock issued or issuable upon exercise of the Warrants; and (C) any shares of capital stock issued or issuable as a dividend on or in exchange for or otherwise with respect to any of the foregoing.

(iv) “Registration Statement(s)” means a registration statement(s) of the Company under the 1933 Act.

b. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement.

2. REGISTRATION.

a. Mandatory Registration. The Company shall prepare, and, on or prior to the date (the “Filing Date”) which is sixty (60) calendar days after the Closing Date (as defined in the Securities Purchase Agreement), file with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then available, on such form of Registration Statement as is then available to effect a registration of the Registrable Securities, subject to the consent of the Initial Investors, which consent will not be unreasonably withheld) covering the resale of the Registrable Securities, which Registration Statement, to the extent allowable under the 1933 Act and the rules and regulations promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of or otherwise pursuant to the Debenture and exercise of or otherwise pursuant to the Warrants (i) to prevent dilution resulting from stock splits, stock dividends or similar transactions or (ii) by reason of changes in the Conversion Price (as defined in the Debenture) of the Debenture in accordance with the terms thereof or the exercise price of the Warrants in accordance with the terms thereof. The number of shares of Common Stock initially included in such Registration Statement shall be no less than one hundred twenty percent of the aggregate number of Conversion Shares and Warrant Shares that

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are then issuable upon conversion of or otherwise pursuant to the Debentures (based on Conversion Price then in effect) and the exercise of or otherwise pursuant to the Warrants, in each case without regard to any limitation on the Investor’s ability to convert the Debenture or exercise the Warrants. The Company acknowledges that the number of shares initially included in the Registration Statement represents a good faith estimate of the maximum number of shares issuable upon conversion of or otherwise pursuant to the Debenture and exercise of or otherwise pursuant to the Warrants. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided to the Initial Investors and their counsel prior to its filing or other submission in accordance with Section 3(h) hereof.

b. Underwritten Offering. If any offering pursuant to a Registration Statement pursuant to Section 2(a) hereof involves an underwritten offering, the Investors who hold a majority in interest of the Registrable Securities subject to such underwritten offering, with the consent of the Initial Investors, shall have the right to select one legal counsel to administer the offering, which legal counsel shall be reasonably satisfactory to the Company. In the event that any Investors elect not to participate in such underwritten offering, the Registration Statement covering all of the Registrable Securities shall contain appropriate plans of distribution reasonably satisfactory to the Investors participating in such underwritten offering and the Investors electing not to participate in such underwritten offering (including, without limitation, the ability of non-participating Investors to sell from time to time at any time during the effectiveness of such Registration Statement).

c. Payments by the Company. The Company shall use its best efforts to obtain effectiveness of the Registration Statement as soon as practicable, but in any event not later than the one hundred twentieth (120th) day after the Closing Date (the “Registration Deadline”). If (i) the Registration Statement(s) covering the Registrable Securities required to be filed by the Company pursuant to Section 2(a) hereof is not declared effective by the SEC by the Registration Deadline, or (ii) after the Registration Statement has been declared effective by the SEC, sales of all of the Registrable Securities cannot be made pursuant to the Registration Statement, or (iii) the Common Stock is not listed or included for quotation on the New York Stock Exchange (the “NYSE”) (any such event described in the preceding clauses (i), (ii) or (iii), a “Registration Default”), then the Company agrees to pay in cash liquidated damages (the “Liquidated Damages”) to each Investor, with respect to the first 90-day period immediately following the occurrence of the Registration Default in an amount equal to $.05 per week per $1,000 principal amount of the Debentures held by such Investor. The amount of the Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of the Debentures with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages of $.20 per week per $1,000 principal amount of the Debentures. All accrued Liquidated Damages will be paid by the Company on each date on which interest on the Debentures is otherwise payable. At the option of the Company or the Investors, upon written notice to the other party, the Company or the Investors shall have the right to deliver or receive in lieu of cash payment on any Liquidated Damages then due and owing the number of shares of Common Stock equal to the Liquidated Damages then due and owing divided by the Conversion Price (as defined in the Debentures). Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease; provided, however, that there shall be excluded from such period any delays which are solely

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attributable to changes required by the Investors in the Registration Statement with respect to information relating to the Investors, including, without limitation, changes to the plan of distribution, or to the failure of the Investors to conduct their review of the Registration Statement pursuant to Section 3(h) below in a reasonably prompt manner.

d. Piggy-Back Registrations. Subject to the last sentence of this Section 2(d), if at any time prior to the expiration of the Registration Period (as hereinafter defined) the Company shall determine to file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its equity securities (other than on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans), the Company shall send to each Investor who is entitled to registration rights under this Section 2(d) written notice of such determination and, if within ten (10) calendar days after the effective date of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered, except that if, in connection with any underwritten public offering for the account of the Company the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which such Investor has requested inclusion hereunder as the underwriter shall permit. Any exclusion of Registrable Securities shall be made pro rata among the Investors seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Investors; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled by contract to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities; and provided, further, however, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities having the contractual right to include such securities in the Registration Statement other than holders of securities entitled to inclusion of their securities in such Registration Statement by reason of demand registration rights. No right to registration of Registrable Securities under this Section 2(d) shall be construed to limit any registration required under Section 2(a) hereof. If an offering in connection with which an Investor is entitled to registration under this Section 2(d) is an underwritten offering, then each Investor whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. Notwithstanding anything to the contrary set forth herein, the registration rights of the Investors pursuant to this Section 2(d) shall only be available in the event the Company fails to timely file, obtain effectiveness or maintain effectiveness of any Registration Statement to be filed pursuant to Section 2(a) in accordance with the terms of this Agreement.

e. Eligibility for Form S-3. The Company represents and warrants that it meets the registrant eligibility and transaction requirements for the use of Form S-3 for

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registration of the sale by the Initial Investors and any other Investors of the Registrable Securities and the Company shall file all reports required to be filed by the Company with the SEC in a timely manner so as to maintain such eligibility for the use of Form S-3.

3. OBLIGATIONS OF THE COMPANY.

In connection with the registration of the Registrable Securities, the Company shall have the following obligations:

a. The Company shall prepare promptly, and file with the SEC as soon as practicable after the Closing Date (but in no event later than the Filing Date), a Registration Statement with respect to the number of Registrable Securities provided in Section 2(a), and thereafter use its best efforts to cause such Registration Statement relating to Registrable Securities to become effective as soon as possible after such filing, (but in no event later than the Registration Deadline), and keep the Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on which all of the Registrable Securities have been sold and (ii) the date on which the Registrable Securities may be immediately sold to the public without registration or restriction (including without limitation as to volume by each holder thereof) under the 1933 Act (the “Registration Period”) (which shall be confirmed by an opinion of counsel of the Company or the Investors, such opinion of counsel to be reasonable satisfactory to the Company), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading.

b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statements and the prospectus used in connection with the Registration Statements as may be necessary to keep the Registration Statements effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statements until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statements. In the event that on any Trading Day (as defined in the Debenture) (the “Registration Trigger Date”) the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient to cover all of the Registrable Securities issued or issuable upon conversion of or otherwise pursuant to the Debenture (based on the Conversion Price (as defined in the Debenture) then in effect) and exercise of or otherwise pursuant to the Warrants, in each case without giving effect to any limitations on the Investors’ ability to convert the Debenture or exercise the Warrants, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefore, if applicable), or both, so as to cover one hundred twenty percent (120%) of all of the Registrable Securities so issued or issuable (without giving effect to any limitations on conversion or exercise contained in the Debenture or Warrants, as applicable) as of the Registration Trigger Date, in each case, as soon as practicable, but in any event within twenty (20) business days after the necessity therefor arises (based on the market price of the Common Stock and other relevant factors on which the Company reasonably elects to rely). The Company shall use its best efforts to cause such

5

amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof, but in any event within ninety (90) calendar days of the Registration Trigger Date. The provisions of Section 2(c) above shall be applicable with respect to the Company’s obligations under this Section 3(b).

c. The Company shall furnish to each Investor whose Registrable Securities are included in a Registration Statement and its legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of each Registration Statement and any amendment thereto, each preliminary prospectus and prospectus and each amendment or supplement thereto, and, in the case of the Registration Statement referred to in Section 2(a), each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor. The Company will promptly notify each Investor by facsimile of the effectiveness of each Registration Statement or any post-effective amendment. The Company will promptly respond to any and all comments received from the SEC, with a view towards causing each Registration Statement or any amendment thereto to be declared effective by the SEC as soon as practicable and shall file an acceleration request as soon as practicable following the resolution or clearance of all SEC comments or, if applicable, following notification by the SEC that any such Registration Statement or any amendment thereto will not be subject to review.

d. The Company shall use reasonable efforts to (i) register and qualify the Registrable Securities covered by the Registration Statements under such other securities or “blue sky” laws of such jurisdictions in the United States as the Investors who hold a majority in interest of the Registrable Securities being offered reasonably request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (a) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (b) subject itself to general taxation in any such jurisdiction, (c) file a general consent to service of process in any such jurisdiction, (d) provide any undertakings that cause the Company undue expense or burden, or (e) make any change in its charter or bylaws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders.

e. In the event Investors who hold a majority-in-interest of the Registrable Securities being offered in the offering (with the approval of the Initial Investors) select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriters of such offering.

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f. As promptly as practicable after becoming aware of such event, the Company shall notify each Investor of the happening of any event, of which the Company has knowledge, as a result of which the prospectus included in any Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and use its best efforts promptly to prepare a supplement or amendment to any Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request.

g. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any Registration Statement, and, if such an order is issued, to obtain the withdrawal of such order at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof.

h. The Company shall permit a single firm of counsel designated by the Initial Investors to review and comment upon such Registration Statement, and all amendments and supplements thereto (as well as all requests for acceleration or effectiveness thereof and any correspondence between the Company and the SEC relating to the Registration Statement) (collectively, the “Registration Documents”), a reasonable period of time (not to exceed three (3) business days) prior to their filing with the SEC. The Company agrees that it will, and it will cause its counsel to, consider in good faith any comments or objections from counsel selected by the Initial Investors as to the form or content of such Registration Statement or such amendments or supplements thereto. The sections of such Registration Statement covering information with respect to the Investors, the Investors’ beneficial ownership of securities of the Company or the Investors intended method of disposition of Registrable Securities shall conform to the information provided to the Company by each of the Investors.

i. The Company shall make generally available to its security holders as soon as practicable, but not later than ninety (90) calendar days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company’s fiscal quarter next following the effective date of the Registration Statement.

j. At the request of any Investor, the Company shall furnish, on the date that Registrable Securities are delivered to an underwriter, if any, for sale in connection with any Registration Statement or, if such securities are not being sold by an underwriter, on the date of effectiveness thereof (i) an opinion, dated as of such date, from counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriters, if any, and the Investors and (ii) a letter, dated such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and the Investors.

k. The Company shall make available for inspection by (i) any Investor, (ii) any underwriter participating in any disposition pursuant to a Registration Statement, (iii) one

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firm of attorneys and one firm of accountants or other agents retained by the Initial Investors, and (iv) one firm of attorneys retained by all such underwriters (collectively, the “Inspectors”) all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector to enable each Inspector to exercise its due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to an Investor) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (b) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 3(k). Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein (or in any other confidentiality agreement between the Company and any Investor) shall be deemed to limit the Investor’s ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations.

l. The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Investor prior to making such disclosure, and allow the Investor, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

m. The Company shall (i) cause all the Registrable Securities covered by the Registration Statement to be listed on the NYSE.

n. The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement.

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o. The Company shall cooperate with the Investors who hold Registrable Securities being offered and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to such Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or the Investors may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Investors may request, and, within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) an instruction in the form attached hereto as Exhibit 1 and an opinion of such counsel in the form attached hereto as Exhibit 2.

p. At the request of the holders of a majority-in-interest of the Registrable Securities, the Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and any prospectus used in connection with the Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement.

q. The Company shall not, and shall not agree to, allow the holders of any securities of the Company to include any of their securities in any Registration Statement under Section 2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof without the consent of the holders of a majority-in-interest of the Registrable Securities. In addition, the Company shall not offer any securities for its own account or the account of others in any Registration Statement under Section 2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof without the consent of the holders of a majority-in-interest of the Registrable Securities.

r. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement.

s. The Company shall comply with all applicable laws related to a Registration Statement and offering and sale of securities and all applicable rules and regulations of governmental authorities in connection therewith (including without limitation the 1933 Act and the 1934 Act and the rules and regulations promulgated by the SEC).

t. Notwithstanding anything to the contrary herein, at any time after the Registration Statement has been declared effective by the SEC, the Company may suspend the use or effectiveness of the Registration Statement if (i) in the good faith judgement of the Company the effectiveness of the Registration Statement would require premature disclosure of material information relating to a pending corporate development or (ii) an event occurs and is continuing as a result of which the Registration Statement would, in the good faith judgement of the Company, contain an untrue statement of material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and in any such event the Company may delay the disclosure of

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material non-public information concerning the Company the disclosure of which at the time is not, in the good faith judgement of the Company, in the best interests of the Company (clauses (i) and (ii) together, a “Grace Period”); provided, that the Company shall promptly (i) notify the Investors in writing of the existence of such event or of such material non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material non-public information to the Investors) and the date on which the Grace Period will begin, and (ii) notify the Investors in writing of the date on which the Grace Period ends; and, provided further, that during any three hundred sixty five (365) day period no more than two such Grace Periods shall be permitted and such Grace Periods shall not exceed an aggregate of ninety (90) days (an “Allowable Grace Period”). For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Investors receive the notice referred to in clause (i) and shall end on and include the later of the date the Investors receive the notice referred to in clause (ii) and the date referred to in such notice. The provisions of Section 3(g) hereof shall not be applicable during the period of any Allowable Grace Period. Upon expiration of the Grace Period, the Company shall again be bound by the first sentence of Section 3(f) with respect to the information giving rise thereto unless such material non-public information is no longer applicable. Each Investor agrees, if (i) timely requested by the Company in writing in an underwritten sale of securities of the Company and (ii) either (A) at the time of the receipt of such written request an Investor is represented on the Board of Directors of the Company or (B) the Investors, taken as a whole, own directly or beneficially more than 10% of the Company’s Common Stock, not to make any public sale or distribution under the 1933 Act of any Registrable Securities (except as part of such registration), during the time period reasonably requested by the sole or lead managing underwriter not to exceed ninety (90) days (the “Black-out Period”). Notwithstanding the foregoing, in no event shall all Grace Periods and/or Black-out Periods in any three hundred sixty five (365) day period exceed a total of ninety (90) days.

4. OBLIGATIONS OF THE INVESTORS.

In connection with the registration of the Registrable Securities, the Investors shall have the following obligations:

a. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least three (3) business days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor of the information the Company requires from each such Investor.

b. Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statements hereunder, unless such Investor has notified the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable Securities from the Registration Statements.

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c. In the event Investors holding a majority-in-interest of the Registrable Securities being registered (with the approval of the Initial Investors) determine to engage the services of an underwriter, each Investor agrees to enter into and perform such Investor’s obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless such Investor has notified the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable Securities from such Registration Statement.

d. Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or 3(g), such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor’s possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

e. No Investor may participate in any underwritten registration hereunder unless such Investor (i) agrees to sell such Investor’s Registrable Securities on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to Section 5 below.

5. EXPENSES OF REGISTRATION.

All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualification fees, printers and accounting fees, the fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne by the Company, subject however to the reimbursement limitations set forth in Section 4(e) of the Securities Purchase Agreement.

6. INDEMNIFICATION.

In the event any Registrable Securities are included in a Registration Statement under this Agreement:

a. To the extent permitted by law, the Company will indemnify, hold harmless and defend (i) each Investor who holds such Registrable Securities, (ii) the directors, officers, partners, employees, agents and each person who controls any Investor within the

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meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the “1934 Act”), if any, (iii) any underwriter (as defined in the 1933 Act) for the Investors, and (iv) the directors, officers, partners, employees and each person who controls any such underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an “Indemnified Person”), against any joint or several losses, claims, damages, liabilities or expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened, in respect thereof, “Claims”) to which any of them may become subject insofar as such Claims arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or the omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). Subject to the restrictions set forth in Section 6(c) with respect to the number of legal counsel, the Company shall reimburse the Indemnified Person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of such Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) with respect to any preliminary prospectus, shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented, such corrected prospectus was timely made available by the Company pursuant to Section 3(c) hereof, and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a Violation and such Indemnified Person, notwithstanding such advice, used it. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9.

b. In connection with any Registration Statement in which an Investor is participating, each such Investor agrees severally and not jointly to indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its

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directors or officers or any person who controls such stockholder or underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an “Indemnified Party”), against any Claim to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon any Violation by such Investor, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and subject to Section 6(c), such Investor will reimburse any legal or other expenses (promptly as such expenses are incurred and are due and payable) reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Agreement (including this Section 6(b) and Section 7) for only that amount as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented.

c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The indemnifying party shall pay for only one separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such legal counsel shall be selected by Investors holding a majority-in-interest of the Registrable Securities included in the Registration Statement to which the Claim relates (with the approval of a majority-in-interest of the Initial Investors), if the Investors are entitled to indemnification hereunder, or the Company, if the Company is entitled to indemnification hereunder, as applicable. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action. The indemnification required by this

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Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable.

7. CONTRIBUTION.

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6, (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (iii) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

8. REPORTS UNDER THE 1934 ACT.

With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the investors to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

a. make and keep public information available, as those terms are understood and defined in Rule 144;

b. file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company’s obligations under Section 4(c) of the Securities Purchase Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

c. furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration.

9. ASSIGNMENT OF REGISTRATION RIGHTS.

The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is prior to such transfer or assignment, furnished with written notice of (a) the name and address of such

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transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement, and (vi) such transferee shall be an “accredited investor” as that term defined in Rule 501 of Regulation D promulgated under the 1933 Act.

10. AMENDMENT OF REGISTRATION RIGHTS.

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with written consent of the Company, the Initial Investors (to the extent the Initial Investors still own Registrable Securities) and Investors who hold a majority interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company.

11. MISCELLANEOUS.

a. A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

b. Any notices required or permitted to be given under the terms hereof shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five (5) calendar days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications shall be:

If to the Company:

K2 Inc.

4900 South Eastern Avenue

Los Angeles, California 90040

Attention: Chief Financial Officer

Facsimile: (323) 724-0470

With copy to:

Gibson, Dunn & Crutcher LLP

333 South Grand Avenue

Los Angeles, California 90071

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Attention: Andy Bogen, Esq.

Facsimile: (213) 229-7520

If to an Investor: to the address set forth immediately below such Investor’s name on the signature pages to the Securities Purchase Agreement.

With copy to:

Martin T. Schrier, Esq.

Akerman, Senterfitt & Eidson, P.A.

One Southeast Third Avenue

Miami, Florida 33131

Facsimile: (305) 374-5095

c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in the State of New York (without regard to principles of conflict of laws). Both parties irrevocably consent to the exclusive jurisdiction of the United States federal courts and the state courts located in the City of New York, Borough of Manhattan, with respect to any suit or proceeding based on or arising under this Agreement, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. Both parties irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding. Both parties further agree that service of process upon a party mailed by first class mail shall be deemed in every respect effective service of process upon the party in any such suit or proceeding. Nothing herein shall affect either party’s right to serve process in any other manner permitted by law. Both parties agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

e. This Agreement and the Securities Purchase Agreement (including all schedules and exhibits thereto) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Securities Purchase Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

f. Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

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h. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

j. Except as otherwise provided herein, all consents and other determinations to be made by the Investors pursuant to this Agreement shall be made by Investors holding a majority of the Registrable Securities, determined as if the all of the Debenture then outstanding have been converted into for Registrable Securities.

k. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to each Investor by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for breach of its obligations hereunder will be inadequate and agrees, in the event of a breach or a threatened breach in writing by the Company of any of the provisions hereunder, that each Investor shall be entitled, in addition to all other available remedies in law or in equity, to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.

l. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

m. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

n. The initial number of Registrable Securities included in any Registration Statement and each increase to the number of Registrable Securities included therein shall be allocated pro rata among the Investors based on the number of Registrable Securities held by each Investor at the time of such establishment or increase, as the case may be. In the event an Investor shall sell or otherwise transfer any of such holder’s Registrable Securities, each transferee shall be allocated a pro rata portion of the number of Registrable Securities included in a Registration Statement for such transferor. Any shares of Common Stock included on a Registration Statement and which remain allocated to any person or entity which does not hold any Registrable Securities shall be allocated to the remaining Investors, pro rata based on the number of shares of Registrable Securities then held by such Investors. For the avoidance of

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doubt, the number of Registrable Securities held by an Investor shall be determined as if all Debenture and Warrants then outstanding and held by an Investor were converted into or exercised for Registrable Securities.

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IN WITNESS WHEREOF, the Company and the undersigned Initial Investors have caused this Agreement to be duly executed as of the date first above written.

K2 Inc.
By:	/s/ John J. Rangel
Name:	John J. Rangel
Title:	Senior Vice President—Finance

SPORTING GOODS INVESTMENT I, LP
By:	K-1 USA VENTURES, INC., its sole general partner

By:
	Name: Title:

SPORTING GOODS INVESTMENT II, LP
By:	K-1 HOLDINGS EQUITY I, INC., its general partner

By:
	Name: Title:

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EX-99.1

Exhibit 99.1

On February 14, 2003, K2 Inc. issued the following press release regarding the $25,000,000 Convertible Subordinated Debentures:

LOS ANGELES—Feb. 14, 2003—K2 Inc. (NYSE: KTO) today announced it has completed the transaction with k1 Ventures Ltd. (SGX: KONE), a Singapore-based investment company, in which K2 sold $25.0 million of its 7.25% convertible subordinated debentures due March 2010. The agreement was previously announced on December 10, 2002.

The debentures are initially convertible into 2,097,315 shares of K2 common stock at $11.92 per share. Pursuant to the agreement, k1 Ventures also received warrants to purchase 524,329 additional shares of common stock at $13.91 per share, exercisable within five years. At December 31, 2002, K2 had approximately 17.9 million common shares outstanding.

K2 Inc. is a leading designer, manufacturer and marketer of brand-name sporting goods, recreational and industrial products. The company’s sporting goods and recreational products include well-known names such as K2 and Olin alpine skis; K2, Ride and Morrow snowboards, boots and bindings; K2 inline skates; Stearns sports equipment; Shakespeare and Pflueger fishing tackle; K2 bikes; and Dana Design backpacks. K2’s other recreational products include Planet Earth apparel, Adio skateboard shoes and Hilton corporate casuals.