Nautilus 2008 Annual Report Download - page 71

Table of Contents
In the ordinary course of business, we enter into agreements that require us to indemnify counterparties against third-party claims. These may
include: agreements with vendors and suppliers, under which we may indemnify them against claims arising from our use of their products or
services; agreements with customers, under which we may indemnify them against claims arising from their use or sale of our products; real
estate and equipment leases, under which we may indemnify lessors against third party claims relating to the use of their property; agreements
with licensees or licensors, under which we may indemnify the licensee or licensor against claims arising from their use of our intellectual
property or our use of their intellectual property; and agreements with parties to debt arrangements, under which we may indemnify them against
claims relating to their participation in the transactions.
The nature and terms of these indemnifications vary from contract to contract, and generally a maximum obligation is not stated. We hold
insurance policies that mitigate potential losses arising from certain types of indemnifications. Management does not expect these obligations to
have a material adverse effect on our consolidated financial position, results of operations or cash flows. As such, no liabilities are recorded at
December 31, 2008.
Contingencies Arising from China Sales Operations
In December 2008, the Company initiated discussions to suspend operations in its Shanghai, China sales office and to discontinue the sale of
products into the Chinese market through the use of its own sales staff. Most of the employees in the sales office were terminated in the first
quarter of 2009. Efforts to directly sell products in China are not currently being made, and the Company will take steps over the next several
months to decide whether to serve customers through a down- sized sales office or to use a distributor model. The Company’s 2008 results of
operations include approximately $3.8 million in charges due to uncertainties regarding access to, and the future recovery of, certain assets of the
Company’s China subsidiary .
Legal Matters
In connection with the sale of Pearl Izumi to Shimano American Corporation, in April, 2008, the Company agreed to indemnify Shimano
American Corporation in a lawsuit filed by Salomon S.A. against Pearl Izumi arising out of a claim of alleged patent infringement regarding the
use of ventilated fabric in certain shoes manufactured by Pearl Izumi. The lawsuit was filed in Mannheim, Germany and the relief sought by
Salomon includes monetary damages and injunctive relief. The matter was settled for an immaterial amount in November 2008.
In 2004, the Company was sued in the Southern District of New York, by BioSig Inc., for alleged patent infringement in connection with the
Company’s incorporation of heart rate monitors into certain of its cardio products. The Company does not manufacture monitors, but purchases
them from third party manufacturers for use on its cardio products. From 2004 through the middle of 2008 no significant activity occurred and
the litigation was essentially dormant. In and around April 2008, following BioSig’s hiring of new counsel and the re-
assignment of the case to a
new federal judge, the litigation activity in this matter increased. The Company does not believe that its use of heart rate monitors purchased
from third parties infringes the BioSig patents. The potential impact of this litigation on the Company’s results of operations, financial condition
and cash flows is expected to be immaterial.
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