10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2005

OR

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

For the transition period from              to             

Commission File number 0-18490

K•SWISS INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4265988
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
31248 Oak Crest Drive, Westlake Village, California	91361
(Address of principal executive offices)	(Zip code)

818-706-5100

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares of common stock outstanding at July 27, 2005:

Class A	25,667,146
Class B	8,380,128

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

K•SWISS INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

	June 30, 2005			December 31, 2004
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	134,577		$	144,857
Accounts receivable, less allowance for doubtful accounts of $2,113 and $2,009 as of June 30, 2005 and December 31, 2004, respectively		78,783			49,411
Inventories		65,792			64,901
Prepaid expenses and other		4,286			7,710
Deferred taxes		3,869			4,654
Total current assets		287,307			271,533
PROPERTY, PLANT AND EQUIPMENT, net		8,419			8,228
OTHER ASSETS
Intangible assets (Note 4)		4,700			4,700
Deferred taxes		5,331			5,305
Other		5,630			5,111
		15,661			15,116
	$	311,387		$	294,877
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Bank lines of credit	$	3,750		$	6,750
Trade accounts payable		22,997			22,262
Accrued income taxes		2,353			932
Accrued liabilities		21,585			23,020
Total current liabilities		50,685			52,964
OTHER LIABILITIES		15,108			15,083
STOCKHOLDERS’ EQUITY (Note 5)
Preferred Stock – authorized 2,000,000 shares of $0.01 par value; none issued and outstanding		—			—
Common Stock:
Class A – authorized 90,000,000 shares of $0.01 par value; 27,791,898 shares issued, 25,667,146 shares outstanding and 2,124,752 shares held in treasury at June 30, 2005 and 27,536,890 shares issued, 26,193,494 shares outstanding and 1,343,396 held in treasury at December 31, 2004		278			275
Class B – authorized 18,000,000 shares of $0.01 par value; issued and outstanding 8,380,128 shares at June 30, 2005 and 8,411,028 shares at December 31, 2004		84			84
Additional paid-in capital		39,398			36,692
Treasury Stock		(51,709	)		(27,000	)
Retained earnings		251,261			211,193
Accumulated other comprehensive earnings –
Foreign currency translation		5,581			6,871
Net gain (loss) on hedge derivatives		701			(1,285	)
		245,594			226,830
	$	311,387		$	294,877

The accompanying notes are an integral part of these statements.

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K•SWISS INC.

CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE EARNINGS

(Amounts in thousands, except per share amounts)

(Unaudited)

	Six Months Ended June 30,						Three Months Ended June 30,
	2005			2004			2005			2004
Revenues (Note 6)	$	279,617		$	259,924		$	126,474		$	107,904
Cost of goods sold		148,808			140,405			67,648			58,151
Gross profit		130,809			119,519			58,826			49,753
Selling, general and administrative expenses		67,285			62,514			34,946			28,307
Operating profit		63,524			57,005			23,880			21,446
Interest income, net		1,183			300			665			173
Earnings before income taxes		64,707			57,305			24,545			21,619
Income tax expense		22,078			22,349			7,780			8,431
NET EARNINGS	$	42,629		$	34,956		$	16,765		$	13,188
Earnings per common share (Note 2)
Basic	$	1.24		$	0.99		$	0.49		$	0.38
Diluted	$	1.19		$	0.93		$	0.47		$	0.35
Weighted average number of shares outstanding (Note 2)
Basic		34,315			35,190			34,096			35,005
Diluted		35,800			37,676			35,552			37,365
Dividends declared per common share	$	0.075		$	0.05		$	0.05		$	0.025
Net Earnings	$	42,629		$	34,956		$	16,765		$	13,188
Other comprehensive (loss) earnings –
Foreign currency translation adjustments, net of income taxes of $0 and $0 for the six months ended June 30, 2005 and 2004, respectively and $0 and $0 for the three months ended June 30, 2005 and 2004, respectively		(1,290	)		(994	)		(935	)		(14	)
Change in deferred gain (loss) on hedge derivatives, net of income taxes of $0 and $0 for the six months June 30, 2005 and 2004, respectively and $0 and $0 for the three months ended ended June 30, 2005 and 2004, respectively		1,986			—			1,247			—
Comprehensive Earnings	$	43,325		$	33,962		$	17,077		$	13,174

The accompanying notes are an integral part of these statements.

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K•SWISS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net earnings	$	42,629		$	34,956
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		810			674
Impairment on intangibles and goodwill		—			1,730
Net loss on disposal of property, plant and equipment		8			3
Deferred income taxes		717			(28	)
Income tax benefit of stock options exercised		1,806			865
Increase in accounts receivable		(29,931	)		(22,375	)
(Increase)/decrease in inventories		(1,409	)		742
Decrease in prepaid expenses and other assets		3,591			2,444
Increase in accounts payable and accrued liabilities		2,385			5,598
Net cash provided by operating activities		20,606			24,609
Cash flows from investing activities:
Purchase of property, plant and equipment		(1,064	)		(630	)
Net cash used in investing activities		(1,064	)		(630	)
Cash flows from financing activities:
Borrowings under bank lines of credit		7,264			—
Repayments on bank lines of credit		(10,264	)		—
Repurchase of stock		(24,709	)		(14,418	)
Payment of dividends		(2,561	)		(1,754	)
Proceeds from stock options exercised		801			252
Net cash used in financing activities		(29,469	)		(15,920	)
Effect of exchange rate changes on cash		(353	)		(531	)
Net (decrease) increase in cash and cash equivalents		(10,280	)		7,528
Cash and cash equivalents at beginning of period		144,857			81,455
Cash and cash equivalents at end of period	$	134,577		$	88,983
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	166		$	197
Income taxes	$	12,555		$	17,873

The accompanying notes are an integral part of these statements.

4

K•SWISS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “S.E.C.”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of K•Swiss Inc. (the “Company” or “K•Swiss”) as of June 30, 2005 and the results of its operations and its cash flows for the six and three months ended June 30, 2005 and 2004 have been included for the periods presented. The results of operations and cash flows for the six and three months ended June 30, 2005 are not necessarily indicative of the results to be expected for any other interim period or the full year. The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in combination with the audited consolidated financial statements and notes thereto for the year ended December 31, 2004. Certain reclassifications have been made in the six and three months ended June 30, 2004 presentation to conform to the six and three months ended June 30, 2005 presentation.

2. Earnings per Share

The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):

	Six Months Ended June 30,								Three Months Ended June 30,
	2005				2004				2005				2004
	Shares	Per Share Amount			Shares	Per Share Amount			Shares	Per Share Amount			Shares	Per Share Amount
Basic EPS	34,315	$	1.24		35,190	$	0.99		34,096	$	0.49		35,005	$	0.38
Effect of Dilutive Stock Options	1,485		(0.05	)	2,486		(0.06	)	1,456		(0.02	)	2,360		(0.03	)
Diluted EPS	35,800	$	1.19		37,676	$	0.93		35,552	$	0.47		37,365	$	0.35

The following options were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares:

	Six Months Ended June 30, 2005	Six Months Ended June 30, 2004
Options to purchase shares of common stock (in thousands)	2	19
Exercise prices	$32.10	$23.45 – $23.71
Expiration dates	May 2015	December 2013 – February 2014
	Three Months Ended June 30, 2005	Three Months Ended June 30, 2004
Options to purchase shares of common stock (in thousands)	—	19
Exercise prices	—	$23.45 – $23.71
Expiration dates	—	December 2013 – February 2014

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3. Accounting for Stock-Based Compensation

Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS 123,” encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of grant over the amount an employee must pay to acquire the stock.

During the six months ended June 30, 2005 and 2004 there were 5,000 and 8,500 options, respectively, that were granted at exercise prices below fair market value. During the three months ended June 30, 2005 there were 5,000 options that were granted at exercise prices below fair market value and during the three months ended June 30, 2004 there were no options that were granted at exercise prices below fair market value. All other options were granted at an exercise price equal to the fair market value of the Company’s common stock at the date of grant. Accordingly, no compensation cost has been recognized for such options granted.

In connection with the exercise of options, the Company realized income tax benefits in the six and three months ended June 30, 2005 and 2004 that have been credited to additional paid-in capital.

Had compensation cost for the plan been determined based on the fair value of the options at the grant dates consistent with the method of SFAS No. 148, the Company’s net earnings and earnings per share would have been:

	Six Months Ended June 30,						Three Months Ended June 30,
	2005			2004			2005			2004
Net earnings (in thousands)
As reported	$	42,629		$	34,956		$	16,765		$	13,188
Add stock-based employee compensation charges reported in net earnings		91			118			45			48
Less total stock-based employee compensation expense, determined under the fair value method		(980	)		(930	)		(485	)		(443	)
Pro forma	$	41,740		$	34,144		$	16,325		$	12,793
Basic earnings per share
As reported	$	1.24		$	0.99		$	0.49		$	0.38
Pro forma		1.22			0.97			0.48			0.37
Diluted earnings per share
As reported	$	1.19		$	0.93		$	0.47		$	0.35
Pro forma		1.17			0.91			0.46			0.34

The fair value of options at date of grant was estimated using the Black-Scholes model with the following assumptions:

	June 30,
	2005		2004
Expected life (years)	4		4
Risk-free interest rate	3.70	%	3.49	%
Expected volatility	41	%	42	%
Expected dividend yield	0.6	%	0.5	%

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4. Goodwill and Intangible Assets

SFAS No. 142, “Goodwill and Other Intangible Assets,” eliminates the requirement to amortize goodwill and indefinite-lived intangible assets, requiring instead that those assets be measured for impairment at least annually, and more often when events indicate that an impairment exists. Intangible assets with finite lives will continue to be amortized over their useful lives. Goodwill and intangible assets are as follows (in thousands):

	June 30, 2005			December 31, 2004
Goodwill	$	4,618		$	4,618
Trademarks		2,761			2,761
Other		8			8
Less accumulated amortization		(2,687	)		(2,687	)
	$	4,700		$	4,700

The changes in the carrying amount of goodwill and intangible assets is as follows (in thousands):

	Six Months Ended June 30,					Three Months Ended June 30,
	2005		2004			2005		2004
Beginning balance	$	4,700	$	7,301		$	4,700	$	5,571
Additions		—		175			—		175
Impairment losses		—		(1,730	)		—		—
Ending balance	$	4,700	$	5,746		$	4,700	$	5,746

In applying SFAS No. 142, the Company has performed the annual reassessment and impairment test required as of January 1, 2005 to determine whether goodwill and intangible assets were impaired and determined there was no impairment. In the first quarter of 2004, as a result of the annual reassessment and impairment test and after a review of sales, backlog, cash flows and marketing strategy, the Company determined that its investment in the Royal Elastics goodwill and trademark was impaired and recognized an impairment loss of $1,730,000 during the three months ended March 31, 2004.

5. Stockholders’ Equity

Under its stock repurchase program, the Company purchased approximately 781,000 shares of Class A Common Stock during the six months ended June 30, 2005 for a total expenditure of approximately $24,709,000.

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6. Segment Information

The Company’s predominant business is the design, development and distribution of athletic footwear. Substantially all of the Company’s revenues are from sales of footwear products. The Company is organized into three geographic regions: the United States, Europe and Other International operations. Certain reclassifications have been made in the 2004 presentations. The following tables summarize segment information (in thousands):

	Six Months Ended June 30,						Three Months Ended June 30,
	2005			2004			2005			2004
Revenues from unrelated entities (1):
United States	$	212,691		$	218,071		$	95,099		$	88,496
Europe		42,116			23,379			19,445			9,433
Other International		24,810			18,474			11,930			9,975
	$	279,617		$	259,924		$	126,474		$	107,904
Inter-geographic revenues:
United States	$	2,883		$	1,931		$	1,359		$	885
Europe		1			98			1			—
Other International		13,026			7,019			4,998			4,100
	$	15,910		$	9,048		$	6,358		$	4,985
Total revenues:
United States	$	215,574		$	220,002		$	96,458		$	89,381
Europe		42,117			23,477			19,446			9,433
Other International		37,836			25,493			16,928			14,075
Less inter-geographic revenues		(15,910	)		(9,048	)		(6,358	)		(4,985	)
	$	279,617		$	259,924		$	126,474		$	107,904
Operating profit:
United States (2)	$	55,804		$	57,119		$	21,844		$	21,209
Europe		8,752			1,096			3,116			(1,255	)
Other International (2)		5,415			3,614			2,203			2,148
Less corporate expenses (3)		(9,015	)		(6,961	)		(4,241	)		(1,634	)
Eliminations		2,568			2,137			958			978
	$	63,524		$	57,005		$	23,880		$	21,446

	June 30, 2005		December 31, 2004
Identifiable assets:
United States	$	144,930	$	124,025
Europe		20,824		14,377
Other International		17,068		15,443
Corporate assets and eliminations (4)		128,565		141,032
	$	311,387	$	294,877

(1) Revenue is attributable to geographic regions based on the location of the Company subsidiary.

(2) For the six months ended June 30, 2004, operating profit includes impairment losses of $1,730,000 on the Royal Elastics trademark and goodwill, of which $1,016,000 and $714,000 of impairment losses were recognized in the United States segment and Other International segment, respectively.

(3) Corporate expenses include expenses such as salaries and related expenses for executive management and support departments such as accounting and treasury, information technology, human resources and legal which benefit the entire corporation and are not segment/region specific. The increase in corporate expenses during the six and three months ended June 30, 2005 was due to an increase in compensation expenses, which includes bonus/incentive related expenses, as a result of an increase in bonus/incentive related expenses that was calculated in accordance with the bonus formula under the Company’s Economic Value Added Bonus Plan and an increase in legal expenses in connection with pursuing a lawsuit to protect our trademarks.

(4) Corporate assets include cash and cash equivalents and intangible assets.

During the six months ended June 30, 2005 and 2004, approximately 18% and 19%, respectively, of revenues were attributable to one customer. During the three months ended June 30, 2005 and 2004, approximately 14% and 16% of revenues were attributable to one customer.

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7. Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151 retains the general principle of ARB No. 43, Chapter 4, “Inventory Pricing,” that inventories are presumed to be stated at cost; however, it amends ARB No. 43 to clarify that abnormal amounts of idle facilities, freight, handling costs and spoilage should be recognized as current period expenses. Also, SFAS No. 151 requires fixed overhead costs be allocated to inventories based on normal production capacity. The guidance in SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company believes that implementing SFAS No. 151 should not have a material impact on its financial position and results of operations.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share Based Payment,” which will require the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award – the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments. SFAS No. 123 (Revised 2004) eliminates the use of APB Opinion No. 25. On April 14, 2005, the S.E.C. adopted a new rule, Staff Accounting Bulletin (“SAB”) No. 107, amending the effective date for SFAS No. 123 (Revised 2004). Under the effective date provisions included in SFAS No. 123 (Revised 2004), the Company would have been required to implement SFAS No. 123 (Revised 2004) as of the first interim or annual reporting period that begins after June 15, 2005. SAB No. 107 allows the Company to implement SFAS No. 123 (Revised 2004) at the beginning of the next fiscal year that begins after June 15, 2005. None of the accounting provisions of SFAS No. 123 (Revised 2004) are affected by SAB No. 107. The Company is currently assessing the impact of implementing SFAS No. 123 (Revised 2004) on its financial position and results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle unless it is impracticable to do so. SFAS No. 154 also provides that a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate effected by a change in accounting principle and that correction of errors in previously issued financial statements should be termed a “restatement.” SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and corrections of errors made in fiscal years beginning after June 1, 2005. The Company believes that implementing SFAS No. 154 should not have a material impact on its financial position and results of operations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements and Analyst Reports

“Forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), include certain written and oral statements made, or incorporated by reference, by us or our representatives in this report, other reports, filings with the Securities and Exchange Commission (the “S.E.C.”), press releases, conferences, or otherwise. Such forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will likely result,” or any variations of such words with similar meaning. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Investors should carefully review the risk factors set forth in other reports or documents we file with the S.E.C., including Forms 10-Q, 10-K and 8-K. Some of the other risks and uncertainties that should be considered include, but are not limited to, the following: international, national and local general economic and market conditions; the size and growth of the overall athletic footwear and apparel markets; the size of our competitors; intense competition among designers, marketers, distributors and sellers of athletic footwear and apparel for consumers and endorsers; market acceptance of our training shoe line; market acceptance of new Limited Edition product; market acceptance of our basketball shoe line; market acceptance of non-performance product in Asia and Europe; market acceptance of Royal Elastics footwear (including the new L.A.M.B. product); demographic changes; popularity of particular designs, categories of products, and sports; seasonal and geographic demand for our products; the size, timing and mix of purchases of our products; performance and reliability of products; difficulties in anticipating or forecasting changes in consumer preferences, consumer demand for our product, and various market factors described above; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance “futures” orders may not be indicative of future revenues due to the changing mix of futures and at-once orders; potential cancellation of future orders; our ability to continue, manage or forecast our growth and inventories; new product development and commercialization; the ability to secure and protect trademarks, patents, and other intellectual property; difficulties in implementing, operating and maintaining our increasingly complex information systems and controls including, without limitation, the systems related to demand and supply planning, and inventory control; concentration of production in China; potential earthquake disruption due to the location of our warehouse and headquarters; potential disruption in supply chain, due to various factors including but not limited to natural disasters, epidemic diseases or customer purchasing habits; performance and reliability of products; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors; dependence on major customers; concentration of credit risk; business disruptions; increased costs of freight and transportation to meet delivery deadlines; increased labor costs; the effects of terrorist actions on business activities, customer orders and cancellations, and the United States and international governments’ responses to these terrorist actions; changes in business strategy or development plans; general risks associated with doing business outside the United States, including, without limitation, exchange rate fluctuations, import duties, tariffs, quotas and political and economic instability; changes in government regulations; liability and other claims asserted against us; the ability to attract and retain qualified personnel; and other factors referenced or incorporated by reference in this report and other reports.

K•Swiss (the “Company,” “we,” “us,” and “our”) operates in a very competitive and rapidly changing environment. New risk factors can arise and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Investors should also be aware that while we communicate, from time to time, with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts or others contain any projections, forecasts or opinions, such reports are not our responsibility.

Critical Accounting Policies

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

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We believe that the estimates, assumptions and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, the reserve for uncollectible accounts receivable and inventory reserves. These policies require that we make estimates in the preparation of our financial statements as of a given date.

Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Overview

Our total revenues increased 17.2% and 7.6% for the quarter and six months ended June 30, 2005, respectively, from the quarter and six months ended June 30, 2004, respectively. Our gross margins, as a percentage of revenues, increased to 46.5% and 46.8% for the quarter and six months ended June 30, 2005, respectively, from 46.1% and 46.0% for the quarter and six months ended June 30, 2004, respectively, as a result of product mix changes, international sales becoming a larger portion of revenues and changes in our at-once business. At June 30, 2005, our total futures orders with start ship dates from July through December 2005 were $185,181,000, an increase of 12.3% from June 30, 2004. Of this amount, domestic futures orders were $137,464,000, an increase of 1.9%, and international futures orders were $47,717,000, an increase of 58.5%. Net earnings and net earnings per diluted share for the quarter ended June 30, 2005, increased 27.1% and 34.3%, respectively, to $16,765,000 or $0.47 per diluted share, compared with $13,188,000, or $0.35 per diluted share, in the prior year period. Net earnings and net earnings per diluted share for the six months ended June 30, 2005, increased 22.0% and 28.0%, respectively, to $42,629,000 or $1.19 per diluted share, compared with $34,956,000, or $0.93 per diluted share, at June 30, 2004.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of certain items in the consolidated statements of earnings relative to revenues.

	Six Months				Three Months
	Ended June 30,				Ended June 30,
	2005		2004		2005		2004
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	53.2		54.0		53.5		53.9
Gross profit	46.8		46.0		46.5		46.1
Selling, general and administrative expenses	24.1		24.1		27.6		26.2
Interest income, net	0.4		0.1		0.5		0.1
Earnings before income taxes	23.1		22.0		19.4		20.0
Income tax expense	7.9		8.6		6.1		7.8
Net earnings	15.2		13.4		13.3		12.2

Revenues

K•Swiss brand revenues increased to $124,109,000 for the quarter ended June 30, 2005 from $106,005,000 for the quarter ended June 30, 2004, an increase of $18,104,000 or 17.1%. K•Swiss brand revenues increased to $275,185,000 for the six months ended June 30, 2005 from $256,279,000 for the six months ended June 30, 2004, an increase of $18,906,000 or 7.4%. The increase for the quarter and six months ended June 30, 2005 was the result of an increase in the volume of footwear sold offset by lower average wholesale prices per pair. The volume of footwear sold increased to 4,896,000 and 10,797,000 pair for the quarter and six months ended June 30, 2005, respectively, from 4,067,000 and 9,860,000 pair for the quarter and six months June 30, 2004. The increase in the volume of footwear sold for the quarter ended June 30, 2005 was primarily the result of increased sales of the Classic, children’s and tennis shoes of 25.3%, 27.4% and 11.4%, respectively, offset by decreased sales of training shoes of 33.3%. This increase in volume for the quarter ended June 30, 2005 was offset by a lower average wholesale price per pair of $24.93 for the quarter ended June 30, 2005 from $25.55 for the quarter ended June 30, 2004, a decrease of 2.4%, which resulted from the mix of sales. This increase in volume for the six months ended June 30, 2005 was offset by a lower average wholesale price per pair of $25.04 for the quarter ended June 30, 2005 from $25.42 for the six months ended June 30, 2004, a decrease of 1.5%, which resulted from the mix of sales.

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During the second quarter of 2004, domestic K•Swiss brand sales were negatively impacted as a result of implementing a direct-to-customer shipping program. At June 30, 2004, approximately $9,500,000 of orders scheduled for delivery in June were in transit, but were not recognized into revenue in the second quarter of 2004 because the footwear had not arrived at our customers’ rail yards. These orders were excluded from our backlog at June 30, 2004. During July 2004, this footwear arrived at our customers’ rail yards and therefore, sales of such footwear were recognized as revenues during July 2004.

The breakdown of revenues (dollar amounts in thousands) is as follows:

	Six Months Ended June 30,						Three Months Ended June 30,
	2005		2004		% Change		2005		2004		% Change
Domestic
K•Swiss brand	$	211,281	$	216,718	(2.5	)%	$	94,404	$	87,688	7.7	%
Royal Elastics brand		1,410		1,353	4.2			695		808	(14.0	)
Total domestic	$	212,691	$	218,071	(2.5	)%	$	95,099	$	88,496	7.5	%
International
K•Swiss brand	$	63,904	$	39,561	61.5	%	$	29,705	$	18,317	62.2	%
Royal Elastics brand		3,022		2,292	31.8			1,670		1,091	53.1
Total international	$	66,926	$	41,853	59.9	%	$	31,375	$	19,408	61.7	%
Total Revenues	$	279,617	$	259,924	7.6	%	$	126,474	$	107,904	17.2	%

Gross Margin

Overall gross profit margins, as a percentage of revenues, increased to 46.5% for the quarter ended June 30, 2005, from 46.1% for the quarter ended June 30, 2004. Overall gross profit margins, as a percentage of revenues, increased to 46.8% for the six months ended June 30, 2005, from 46.0% for the six months ended June 30, 2004. Gross profit margin for the quarter and six months ended June 30, 2005 was affected by product mix changes, international sales becoming a larger portion of revenues and changes in our at-once business. Our gross margins may not be comparable to our competitors as we recognize warehousing costs within selling, general and administrative expenses.

Selling, General and Administrative Expenses

Overall selling, general and administrative expenses increased to $34,946,000 (27.6% of revenues) for the quarter ended June 30, 2005, from $28,307,000 (26.2% of revenues) for the quarter ended June 30, 2004, an increase of $6,639,000 or 23.5%. Overall selling, general and administrative expenses increased to $67,285,000 (24.1% of revenues) for the six months ended June 30, 2005, from $62,514,000 (24.1% of revenues) for the six months ended June 30, 2004, an increase of $4,771,000 or 7.6%. The increase in general and administrative expenses during the quarter and six months ended June 30, 2005 was the result of increases in compensation and compensation related expenses, advertising and legal expenses. In addition, impairment expenses of $1,730,000 were recognized during the six months ended June 30, 2004 on the trademark and goodwill of the Royal Elastics brand based on many factors including the brand not growing as rapidly as we expected. Compensation expenses, which includes commissions and bonus/incentive related expenses, increased 46.5% and 8.1% for the quarter and six months ended June 30, 2005, respectively, as a result of an increase in bonus/incentive related expenses that were calculated in accordance with the bonus formula under the Company’s Economic Value Added Bonus Plan. Advertising expenses increased 10.0% and 8.6%, for the quarter and six months ended June 30, 2005, respectively, as part of a strategic effort to drive revenues. Legal expenses increased 373.4% and 229.4%, for the quarter and six months ended June 30, 2005, respectively, in connection with pursuing a lawsuit to protect our trademarks. The increase in corporate expenses during the quarter and six months ended June 30, 2005 was due to increases in compensation and legal expenses as explained above.

12

Interest, Other and Taxes

Overall net interest income was $665,000 (0.5% of revenues) and $1,183,000 (0.4% of revenues) for the quarter and six months ended June 30, 2005, respectively, compared to $173,000 (0.1% of revenues) and $300,000 (0.1% of revenues) for the quarter and six months ended June 30, 2004, representing an increase of $492,000 and $883,000 for the quarter and six months ended June 30, 2005 compared to the same prior year periods, respectively. This increase in net interest income was the result of higher average interest rates and higher average balances, offset by interest expense on our bank lines of credit.

Our effective tax rate was 31.7% for the quarter and 34.1% for the six months ended June 30, 2005 compared to 39.0% for the quarter and six months ended June 30, 2004. Starting January 1, 2005, future provision will not be made for appropriate United States income taxes on future earnings of selected international subsidiary companies as these future earnings are intended to be permanently invested.

Net earnings increased 27.1% to $16,765,000, or $0.47 per share (diluted earnings per share), for the quarter ended June 30, 2005 from $13,188,000, or $0.35 per share (diluted earnings per share) for the quarter ended June 30, 2004. Net earnings increased 22.0% to $42,629,000, or $1.19 per share (diluted earnings per share), for the six months ended June 30, 2005 from $34,956,000, or $0.93 per share (diluted earnings per share) for the quarter ended June 30, 2004.

Backlog

At June 30, 2005 and 2004 total futures orders with start ship dates from July 2005 and 2004 through December 2005 and 2004 were approximately $185,181,000 and $164,956,000, respectively, an increase of 12.3%. The 12.3% increase in total futures orders is comprised of an 11.3% increase in the third quarter 2005 future orders and a 13.8% increase in the fourth quarter 2005 future orders. At June 30, 2005 and 2004, domestic futures orders with start ship dates from July 2005 and 2004 through December 2005 and 2004 were approximately $137,464,000 and $134,858,000, respectively, an increase of 1.9%. At June 30, 2005 and 2004, international futures orders with start ship dates from July 2005 and 2004 through December 2005 and 2004 were approximately $47,717,000 and $30,098,000, respectively, an increase of 58.5%. “Backlog,” as of any date, represents orders scheduled to be shipped within the next six months. Backlog does not include orders scheduled to be shipped on or prior to the date of determination of backlog. The mix of “futures” and “at-once” orders can vary significantly from quarter to quarter and year to year and therefore “futures” are not necessarily indicative of revenues for subsequent periods. Orders generally may be canceled by customers without financial penalty. We believe our rate of net customer cancellations of domestic orders approximates industry averages for similar companies. Customers may also reject nonconforming goods. To date, we believe we have not experienced returns of our products or bad debts of customers materially in excess of industry averages for similar companies.

Liquidity and Capital Resources

We experienced net cash inflows of approximately $20,606,000 from our operating activities during the six months ended June 30, 2005 compared to net cash inflows of approximately $24,609,000 from our operating activities during the six months ended June 30, 2004. The decrease in operating cash inflows from the prior year is due primarily to changes in accounts receivables and inventories, offset by changes in accounts payable and accrued liabilities and an increase in earnings.

We had a net outflow of cash from our investing activities for the six months ended June 30, 2005 and 2004 due to the purchase of property, plant and equipment.

We had a net outflow of cash from our financing activities for the six months ended June 30, 2005 and 2004 primarily due to the purchase of our outstanding stock under our current stock repurchase program and to pay cash dividends, partially offset by proceeds from stock options exercised and for the six months ended June 30, 2005 we had cash outflows to repay our banks lines of credit.

On October 26, 2004, the Board of Directors authorized a new stock repurchase program to repurchase through December 2009 up to an additional 5,000,000 shares of our Class A Common Stock from time to time on the open market, as market conditions warrant. We adopted this program because we believe repurchasing our shares can be a good use of excess cash depending on our array of alternatives. Currently, we have made purchases, under all stock repurchase programs from August 1996 through July 27, 2005 (the day prior to the filing of this Form 10-Q), of 25.2 million shares at an aggregate cost totaling approximately $160,278,000, at an average price of $6.37 per share. See Part II – Other Information, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

13

No other material capital commitments existed at June 30, 2005. Depending on our future growth rate, funds may be required by operating activities. With continued use of our revolving credit facility and internally generated funds, we believe our present and currently anticipated sources of capital are sufficient to sustain our anticipated capital needs for the remainder of 2005. At June 30, 2005 and December 31, 2004 there was debt outstanding of $3,750,000 and $6,750,000, respectively. At June 30, 2005 we were in compliance with all relevant covenants under our credit facilities. We did not enter into off-balance sheet arrangements during the quarter ended June 30, 2005 or 2004, nor did we have any off-balance sheet arrangements outstanding at June 30, 2005 or 2004.

Our working capital increased $18,053,000 to $236,622,000 at June 30, 2005 from $218,569,000 at December 31, 2004. Working capital increased during the six months ended June 30, 2005 mainly due to an increase in accounts receivable offset by a decrease in cash used to repurchase our Class A Common Stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes from the information previously reported under Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, which Item 7A is hereby incorporated by reference.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s President and Chief Executive Officer and Vice President of Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2005. Based upon that evaluation, the Company’s President and Chief Executive Officer along with the Company’s Vice President of Finance and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of June 30, 2005 are effective in ensuring that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the S.E.C.’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

No changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) or 15d-15(d) have come to management’s attention that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As of June 30, 2005 the Company has corrected one of the two significant deficiencies disclosed in its Form 10-K for the year ended December 31, 2004 regarding the Company’s design of internal control over financial reporting in the areas of segregation of duties related to the Company’s customer service Amsterdam Operations. The Company believes that this correction did not amount to a material change in the Company’s internal control over financial reporting. As of June 30, 2005, the Company is currently in the process of correcting the other significant deficiency disclosed in its Form 10-K for the year ended December 31, 2004 regarding the Company’s design of internal controls over financial reporting in the areas of segregation of duties related to the Company’s Mira Loma, California inventory management system relating to the development, testing and production environments for that system.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is, from time to time, a party to litigation which arises in the normal course of its business operations. The Company does not believe that it is presently a party to litigation which will have a material adverse effect on its business or operations.

14

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to purchases made by K•Swiss of K•Swiss Class A Common Stock during the second quarter of 2005:

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (A)	Approximate Number of Shares that May Yet Be Purchased Under the Program (A)
April 1 through April 30, 2005	312,188	$	32.19	312,188	4,277,322 shares
May 1 through May 31, 2005	69,168		31.17	69,168	4,208,154 shares
June 1 through June 30, 2005	—		—	—	4,208,154 shares
Total	381,356	$	32.00	381,356	4,208,154 shares

(A) In October 2004, the Board of Directors approved an additional 5,000,000 share repurchase program. This program expires in December 2009. The Company repurchased these shares on the open market.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Submission of Matters to a Vote of Security Holders

(a) The Annual Meeting of Stockholders was held May 19, 2005.

(b) The following directors were elected to serve until the 2006 Annual Meeting of Stockholders or until their successors have been duly elected and qualified:

Class A Directors	Class B Directors
David Lewin	Steven Nichols
Mark Louie	George Powlick
	Lawrence Feldman
	Stephen Fine
	Martyn Wilford

(c) Of the 24,540,114 shares of Class A Common Stock represented at the meeting, Class A Directors named in (b) above were elected with the following votes:

	Number of Votes Received
Name	For	Withheld
David Lewin	16,928,434	7,611,680
Mark Louie	24,089,847	450,267

(d) Of the 8,378,128 shares of Class B Common Stock represented at the meeting, Class B Directors named in (b) above were elected with the following votes:

	Number of Votes Received
Name	For	Withheld
Steven Nichols	83,781,280	—
George Powlick	83,781,280	—
Lawrence Feldman	83,781,280	—
Stephen Fine	83,781,280	—
Martyn Wilford	83,781,280	—

15

(e) Of the 24,540,114 shares of Class A and 8,378,128 shares of Class B Common Stock represented at the meeting, Grant Thornton LLP was ratified as the Company’s independent accountants for 2005:

	Number of Votes Received
For	108,306,898
Against	11,261
Abstain	3,235

ITEM 5. Other Information

On June 1, 2005, the Company entered into a Loan Agreement (the “Loan Agreement”) with Bank of America, N.A. (the “Bank”). The Loan Agreement was entered into to replace that certain Business Loan Agreement between the Company and the Bank dated as of July 1, 2001 which expired by its terms on July 1, 2005. The terms of the two agreements are substantially similar. Pursuant to the Loan Agreement, the Bank has agreed to make available to the Company, beginning on June 1, 2005, a revolving line of credit in the amount of $15 million at an interest rate of the Bank’s prime rate minus 0.75%. The Company may elect an optional interest rate in lieu of the aforementioned rate under the conditions set forth in the Loan Agreement. The Loan Agreement expires by its terms on July 1, 2007 (the “Termination Date”). Prior to the Termination Date, the Company may repay principal amounts due and reborrow them. The Loan Agreement and an amendment to the Agreement dated June 28, 2005 are attached to this Quarterly Report on Form 10-Q as Exhibit 10.18 and 10.19, respectively.

ITEM 6. Exhibits

3.1	Amended and Restated Bylaws of K•Swiss Inc. (incorporated by reference to exhibit 3.4 to the Registrant’s Form 10-K for fiscal year ended December 31, 1991)
3.2	Amended and Restated Certificate of Incorporation of K•Swiss Inc. (incorporated by reference to exhibit 3.2 to the Registrant’s Form 10-K for fiscal year ended December 31, 2004)
4.1	Certificate of Designations of Class A Common Stock of K•Swiss Inc. (incorporated by reference to exhibit 3.2 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
4.2	Certificate of Designations of Class B Common Stock of K•Swiss Inc. (incorporated by reference to exhibit 3.3 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
4.3	Specimen K•Swiss Inc. Class A Common Stock Certificate (incorporated by reference to exhibit 4.1 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
4.4	Specimen K•Swiss Inc. Class B Common Stock Certificate (incorporated by reference to exhibit 4.2 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
10.1	K•Swiss Inc. 1990 Stock Incentive Plan, as amended through October 28, 2002 (incorporated by reference to exhibit 10.1 to the Registrant’s Form 10-K for the year ended December 31, 2002)
10.2	Form of Amendment No. 1 to K•Swiss Inc. Employee Stock Option Agreement Pursuant to the 1990 Stock Incentive Plan (incorporated by reference to exhibit 10.2 to the Registrant’s Form 10-K for the year ended December 31, 2002)
10.3	K•Swiss Inc. 1999 Stock Incentive Plan, as amended through October 26, 2004 (incorporated by reference to exhibit 4.1 to the Registrant’s Form S-8 with the S.E.C. on February 23, 2005)
10.4	Form of Amendment No. 1 to K•Swiss Inc. Employee Stock Option Agreement Pursuant to the 1999 Stock Incentive Plan (incorporated by reference to exhibit 10.4 to the Registrant’s Form 10-K for the year ended December 31, 2002)
10.5	K•Swiss Inc. Profit Sharing Plan, as amended (incorporated by reference to exhibit 10.3 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
10.6	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan (incorporated by reference to exhibit 10.35 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1993)
10.7	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated May 26, 1994 (incorporated by reference to exhibit 10.32 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1994)
10.8	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated January 1, 2000 (incorporated by reference to exhibit 10.30 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1999)

16

10.9	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan (incorporated by reference to exhibit 10 to the Registrant’s Form 10-Q for the quarter ended March 31, 2002)
10.10	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated January 10, 2003 (incorporated by reference to exhibit 10.23 to the Registrant’s Form 10-Q for the quarter ended June 30, 2003)
10.11	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated October 9, 2003 (incorporated by reference to exhibit 10.11 to the Registrant’s Form 10-Q for the quarter ended June 30, 2004)
10.12	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated May 23, 2005
10.13	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated June 1, 2005
10.14	Form of Indemnity Agreement entered into by and between K•Swiss Inc. and directors (incorporated by reference to exhibit 10.4 to the Registrant’s Form S-1 Registration Statement No. 33-34369)
10.15	Employment Agreement between the Registrant and Steven B. Nichols dated as of May 18, 2000 (incorporated by reference to exhibit 10.31 to the Registrant’s Form 10-Q for the quarter ended June 30, 2000)
10.16	Employment Agreement between the Registrant and Steven B. Nichols dated as of August 2, 2004 (incorporated by reference to exhibit 10.14 to the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
10.17	Lease Agreement dated March 11, 1997 by and between K•Swiss Inc. and Space Center Mira Loma, Inc. (incorporated by reference to exhibit 10 to the Registrant’s Form 10-Q for the quarter ended March 31, 1997)
10.18	Loan Agreement dated June 1, 2005, between the Company and Bank of America
10.19	Amendment No. 1 to Loan Agreement, dated June 28, 2005, between the Company and Bank of America
10.20	K•Swiss Inc. Deferred Compensation Plan, Master Plan Document (incorporated by reference to exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 1998)
10.21	K•Swiss Inc. Deferred Compensation Plan, Master Trust Agreement (incorporated by reference to exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended March 31, 1998)
14.1	K•Swiss Inc. Code of Ethics for the Chief Executive Officer, Senior Financial Officers and Board of Directors (incorporated by reference to exhibit 14 to the Registrant’s Form 10-K for the year ended December 31, 2003)
14.2	K•Swiss Inc. Code of Ethics for Directors, Officers and Employees (incorporated by reference to exhibit 14.2 to the Registrant’s Form 10-Q for the quarter ended March 31, 2004)
31.1	Certification of President and Chief Executive Officer Pursuant to Exchange Act Rule 13a-14
31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14
32	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

17

SIGNATURES

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

	K•Swiss Inc.
Date: July 27, 2005	By:	/s/ George Powlick
		George Powlick,
		Vice President Finance, Chief Operating
		Officer and Chief Financial Officer

18

EXHIBIT INDEX

Exhibit

10.12	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated May 23, 2005
10.13	Amendment to K•Swiss Inc. 401(k) and Profit Sharing Plan dated June 1, 2005
10.18	Loan Agreement dated June 1, 2005, between the Company and Bank of America
10.19	Amendment No. 1 to Loan Agreement, dated June 28, 2005, between the Company and Bank of America
31.1	Certification of President and Chief Executive Officer Pursuant to Exchange Act Rule 13a-14
31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14
32	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

19

EX-10.12

Exhibit 10.12

THE CORPORATEPLAN

FOR RETIREMENT^SM

(PROFIT SHARING/401(K) PLAN)

A FIDELITY PROTOTYPE PLAN

Non-Standardized Adoption Agreement No. 001

For use With

Fidelity Basic Plan Document No. 02

Plan Number: 40293

The CORPORATEplan for Retirement^SM Non-Std PS Plan 10/09/2003

© 2003 FMR Corp.

All rights reserved.

1.04 COVERAGE

All Employees who meet the conditions specified below shall be eligible to participate in the Plan:
(a)	Age Requirement (check one):
	(1)	¨	no age requirement.
	(2)	þ	must have attained age: 21.0 (not to exceed 21).
(b)	Eligibility Service Requirement
	(1)	Eligibility to Participate in Plan (check one):
		(A)	¨	no Eligibility Service requirement.
		(B)	¨	(not to exceed 11) months of Eligibility Service requirement (no minimum number Hours of Service can be required).
		(C)	þ	one year of Eligibility Service requirement (at least 1,000 Hours of Service are required during the Eligibility Computation Period).
		(D)	¨	two years of Eligibility Service requirement (at least 1,000 Hours of Service are required during each Eligibility Computation Period). (Do not select if Option 1.01(b)(1), 401(k) Only, is checked, unless a different Eligibility Service requirement applies to Deferral Contributions under Option 1.04(b)(2).)
			Note: If the Employer selects the two year Eligibility Service requirement, then contributions subject to such Eligibility Service requirement must be 100% vested when made.
	(2)	þ	Special Eligibility Service requirement for Deferral Contributions and/or Matching Employer Contributions:
		(A)	The special Eligibility Service requirement applies to (check the appropriate box(es)):
			(i)	þ	Deferral Contributions.
			(ii)	¨	Matching Employer Contributions.
		(B)	The special Eligibility Service requirement is: (B) - 3 month(s) of Eligibility Service (Fill in (A), (B), or (C) from Subsection 1.04(b)(l) above).
(c)	Eligible Class of Employees (check one):
	Note: The Plan may not cover employees who are residents of Puerto Rico. These employees are automatically excluded from the eligible class, regardless of the Employer’s selection under this Subsection 1.04(c).
	(1)	þ	includes all Employees of the Employer.

Plan Number: 40293

The CORPORATEplan for Retirement^SM Non-Std PS Plan 10/09/2003

© 2003 FMR Corp.

All rights reserved.

	(2)	¨	includes all Employees of the Employer except for (check the appropriate box(es)):
		(A)	¨		employees covered by a collective bargaining agreement.
		(B)	¨		Highly Compensated Employees as defined in Code Section 414(q).
		(C)	¨		Leased Employees as defined in Subsection 2.01(cc).
		(D)	¨		nonresident aliens who do not receive any earned income from the Employer which constitutes United States source income.
		(E)	¨		other:
					__________________________________________ __________________________________________
		Note: The Employer should exercise caution when excluding employees from participation in the Plan. Exclusion of employees may adversely affect the Plan’s satisfaction of the minimum coverage requirements, as provided in Code Section 410(b).
(d)	The Entry Dates shall be (check one):
	(1)	þ	immediate upon meeting the eligibility requirements specified in Subsections 1.04(a), (b), and (c).
	(2)	¨	the first day of each Plan Year and the first day of the seventh month of each Plan Year.
	(3)	¨	the first day of each Plan Year and the first day of the fourth, seventh, and tenth months of each Plan Year.
	(4)	¨	the first day of each month.
	(5)	¨	the first day of each Plan Year. (Do not select if there is an Eligibility Service requirement of more than six months in Subsection 1.04(b) or if there is an age requirement of more than 20 1/2 in Subsection 1.04(a).)
(e)	¨	Special Entry Date(s) - In addition to the Entry Dates specified in Subsection 1.04(d) above, the following special Entry Date(s) apply for Deferral and/or Matching Employer Contributions. (Special Entry Dates may only be selected if Option 1.04(b)(2), special Eligibility Service requirement, is checked. The same Entry Dates must be selected for contributions that are subject to the same Eligibility Service requirements.)
	(1)	The special Entry Date(s) shall apply to (check the appropriate box(es)):
		(A)	¨	Deferral Contributions.
		(B)	¨	Matching Employer Contributions.
	(2)	The special Entry Date(s) shall be:              (Fill in (1), (2), (3), (4), or (5) from Subsection 1.04(d) above).

Plan Number: 40293

The CORPORATEplan for Retirement^SM Non-Std PS Plan 10/09/2003

© 2003 FMR Corp.

All rights reserved.

(f)	Date of Initial Participation - An Employee shall become a Participant unless excluded by Subsection 1.04(c) above on the Entry Date immediately following the date the Employee completes the service and age requirement(s) in Subsections 1.04(a) and (b), if any, except (check one):
	(1)	þ	no exceptions.
	(2)	¨	Employees employed on the Effective Date in Subsection 1.01(g)(1) or (2) shall become Participants on that date.
	(3)	¨	Employees who meet the age and service requirement(s) of Subsections 1.04(a) and (b) on the Effective Date in Subsection 1.01(g)(1) or (2) shall become Participants on that date.

Plan Number: 40293

The CORPORATEplan for Retirement^SM Non-Std PS Plan 10/09/2003

© 2003 FMR Corp.

All rights reserved.

AMENDMENT EXECUTION PAGE

This page is to be completed in the event the Employer modifies any prior election(s) or makes a new election(s) in this Adoption Agreement. Attach the amended page(s) of the Adoption Agreement to this execution page.

The following section(s) of the Plan are hereby amended effective as of the date(s) set forth below:

Section Amended	Page	Effective Date
1.04		06/30/2005

IN WITNESS WHEREOF, the Employer has caused this Amendment to be executed this 23 day of May, 2005.

Employer:	K-SWISS INC.	Employer:	K-SWISS INC.
By:	/s/ Cheryl Kuchinka	By:	/s/ George Powlick
Title:	Plan Administrator	Title:	Vice President

Accepted by:

Fidelity Management Trust Company, as Trustee

By:	Date:
Title:

Plan Number: 40293

The CORPORATEplan for Retirement^SM Non-Std PS Plan 10/09/2003

© 2003 FMR Corp.

All rights reserved.

EX-10.13

Exhibit 10.13

K-Swiss Inc. 401(k) and Profit Sharing Plan

The CORPORATEplan for Retirement^SM

Service Agreement

Plan Number:40293 CPR Service Agreement

EXECUTION PAGE (FIDELITY’S COPY)

This Agreement shall be effective upon execution by both parties. By executing this Agreement, the parties agree to terms and conditions contained in the Agreement and the following attached Appendices:

Service Agreement	Original Effective Date	Revision Date(s)
Articles I and II	05/26/1994
Appendix A - Investment Schedule and Services
Appendix B - Enrollment and Education Services
Appendix C - Contribution Processing Services
Appendix D - Loan and Withdrawal Services		06/01/2005
Appendix E - Compliance Services
Appendix F - Miscellaneous Additional Services		06/01/2005

In witness whereof, the parties hereto have caused this Agreement to be executed by their duly authorized officers.

Employer:	Employer:
/s/ George Powlick	/s/ Cheryl Kuchinka
(Signature)	(Signature)
GEORGE POWLICK	CHERYL KUCHINKA
(Print Name)	(Print Name)
Vice President	Plan Administrator
(Title)	(Title)
5-23-05
(Date)	(Date)

Note: Only one authorized signature is required to execute this Agreement unless the Employer’s corporate policy mandates two authorized signatures.

Fidelity Management Trust Company:

(Signature)

(Print Name)

(Title)

(Date)

Plan Number:40293 CPR Service Agreement

EXECUTION PAGE (EMPLOYER’S COPY)

This Agreement shall be effective upon execution by both parties. By executing this Agreement, the parties agree to terms and conditions contained in the Agreement and the following attached Appendices:

Service Agreement	Original Effective Date	Revision Date(s)
Articles I and II	05/26/1994
Appendix A - Investment Schedule and Services
Appendix B - Enrollment and Education Services
Appendix C - Contribution Processing Services
Appendix D - Loan and Withdrawal Services		06/01/2005
Appendix E - Compliance Services
Appendix F - Miscellaneous Additional Services		06/01/2005

In witness whereof, the parties hereto have caused this Agreement to be executed by their duly authorized officers.

Employer:	Employer:
(Signature)	(Signature)
(Print Name)	(Print Name)
(Title)	(Title)
(Date)	(Date)

Note: Only one authorized signature is required to execute this Agreement unless the Employer’s corporate policy mandates two authorized signatures.

Fidelity Management Trust Company:

(Signature)

(Print Name)

(Title)

(Date)

Plan Number:40293 CPR Service Agreement

APPENDIX D – LOAN AND WITHDRAWAL SERVICES

Loans and withdrawals from the Plan shall be processed in accordance with the provisions of the Plan and this Appendix D. Fidelity shall provide loan and withdrawal processing services subject to the terms and conditions of this Appendix D.

{seq appendixD \* MERGEFORMAT }. Participant Loans

Loan setup fee per loan:	$75.00
Fee Paid By:	Participants
Annual loan maintenance fee per loan:	$25.00
Fee Paid By:	Participants

Sponsor-Approved Loans

This Section includes the Loan Policy adopted in accordance with the Plan. All other provisions governing Participant loans are included in the Plan. This Section is effective for loans made on or after the Effective Date of the CORPORATEplan for Retirement^SM. Subject to paragraph f. below, other loans made under the Plan shall continue under their existing terms until they are repaid.

a. Administration - The Employer shall collect and remit all principal and interest payments to Fidelity, keep the proceeds of such loan repayments separate from the other assets of the Employer, clearly identifying such assets as Plan assets, and cancel and surrender the promissory note and other loan documentation to the Participant when a loan has been paid in full.

The Employer hereby directs Fidelity that all Participant loans shall be considered sponsor-approved and thus require the Employer to review and approve all loan requests via Plan Sponsor Webstation (or any other service subsequently employed by Fidelity to facilitate electronic plan sponsor administration, hereinafter PSW) . The Employer must provide Fidelity with all applicable loan repayment frequencies for Participants by location, division, or region. Plans converting to The CORPORATEplan for Retirement^SM must provide the highest outstanding loan balance(s) in the twelve months prior to the conversion date. If the Employer fails to provide this information, the Employer must separately determine the amount of loan available to a Pariticipant when reviewing and approving loan requests via PSW for the first twelve months of the Plan’s administration under The CORPORATEplan for Retirement^SM.

b. Application Procedure - The Participant shall use Automated Channels (Fidelity Automated Retirement Benefits Line, NetBenefits^SM World Wide Web Internet service, or any other service subsequently employed by Fidelity to facilitate electronic plan administration) to apply for a loan. Participant loan requests that cannot be serviced via Automated Channels shall be referred to the Employer for assistance. To originate a Participant loan, the Participant shall direct Fidelity as to the term and amount of the loan to be made from his/her account. Such directions shall be made by use of the Automated Channels maintained for such purpose by Fidelity or its agent. The Automated Channels shall determine, based on the current value of the Participant’s account on the date of the request and any guidelines provided by the Employer, the amount available for the loan. The vested percentage on Fidelity’s Participant Recordkeeping System (FPRS) shall be used to process the loan. The Employer is responsible for ensuring that the proper vested percentage for each Participant is

Plan Number:40293 CPR Service Agreement

always maintained on FPRS. Based on the interest rate supplied by the Employer in accordance with the terms of the Plan, the Automated Channels shall advise the Participant of such interest rate, as well as the installment payment amounts. Unless the Plan Administrator directs otherwise in writing, Fidelity is hereby directed to deduct a fee of $15 per delivery from Participant accounts, as a reasonable Plan expense, for express delivery of loan checks for Participants who have requested expedited delivery of their checks. Fidelity shall distribute the loan note with the proceeds check directly to the Participant. Fidelity shall also distribute the required Truth-In-Lending disclosures, if applicable, to the Participant. To facilitate recordkeeping, Fidelity may destroy the original of any promissory note made in connection with a loan to a Participant under the Plan, provided that Fidelity first creates a duplicate by a photographic optical scanning or other process. The duplicate shall yield a reasonable facsimile of the promissory note and the Participant’s signature thereon. The duplicate may be reduced or enlarged in size from the actual size of the original promissory note.

c. Conditions and Limitations -

i. Minimum Principal Amount. The minimum principal amount of any loan is $1,000.00.

ii. Duration. The repayment period of any loan shall be no more than five years unless such loan is for the purchase of a Participant’s primary residence, in which case the repayment period may not extend beyond 10 years from the date of the loan. A loan becomes immediately due and payable upon a Participant’s termination of employment or death.

iii. Sources. The Administrator may provide that loans only be made from certain contribution sources within Participant Account(s) by notifying the Trustee in writing of the restricted source.

iv. Purpose: A loan will be granted only for hardship withdrawal purposes.

v. Repayment Method. A loan to an Employee shall be repaid at least quarterly by payroll. If repayment is not made by payroll deduction, a loan shall be repaid by the Employee to the Employer. Loan repayments are forwarded to Fidelity, by the Employer, in the same manner and frequency as contributions.

vi. Outstanding Loans. A Participant may have up to two loans outstanding at a time. A Participant with two existing loans outstanding may not apply for another loan until one of the existing loans is paid in full. Also, a Participant may not (1) refinance an existing loan, (2) apply for an additional loan for the purpose of paying off an existing loan or (3) apply for more than one loan during each Plan Year.

d. Interest Rate - The Employer shall determine and communicate to Fidelity a reasonable rate of interest based on the prevailing interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. The interest rate shall remain fixed throughout the duration of the loan.

e. Prepayment - A Participant may prepay the entire outstanding loan balance prior to maturity without penalty.

f. Repayment Suspension / Re-amortization - Loan repayments may not be suspended or re-amortized except as provided in this subsection. Loan repayments may only be suspended if:

Plan Number:40293 CPR Service Agreement

(i) the participant is on a leave of absence (LOA) from the Employer without pay, or at a rate of pay (after income and employment tax withholding) that is less than the amount of the installment payments required under the terms of the loan, but repayments may never be suspended for more than 12 months; or, (ii) the participant is on an LOA due to qualified military service pursuant to Internal Revenue Code (IRC) Section 414(u). Loan payments suspended due to an LOA must resume following the conclusion of the LOA (or the 12 month period described in the previous sentence). The Employer is required to inform Fidelity of the dates for all loan repayment suspensions and resumptions, but this information may be transmitted electronically. In the case of payments resuming following suspension due to an LOA, the loan may be re-amortized to allow for level payments, but the amount of each payment must not be less than the amount required under the terms of the original loan. When loan repayments are to resume following a participant’s LOA, the Employer must direct Fidelity as to whether or not to re-amortize the remaining balance of the loan. The repayment period for the remaining balance of a loan may never be extended beyond 5 years from the date of the original loan unless there is an LOA pursuant to IRC Section 414(u) or the loan is a personal residence loan. The Employer may also direct Fidelity to re-amortize loans for participants whose payroll frequency has changed during the period of the loan or whose established loan repayment frequency was incorrect, but that re-amortization cannot extend payments beyond the original term of the loan.

g. Default - A Participant’s loan shall be considered in default at the end of the calendar quarter following a calendar quarter (end of the ‘cure period’) for which there is outstanding any part of any payment due (principal or interest). The Employer agrees to provide to Fidelity information regarding the status of participants relating to loan repayments. Fidelity agrees to provide the Employer with information regarding the repayment status of outstanding loans and thereafter to provide notices to Participants regarding late, missing or insufficient payments relating to loans they have outstanding. The Employer hereby directs Fidelity to default loans of Participants, in accordance with the Plan, after Participants have defaulted by the terms of their loans, but in no event later than the date legally required. Notwithstanding the above, based upon the information Fidelity has provided regarding the repayment status of outstanding loans, the Employer may direct Fidelity not to provide notices of delinquency for specific Plan Participants, however, an Employer cannot direct Fidelity to delay the loan default.

h. Pre-existing Loans - Loans existing prior to the Effective Date of the CORPORATEplan for Retirement^SM shall continue under their existing terms until repaid. Also, for all such loans, the Employer or Administrator shall continue to act as the Trustee’s agent in holding physical custody of promissory notes and other loan documentation and for canceling and surrendering of such notes and other loan documentation to the Participant when such a loan has been paid in full. A Participant may not apply for a new loan until that Participant has less loans outstanding than the number of loans allowed pursuant to paragraph c., vi. Outstanding Loans, above. Fidelity shall not accept any pre-existing loans that require Fidelity to hold as security for the loan property other than the Participant’s vested account.

i. Fees - Loan Set-Up fees shall be billed or charged in full on the first invoice date following origination of the loan. Annual loan maintenance fees shall be accrued and billed or charged quarterly in arrears. Notwithstanding any provision or designation herein to the contrary, the Employer shall be responsible for the payment of annual loan maintenance fees on pre-existing loans unless the loan terms allow payment by Participants.

Plan Number:40293 CPR Service Agreement

{seq appendixD \* MERGEFORMAT }. Participant Withdrawals

Pre-Approved Withdrawals

Participant withdrawals and distributions shall be processed in accordance with the provisions of the Plan and subject to the following terms and conditions:

a. The Employer hereby directs Fidelity that all Participant withdrawals shall be considered pre-approved by the Employer and there shall not be any advance notification to Fidelity of any Participant withdrawal.

b. Participants shall use Automated Channels (Fidelity Automated Retirement Benefits Line, NetBenefits^SM World Wide Web Internet service, or any other service subsequently employed by Fidelity to facilitate electronic plan administration) to request withdrawals. Participant withdrawals that cannot be serviced via the Automated Channels shall be referred to the Employer for assistance. The Employer understands that currently the following types of withdrawals cannot be completed through Automated Channels:

i. distributions as a result of the Plan’s failure of any required Internal Revenue Code test

ii. minimum required distributions

iii. distributions to an alternate payee under a qualified domestic relations order prior to establishment of an Account for the alternate payee

iv. distributions to a beneficiary prior to establishment of an Account for the beneficiary

v. installment payments

The Employer agrees that Fidelity may expand the Automated Channels service to include other types of withdrawals by giving notice (which may be an electronic transmission) to the Employer in advance. The Employer is responsible for updating the status codes, applicable dates, and other appropriate information for participants via Plan Sponsor Webstation (PSW), or other agreed upon transmission.

c. Participant withdrawals shall be processed any business day during any month. The Automated Channels shall determine the amount available for withdrawal based on the current value of the Participant’s Account on the date of the request and any guidelines provided by the Employer. The vested percentage on Fidelity’s Participant Recordkeeping System (FPRS) shall be used to process the distribution. The Employer is responsible for ensuring that the proper vested percentage for each Participant is always maintained on FPRS. Fidelity shall distribute withdrawals directly to Participants based upon the addresses of record. Unless the Plan Administrator directs otherwise in writing, Fidelity is hereby directed to deduct a fee of $15 per delivery from Participant accounts, as a reasonable Plan expense, for express delivery of withdrawal checks for Participants who have requested expedited delivery of their checks.

d. Currently, the following distributions require Plan Administrator review and approval prior to such distributions being processed:

i. withdrawals subject to spousal consent

ii. hardship withdrawals

iii. protected benefit forms only available to a specified class of participants

Plan Number:40293 CPR Service Agreement

If, subsequent to the execution of this Agreement, the Employer directs Fidelity in writing that some or all types of distribution shall no longer be considered pre-approved, then the Employer shall review and approve each such distribution request through PSW.

Plan Number:40293 CPR Service Agreement

APPENDIX F – MISCELLANEOUS

The provision(s) as identified in this Appendix F shall supercede the referenced provision(s) of this Agreement, subject to the terms and conditions contained herein. For provision(s) below identified as exceptions to the Plan (requiring an amendment to the CORPORATEplan for RetirementSM), the Employer hereby agrees to obtain a favorable determination letter on the Plan from the Internal Revenue Service.

Title: Appendix D, Section 1, Subsection c.(vi): Outstanding Loans:

Description: Service Agreement, Appendix D, Section 1, Subsection c.(vi): Outstanding Loans will be deleted and replaced in its entirety with the following: vi. Outstanding Loans. A Participant may have two loans outstanding at a time. A Participant with two existing loans may not apply for another loan until one of the existing loans is paid in full. Also, a Participant may not (1) refinance an existing loan, (2) apply for an additional loan for the purpose of paying off an existing loan, or (3) apply for more than one loan during each Plan Year.

Exception Fee: Fee Waived

Plan Number:40293 CPR Service Agreement

EX-10.18

Exhibit 10.18

LOAN AGREEMENT

This Agreement dated as of June 1, 2005, is between Bank of America, N.A. (the “Bank”) and K-Swiss Inc. (the “Borrower”).

1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS

1.1 Line of Credit Amount.

(a) During the availability period described below, the Bank will provide a line of credit to the Borrower. The amount of the line of credit (the “Facility No. 1 Commitment”) is Fifteen Million and 00/100 Dollars ($15,000,000.00).

(b) This is a revolving line of credit. During the availability period, the Borrower may repay principal amounts and reborrow them.

(c) The Borrower agrees not to permit the principal balance outstanding to exceed the Facility No. 1 Commitment. If the Borrower exceeds this limit, the Borrower will immediately pay the excess to the Bank upon the Bank’s demand.

1.2 Availability Period. The line of credit is available between the date of this Agreement and July 1, 2007, or such earlier date as the availability may terminate as provided in this Agreement (the “Facility No. 1 Expiration Date”).

The availability period for this line of credit will be considered renewed if and only if the Bank has sent to the Borrower a written notice of renewal effective as of the Facility No. 1 Expiration Date for the line of credit (the “Renewal Notice”). If this line of credit is renewed, it will continue to be subject to all the terms and conditions set forth in this Agreement except as modified by the Renewal Notice. If this line of credit is renewed, the term “Expiration Date” shall mean the date set forth in the Renewal Notice as the Expiration Date and the same process for renewal will apply to any subsequent renewal of this line of credit. A renewal fee may be charged at the Bank’s option. The amount of the renewal fee will be specified in the Renewal Notice.

1.3 Repayment Terms.

(a) The Borrower will pay interest on July 1, 2005, and then on the same day of each month thereafter until payment in full of any principal outstanding under this facility.

(b) The Borrower will repay in full any principal, interest or other charges outstanding under this facility no later than the Facility No. 1 Expiration Date. Any interest period for an optional interest rate (as described below) shall expire no later than the Facility No. 1 Expiration Date.

1.4 Interest Rate.

(a) The interest rate is a rate per year equal to the Bank’s Prime Rate minus 0.75 percentage point(s).

(b) The Prime Rate is the rate of interest publicly announced from time to time by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on various factors, including the Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank’s Prime Rate.

1.5 Optional Interest Rates. Instead of the interest rate based on the rate stated in the paragraph entitled “Interest Rate” above, the Borrower may elect the optional interest rates listed below for this Facility No. 1 during interest periods agreed to by the Bank and the Borrower. The optional interest rates shall be subject to the terms and conditions described later in this Agreement. Any principal amount bearing interest at an optional rate under this Agreement is referred to as a “Portion.” The following optional interest rates are available:

(a) The IBOR Rate plus 1.25 percentage point(s).

Standard Loan Agreement 1 Revised 2/2005

1.6 Letters of Credit.

(a) During the availability period, at the request of the Borrower, the Bank will issue:

(i) commercial letters of credit with a maximum maturity of two hundred twenty-five (225) days but not to extend more than one hundred eighty (180) days beyond the Facility No. 1 Expiration Date. Each commercial letter of credit will require drafts payable at sight.

(ii) standby letters of credit with a maximum maturity of three hundred sixty-five (365) days but not to extend more than three hundred sixty-five (365) days beyond the Facility No. 1 Expiration Date. The standby letters of credit may include a provision providing that the maturity date will be automatically extended each year for an additional year unless the Bank gives written notice to the contrary.

(b) The amount of the letters of credit outstanding at any one time (including the drawn and unreimbursed amounts of the letters of credit) may not exceed Fifteen Million and 00/100 Dollars ($15,000,000).

(c) In calculating the principal amount outstanding under the Facility No. 1 Commitment, the calculation shall include the amount of any letters of credit outstanding, including amounts drawn on any letters of credit and not yet reimbursed.

(d) The following letters of credit are outstanding from the Bank for the account of the Borrower:

Letter of Credit Number	Amount
3066454	$	500,000.00
3066455	$	1,000,000.00

As of the date of this Agreement, these letters of credit shall be deemed to be outstanding under this Agreement, and shall be subject to all the terms and conditions stated in this Agreement.

(e) The Borrower agrees:

(i) Any sum drawn under a letter of credit may, at the option of the Bank, be added to the principal amount outstanding under this Agreement. The amount will bear interest and be due as described elsewhere in this Agreement.

(ii) If there is a default under this Agreement, to immediately prepay and make the Bank whole for any outstanding letters of credit.

(iii) The issuance of any letter of credit and any amendment to a letter of credit is subject to the Bank’s written approval and must be in form and content satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank.

(iv) To sign the Bank’s form Application and Agreement for Commercial Letter of Credit or Application and Agreement for Standby Letter of Credit, as applicable.

(v) To pay negotiation fees of the greater of two-tenths (0.20%) of the amount of each drawing or Seventy Five Dollars ($75), and other fees at the times and in the amounts Bank advises Borrower from time to time, as being generally applicable to commercial letters of credit issued by the Bank, including without limitation, amendment, discrepancy, and cancellation fees.

(vi) To pay any issuance and/or other fees that the Bank notifies the Borrower will be charged for issuing and processing letters of credit for the Borrower.

(vii) To allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges.

(viii) To pay the Bank a non-refundable fee equal to 1% per annum of the outstanding undrawn amount of each standby letter of credit, payable quarterly in advance, calculated on the basis of the face amount outstanding on the day the fee is calculated.

1.7 Acceptances. This line of credit up to a maximum face value outstanding of Fifteen Million and 00/100 Dollars ($15,000,000.00) may be used for financing acceptance transactions for a maximum tenor of one hundred eighty (180) days but not to extend beyond the Facility No. 1 Expiration Date. In calculating the principal amount outstanding under the Facility No. 1 Commitment, the calculation shall include the face amount of any acceptances outstanding.

Standard Loan Agreement 2 Revised 2/2005

The Borrower agrees:

(a) Each acceptance shall be in an amount not less than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00).

(b) Any sum owed to the Bank under an acceptance may, at the option of the Bank, be added to the principal amount outstanding under this Agreement. The amount will bear interest and be due as described elsewhere in this Agreement.

(c) If there is a default under this Agreement, to immediately prepay and make the Bank whole for any outstanding acceptances.

(d) The issuance of any acceptance is subject to the Bank’s express approval and must be in form and content satisfactory to the Bank.

(e) To sign the Bank’s standard form agreement for acceptances, and to pay any issuance and/or other fees that the Bank notifies the Borrower will be charged for issuing and processing acceptances for the Borrower.

(f) To allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges.

(g) The discount for each draft shall be at the discount rate in effect on the date of such acceptance for prime acceptances of equal tenor. The commission for each draft shall be equal to:

(i) one percent (1.0%) per annum of the face amount thereof for each acceptance greater than or equal to One Million Dollars ($1,000,000);

(ii) one and one half percent (1.50%) per annum of the face amount for each acceptance greater than or equal to Five Hundred Thousand Dollars ($500,000) but less than One Million Dollars ($1,000,000);

(iii) one and three fourths percent (1.75%) per annum of the face amount for each acceptance less than Five Hundred Thousand Dollars ($500,000);

(iv) provided, however, that in no event shall the acceptance commission be less than Five Hundred Dollars ($500).

The acceptance commission with respect to each acceptance shall be payable in full on the date of creation of such acceptance.

2. OPTIONAL INTEREST RATES

2.1 Optional Rates. Each optional interest rate is a rate per year. Interest will be paid on July 1, 2005, and then on the same day of each month thereafter until payment in full of any principal outstanding under this Agreement. No Portion will be converted to a different interest rate during the applicable interest period. Upon the occurrence of an event of default under this Agreement, the Bank may terminate the availability of optional interest rates for interest periods commencing after the default occurs. At the end of each interest period, the interest rate will revert to the rate stated in the paragraph(s) entitled “Interest Rate” above, unless the Borrower has designated another optional interest rate for the Portion.

2.2 IBOR Rate. The election of IBOR Rates shall be subject to the following terms and requirements:

(a) The interest period during which the IBOR Rate will be in effect will be no shorter than thirty (30) days and no longer than one year. The last day of the interest period will be determined by the Bank using the practices of the offshore dollar inter-bank market.

(b) Each IBOR Rate Portion will be for an amount not less than One Hundred Thousand and 00/100 Dollars ($100,000.00).

(c) The “IBOR Rate” means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.)

IBOR Rate =	IBOR Base Rate
	(1.00 -Reserve Percentage)

Standard Loan Agreement 3 Revised 2/2005

Where,

(i) “IBOR Base Rate” means the interest rate at which the Bank of America’s Grand Cayman Banking Center, Grand Cayman, British West Indies, would offer U.S. dollar deposits for the applicable interest period to other major banks in the offshore dollar inter-bank market.

(ii) “Reserve Percentage” means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages.

(d) The Bank will have no obligation to accept an election for an IBOR Rate Portion if any of the following described events has occurred and is continuing:

(i) Dollar deposits in the principal amount, and for periods equal to the interest period, of an IBOR Rate Portion are not available in the offshore dollar inter-bank market; or

(ii) the IBOR Rate does not accurately reflect the cost of an IBOR Rate Portion.

(e) Each prepayment of an IBOR Rate Portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee as described below. A “prepayment” is a payment of an amount on a date earlier than the scheduled payment date for such amount as required by this Agreement.

(f) The prepayment fee shall be in an amount sufficient to compensate the Bank for any loss, cost or expense incurred by it as a result of the prepayment, including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by the Bank in connection with the foregoing. For purposes of this paragraph, the Bank shall be deemed to have funded each Portion by a matching deposit or other borrowing in the applicable interbank market, whether or not such Portion was in fact so funded.

3. FEES AND EXPENSES

3.1 Fees.

(a) Unused Commitment Fee. The Borrower agrees to pay a fee on any difference between the Facility No. 1 Commitment and the amount of credit it actually uses, determined by the average of the daily amount of credit outstanding during the specified period. The fee will be calculated at 0.125% per year. The calculation of credit outstanding shall not include the undrawn amount of letters of credit and acceptances.

This fee is due on July 1, 2005, and on the same day of each following quarter until the expiration of the availability period.

(b) Waiver Fee. If the Bank, at its discretion, agrees to waive or amend any terms of this Agreement, the Borrower will, at the Bank’s option, pay the Bank a fee for each waiver or amendment in an amount advised by the Bank at the time the Borrower requests the waiver or amendment. Nothing in this paragraph shall imply that the Bank is obligated to agree to any waiver or amendment requested by the Borrower. The Bank may impose additional requirements as a condition to any waiver or amendment.

(c) Late Fee. To the extent permitted by law, the Borrower agrees to pay a late fee in an amount not to exceed four percent (4%) of any payment that is more than fifteen (15) days late. The imposition and payment of a late fee shall not constitute a waiver of the Bank’s rights with respect to the default.

3.2 Expenses. The Borrower agrees to immediately repay the Bank for expenses that include, but are not limited to, filing, recording and search fees, appraisal fees, title report fees, and documentation fees.

3.3 Reimbursement Costs. The Borrower agrees to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses include, but are not limited to, reasonable attorneys’ fees, including any allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law.

Standard Loan Agreement 4 Revised 2/2005

4. DISBURSEMENTS, PAYMENTS AND COSTS

4.1 Disbursements and Payments.

(a) Each payment by the Borrower will be made in U.S. Dollars and immediately available funds by direct debit to a deposit account as specified below or, for payments not required to be made by direct debit, by mail to the address shown on the Borrower’s statement or at one of the Bank’s banking centers in the United States.

(b) Each disbursement by the Bank and each payment by the Borrower will be evidenced by records kept by the Bank. In addition, the Bank may, at its discretion, require the Borrower to sign one or more promissory notes.

4.2 Telephone and Telefax Authorization.

(a) The Bank may honor telephone or telefax instructions for advances or repayments or for the designation of optional interest rates and telefax requests for the issuance of letters of credit given, or purported to be given, by any one of the individuals authorized to sign loan agreements on behalf of the Borrower, or any other individual designated by any one of such authorized signers.

(b) Advances will be deposited in and repayments will be withdrawn from account number 14650-50692 owned by the Borrower or such other of the Borrower’s accounts with the Bank as designated in writing by the Borrower.

(c) The Borrower will indemnify and hold the Bank harmless from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions the Bank reasonably believes are made by any individual authorized by the Borrower to give such instructions. This paragraph will survive this Agreement’s termination, and will benefit the Bank and its officers, employees, and agents.

4.3 Direct Debit (Pre-Billing).

(a) The Borrower agrees that the Bank will debit deposit account number 14650-50692 owned by the Borrower or such other of the Borrower’s accounts with the Bank as designated in writing by the Borrower (the “Designated Account”) on the date each payment of principal and interest and any fees from the Borrower becomes due (the “Due Date”).

(b) Prior to each Due Date, the Bank will mail to the Borrower a statement of the amounts that will be due on that Due Date (the “Billed Amount”). The bill will be mailed a specified number of calendar days prior to the Due Date, which number of days will be mutually agreed from time to time by the Bank and the Borrower. The calculations in the bill will be made on the assumption that no new extensions of credit or payments will be made between the date of the billing statement and the Due Date, and that there will be no changes in the applicable interest rate.

(c) The Bank will debit the Designated Account for the Billed Amount, regardless of the actual amount due on that date (the “Accrued Amount”). If the Billed Amount debited to the Designated Account differs from the Accrued Amount, the discrepancy will be treated as follows:

(i) If the Billed Amount is less than the Accrued Amount, the Billed Amount for the following Due Date will be increased by the amount of the discrepancy. The Borrower will not be in default by reason of any such discrepancy.

(ii) If the Billed Amount is more than the Accrued Amount, the Billed Amount for the following Due Date will be decreased by the amount of the discrepancy.

Regardless of any such discrepancy, interest will continue to accrue based on the actual amount of principal outstanding without compounding. The Bank will not pay the Borrower interest on any overpayment.

(d) The Borrower will maintain sufficient funds in the Designated Account to cover each debit. If there are insufficient funds in the Designated Account on the date the Bank enters any debit authorized by this Agreement, the Bank may reverse the debit.

(e) The Borrower may terminate this direct debit arrangement at any time by sending written notice to the Bank at the address specified at the end of this Agreement. If the Borrower terminates this arrangement, then the principal amount outstanding under this Agreement will at the option of the Bank bear interest at a rate per annum which is 0.5 percentage point(s) higher than the rate of interest otherwise provided under this Agreement.

Standard Loan Agreement 5 Revised 2/2005

4.4 Banking Days. Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday, Sunday or other day on which commercial banks are authorized to close, or are in fact closed, in the state where the Bank’s lending office is located, and, if such day relates to amounts bearing interest at an offshore rate (if any), means any such day on which dealings in dollar deposits are conducted among banks in the offshore dollar interbank market. All payments and disbursements which would be due on a day which is not a banking day will be due on the next banking day. All payments received on a day which is not a banking day will be applied to the credit on the next banking day.

4.5 Interest Calculation. Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. Installments of principal which are not paid when due under this Agreement shall continue to bear interest until paid.

4.6 Default Rate. Upon the occurrence of any default or after maturity or after judgement has been rendered on any obligation under this Agreement, all amounts outstanding under this Agreement, including any interest, fees, or costs which are not paid when due, will at the option of the Bank bear interest at a rate which is 2.0 percentage point(s) higher than the rate of interest otherwise provided under this Agreement. This may result in compounding of interest. This will not constitute a waiver of any default.

4.7 Taxes. If any payments to the Bank under this Agreement are made from outside the United States, the Borrower will not deduct any foreign taxes from any payments it makes to the Bank. If any such taxes are imposed on any payments made by the Borrower (including payments under this paragraph), the Borrower will pay the taxes and will also pay to the Bank, at the time interest is paid, any additional amount which the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such taxes had not been imposed. The Borrower will confirm that it has paid the taxes by giving the Bank official tax receipts (or notarized copies) within thirty (30) days after the due date.

5. CONDITIONS

Before the Bank is required to extend any credit to the Borrower under this Agreement, it must receive any documents and other items it may reasonably require, in form and content acceptable to the Bank, including any items specifically listed below.

5.1 Authorizations. If the Borrower or any guarantor is anything other than a natural person, evidence that the execution, delivery and performance by the Borrower and/or such guarantor of this Agreement and any instrument or agreement required under this Agreement have been duly authorized.

5.2 Governing Documents. If required by the Bank, a copy of the Borrower’s organizational documents.

5.3 Guaranties. Guaranties signed by K-Swiss Sales Corp. (“K-Swiss Sales”), K-Swiss International Ltd. (“K-Swiss International”) and Royal Elastics Inc. (“REI”).

5.4 Payment of Fees. Payment of all fees and other amounts due and owing to the Bank, including without limitation payment of all accrued and unpaid expenses incurred by the Bank as required by the paragraph entitled “Reimbursement Costs.”

5.5 Good Standing. Certificates of good standing for the Borrower from its state of formation and from any other state in which the Borrower is required to qualify to conduct its business.

5.6 Insurance. Evidence of insurance coverage, as required in the “Covenants” section of this Agreement.

6. REPRESENTATIONS AND WARRANTIES

When the Borrower signs this Agreement, and until the Bank is repaid in full, the Borrower makes the following representations and warranties. Each request for an extension of credit constitutes a renewal of these representations and warranties as of the date of the request:

6.1 Formation. If the Borrower is anything other than a natural person, it is duly formed and existing under the laws of the state or other jurisdiction where organized.

6.2 Authorization. This Agreement, and any instrument or agreement required hereunder, are within the Borrower’s powers, have been duly authorized, and do not conflict with any of its organizational papers.

6.3 Enforceable Agreement. This Agreement is a legal, valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable.

Standard Loan Agreement 6 Revised 2/2005

6.4 Good Standing. In each state in which the Borrower does business, it is properly licensed, in good standing, and, where required, in compliance with fictitious name statutes.

6.5 No Conflicts. This Agreement does not conflict with any law, agreement, or obligation by which the Borrower is bound.

6.6 Financial Information. All financial and other information that has been or will be supplied to the Bank is sufficiently complete to give the Bank accurate knowledge of the Borrower’s (and any guarantor’s) financial condition, including all material contingent liabilities. Since the date of the most recent financial statement provided to the Bank, there has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of the Borrower (or any guarantor). If the Borrower is comprised of the trustees of a trust, the foregoing representations shall also pertain to the trustor(s) of the trust.

6.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or threatened against the Borrower which, if lost, would impair the Borrower’s financial condition or ability to repay the loan, except as have been disclosed in writing to the Bank.

6.8 Permits, Franchises. The Borrower possesses all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights, patent rights, copyrights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged.

6.9 Other Obligations. The Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation, except as have been disclosed in writing to the Bank.

6.10 Tax Matters. The Borrower has no knowledge of any pending assessments or adjustments of its income tax for any year and all taxes due have been paid, except as have been disclosed in writing to the Bank.

6.11 No Event of Default. There is no event which is, or with notice or lapse of time or both would be, a default under this Agreement.

6.12 Insurance. The Borrower has obtained, and maintained in effect, the insurance coverage required in the “Covenants” section of this Agreement.

7. COVENANTS

The Borrower agrees, so long as credit is available under this Agreement and until the Bank is repaid in full:

7.1 Use of Proceeds. To use the proceeds of Facility No. 1 only for working capital.

7.2 Financial Information. To provide the following financial information and statements in form and content acceptable to the Bank, and such additional information as requested by the Bank from time to time:

(a) Within one hundred twenty (120) days of the fiscal year end, the annual financial statements of the Borrower. These financial statements must be audited (with an opinion satisfactory to the Bank) by a Certified Public Accountant acceptable to the Bank. The statements shall be prepared on a consolidated basis.

(b) Within sixty (60) days of the period’s end, quarterly financial statements of the Borrower. These financial statements may be company-prepared. The statements shall be prepared on a consolidated basis.

(c) Promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which Borrower shall have filed after the date hereof with the Securities and Exchange Commission (or any governmental agency substituted therefore) or any national securities exchange.

(d) Within one hundred twenty (120) days of the end of each fiscal year and within sixty (60) days of the end of each quarter, a compliance certificate of the Borrower signed by an authorized financial officer, and setting forth (i) the information and computations (in sufficient detail) to establish that the Borrower is in compliance with all financial covenants at the end of the period covered by the financial statements then being furnished and (ii) whether there existed as of the date of such financial statements and whether there exists as of the date of the certificate, any default under this Agreement and, if any such default exists, specifying the nature thereof and the action the Borrower is taking and proposes to take with respect thereto.

7.3 Tangible Net Worth. To maintain on a consolidated basis Tangible Net Worth equal to at least the sum of the following:

Standard Loan Agreement 7 Revised 2/2005

(a) One Hundred Twenty-Five Million and 00/100 Dollars ($125,000,000.00); plus

(b) the sum of 75% of net income after income taxes (without subtracting losses) earned in each fiscal year ending after the date of this Agreement.

“Tangible Net Worth” means the value of total assets (including leaseholds and leasehold improvements and reserves against assets but excluding goodwill, patents, trademarks, trade names, organization expense, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses, and other like intangibles, and monies due from affiliates, officers, directors, employees, shareholders, members or managers) less total liabilities, including but not limited to accrued and deferred income taxes, but excluding the non-current portion of Subordinated Liabilities.

“Subordinated Liabilities” means liabilities subordinated to the Borrower’s obligations to the Bank in a manner acceptable to the Bank in its sole discretion.

7.4 Minimum EBITDA . To maintain on a consolidated basis EBITDA in an amount of at least Fifty Million Dollars ($50,000,000).

“EBITDA” means net income, less income or plus loss from discontinued operations and extraordinary items, plus income taxes, plus interest expense, plus depreciation, depletion, and amortization.

This ratio will be calculated at the end of each reporting period for which the Bank requires financial statements, using the results of the twelve-month period ending with that reporting period.

7.5 Dividends and Stock Redemptions. Not to declare or pay dividends, or redeem stock of the Borrower in an aggregate amount in excess of One Hundred Million and 00/100 Dollars ($100,000,000.00).

7.6 Bank as Principal Depository. To maintain the Bank as its principal depository bank, including for the maintenance of business, cash management, operating and administrative deposit accounts.

7.7 Other Debts. Not to have outstanding or incur any direct or contingent liabilities or lease obligations (other than those to the Bank), or become liable for the liabilities of others, without the Bank’s written consent. This does not prohibit:

(a) Acquiring goods, supplies, or merchandise on normal trade credit.

(b) Endorsing negotiable instruments received in the usual course of business.

(c) Obtaining surety bonds in the usual course of business.

(d) Liabilities, lines of credit and leases in existence on the date of this Agreement disclosed in writing to the Bank.

(e) Additional purchase money indebtedness, including the present value of capital lease obligations, for the acquisition of fixed or capital assets, which does not exceed an aggregate principal amount of Five Million Dollars ($5,000,000) in any fiscal year.

(f) Unfunded pension fund and other employee benefit plan obligations and liabilities to the extent they are permitted to remain unfunded under applicable law.

(g) Liabilities assumed or guaranteed in connection with the Borrower’s acquisition (by purchase, merger, recapitalization or otherwise) of all or substantially all of the assets or equity interests of a third party.

(h) Additional liabilities not to exceed Five Million Dollars ($5,000,000) at any time outstanding.

(i) Refinancing of any existing or permitted indebtedness.

(j) Hedging agreements not used for speculative purposes.

7.8 Other Liens. Not to create, assume, or allow any security interest or lien (including judicial liens) on property the Borrower now or later owns, except:

Standard Loan Agreement 8 Revised 2/2005

(a) Liens and security interests in favor of the Bank.

(b) Liens for taxes, assessments or other governmental charges which are not delinquent.

(c) Liens outstanding on the date of this Agreement disclosed in writing to the Bank.

(d) Liens assumed in the normal course of business with respect to obligations which are not yet due or which are being contested in good faith.

(e) Purchase money security liens (including the interest of a lessor under a capital lease), if the total principal amount of debts secured by such liens does not exceed Five Million Dollars ($5,000,000) at any time outstanding.

(f) Additional liens securing indebtedness not to exceed Five Million Dollars ($5,000,000).

(g) The replacement, extension or renewal of any lien permitted hereunder upon or in the same property subject thereto.

7.9 Maintenance of Assets.

(a) Not to sell, assign, lease, transfer or otherwise dispose of any part of the Borrower’s business or the Borrower’s assets except in the ordinary course of the Borrower’s business except in an aggregate amount not exceeding Five Hundred Thousand Dollars ($500,000) in any fiscal year.

(b) Not to sell, assign, lease, transfer or otherwise dispose of any assets for less than fair market value, or enter into any agreement to do so.

(c) Not to enter into any sale and leaseback agreement covering any of its fixed assets.

(d) To maintain and preserve all rights, privileges, and franchises the Borrower now has.

(e) To make any repairs, renewals, or replacements to keep the Borrower’s properties in good working condition.

7.10 Loans and Investments. Not to have any existing, or make any new, loans or other extensions of credit to, or investments in, any individual or entity, or make any capital contributions or other transfers of assets to any individual or entity, except for:

(a) Existing investments in the Borrower’s current subsidiaries.

(b) Investments in acquisitions of the Borrower’s subsidiaries or joint ventures that do not exceed an aggregate amount of Ten Million Dollars ($10,000,000) in any one fiscal year, provided that Borrower has management and voting control of such entity(ies), and delivers to the Bank the guaranty of any such domestic entity in which the aggregate of investments is greater than Five Million Dollars ($5,000,000) or (ii) entity total assets of greater than Five Million Dollars ($5,000,000) or (iii) total annual revenues greater than Five Million Dollars ($5,000,000).

(c) Extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business to non-affiliated entities.

(d) Investments in any of the following:

(i) interest bearing certificates of deposit issued by any commercial banking institution issuing short-term obligations rated at least Prime 1 by Moody’s Investors Service (“Moody’s”), or at least A-1 by Standard & Poor’s Corporation (“S&P”), or at least F-1 by Fitch and organized under the laws of the United States or any state thereof;

(ii) prime commercial paper rated at least Prime 1 by Moody’s, or at least A-1 by S&P, or at least F-1 by Fitch;

(iii) U.S. treasury bills and other obligations of the federal government;

(e) Extensions of credit to the Borrower’s subsidiaries or joint ventures (not otherwise permitted under this paragraph) after the date of this Agreement that to not exceed an aggregate amount of Fifteen Million Dollars ($15,000,000) outstanding at any one time, provided that the Borrower has management and voting control of such entity(ies).

Standard Loan Agreement 9 Revised 2/2005

(f) Loans to any of the Borrower’s executives, officers, directors, employees or shareholders not to exceed an aggregate amount of Five Hundred Thousand Dollars ($500,000) at any one time.

(g) Extensions of credit to Borrower’s officers permitted in preceding paragraph.

7.11 Change of Management. Not to make any substantial change in the present executive or management personnel of the Borrower.

7.12 Change of Ownership. Not to cause, permit, or suffer any change in capital ownership such there is a material change, as determined by the Bank in its sole discretion, in the direct or indirect capital ownership of the Borrower.

7.13 Additional Negative Covenants. Not to, without the Bank’s written consent:

(a) Enter into any consolidation, merger, or other combination, or become a partner in a partnership, a member of a joint venture, or a member of a limited liability company.

(b) Acquire or purchase a business or its assets for a consideration, including assumption of direct or contingent debt (except as permitted in Paragraph 7.11(b) of this Agreement).

(c) Engage in any business activities substantially different from the Borrower’s present business.

7.14 Notices to Bank. To promptly notify the Bank in writing of:

(a) Any lawsuit over One Million and 00/100 Dollars ($1,000,000.00) against the Borrower (or any guarantor or, if the Borrower is comprised of the trustees of a trust, any trustor).

(b) Any substantial dispute between any governmental authority and the Borrower (or any guarantor or, if the Borrower is comprised of the trustees of a trust, any trustor).

(c) Any event of default under this Agreement, or any event which, with notice or lapse of time or both, would constitute an event of default.

(d) Any material adverse change in the Borrower’s (or any guarantor’s, or, if the Borrower is comprised of the trustees of a trust, any trustor’s) business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit.

(e) Any change in the Borrower’s name, legal structure, place of business, or chief executive office if the Borrower has more than one place of business.

(f) Any actual contingent liabilities of the Borrower (or any guarantor or, if the Borrower is comprised of the trustees of a trust, any trustor), and any such contingent liabilities which are reasonably foreseeable, where such liabilities are in excess of One Million and 00/100 Dollars ($1,000,000.00) in the aggregate.

7.15 General Business Insurance. To maintain insurance satisfactory to the Bank as to amount, nature and carrier covering property damage (including loss of use and occupancy) to any of the Borrower’s properties, business interruption insurance, public liability insurance including coverage for contractual liability, product liability and workers’ compensation, and any other insurance which is usual for the Borrower’s business. Each policy shall provide for at least 30 days prior notice to the Bank of any cancellation thereof.

7.16 Compliance with Laws. To comply with the laws (including any fictitious or trade name statute), regulations, and orders of any government body with authority over the Borrower’s business. The Bank shall have no obligation to make any advance to the Borrower’s except in compliance with all applicable laws and regulations and the Borrower’s shall fully cooperate with the Bank in complying with all such applicable laws and regulations.

7.17 ERISA Plans. Promptly during each year, to pay and cause any subsidiaries to pay contributions adequate to meet at least the minimum funding standards under ERISA with respect to each and every Plan; file each annual report required to be filed pursuant to ERISA in connection with each Plan for each year; and notify the Bank within ten (10) days of the occurrence of any Reportable Event that might constitute grounds for termination of any capital Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer any Plan. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time. Capitalized terms in this paragraph shall have the meanings defined within ERISA.

Standard Loan Agreement 10 Revised 2/2005

7.18 Books and Records. To maintain adequate books and records.

7.19 Audits. To allow the Bank and its agents to inspect the Borrower’s properties and examine, audit, and make copies of books and records at any reasonable time. If any of the Borrower’s properties, books or records are in the possession of a third party, the Borrower authorizes that third party to permit the Bank or its agents to have access to perform inspections or audits and to respond to the Bank’s requests for information concerning such properties, books and records.

7.20 Cooperation. To take any action reasonably requested by the Bank to carry out the intent of this Agreement.

8. HAZARDOUS SUBSTANCES

8.1 Indemnity Regarding Hazardous Substances. The Borrower will indemnify and hold harmless the Bank from any loss or liability the Bank incurs in connection with or as a result of this Agreement, which directly or indirectly arises out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance. This indemnity will apply whether the hazardous substance is on, under or about the Borrower’s property or operations or property leased to the Borrower. The indemnity includes but is not limited to attorneys’ fees (including the reasonable estimate of the allocated cost of in-house counsel and staff). The indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns.

8.2 Compliance Regarding Hazardous Substances. The Borrower represents and warrants that the Borrower has complied with all current and future laws, regulations and ordinances or other requirements of any governmental authority relating to or imposing liability or standards of conduct concerning protection of health or the environment or hazardous substances.

8.3 Notices Regarding Hazardous Substances. Until full repayment of the loan, the Borrower will promptly notify the Bank in writing of any threatened or pending investigation of the Borrower or its operations by any governmental agency under any current or future law, regulation or ordinance pertaining to any hazardous substance.

8.4 Definition of Hazardous Substances. “Hazardous substances” means any substance, material or waste that is or becomes designated or regulated as “toxic,” “hazardous,” “pollutant,” or “contaminant” or a similar designation or regulation under any current or future federal, state or local law (whether under common law, statute, regulation or otherwise) or judicial or administrative interpretation of such, including without limitation petroleum or natural gas.

8.5 Continuing Obligation. The Borrower’s obligations to the Bank under this Article, except the obligation to give notices to the Bank, shall survive termination of this Agreement and repayment of the Borrower’s obligations to the Bank under this Agreement.

9. DEFAULT AND REMEDIES

If any of the following events of default occurs, the Bank may do one or more of the following: declare the Borrower in default, stop making any additional credit available to the Borrower, and require the Borrower to repay its entire debt immediately and without prior notice. If an event which, with notice or the passage of time, will constitute an event of default has occurred and is continuing, the Bank has no obligation to make advances or extend additional credit under this Agreement. In addition, if any event of default occurs, the Bank shall have all rights, powers and remedies available under any instruments and agreements required by or executed in connection with this Agreement, as well as all rights and remedies available at law or in equity. If an event of default occurs under the paragraph entitled “Bankruptcy,” below, with respect to the Borrower, then the entire debt outstanding under this Agreement will automatically be due immediately.

9.1 Failure to Pay. The Borrower fails to make a payment under this Agreement within ten (10) days after the date when due.

9.2 Other Bank Agreements. Any default occurs under any other agreement the Borrower (or any Obligor) or any of the Borrower’s related entities or affiliates has with the Bank or any affiliate of the Bank. For purposes of this Agreement, “Obligor” shall mean any guarantor, any party pledging collateral to the Bank, or, if the Borrower is comprised of the trustees of a trust, any trustor. If, in the Bank’s opinion, the breach is capable of being remedied, the breach will not be considered an event of default under this Agreement for a period of ten (10) days after the date on which the Bank gives written notice of the breach to the Borrower.

9.3 Cross-default. Any default occurs under any agreement in connection with any credit the Borrower (or any Obligor) or any of the Borrower’s related entities or affiliates has obtained from anyone else or which the Borrower (or any Obligor) or any of the Borrower’s related entities or affiliates has guaranteed in the amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) or more in the aggregate if the default consists of failing to make a payment when due or gives the other lender the right to accelerate the obligation.

Standard Loan Agreement 11 Revised 2/2005

9.4 False Information. The Borrower or any Obligor has given the Bank false or misleading information or representations.

9.5 Bankruptcy. The Borrower, any Obligor, or any general partner of the Borrower or of any Obligor files a bankruptcy petition, a bankruptcy petition is filed against any of the foregoing parties, or the Borrower, any Obligor, or any general partner of the Borrower or of any Obligor makes a general assignment for the benefit of creditors.

9.6 Receivers. A receiver or similar official is appointed for a substantial portion of the Borrower’s or any Obligor’s business, or the business is terminated, or, if any Obligor is anything other than a natural person, such Obligor is liquidated or dissolved.

9.7 Judgments. Any judgments or arbitration awards are entered against the Borrower or any Obligor, or the Borrower or any Obligor enters into any settlement agreements with respect to any litigation or arbitration, in an aggregate amount of Five Million and 00/100 Dollars ($5,000,000.00) or more in excess of any established reserves in the case of that certain Internal Revenue Service tax assessment pending against the Borrower and disclosed to the Bank and One Million Dollars ($1,000,000) or more in excess of any insurance coverage or established reserves in all other cases.

9.8 Material Adverse Change. A material adverse change occurs, or is reasonably likely to occur, in the Borrower’s (or any Obligor’s) business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit.

9.9 Government Action. Any government authority takes action that the Bank believes materially adversely affects the Borrower’s or any Obligor’s financial condition or ability to repay.

9.10 Default under Related Documents. Any default occurs under any guaranty, subordination agreement, security agreement, deed of trust, mortgage, or other document required by or delivered in connection with this Agreement or any such document is no longer in effect, or any guarantor purports to revoke or disavow the guaranty.

9.11 ERISA Plans. Any one or more of the following events occurs with respect to a Plan of the Borrower subject to Title IV of ERISA, provided such event or events could reasonably be expected, in the judgment of the Bank, to subject the Borrower to any tax, penalty or liability (or any combination of the foregoing) which, in the aggregate, could have a material adverse effect on the financial condition of the Borrower:

(a) A reportable event shall occur under Section 4043(c) of ERISA with respect to a Plan.

(b) Any Plan termination (or commencement of proceedings to terminate a Plan) or the full or partial withdrawal from a Plan by the Borrower or any ERISA Affiliate.

9.12 Other Breach Under Agreement. A default occurs under any other term or condition of this Agreement not specifically referred to in this Article. This includes any failure or anticipated failure by the Borrower (or any other party named in the Covenants section) to comply with the financial covenants set forth in this Agreement, whether such failure is evidenced by financial statements delivered to the Bank or is otherwise known to the Borrower or the Bank. If, in the Bank’s opinion, the breach is capable of being remedied, the breach will not be considered an event of default under this Agreement for a period of ten (10) days after the date on which the Bank gives written notice of the breach to the Borrower.

10. ENFORCING THIS AGREEMENT; MISCELLANEOUS

10.1 GAAP. Except as otherwise stated in this Agreement, all financial information provided to the Bank and all financial covenants will be made under generally accepted accounting principles, consistently applied.

10.2 California Law. This Agreement is governed by California state law.

10.3 Successors and Assigns. This Agreement is binding on the Borrower’s and the Bank’s successors and assignees. The Borrower agrees that it may not assign this Agreement without the Bank’s prior consent. The Bank may sell participations in or assign this loan, and may exchange information about the Borrower (including, without limitation, any information regarding any hazardous substances) with actual or potential participants or assignees. If a participation is sold or the loan is assigned, the purchaser will have the right of set-off against the Borrower.

10.4 Arbitration and Waiver of Jury Trial

(a) This paragraph concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this agreement (including any

Standard Loan Agreement 12 Revised 2/2005

renewals, extensions or modifications); or (ii) any document related to this agreement (collectively a “Claim”). For the purposes of this arbitration provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of the Bank involved in the servicing, management or administration of any obligation described or evidenced by this agreement.

(b) At the request of any party to this agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”). The Act will apply even though this agreement provides that it is governed by the law of a specified state. The arbitration will take place on an individual basis without resort to any form of class action.

(c) Arbitration proceedings will be determined in accordance with the Act, the then-current rules and procedures for the arbitration of financial services disputes of the American Arbitration Association or any successor thereof (“AAA”), and the terms of this paragraph. In the event of any inconsistency, the terms of this paragraph shall control. If AAA is unwilling or unable to (i) serve as the provider of arbitration or (ii) enforce any provision of this arbitration clause, the parties may agree on a substitute arbitrator with similar procedures to serve as the provider of arbitration and, if the parties fail to agree within twenty (20) calendar days, any party may file a court action regarding a Claim, subject to the waiver of the right to jury trial provided in subparagraph (i) below.

(d) The arbitration shall be administered by AAA and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this agreement. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed, judgment entered and enforced.

(e) The arbitrator(s) will give effect to statutes of limitation in determining any Claim and may dismiss the arbitration on the basis that the Claim is barred. For purposes of the application of the statute of limitations, the service on AAA under applicable AAA rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s). The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this agreement.

(f) This paragraph does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g) The procedure described above will not apply if the Claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property. In this case, all of the parties to this agreement must consent to submission of the Claim to arbitration. If both parties do not consent to arbitration, the Claim will be resolved as follows: The parties will designate a referee (or a panel of referees) selected under the auspices of AAA in the same manner as arbitrators are selected in AAA administered proceedings. The designated referee(s) will be appointed by a court as provided in California Code of Civil Procedure Section 638 and the following related sections. The referee (or presiding referee of the panel) will be an active attorney or a retired judge. The award that results from the decision of the referee(s) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645.

(h) The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(i) By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This provision is a material inducement for the parties entering into this agreement.

Standard Loan Agreement 13 Revised 2/2005

10.5 Severability; Waivers. If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. The Bank retains all rights, even if it makes a loan after default. If the Bank waives a default, it may enforce a later default. Any consent or waiver under this Agreement must be in writing.

10.6 Attorneys’ Fees. The Borrower shall reimburse the Bank for any reasonable costs and attorneys’ fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Agreement and any other documents executed in connection with this Agreement, and in connection with any amendment, waiver, “workout” or restructuring under this Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys’ fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. In the event that any case is commenced by or against the Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys’ fees incurred by the Bank related to the preservation, protection, or enforcement of any rights of the Bank in such a case. As used in this paragraph, “attorneys’ fees” includes the allocated costs of a party’s in-house counsel.

10.7 One Agreement. This Agreement and any related security or other agreements required by this Agreement, collectively:

(a) represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit;

(b) replace any prior oral or written agreements between the Bank and the Borrower concerning this credit; and

(c) are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them.

In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. Any reference in any related document to a “promissory note” or a “note” executed by the Borrower and dated as of the date of this Agreement shall be deemed to refer to this Agreement, as now in effect or as hereafter amended, renewed, or restated.

10.8 Indemnification. The Borrower will indemnify and hold the Bank harmless from any loss, liability, damages, judgments, and costs of any kind relating to or arising directly or indirectly out of (a) this Agreement or any document required hereunder, (b) any credit extended or committed by the Bank to the Borrower hereunder, and (c) any litigation or proceeding related to or arising out of this Agreement, any such document, or any such credit. This indemnity includes but is not limited to attorneys’ fees (including the allocated cost of in-house counsel). This indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys, and assigns. This indemnity will survive repayment of the Borrower’s obligations to the Bank. All sums due to the Bank hereunder shall be obligations of the Borrower, due and payable immediately without demand.

10.9 Notices. Unless otherwise provided in this Agreement or in another agreement between the Bank and the Borrower, all notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, or by overnight courier, to the addresses on the signature page of this Agreement, or sent by facsimile to the fax numbers listed on the signature page, or to such other addresses as the Bank and the Borrower may specify from time to time in writing. Notices and other communications shall be effective (i) if mailed, upon the earlier of receipt or five (5) days after deposit in the U.S. mail, first class, postage prepaid, (ii) if telecopied, when transmitted, or (iii) if hand-delivered, by courier or otherwise (including telegram, lettergram or mailgram), when delivered.

10.10 Headings. Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement.

10.11 Counterparts. This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement.

10.12 Prior Agreement Superseded. This Agreement supersedes the Business Loan Agreement entered into as of July 1, 2001, between the Bank and the Borrower, and any credit outstanding thereunder shall be deemed to be outstanding under this Agreement.

Standard Loan Agreement 14 Revised 2/2005

This Agreement is executed as of the date stated at the top of the first page.

Borrower:	Bank:
K-Swiss Inc.	Bank of America, N.A.

By:	/s/ George Powlick	By:	/s/ Matthew Koenig
	George Powlick, Vice President and Director		Matthew Koenig, Senior Vice President
Address where notices to the Borrower are to be sent:		Address where notices to the Bank are to be sent:
		Bank of America, N.A.
31248 Oak Crest Drive		333 S. Hope Street
Westlake Village, CA 91361		Los Angeles, CA 90071

Standard Loan Agreement 15 Revised 2/2005

EX-10.19

Exhibit 10.19

AMENDMENT NO. 1 TO LOAN AGREEMENT

This Amendment No. 1 (the “Amendment”) dated as of June 28, 2005, is between Bank of America, N.A. (“the Bank”) and K-Swiss Inc. (the “Borrower”).

RECITALS

A. The Bank and the Borrower entered into a certain Loan Agreement dated as of June 1, 2005 (together with any previous amendments, the “Agreement”).

B. The Bank and the Borrower desire to amend the Agreement.

AGREEMENT

1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement.

2. Amendments. The Agreement is hereby amended as follows:

2.1 Paragraph 5.3 is hereby amended to read in its entirety as follows:

“5.3 Guaranties. Guaranties signed by K-Swiss Sales Corp (‘K-Swiss Sales’) and Royal Elastics Inc. (‘REI’).”

3. Release of Guarantor. Bank hereby releases K-Swiss International Ltd. (“K-Swiss International) from any and all obligations under that certain Limited Guaranty dated June 1, 2005, which Guaranty shall be of no further force or effect.

4. Representations and Warranties. When the Borrower signs this Amendment, the Borrower represents and warrants to the Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Agreement except those events, if any, that have been disclosed in writing to the Bank or waived in writing by the Bank (b) the representations and warranties in the Agreement are true as of the date of this Amendment as if made on the date of this Amendment, (c) this Amendment does not conflict with any law, agreement, or obligation by which the Borrower is bound, and (d) if the Borrower is a business entity or a trust, this Amendment is within the Borrower’s powers, has been duly authorized, and does not conflict with any of the Borrower’s organizational papers.

5. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect.

6. Counterparts. This Amendment may be executed in counterparts, each of which when so executed shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

7. FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM SHEET OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.

Amendment to Loan Agreement Page 1 Revised 1/11/05

This Amendment is executed as of the date stated at the beginning of this Amendment.

BANK:
Bank of America, N.A.
By:	/s/ Matthew Koenig
	Matthew Koenig, Senior Vice President
BORROWER:
K-Swiss Inc.
By:	/s/ Steven Nichols

Amendment to Loan Agreement Page 2 Revised 1/11/05

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Steven Nichols, certify that:

1. I have reviewed this quarterly report on Form 10-Q of K•Swiss Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 27, 2005

By:	/s/ Steven Nichols
	Steven Nichols
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, George Powlick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of K•Swiss Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 27, 2005

By:	/s/ George Powlick
	George Powlick
	Vice President of Finance, Chief Operating Officer and Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, in his capacity as an officer of K•Swiss Inc. (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

• The Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2005 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

• The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 27, 2005

/s/ Steven Nichols
Name:	Steven Nichols
Title:	President and
	Chief Executive Officer

/s/ George Powlick
Name:	George Powlick
Title:	Vice President of Finance
	Chief Operating Officer and
	Chief Financial Officer