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NAUTILUS, INC.

FORM 10-K

(Annual Report)

Filed 03/08/10 for the Period Ending 12/31/09

Address 16400 SE NAUTILUS DRIVE

VANCOUVER, WA 98683

Telephone 3606947722

CIK 0001078207

Symbol NLS

SIC Code

3949 - Sporting and Athletic Goods, Not Elsewhere Classified

Industry Retail (Catalog & Mail Order)

Sector Services

Fiscal Year 12/31

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... (Annual Report) Filed 03/08/10 for the Period Ending 12/31/09 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 16400 SE NAUTILUS DRIVE VANCOUVER, WA 98683 3606947722 0001078207 NLS 3949 - Sporting and Athletic Goods, Not Elsewhere Classified Retail (Catalog & Mail Order) Services...

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... non-affiliates computed by reference to the last sales price ($1.13) as reported on the New York Stock Exchange as of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2009) was $34,594,200. The number of shares outstanding of the registrant's common...

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Shareholders.

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... Management's Discussion and Analysis of Financial Condition and Results of Operation Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Directors, Executive Officers...

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... PART I Item 1. Business OVERVIEW Nautilus is a fitness products company headquartered in Vancouver, Washington. We are committed to providing innovative, quality solutions to help people achieve a fit and healthy lifestyle. Our principal business activities include designing, developing, sourcing...

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..., using our popular brand names. RECENT DEVELOPMENTS On September 25, 2009, our Board of Directors approved management's plan for the complete divestiture of our commercial business. On December 29, 2009, we completed the sale of certain assets of our StairMaster â„¢ and Schwinn â„¢ Fitness product...

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... help them achieve their fitness objectives. â€¢ Our Nautilus â„¢ brand includes: a complete line of cardio equipment, including specialized products and treadmills, ellipticals and exercise bikes. In early 2009, we introduced new lower priced treadmills specifically designed for the retail business...

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... Schwinn â„¢ Fitness brand is known for its popular line of indoor cycling equipment, exercise bikes, including the Airdyne â„¢ , and ellipticals. In 2009, we introduced treadmills specifically designed for the retail business. Our Universal â„¢ brand is one of the oldest and most recognized names...

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... sell a comprehensive line of consumer fitness equipment under the Nautilus â„¢ , Schwinn â„¢ Fitness, Universal â„¢ and Bowflex â„¢ brands. Our products are marketed through a network of retail locations, consisting of sporting goods stores, department stores, governmental agencies and, to a lesser...

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...receiving a customer's order. Because our direct business products are manufactured in Asia, we have long merchandise replenishment lead times, for which we compensate by maintaining adequate levels of safety stock. We manage our retail inventory levels to accommodate seasonal changes in anticipated...

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... identifiable by consumers, is an important factor in creating a market for our products, creating a strong company identity and developing brand loyalty among our customers. Each federally registered trademark is renewable indefinitely if the trademark is still in use at the time of renewal. We are...

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...New York Stock Exchange and trades under the symbol "NLS." Our principal executive offices are located at 16400 SE Nautilus Drive, Vancouver, Washington 98683, and our telephone number is (360) 859-2900. The Internet address of our corporate website is http://www.nautilus.com. We file annual reports...

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... changes in credit markets and decisions made by credit providers. Reductions in consumer lending and the availability of consumer credit could limit the number of customers with the financial means to purchase our products. In the past, we have partnered with financial service companies, including...

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...a number of factors, including The introduction and market acceptance of new products; Variations in product selling prices and costs and the mix of products sold; The size and timing of customer orders, which, in turn, often depend upon the success of our customers' businesses or specific products...

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... addition, any new products that we market may not generate sufficient net sales to recoup their development, acquisition, production, marketing, selling and other costs. A delay in getting foreign sourced products through customs in a timely manner could result in cancelled orders and unanticipated...

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...products could result in a significant decline in our net sales, operating results, financial condition and cash flows. Inability to effectively manage our distribution facilities may harm our business and financial results. Our ability to meet customer expectations, manage inventory, complete sales...

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..., the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for particular types of fitness equipment. In addition, our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice...

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... obligations. In order to be successful, we must attract, retain and motivate key employees, and failure to do so may have an adverse impact on our business. Our future success depends on our ability to attract and retain key executives, managers, product development engineers, sales personnel and...

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...divestiture of our commercial business. In December 2009, we completed the sale of certain assets of our StairMaster â„¢ and Schwinn â„¢ Fitness product lines and, in February 2010, we completed an agreement for the sale of certain assets of our Nautilus â„¢ commercial equipment product line. We may...

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...are party to various legal proceedings and claims arising from normal business activities. Based on the facts currently available, we do not believe that the disposition of matters ... settlement could adversely impact our financial position, results of operations and cash flows. Item 4. [Reserved] 16

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... provides information about our equity compensation plans as of December 31, 2009: Number of securities remaining available for Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights...

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...and strength fitness products and related accessories for consumer home use, primarily in the United States and Canada. Our products are sold under some of the most-recognized brand names in the fitness industry, including Nautilus â„¢ , Bowflex â„¢ , Universal â„¢ and Schwinn â„¢ Fitness. We market...

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... more efficient product handling; We ceased direct business sales through our Australian subsidiary and closed those operations; We sold our apparel division, Dash America, Inc. d/b/a Pearl iZumi; We closed our Canadian call center and consolidated our call center operations in Vancouver, Washington...

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...and cost of sales. Many of our direct business customers finance their purchases through a third-party credit provider, for which we pay a commission or customer financing fee to the credit provider. We record sales for these transactions based on the sales prices charged to our customers and record...

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...warranties for defects in materials or workmanship. Our product warranties generally obligate us to pay for the cost of replacement parts, cost of shipping the parts to our customers and, in certain instances, service labor costs. At the time of sale, we record a liability for the estimated costs of...

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... of operations may vary significantly from period-to-period. Our revenues will fluctuate due to the seasonality of our industry; customer buying patterns; product innovation; the nature and level of competition for health and fitness products; our ability to manufacture or procure products to meet...

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...us and other companies, both within and outside our industry. We may not be able to successfully address these risks and difficulties and, consequently, we cannot assure you of any future growth or profitability. For more information, see our discussion of Risk Factors located at Part I, Item 1A. 23

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...) Year Ended December 31, 2009 2008 Change % Change Net sales Cost of sales Gross profit Operating expenses: Selling and marketing General and administrative Research and development Restructuring Intangible asset impairments Goodwill impairment Total operating expenses Operating loss Other income...

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..., net sales declined in 2009 due to management's decision to reduce the number of rod-based home gym products offered in our retail business, so as not to conflict with our direct business, as well as a reduction of product placement with certain customers, partially offset by new business growth...

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... in our marketing strategies. Intangible asset impairments In 2009, in light of changes in long-term product strategies, we recognized impairment charges of $5.9 million for intangible assets of our retail business segment. Goodwill Impairment In 2008, in connection with our annual impairment review...

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...that such assets would not be realized. Discontinued Operations On September 25, 2009 management committed to a plan for the complete divestiture of our commercial business. The results of our commercial business have been classified as discontinued operations in all periods presented. Loss from our...

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...N.A., which provided a revolving secured credit line to fund our letters of credit and for working capital needs and other general business purposes. On December 29, 2009, pursuant to the sale of certain assets of our Stairmaster â„¢ and Schwinn â„¢ Fitness commercial product lines, we satisfied all...

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... 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...

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... involved in outdoor activities, including exercise, which impacts sales of fitness equipment used indoors. This seasonality can have a significant affect on our operating results, inventory levels and working capital needs. NEW ACCOUNTING PRONOUNCEMENTS No new accounting pronouncements had, or are...

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... Data Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2009 and 2008 Consolidated Statements of Operations for the years ended December 31, 2009 and 2008 Consolidated Statements of Stockholders...

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... statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures...

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... of allowances of $4,160 in 2009 and $6,602 in 2008 Inventories Prepaids and other current assets Income taxes receivable Assets of discontinued operation held-for-sale Deferred income tax assets Total current assets Restricted cash Property, plant and equipment, net Goodwill Other intangible assets...

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Table of Contents NAUTILUS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) 2009 2008 Net sales Cost of sales Gross profit Operating expenses: Selling and marketing General and administrative Research and development Restructuring Intangible asset impairments ...

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... Retained Earnings Accumulated Other Comprehensive Income (1) Total Stockholders' Equity Balances at January 1, 2008 Net loss Foreign currency translation adjustment Comprehensive loss Stock-based compensation expense Stock options exercised Stock repurchased Stock option income tax deficiencies...

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...sale of discontinued operations Proceeds from other asset sales Refunds of escrow deposits Purchases of equipment and intangible assets Net increase in restricted cash Payments...from exercises of stock options Other Net cash used in financing activities Net effect of currency exchange rate changes Net...

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.... The Company's goal is to develop and market fitness equipment and related products to help people enjoy healthier lives. Nautilus was founded in 1986 and incorporated in the state of Washington in 1993. The Company's headquarters are located in Vancouver, Washington. We market our products through...

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... written down to market value, based on historical demand, competitive factors, changes in technology and product lifecycles. Property, plant and equipment - Property, plant and equipment is stated at cost, net of accumulated depreciation. Improvements or betterments which add new functionality or...

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...value. In connection with changes in long-term product development plans resulting from strategic decisions made by management in the fourth quarter, Nautilus recognized an impairment charge of $3.6 million in 2009 related to certain patent rights which the Company previously expected to be utilized...

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..., employee benefits, expenditures for materials, and fees to use licensed technologies, are expensed as incurred. Third party research and development costs for products under development or being researched, if any, are expensed as the contracted work is performed. Income taxes - Nautilus accounts...

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... on the closing market price on the day preceding the grant. Assumptions used in calculating the fair value of stock-option grants are as follows: 2009 2008 Dividend yield Risk-free interest rate Expected life (years) Expected volatility Expected dividend yield is based on our current expectation...

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... to reimburse Sherborne Investors, $20,000 per month, for the use of Sherborne's New York office space and administrative, information technology and communications services to support the Company's Chief Executive Officer. In 2009, Nautilus paid Sherborne Investors $220,000 in reimbursements under...

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... commercial business discontinued operation. Commercial business discontinued operation assets held-for-sale and related disposal loss impairments as of December 31, 2009 are as follows: Property, Plant & Equipment (In thousands) Inventories Totals Assets of discontinued operation held-for-sale...

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... are summarized below. In 2009, the Company: â€¢ â€¢ Restructured its workforce and reduced the number of employees to better match business requirements; Conducted a thorough review of its information technology costs to better align computer systems and support services to our restructured...

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...in "Restructuring"in the Company's Consolidated Statements of Operations: (In thousands) 2009 2008 Employee termination severance costs Facility lease termination costs Abandoned leasehold improvements Abandoned information technology software and related service agreements Abandoned creative media...

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...32,883 Depreciation expense was $7.1 million and $9.8 million in 2009 and 2008, respectively. On June 30, 2009, the Company terminated the lease for its world headquarters facility located in Vancouver, Washington and entered into a new lease agreement to occupy substantially less space in the same...

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... (5,225) (5,225) $34,403 In 2009, in light of various changes in long-term product strategies, the Company tested other intangible assets for impairment and recognized impairment charges of $5.9 million for intangible assets of its retail business segment. Amortization expense for intangible assets...

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... provided the Company with a revolving secured credit line to fund the Company's letters of credit, working capital needs and other business purposes. On December 29, 2009, pursuant to the sale of certain assets of its Stairmaster â„¢ and Schwinn â„¢ Fitness product lines, the Company satisfied all...

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... Share-based compensation expense Net operating loss carryforward Basis difference on subsidiary held for sale Capital loss carryforward Basis difference on long lived assets Undistributed earnings of subsidiaries Other Less: Valuation Allowance Total deferred tax assets Deferred income...

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... release of valuation allowance, resulting from the enactment of a new law in the fourth quarter of 2009. The effective tax benefit rate for discontinued operations of 0.3% in 2009 differs from the statutory rate due to the recognition of a valuation allowance against deferred tax assets. Nautilus...

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... income tax returns for 2003 through 2009 are open to review by the U.S. Internal Revenue Service. The Company's state income tax returns for 2003 through 2009 are open to review, depending on the respective statute of limitation in each state. In addition, the Company files income tax returns in...

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... stock, stock units and performance stock grants. Stock options granted under the 2005 Plan shall not have an exercise price less than the fair market value of the Company's common shares on the date of the grant. The exercise price of an option or stock appreciation right may not be reduced without...

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... of its management team as a means to retain key employees while the Company moved forward with its restructuring activities. A summary of the Company's restricted stock award activity is as follows: Number (In thousands, except fair value amounts) of Shares Weighted Average Grant Date Fair Value...

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... weighted average number of shares is increased by the dilutive effect of stock options and restricted stock awards determined using the treasury stock method. The following table sets forth the computation of basic and diluted loss per share as reported in the Company's statements of operations...

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... upon exercise of stock options, restricted stock and performance units that were not included in the calculation of diluted earnings per share because the effect would have been anti-dilutive. (14) EMPLOYEE BENEFIT PLAN The Company adopted a 401(k) plan, the Nautilus, Inc. 401(k) Savings Plan ("401...

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...segments - Direct and Retail. The Company's commercial business discontinued operation is not a reportable segment. Contribution is the measure of profit or loss used by the Company's chief operating decision maker, and is defined as net sales, less product costs and direct expenses. Direct expenses...

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...or services; agreements with customers, under which the Company may indemnify them against claims arising from their use or sale of the Company's products; real estate and equipment leases, under which the Company may indemnify lessors against third-party claims relating to the use of their property...

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... certain assets of its Nautilus â„¢ strength equipment product lines. The buyer also acquired rights to certain patents, technologies and other intellectual property, assumed certain outstanding warranty obligations related to the Company's North American commercial products and entered into a short...

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... table summarizes the Company's unaudited quarterly financial data for 2009 and 2008: (In thousands, except per share amounts) March 31 June 30 QUARTER ENDED September 30 December 31 Total 2009: Net sales Gross profit Operating loss Income (loss) from continuing operations Income (loss) from...

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...leased space at our headquarters facility; $1.8 million in charges due to our abandonment of information technology software which was no longer necessary to support the business needs; $0.9 million fee to terminate a warehouse distribution service agreement as part of our distribution consolidation...

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... procedures designed to ensure that information required to be disclosed by a 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...

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...the Company to provide only management's report in this annual report. Changes In Internal Control Over Financial Reporting There were no material changes in our internal control over financial reporting during the fourth quarter of 2009. Item 9B. Other Information Given the timing of the event, the...

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... is included under the captions Election of Directors , Section 16(a) Beneficial Ownership Reporting Compliance, Executive Officers and Information Concerning the Board of Directors in our Proxy Statement for our 2010 Annual Meeting of Shareholders and is incorporated herein by reference. Item 11...

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...Financial Statement Schedule There are no financial statement schedules filed as part of this annual report, since the required information is included in the ... for a description of the documents that are filed as Exhibits to this Annual Report on Form 10K or incorporated herein by reference. 64

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... without the other, as his true and lawful attorney-in-fact and agent to act in his name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this report, with all exhibits thereto, and other...

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... Exhibit 10 of the Company's Current Report on Form 8-K, as filed with the Commission on August 19, 2005. Executive Employment Agreement, dated January 14, 2004, by and between the Company and Darryl Thomas - Incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for...

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...by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Commission on March 15, 2004. Office Lease Agreement, dated June 30, 2009, between Columbia Tech Center LLC and the Company - Incorporated by reference to Exhibit 10.1 of...

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... 32.1 32.2 * Technology Transfer and License Agreement dated as of December 29, 2009 between Nautilus, Inc. and Fit Dragon International, Inc. Asset Purchase Agreement dated as of February 18, 2010 between Nautilus, Inc. and Med-Fit Systems, Inc. Commercial License Agreement dated as of February 18...

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Exhibit 10.23 SCHWINN ASSET PURCHASE AGREEMENT BETWEEN FIT DRAGON INTERNATIONAL, LTD. (Buyer) AND NAUTILUS, INC. (Seller) December 5, 2009.

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... Contracts Terms of Sale Product Liability Customers and Suppliers Organization of Buyer Authorization of Transaction Non-contravention Brokers' Fees General Notices and Consents Full Access i 1 3 3 3 3 4 5 5 5 5 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 ARTICLE 3 - NAUTILUS' REPRESENTATIONS AND...

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... Releases and Public Announcements No Third-Party Beneficiaries Entire Agreement Succession and Assignment Counterparts Headings Notices Governing Law Amendments and Waivers Severability ii 9 9 9 9 9 9 9 9 10 11 11 11 12 13 14 14 14 14 15 15 15 15 15 15 15 16 16 17 17 17 ARTICLE 6 - POST-CLOSING...

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...) Page 10.11 10.12 10.13 10.14 10.15 10.16 Expenses Construction Incorporation of Exhibits and Schedules Bulk Transfer Laws Governing Language Tax Disclosure Authorization 17 17 17 17 17 17 Exhibit A - Disclosure Schedule Exhibit B - Form(s) of Assignment(s) Exhibit C - Form of Assumption...

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...set forth on Section 3.7 of the Disclosure Schedules; (b) all owned production and tooling equipment used exclusively in the manufacture of Schwinn Commercial Indoor Cycle products; and (c) all customer purchase orders for Schwinn Commercial Indoor Cycle products that are open as of the Closing Date...

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... below. " Commercial Indoor Cycle " means commercial grade indoor cycling bikes sold through the commercial sales channel. " Closing " has the meaning set forth in Section 2.5 below. " Closing Date " has the meaning set forth in Section 2.5 below. " Code " means the Internal Revenue Code of 1986...

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... Act of 1934, as amended. " Schwinn " means Nautilus with respect to its Schwinn brand Commercial Indoor Cycle operations, including the manufacturing, marketing, and sales of Commercial Indoor Cycle products under the Schwinn trademark. " Nautilus " has the meaning set forth in the preface above...

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... value as of the Closing Date of all open purchase orders for Schwinn Commercial Indoor Cycle products, as determined in good faith by Nautilus three (3) business days prior to the Closing Date; provided , that for the purpose of determining both the Estimated Purchase Price and the final Purchase...

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... of the transactions contemplated by this Agreement (the " Closing ") shall take place at the offices of Garvey Schubert Barer, 1191 Second Avenue, Eighteenth Floor, Seattle, Washington, 98101, commencing at 9:00 a.m. local time on the second business day following the satisfaction or waiver of all...

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...has repudiated any material provision of the agreement. 3.9 Terms of Sale. Substantially all of the Commercial Indoor Cycle products manufactured, sold, leased, or delivered by Schwinn are subject to standard terms and conditions of sale or lease, copies of which have been made available to Buyer. 6

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...use of any Commercial Indoor Cycle product manufactured, sold, leased, or delivered by Schwinn. 3.11 Customers and Suppliers . (a) Section 3.11 of the Disclosure Schedule lists the ten (10) largest customers of Schwinn for each of the two (2) most recent fiscal years and sets forth opposite the name...

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...to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of Nautilus, to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to Schwinn. Buyer will treat and hold as such...

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... agrees to place purchase orders with its suppliers of Schwinn Commercial Indoor Cycle products as requested by Buyer; provided , that Buyer shall be obligated to pay to Nautilus the full amount of any such purchase orders three (3) business days prior to the purchase order payment date. Title to...

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... (iii) adversely affect the right of Buyer to own the Acquired Assets or operate the former business of Schwinn (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (e) Nautilus shall have delivered to Buyer a certificate to the effect that each of the conditions...

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...and Warranties . All of the representations and warranties of Nautilus contained in Article 3 above shall survive the Closing and continue in full force and effect for a period of one (1) year thereafter; provided , that the warranties set forth in Sections 3.2 and 3.5 shall continue for a period of...

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...for Schwinn Commercial Indoor Cycle products sold by Nautilus prior to Closing, Nautilus shall pay to Buyer an amount equal to fifty percent (50%) of such excess. The obligation of Nautilus to provide such payment shall be subject to receipt by Nautilus of documentation identifying the customer, the...

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...Nautilus... Article ...part...time within fifteen (15) days...order to preserve its rights in this regard; and provided further that the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third-Party Claim. (c) So long...payment of money damages...event...

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... provisions in this Article 8 shall be the exclusive remedy of Buyer and Nautilus with respect to Schwinn and the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Buyer and Nautilus hereby waive any statutory, equitable, or common law rights or remedies...

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...; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Party...

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... mail, or (d) four (4) business days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set forth below: If to Nautilus: Nautilus, Inc. 16400 SE Nautilus Drive Vancouver, Washington 98683 Attn...

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... word "including" shall mean including without limitation. 10.13 Incorporation of Exhibits and Schedules . The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 10.14 Bulk Transfer Laws . Buyer acknowledges that Nautilus will not comply...

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(and each employee, representative, and other agent of such Party) may disclose to any and all Persons, without limitation of any kind, the transaction's tax treatment and tax structure (as such terms are used in regulations promulgated under Code section 6011) contemplated by this agreement and all...

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...WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. BUYER : FIT DRAGON INTERNATIONAL, LTD. By: /s/ Michael Bruno Signature Print Name: Michael Bruno Title: CEO SELLER : NAUTILUS, INC. By: /s/ Kenneth L. Fish Signature Print Name: Kenneth L. Fish Title: CFO 19

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..., schools, military, and corporate employee centers. The Commercial Channel does not include and excludes all other sales or distributions of Indoor Cycles, including but not limited to sales and other distributions: (a) to end users (non-commercial users, typically home use) and resellers, such as...

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... sold, leased or otherwise distributed. J. "Copyrighted Works" shall mean tangible works of authorship previously used by Nautilus, and/or previously created for use by Nautilus, in connection with marketing and sales of Indoor Cycles in the Commercial Channel, such as, but not limited to, marketing...

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... Cycles for the Commercial Channel. N. "Licensed Accessories" shall mean Accessories solely for the Channel, but not otherwise, and that bear and/or are marketed in connection with any one or more of the Licensed Marks. O. "Licensed Domain Names" shall mean the domain names listed in Schedule C to...

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... "Net Sales" means "Gross Sales" less allowances for: (a) returns of Indoor Cycles and Accessories actually received; (b) refunds by Buyer to customers and cancellation of orders from Buyer by customers for Licensed Indoor Cycles and Accessories; (c) local, State and federal sales, VAT, and use and...

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... Mark, for any goods or services other than for Indoor Cycles and Accessories in the Channel. The Trademark License of this Section 2.B. shall be subject to Buyer's compliance with Nautilus Quality Standards as to product quality, product appearance, customer satisfaction and service as set forth in...

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... Buyer's trademarks, for example to market "SCHWINN LA" Indoor Cycles provided that the SCHWINN mark is prominently used. Buyer understands and agrees that Buyer is to focus Buyer's efforts on sales of Licensed Indoor Cycles and Accessories in the Commercial Channel and that Buyer is only licensed...

Page 102
...this License Agreement to Buyer, Buyer shall pay Nautilus a Royalty which is equal to: (i) For the calendar year 2009, no Royalty; (ii) For the calendar year 2010, the Royalty rate shall be five (5) percent of Net Sales of Licensed Indoor Cycles and Accessories; (iii) For the calendar year 2011, the...

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... within thirty (30) days after each March 31 st , June 30 th , September 30 th , and December 31 st , beginning January 1. 2010. The quarterly royalty payments shall accompany the required reports of Section 3.F. C. Minimum Payment to Nautilus. (i) Buyer shall pay Nautilus an Annual Minimum Royalty...

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... for the Calendar Quarter for which a payment is being paid, Buyer shall provide to Nautilus a report stating the Gross Sales, Net Sales, Net Sales in the Commercial Channel, Net Sales in the Permitted Retail Channel, and returns by product number (preferably SKU identifiers), Royalty calculations...

Page 105
.... All such uses of Licensed Marks must be in accordance with Nautilus Trademark Usage Guidelines of Schedule F, as modified by Nautilus from time to time. Nautilus hereby approves usage of Licensed Marks that strictly comply with the then current version of the Nautilus Trademark Usage Guidelines...

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... in the name of Nautilus as owner for any one or more Copyrighted Works; and/or (iv) file any U.S. Patent Application, and/or maintain a patent or pending application for any one or more inventions. Notwithstanding the requirements of this Section 5.A., to the extent permitted by the law of the...

Page 107
...such ninety (30) day time period. If Nautilus decides not to file any action (or to discontinue any action if initially undertaken by Nautilus), Buyer shall also have the right, but not the obligation, to take any such action to stop the infringement, in which case Nautilus shall provided reasonable...

Page 108
...with postage thereon fully prepaid, addressed as follows: To Nautilus: Nautilus, Inc. Attention: Legal Department 16400 SE Nautilus Drive Vancouver, WA 98683 Fax: 011-306-859-???? E-Mail: To Buyer: Xiamen World Gear Sports Goods Co., Ltd. Attention: Michael Bruno 27-29 North 2 nd Road Xinglin, Jimei...

Page 109
...is in effect, Buyer shall mark products with appropriate patent markings as required by Nautilus and shall use appropriate trademark designations (â„¢, Â®) as required by Nautilus. Schedule A lists current Licensed Indoor Cycles and Accessories that Nautilus in good faith believes are covered by the...

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...exploit engineering and design information concerning Indoor Cycles in the Commercial Channel as Buyer deems appropriate. C. Nonuse. The Receiving Party further agrees that it will not use Confidential Information except as may be necessary to perform its obligations and/or exercise its rights under...

Page 111
... of this License Agreement within a sixty (60) day cure time period following Written Notice setting forth such failure or alleged failure by Buyer to Nautilus and/or by Nautilus to Buyer. Except as otherwise expressly provided by this License, in the event of a default of this License by Buyer that...

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... Minimum Annual Net Sales set forth in Section 11.B.(ii) below are not met. This three (3) year time period shall be reset and start over in the event the Net Sales for a given Calendar Year exceeds the Minimum Annual Net Sales requirement. (ii) For the Calendar Year 2009 - Minimum Annual Net Sales...

Page 113
...by Buyer, as well as of any marks, names or domain names confusingly similar thereto, shall immediately cease except that Buyer may complete all unfinished goods (work-in-progress) and sell all inventory for up to six (6) months after termination. Buyer may not acquire any additional parts or pg. 18

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materials to complete unfinished goods after termination of this Agreement. Any and all use by Buyer of any Licensed Patents and any other rights licensed by Nautilus under this License to Buyer shall immediately cease upon sale of outstanding inventory. (ii) All payments from Buyer to Nautilus that...

Page 115
... same term as Buyer's rights in the Commercial Channel. (v) If Nautilus does provide a response to the Buyer's renegotiation request within the sixty (60) day response time, the Parties agree to negotiate in good faith in an attempt to reach a new license agreement, which may be on different terms...

Page 116
... to the Dispute. C. Negotiated Resolution. Buyer and Nautilus wish to avoid disputes. In the event of any dispute, the parties shall first attempt to resolve the matter by an in-person meeting between executive level managers of Buyer and Nautilus to review a presentation by each of them concerning...

Page 117
...of God, act of the public enemy, death or incapacity of an individual who is to perform work, or other similar event. However, both Parties agree to seek to mitigate the potential impact of any such delay. The Party incurring the delay shall within thirty (30) business days from the beginning of the...

Page 118
... the Indoor Cycling business of Nautilus. J. Effective Date. This License Agreement shall be effective on the date of the last signature by the Parties as indicated on the signature page hereto ("Effective Date"). K. Counterparts. This License Agreement may be executed in any number of counterparts...

Page 119
... Vancouver, Washington time of the last day of the time period. In agreement hereto the parties have signed below. Xiamen World Gear Sports Goods Co., Ltd. (Buyer) /s/ Michael Bruno Signature Michael Bruno Printed Name CEO Title December 5, 2009 Date pg. 24 Nautilus, Inc. (Nautilus) /s/ Kenneth...

Page 120
Exhibit 10.25 STAIRMASTER ASSET PURCHASE AGREEMENT BETWEEN FIT DRAGON INTERNATIONAL, LTD. (Buyer) AND NAUTILUS, INC. (Seller) December 5, 2009.

Page 121
...of Sale Product Liability Customers and Suppliers Organization of Buyer Authorization of Transaction Non-contravention Brokers' Fees General Notices and Consents Full Access Notice of Developments 1 3 3 3 3 3 4 4 4 4 4 4 5 5 5 5 5 5 5 6 6 6 6 6 7 7 7 7 7 7 8 i ARTICLE 3 - NAUTILUS' REPRESENTATIONS...

Page 122
... Press Releases and Public Announcements No Third-Party Beneficiaries Entire Agreement Succession and Assignment Counterparts Headings Notices Governing Law Amendments and Waivers Severability Expenses ii 8 8 8 8 8 9 9 10 10 10 10 11 11 12 12 13 13 13 13 13 14 14 14 14 14 14 15 15 15 15 ARTICLE...

Page 123
... OF CONTENTS (continued) Page 10.12 10.13 10.14 10.15 10.16 Construction Incorporation of Exhibits and Schedules Bulk Transfer Laws Governing Language Tax Disclosure Authorization 16 16 16 16 16 Exhibit A-Disclosure Schedule Exhibit B-Form(s) of Assignment(s) Exhibit C-Form of Assumption Exhibit...

Page 124
... following assets of Nautilus: (a) all customer purchase orders for StairMaster Products that are open as of the Closing Date (the " StairMaster Purchase Orders "); (b) the StairMaster finished goods and warranty parts inventory; and (c) all owned production and tooling equipment used exclusively in...

Page 125
... of Business " means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). " Party " has the meaning set forth in the preface above. " Person " means an individual, a partnership, a corporation, a limited liability company, an...

Page 126
... " means Nautilus with respect to its StairMaster brand operations, including the manufacturing, marketing, and sales of products under the StairMaster Marks, as such term is defined in the Technology Transfer Agreement " StairMaster Products " has the meaning as set forth in the Technology Transfer...

Page 127
... contained in this Article 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article 3), except as set forth in the...

Page 128
... the Acquired Assets consists of finished goods and warranty parts, all of which are merchantable and fit for the purpose for which such products were manufactured, as set forth on Section 3.7 of the Disclosure Schedules, none of which is slow-moving, obsolete, damaged, or defective, subject only to...

Page 129
..., or materially decrease the rate of, buying materials, products or services from StairMaster. ARTICLE 4 - BUYER'S REPRESENTATIONS AND WARRANTIES Buyer represents and warrants to Nautilus that the statements contained in this Article 4 are correct and complete as of the date of this Agreement and...

Page 130
... order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing conditions set forth in Article 7 below). 5.2 Notices and Consents . Nautilus will give any notices to third parties, and Nautilus will use its commercially...

Page 131
... of components, parts, raw materials and work in progress for StairMaster Products (collectively, the " Closing Date Unfinished Goods Inventory "). Buyer agrees to purchase the finished goods so manufactured by Nautilus at the price and on the terms set forth in the written memorandum executed and...

Page 132
... (a) the representations and warranties set forth in Article 3 above shall be true and correct in all material respects at and as of the Closing Date, except to the extent that such representations and warranties are qualified by the term "material," in which case such representations and warranties...

Page 133
... (a) the representations and warranties set forth in Article 4 above shall be true and correct in all material respects at and as of the Closing Date, except to the extent that such representations and warranties are qualified by the term "material," in which case such representations and warranties...

Page 134
...of Nautilus contained in Article 3 above. (b) Nautilus further...law of any jurisdiction, under any common law doctrine of de facto merger or successor liability, or otherwise by operation of law). 8.3 Indemnification Provisions for Nautilus' Benefit . (a) In the event...delay on the part of the ...time 11

Page 135
... involves only the payment of money damages by the Indemnifying ...law and treating such Tax items as the last items taken into account for any taxable year). All indemnification payments under this Article 8 shall be deemed adjustments to the Purchase Price. 8.6 Exclusive Remedy . Buyer and Nautilus...

Page 136
...; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Party...

Page 137
... mail, or (d) four (4) business days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set forth below: If to Nautilus: Nautilus, Inc. 16400 SE Nautilus Drive Vancouver, Washington 98683 Attn...

Page 138
...copy to: Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth. 10.8 Governing Law...in writing and signed by Buyer and Nautilus. No waiver by any Party of any...

Page 139
... word " including " shall mean including without limitation. 10.13 Incorporation of Exhibits and Schedules . The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 10.14 Bulk Transfer Laws. Buyer acknowledges that Nautilus will not comply...

Page 140
... WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. BUYER FIT DRAGON INTERNATIONAL, LTD. By: /s/ Michael Bruno Signature Print Name: Michael Bruno Title: CEO SELLER NAUTILUS, INC. By: /s/ Kenneth L. Fish Signature Print Name: Kenneth L. Fish Title: CFO 17

Page 141
... this Stairmaster Technology Agreement is an exhibit. E. "Commercial Channel" shall mean bona fide sales to commercial, corporate, and government entities that are not Affiliates of Buyer and that provide access to the Stairmaster Products to multiple users, including fitness centers, gyms, health...

Page 142
... 10% sales of non-fitness equipment. The IBD and SF Retail Channel is a subset of the Stairmaster Permitted Retail Channel. G. "Channel" shall mean the Commercial Channel and the Stairmaster Permitted Retail Channel. H. "Gross Sales" shall mean the total invoice price of Stairmaster Products, and...

Page 143
...mean bona fide sales by a Party directly to customers (end users) who are not in the Commercial Channel or Permitted Retail Channel, such as to individuals who will use or gift the products, and will not make the products available to additional users in a commercial, business, or government setting...

Page 144
... Stairmaster Trademarks" shall mean the following trademarks (registrations for which are listed in Schedule A to this Stairmaster Technology Agreement): STAIRMASTER word mark STAIRMASTER stylized STAIRMASTER HEALTH AND FITNESS PRODUCTS word STEPMILL word "S" design CLUBSTRIDE word CROSSROBICS word...

Page 145
...for use in connection with products sold or otherwise distributed by or for Nautilus in the Direct Channel. Nautilus grants back to Buyer, a non-exclusive, irrevocable, worldwide, royalty-free license to the Stairmaster Marks, and variations thereof, for non-targeted sales in the Direct Channel. Non...

Page 146
... to use any of the Stairmaster Marks in the Commercial Channel. Any and all usage of the Stairmaster marks by Nautilus will be for products meeting Buyer's quality standards. The Parties agree that products having a quality that is at least equal to the quality of products currently being sold by...

Page 147
... effective date of this Stairmaster Technology Agreement. 4. Payments A. Royalty on Net Sales of Stairmaster Products in the Commercial Channel. (i) For the Trademark rights granted by this License Agreement to Buyer for Stairmaster Products sold in the Commercial Channel, Buyer shall pay Nautilus...

Page 148
... Quarter for which a payment is being paid, Buyer shall provide to Nautilus a report stating the Gross Sales, Net Sales, Net Sales in the Commercial Channel, Net Sales in the IBD and SF Channel, Net Sales for the Other Channel and returns by channel and product number (preferably SKU identifiers...

Page 149
... perform any material term or condition of this Stairmaster Technology Agreement within a sixty (60) day cure time period following written notice setting forth such failure or alleged failure by Buyer to Nautilus and/or by Nautilus to Buyer. In the event of a default of this Agreement by Buyer that...

Page 150
... may complete all unfinished goods (work-in-progress) and sell all inventory for up to six (6) months after termination. Buyer may not acquire any additional parts or materials to complete unfinished goods after termination of this Stairmaster Technology Agreement for this reason. Any and all use by...

Page 151
... to the dispute. C. Negotiated Resolution. Buyer and Nautilus wish to avoid disputes. In the event of any dispute, the parties shall first attempt to resolve the matter by an in-person meeting between executive level managers of Buyer and Nautilus to review a presentation by each of them concerning...

Page 152
... to make any payments under this Stairmaster Technology Agreement when due, Buyer shall pay Nautilus' reasonable attorney fees in connection therewith, including at trial, upon appeal and/or otherwise. 14. General. A. Nonwaiver. No failure on the part of Buyer or Nautilus to exercise, and no delay...

Page 153
... necessary to give effect to their full meaning and intent. Without limiting the foregoing, the parties expressly agree that the following Sections (including all sub-parts, unless a specific sub-part is specified) of this Stairmaster Technology Agreement shall survive termination and expiration of...

Page 154
... end at midnight Vancouver, Washington time of the last day of the time period. In agreement hereto the parties have signed below. Xiamen World Gear Sports Goods Co., Ltd. (Buyer) /s/ Michael Bruno Signature Michael Bruno Printed Name CEO Title December 5, 2009 Date Nautilus, Inc. (Nautilus) Kenneth...

Page 155
Exhibit 10.27 ASSET PURCHASE AGREEMENT BETWEEN MED-FIT SYSTEMS, INC. (Buyer) AND NAUTILUS, INC. (Seller) February 18, 2010.

Page 156
... of Sale Customers and Suppliers Litigation Tangible Personal Property Employment Matters Environmental, Health and Safety Matters Organization of Buyer Authorization of Transaction Non-contravention Brokers' Fees i 1 4 4 4 4 4 4 5 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 7 8 8 8 8 8 9 ARTICLE 3 - NAUTILUS...

Page 157
... (Continued) Page ARTICLE 5 - PRE-CLOSING COVENANTS 5.1 5.2 5.3 5.4 5.5 6.1 6.2 6.3 6.4 6.5 7.1 7.2 8.1 8.2 8.3 8.4 8.5 8.6 8.7 9.1 9.2 10.1 10.2 10.3 General Notices and Consents Full Access Notice of Developments Employees and Employee Benefits General Litigation Support Transition Warranty Buyer...

Page 158
... Notices Governing Law Amendments and Waivers Severability Expenses Construction Incorporation of Exhibits and Schedules Bulk Transfer Laws Governing Language ... G - License Agreement Schedule 2.3 - Purchase Price Calculation and Payment Terms Schedule 2.8 - Finished Goods Inventory and Purchase...

Page 159
...control with, the Person specified. " Assumed Contracts " means all contracts set forth on Section 3.8 of the Disclosure Schedules, which includes all customer purchase orders for delivery of Commercial Fitness Equipment which are open on the Closing Date. " Assumed Liabilities " means the following...

Page 160
... 2.5. " Closing Date " has the meaning set forth in Section 2.5 below. " Code " means the Internal Revenue Code of 1986, as amended. " Commercial Fitness Equipment " means Nautilus-branded commercial grade strength training equipment manufactured in the Nautilus manufacturing facility located in...

Page 161
...of tangible personal property (other than the Commercial Fitness Equipment inventory) of every kind that is owned or leased by Nautilus and located at the Virginia Facility, together with: (i) any tooling used in the production of Commercial Fitness Equipment that is owned by Nautilus and located on...

Page 162
... (the " Closing Date "). The Parties will not meet for the Closing. Instead, they will exchange signature pages to the various documents to be executed at the Closing by fax or email. Within five (5) business days after the Closing, the Parties will assemble and exchange complete copies of the...

Page 163
... to sell such inventory at the pricing set forth in Schedule 2.8, to Buyer for resale to Buyer's customers. Buyer shall pay Nautilus within 60 days from date of each individual shipment to Buyer's customers. Any Technology Goods listed on Schedule 2.8 that are not sold by Buyer as of September 29...

Page 164
...a corporation duly organized, validly existing, and in good standing under the laws of the State of Washington. 3.2 Authorization of Transaction . Nautilus has full power and authority (including full corporate or other entity power and authority) to execute and deliver this Agreement and to perform...

Page 165
...conditions of sale or lease, copies of which have been made available to Buyer. 3.10 Customers and Suppliers . (a) Section 3.10 of the Disclosure Schedule lists the ten (10) largest customers of the Commercial Fitness Equipment business for calendar year 2008 and sets forth opposite the name of each...

Page 166
... correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article 4). 4.1 Organization of Buyer . Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the...

Page 167
... order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing conditions set forth in Article 7 below). 5.2 Notices and Consents . Nautilus will give any notices to third parties, and Nautilus will use its commercially...

Page 168
... other remuneration due to Active Employees with respect to their services as employees of Nautilus through the close of business on the day preceding the Closing Date; (B) the payment of any termination or severance payments and the provision of health plan continuation coverage in accordance with...

Page 169
... order payment date. Title to any such products shall be transferred from Nautilus to Buyer upon arrival in Independence, Virginia. 6.4 Warranty . As part of the Assumed Liabilities, Buyer shall be responsible for all warranty liability for Commercial Fitness Equipment products located in North...

Page 170
... (a) the representations and warranties set forth in Article 3 above shall be true and correct in all material respects at and as of the Closing Date, except to the extent that such representations and warranties are qualified by the term "material," in which case such representations and warranties...

Page 171
... (a) the representations and warranties set forth in Article 4 above shall be true and correct in all material respects at and as of the Closing Date, except to the extent that such representations and warranties are qualified by the term "material," in which case such representations and warranties...

Page 172
...liability, or otherwise by operation of law). The $75,000 liability threshold and the $2,000,000 liability ceiling in Section 8.2(a) above shall not apply to Nautilus' obligations under this Section 8.2(b). 8.3 Indemnification Provisions for Nautilus' Benefit . (a) In the event Buyer breaches any of...

Page 173
...hold Nautilus... " Indemnifying Party ") under this Article 8, then the Indemnified Party shall...delay on the part of the Indemnified...Party at any time within fifteen (15) days after the ...involves only the payment of money damages by the ... withheld). (d) In the event the Indemnifying Party does not...

Page 174
... account for any taxable year). All indemnification payments under this Article 8 shall be deemed adjustments to the Purchase Price. 8.6 Liquidated Damages . Subject to the provisions of Section 8.7, if the Closing fails to occur because Nautilus exercises its right to terminate this Agreement under...

Page 175
...; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Party...

Page 176
... mail, or (d) four (4) business days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set forth below: If to Nautilus: Nautilus, Inc. 16400 SE Nautilus Drive Vancouver, Washington 98683 Attn...

Page 177
... word "including" shall mean including without limitation. 10.13 Incorporation of Exhibits and Schedules . The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 10.14 Bulk Transfer Laws . Buyer acknowledges that Nautilus will not comply...

Page 178
... any applicable federal or state securities laws; provided, however, that such disclosure may not be made until the earlier of date of (i) public announcement of discussions relating to the transaction, (ii) public announcement of the transaction, or (iii) execution of an agreement (with or without...

Page 179
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. BUYER : MED-FIT SYSTEMS, INC. By: /s/ Dean Sbragia Signature Print Name: Dean Sbragia Title: NAUTILUS : NAUTILUS, INC. By: /s/ Kenneth L. Fish Signature Print Name: Kenneth L. Fish Title: CFO 21

Page 180
...part of the Commercial Fitness Equipment being sold to Buyer. The Physical Inventory Report will be subject to adjustment as of the Closing to reflect the sales made by Nautilus between the date of the Inventory and the close of business on 18 February 2010. (e) Standard Cost . "Standard Cost" means...

Page 181
..., EV916 and Clubtrack products and will not be sold or transferred to Buyer at the Closing. (iii) Finished Goods (Part A) : The sale of Finished Goods will be conducted as provided in Section 2.8 of the Agreement. 3. Determination of Purchase Price : (a) Purchase Price . The parties agree...

Page 182
...,000) in cash to Nautilus at the Closing. On or before June 10, 2010, Buyer shall pay Nautilus an additional Three Hundred Thousand Dollars ($300,000) in cash. These payments shall be allocated to the portion of the Adjusted Purchase Price allocated to the Tangible Personal Property. The balance of...

Page 183
... on the basis of a 360-day year and the actual number of days elapsed) (the "Interest Rate ") from the date on which the first of such three late payments was due until the date of payment. IT IS PROVIDED FURTHER, that, in the event that Nautilus subordinates the security interest securing this...

Page 184
... (18%) per annum (computed on the basis of a 360-day year and the actual number of days elapsed) (the " Penalty Rate ") from the date such payment was due until repayment if any payment is made more than thirty (30) days beyond the due date set forth in Section 3 hereof. Holder shall give Debtor ten...

Page 185
... immediately and (ii) take any and all other actions available to a secured creditor under the Washington Uniform Commercial Code (or any other applicable state Uniform Commercial Code) and all other rights available at law or in equity, including, without limitation, those set forth in the Security...

Page 186
... a new Note of like tenor in lieu of this Note. Any Note delivered in accordance with the provisions of this Section 7 shall be dated as of the date of this Note. Section 9. Attorneys' and Collection Fees . Should the indebtedness evidenced by this Note or any part hereof be collected at law or...

Page 187
Section 14. Notices . The terms and provisions of Section 10.7 of the Purchase Agreement are expressly incorporated into this Note. (Signature on following page) ATTACHMENT A-1

Page 188
IN WITNESS WHEREOF , the Debtor has duly executed and delivered this Note as a document under seal as of the date first written above. MED-FIT SYSTEMS, INC. FOR EXHIBIT PURPOSES ONLY, NO SIGNATURE REQUIRED By: Name: Title: ATTACHMENT A-1

Page 189
... thereto and replacements therefor and proceeds and products thereof (hereinafter referred to collectively as the " Collateral "): (a) all raw materials, work in progress, and aftermarket parts inventory located at the factory and warehouse located at 709 Powerhouse Road, Independence, VA 24348...

Page 190
... the Secured Party with at least thirty (30) days' prior written notice of such change or (y) its chief executive office from the location set forth in the respective Schedule I , or make any change in the Debtor's name or mailing address, without first providing the Secured Party with at least...

Page 191
... keeps and maintains all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and maintains insurance, with financially sound and reputable insurance companies, as may be required by law and such other insurance in such amounts and...

Page 192
... will at all times take place) at the address shown in Schedule I as the chief executive office of the Debtor or as otherwise set forth in the Perfection Certificate, and shall be available for inspection by the Secured Party at any time during normal business hours with ten (10) days notice. (j) If...

Page 193
... value or is of a type customarily sold on a recognized market, the Secured Party will give the Debtor at least ten (10) days' prior written notice in accordance with Section 14 hereof of the time and place of any public sale thereof or of the time after which any private sale or any other intended...

Page 194
... of renewals, extensions of time for payment or other indulgences to the Debtor or to any account debtor in respect of any account receivable or to any other third party, or substitution, release or surrender of any Collateral, the addition or release of persons primarily or secondarily liable on...

Page 195
...and assigns. In case any provision in this... Agreement may be executed in any number of counterparts and...law other than the laws of the State of Washington. Each party, to the extent that it may lawfully do so, hereby consents to service of process, and to be sued, in any state or federal court located...

Page 196
IN WITNESS WHEREOF, the parties have executed this Security Agreement as a sealed instrument as of the date first above written. DEBTOR : MED-FIT SYSTEMS, INC. FOR EXHIBIT PURPOSES ONLY, NO SIGNATURE REQUIRED By: Name: Title: SECURED PARTY : NAUTILUS, INC. FOR EXHIBIT PURPOSES ONLY, NO SIGNATURE ...

Page 197
... at any time during the past five years, and in the case of any such business or organization, any chief executive office or other principal place of address used thereby during such period to the extent known to the Company: (c) The following is the Company's federal employer identification number...

Page 198
... Collateral acceptable to the Secured Party in the UCC filing office in each jurisdiction identified in Â§2 hereof. IN WITNESS WHEREOF, I have hereunto signed this Certificate as of this day of February, 2010. MED-FIT SYSTEMS, INC. FOR EXHIBIT PURPOSES ONLY, NO SIGNATURE REQUIRED By: Name: Title: 3

Page 199
... Asset Purchase Agreement shall have the same meaning in this Agreement. " Accessories " shall mean products for use with Fitness Products. By way of example, but not of limitation, Accessories shall include benches for weight training, stands for supporting weights, mats, flooring, data storage for...

Page 200
... listed in Â§ 2 that license use of Nautilus Marks, Commercial Marks, Nautilus Patents, Commercial Patents or Other Commercial IP on Cardio Products. " Commercial Branded " shall mean goods bearing or displaying a Commercial Mark. " Commercial Channel " shall mean bona fide sales of Fitness Products...

Page 201
1.10. " Commercial Patents " shall mean patents and applications listed in Schedule D that exclusively read on Fitness Products currently offered in the Commercial Channel. Commercial Patents shall include patents and applications relating to a design and development project known to the Parties as...

Page 202
... users to play sports (e.g., tennis racquets, bats, gloves, and similar) or to be used in transportation (e.g., bicycles, skateboards, and etc.). " Gross Sales " "Gross Sales" shall mean the total invoice price of all Nautilus Branded and Commercial Branded Fitness Products and Accessories, and all...

Page 203
... the brand or products. " Minimum Invoice Price " shall mean the lowest price invoiced by Buyer to a customer within the Commercial Channel for Cardio Products. Thus, for example, the Minimum Invoice Price of a treadmill sold with a television and media player is the invoiced price of the sale minus...

Page 204
... in the Commercial Channel and listed in Schedule C. Nautilus Patents does not include patents relating to TreadClimberÂ® Products. " Net Sales " means Gross Sales less: (a) returns of Fitness Products and Accessories actually received by Buyer; (b) refunds actually paid by Buyer to customers and...

Page 205
...Channel " shall mean bona fide sales of Fitness Products and Accessories to a third party reseller for resale to end users. Such resellers include resellers with a physical store and online resellers and resellers employing any means of direct marketing. The Retail Channel includes specialty fitness...

Page 206
... Products sold at a price meeting or exceeding the Minimum Invoice Price. Nautilus hereby grants Buyer a non-exclusive license to the Nautilus Patents to make, have made, use, sell, offer to sell, and import Nautilus Branded and Commercial Branded Cardio Products in the Commercial Channel. Nautilus...

Page 207
...Commercial Channel on Strength Products and Accessories. Nautilus hereby grants Buyer a non-exclusive license to the Nautilus Patents to make, have made, use, sell, offer to sell, and import Nautilus Branded and Commercial Branded Strength Products and Accessories in the Commercial Channel. Nautilus...

Page 208
... incorporate the Nautilus Patents in Cardio Products sold at a price lower than the Minimum Invoice Price or on products other than Nautilus Branded goods or Commercial Branded goods. Buyer may use the Licensed Marks on Strength Products and Accessories sold in the Commercial Channel regardless of...

Page 209
... make, have made, use, sell, offer to sell, and import Cardio Products for sale in the Commercial Channel. 2.21. Discontinued Products: Nautilus hereby grants to Buyer a license to use the Nautilus Marks and Commercial Marks in the Commercial Channel on Discontinued Products. This license shall be...

Page 210
... Nautilus owned or licensed intellectual property rights not licensed herein for Buyer's manufacture, distribution, sale, offer to sell, use in commerce, importation, display, reproduction, or derivative works of Fitness Products, Accessories, and Marketing Collateral in the Commercial Channel only...

Page 211
...such as those specific in the Renewal and Transition Terms, below. 3.3. The Initial Term : CYs 2010-2013 (all products) 3.3.1. 3.3.2. 3.3.3. Royalty shall be calculated on Net Sales of Nautilus Branded and Commercial Branded Strength Products, Accessories, and Cardio Products On Net Sales up to $20M...

Page 212
... calendar years 2010 to 2013, inclusive. Royalty shall be calculated on Net Sales of Nautilus Branded (and Commercial Branded if not assigned) Strength Products and Accessories. Buyer shall pay Nautilus a royalty equal to 2% of Net Sales or the Minimum Royalty, whichever is greater in CY 2014 and CY...

Page 213
... qtr, when earned 2011 Initial Strength & Access. $25M Cardio $20M 3.7. Pass Through Royalty: Buyer shall reimburse Nautilus for all royalty payments made by Nautilus to any third party based on goods sold by Buyer not to exceed 7% of the invoice price of a product. That is, where Buyer sells...

Page 214
...this Agreement are in U.S. dollars. Payment Schedule. The Royalty will accrue upon the earlier of the invoice date, or the shipping date for the goods by Buyer. The amounts set forth in this section are payable quarterly from Buyer to Nautilus within thirty (30) days after each calendar year quarter...

Page 215
... assignment or sublicense by Buyer of the rights granted herein after written notice to Buyer and Buyer's failure to cure within 30 business days after receipt of notice; In the event Buyer ceases to operate or ceases to conduct business in the Fitness Products for a period of six consecutive...

Page 216
... after written notice to Nautilus and Nautilus' failure to cure within 30 business days after receipt of notice; In the event Nautilus ceases to operate for six consecutive months; or In the event Buyer provides proper written notice to Nautilus of material breach five times within a rolling five...

Page 217
... shall at all times use the Nautilus Marks properly and only for the sale of Fitness Products and Accessories that meet the Quality Control standards herein. Buyer shall establish procedures to insure that all goods sold bearing a Nautilus Mark or Commercial Mark adhere to Nautilus' minimum quality...

Page 218
... this License, and then only for goods and services that meet Nautilus Quality Standards as set forth in Schedule F to this License. Nautilus may make reasonable modifications to Nautilus Quality Standards from time to time provided that such modifications benefit customers and/or users. Buyer shall...

Page 219
... a timely manner, not to exceed three months. Buyer shall not be required to mark products manufactured as of the effective date of this Agreement. Buyer shall use appropriate trademark designations (e.g., Â®, â„¢) in connection with all Licensed Marks and as directed by Nautilus. 7.2. 8. Dispute...

Page 220
... party shall meet in person and endeavor to resolve the grievance(s). If the managers are unable to resolve the grievance, then either party may require non-binding arbitration to be conducted in accordance with the rules of the AAA and must be completed within 45 days of the management meeting. If...

Page 221
...Buyer to direct internet traffic seeking information of commercial products to a website designated by Buyer. Buyer shall not register or attempt to register any domain name that is in whole or in part the same as or confusingly similar to a Licensed Mark. 10. Registration, Filings and Enforcement...

Page 222
... such ninety (90) day time period. If Nautilus decides not to file any action (or to discontinue any action if initially undertaken by Nautilus), Buyer shall also have the right, but not the obligation, to take any such action to stop the infringement, in which case Nautilus shall provide reasonable...

Page 223
... engineering and design information concerning Fitness Products and Accessories in the Commercial Channel as Buyer deems appropriate. Nonuse. The Receiving Party further agrees that it will not use Confidential Information except as may be necessary to perform its obligations and/or exercise its...

Page 224
... respective employees, agents, representatives and subcontractors who receive or have access to Confidential Information agree to take all ... LAW, NAUTILUS HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS AND/OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR...

Page 225
... MONTH TIME PERIOD IMMEDIATELY PRECEEDING THE DATE A CLAIM IS MADE AGAINST NAUTILUS BY BUYER. 14. Export Restrictions. Buyer agrees to comply with all applicable international and national laws that apply to products, including U.S. Export Administration Regulations, as well as End-User, End-Use...

Page 226
...-to-sue under "any Nautilus owned or licensed intellectual property rights" of Â§ 2.23 shall terminate. This Agreement shall terminate in the event that Buyer or any assignee uses any Licensed IP to sell or offer to sell products in the Retail or Direct Channels without the express written consent...

Page 227
...of God, act of the public enemy, death or incapacity of an individual who is to perform work, or other similar event. However, both Parties agree to seek to mitigate the potential impact of any such delay. The Party incurring the delay shall within thirty (30) business days from the beginning of the...

Page 228
... following Sections (including all sub-parts, unless a specific sub-part is specified) of this License shall survive termination and expiration of this License: Â§ 1; Â§ 3 for Royalties on Net Sales prior to termination and the completion of unfinished goods Â§Â§5, 6, 7, 8; Â§10; Â§Â§11 12, 13, 14...

Page 229
... at midnight Vancouver, Washington time of the last day of the time period. In agreement hereto the parties have signed below. Med-Fit Systems, Inc. (Buyer) /s/ Dean Sbragia Signature Dean Sbragia Printed Name President Title February 19, 2009 Date 31 Nautilus, Inc. (Nautilus) /s/ Kenneth L. Fish...

Page 230
Exhibit 10.29 LEASE BETWEEN NAUTILUS, INC., a Washington corporation, AS LANDLORD and MED-FIT SYSTEMS, INC., a California corporation, AS TENANT for 709 POWERHOUSE ROAD, INDEPENDENCE, VIRGINIA 24348

Page 231
... meanings ascribed to them in the Lease. 1. 2. 3. Date : Landlord : Address of Landlord : February 19, 2010 Nautilus, Inc., a Washington corporation Nautilus, Inc. 10400 SE Nautilus Drive Vancouver, Washington 98683 Attention: Chief Financial Officer Phone and telecopy: 360-859-5913 Med-Fit Systems...

Page 232
...to change pursuant to Section 13.6(f) or Section 13.6(g)), which amount (reduced by any amount that Landlord uses or applies in accordance with Article 5) will be applied to the rent due for the last month in the Lease Term. General office/warehouse/manufacturing use. The addenda and exhibits listed...

Page 233
... terms of this Lease Summary. LANDLORD: NAUTILUS, INC. a Washington corporation By: Printed Name: Title: Date: TENANT: /s/ Kenneth L. Fish Kenneth L. Fish CFO February 22, 2010 MED-FIT SYSTEMS, INC., a California corporation By: Printed Name: Title: Date: (3) /s/ Dean Sbragia Dean Sbragia President...

Page 234
... RESERVED BY LANDLORD OPTION TO PURCHASE TRANSFERS DESTRUCTION OR DAMAGE EMINENT DOMAIN INDEMNIFICATION, WAIVER, RELEASE AND LIMITATION OF LIABILITY TENANT'S INSURANCE DEFAULT LANDLORD REMEDIES AND DAMAGES BANKRUPTCY LIEN FOR RENT HOLDING OVER SURRENDER OF PREMISES BROKERAGE FEES NOTICES SIGNAGE...

Page 235
...on a day that is not a Business Day, it shall be timely to accomplish or deliver the same on the next following Business Day. 2.5 Commencement Date . As set forth on the Lease Summary. 2.6 Environmental Laws . All Laws regulating or controlling Hazardous Materials, including, without limitation, the...

Page 236
... following: a) utilities; b) supplies, tools, equipment and materials used in the operation, repair and maintenance of the Premises; c) insurance (including but not limited to public liability, property damage, earthquake, flood, pollution, terrorism and property insurance for the full replacement...

Page 237
...which would otherwise be excluded capital expenses hereunder, except equipment used in case of emergency; 2.16.7 Electrical power for which Tenant directly contracts with and pays an electrical service company; 2.16.8 Marketing costs, including leasing commissions, attorneys' fees in connection with...

Page 238
... equipment, and office equipment located in the Premises and acquired by or for the account of Tenant after the Commencement Date, without expense to Landlord, that can be removed without damage to the Premises, and all furniture, furnishings, and other articles of movable personal property...

Page 239
... Base Rent payment under the Lease, Tenant shall pay to Landlord any sales or privilege tax required under applicable Law. In the event of any fractional calendar month, Tenant shall pay for each day in such partial month a rental equal to 1 / 30 of the Base Rent. Concurrent with the execution of...

Page 240
...Term, Landlord may pay the Security Deposit to Landlord's successor-in-interest. Tenant waives the provisions of any Laws now in force or that become in force after the date of execution of this Lease, that limit the costs, expenses or damages for which Landlord may use a security deposit, including...

Page 241
... as may be required by Environmental Laws. Landlord, at its option, and at Tenant's expense, may cause an engineer selected by Landlord, to review (1) Tenant's operations including, without limitation, materials used, generated, stored, disposed, and manufactured in Tenant's business; and (2) Tenant...

Page 242
... the Premises that existed as of the Closing: Any mold that exists in Buildings known as #2 and #3. Landlord shall complete the work necessary to correct or remediate such mold no later than thirty (30) days after the Commencement Date. ARTICLE 10 REPAIRS AND MAINTENANCE. 10.1 Landlord's Obligations...

Page 243
... they fail. All bulbs, batteries, ballasts and fixtures of the lighting systems must be in working order upon lease termination. 10.3.6 Tenant shall maintain roll-up doors in good condition, including but not limited to repair of major dents and replacement of missing rollers and step plates. 10...

Page 244
... insurance, Tenant shall pay any such claim in full within five (5) days following the entry of an unstayed judgment or order of sale. All materialmen, contractors, artisans, mechanics, laborers and any other person now or thereafter furnishing any labor, services, materials, supplies or equipment...

Page 245
... B , including, without limitation, the insurance requirements relating to Tenant's contractors. ARTICLE 12 CERTAIN RIGHTS RESERVED BY LANDLORD Landlord reserves the following rights, exercisable without liability to Tenant for (a) damage or injury to property, person, or business; (b) causing an...

Page 246
...to remove the new title exception, provided that such extension shall not exceed thirty (30) calendar days. 13.5 Place of Closing . The purchase of the Premises shall be closed through an escrow agent at an office in Virginia of the title company that will issue the owner's title insurance policy to...

Page 247
... Transfer and the consideration therefor, including, without limitation, a calculation of the Transfer Premium (as defined below); c) the name and address of the Transferee; d) current financial statements of the Transferee certified by an officer, partner or owner thereof; e) any other information...

Page 248
...the Premises are damaged during the final twelve (12) months of the Term, unless both parties agree on an extension of this Lease within ten (10) days following Tenant's receipt of Landlord's termination notice; c) the insurance proceeds available to Landlord are not sufficient to complete repair or...

Page 249
... completes repair within such thirty (30) day period, such termination shall be nullified and this Lease shall continue in full force and effect. 15.4 Apportionment of Rent . Upon any termination of this Lease pursuant to this Article, Tenant shall pay the Rent, properly apportioned up to such date...

Page 250
... in connection with Tenant's use, occupancy or maintenance of the Premises including, without limitation, any of the following: a) any work or thing done in, on or about the Premises or any part thereof by any Tenant Related Party; b) any injury or damage to any person or property; c) any failure on...

Page 251
18.1.1 Commercial General Liability Insurance (or its equivalent) covering the insured against claims of bodily injury and death, personal injury and property damage arising out of Tenant's operations, assumed liabilities or use of the Premises, for limits of liability not less than Two Million and ...

Page 252
... fails to commence to cure within such thirty (30) day period or to diligently prosecute the same to completion, then, subject to the other limitations set forth elsewhere in this Lease, Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's breach; provided...

Page 253
... a final, non-appealable judgment against Landlord for the amount due. ARTICLE 20 LANDLORD REMEDIES AND DAMAGES 20.1 Remedies . In the event of a Default, then in addition to any other rights or remedies Landlord may have at law or in equity, Landlord shall have the right, at Landlord's option...

Page 254
... but not limited to, advertising expenses, brokers' commissions and fees; and (e) any special concessions made to obtain a new tenant. 20.2.5 Other Damages . At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Law. As used in...

Page 255
...remodel, or otherwise make the Premises suitable for use by a Substitute Tenant unless: 1. Tenant pays any such sum to Landlord in advance of Landlord's execution of a lease with such Substitute Tenant (which payment shall not be in lieu of any damages or other sums to which Landlord may be entitled...

Page 256
ARTICLE 21 BANKRUPTCY 21.1 In the event a petition is filed by or against Tenant under the Bankruptcy Code, Tenant, as debtor and debtor in possession, and any trustee who may be appointed agree to adequately protect Landlord as follows: 21.1.1 to pay monthly in advance on the first day of each ...

Page 257
... the Expiration Date, Tenant shall surrender all keys, parking cards and other means of entry to the Premises (including, without limitation, the Buildings) and shall inform Landlord of the combinations and access codes for any locks and safes located in the Premises. It is specifically agreed that...

Page 258
... next Business Day after deposit with the courier; and (iv) for any notice by telecopy, the date of confirmation of receipt, if before 5:00 p.m. at the location delivered, or the next day if after 5:00 p.m. All notices shall be delivered or addressed to the parties at their respective addresses set...

Page 259
...Lease requested by a Mortgagee, so long as such changes do not alter the basic business terms of this Lease or otherwise materially diminish any rights or materially increase any obligations of Tenant. ARTICLE 29 MISCELLANEOUS 29.1 Quiet Enjoyment . Tenant, upon paying the Rent and performing all of...

Page 260
... than Tenant's financial, legal, and space planning consultants or as required by Law. In addition to any other remedies to which Landlord may be entitled if Tenant breaches the foregoing covenant, Landlord shall have the right to increase the Rent to then current market rent for the Building. 29...

Page 261
... Compliance. 29.30.1 As used herein "Blocked Party" shall mean any party or nation that (a) is listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Asset Control, Department of the U.S. Treasury ("OFAC") pursuant to Executive Order No. 13224, 66...

Page 262
...executed or otherwise engaged in this Lease, directly... at any time during the ...set forth in this Section, the same shall constitute a Default. In addition to any other remedies to which Landlord may be entitled on account of such Default, Landlord may immediately terminate this Lease and refuse to pay...

Page 263
... the parties have executed this Lease, under seal, as of the date first-above written. LANDLORD: Witness: NAUTILUS, INC. a Washington corporation /s/ Kenneth L. Fish By: Printed Name: Kenneth L. Fish CFO Title: February 22, 2010 Date: (SEAL) TENANT: Witness: MED-FIT SYSTEMS, INC., a California...

Page 264
...land conveyed to Plum Limited Company (name subsequently changed to DFI Properties, LLC, on January 15, 1999, and which was subsequently merged into Grantor on March 8 2006) by deed dated December 31, 1998 from Nautilus International, Inc., which deed is recorded in the Clerk's Office of the Circuit...

Page 265
...) or property damage liability or a combination thereof with a minimum aggregate limit of $2,000,000, and with umbrella coverage with limits not less than $5,000,000 ($10,000,000 if the cost of the work is greater than $1,000,000). Such insurance shall provide for explosion and collapse, completed...

Page 266
... connection with the work, including but not limited to a lien and completion bond naming Landlord as a co-obligee. (b) Tenant shall use its best efforts...long as such requested change meets (a) through (d) in Section 4 above and the same would not delay the completion of the work. If any change order...

Page 267
... the work as and when payments become due. (e) The names and addresses of Tenant's contractors (and said contractors' subcontractors) and materialmen to be engaged by Tenant for the work (individually, a "Tenant Contractor," and collectively, "Tenant's Contractors"). Landlord may designate a list of...

Page 268
Exhibit 10.30 CREDIT AGREEMENT among BANK OF THE WEST, as Lender, and NAUTILUS, INC., as Borrower, dated March 8, 2010

Page 269
... Reserve Permitted Use of Funds Limitation on Amount Outstanding The Revolving Credit Facility Commitment Fee Available Interest Rates on the Revolving Credit Facility Revolving Loan Interest Payments The Unused Commitment Fee Revolving Nature of the Revolving Credit Facility Maturity Date of the...

Page 270
...ARTICLE VI Section 6.1 Section 6.2 Section 6.3 Section 6.4 Section 6.5 Section 6.6 Section 6.7 Section 6.8 Section 6.9 Computation of Interest and Fees Payment of Interest Default Rate of Interest Limitations on Amounts of LIBOR Rate... Title and Liens Intellectual Property; Licenses, Etc. Taxes...

Page 271
... Use of Loan Proceeds Preservation of Existence Visitation Rights Keeping of Books and Records Maintenance of Property Other Obligations Insurance Compliance with Laws Financial Information/Reporting Expenses of Lender FINANCIAL COVENANTS Current Ratio Liquidity Covenant Adjusted Continuing Business...

Page 272
... AND GENERAL TERMS AND CONDITIONS Remedies Cumulative Governing Law Consent to Jurisdiction and Venue, Waiver of Immunities Notices Assignment Severability Waiver of Jury Trial Indemnification of Lender by Borrower Waiver of Consequential Damages Payments Set Aside Waiver of Various Matters; No...

Page 273
TABLE OF CONTENTS Page Section 11.20 Statutory Notice -v- 52

Page 274
... that would otherwise be Affiliates solely because of common control by Borrower's shareholders if such Persons are portfolio companies independently operated by such shareholders, (b) that directly or indirectly owns or holds 10 percent or more of any class of voting stock of Borrower, or (c) 10...

Page 275
..., Lender, at its option, may set the Applicable Margin at the highest level listed above until such time as such Quarterly Compliance Certificate is delivered. " Authorized Officer " means the Chief Financial Officer, Chief Administrative Officer or Chief Executive Officer of Borrower, or any other...

Page 276
... Funds Rate in effect on such day plus 50 Basis Points, and (c) the Applicable Floating Rate on such date (or, if such date is not a Business Day, the immediately preceding Business Day) plus 100 Basis Points. Any change in the Base Rate due to a change in the Prime Rate, the Federal Funds Rate or...

Page 277
..., and orders, including common law rulings and determinations, relating to consumer credit or the protection of consumers, including, but not limited to, the Consumer Credit Protection Act. " Continuing Business " means all business operations of Borrower, other than the Commercial Business and any...

Page 278
...or receipt of the goods or services, which, in effect, would mean that the buyer now would have 60 days in which to make payment. " Debt to Tangible Net Worth " means, as of any date in question, the ratio of (a) total Indebtedness on the balance sheet of Borrower to (b) the fair market value of all...

Page 279
... of returned, inferior, or damaged goods, unsatisfactory services, or for any other reason, except for customary discounts allowed for prompt payment (provided, however, that at all times Borrower shall reduce the amount of Eligible Commercial Accounts Receivable by the actual amount of credits...

Page 280
... interest; (h) A Commercial Account Receivable as to which the account debtor is a Person residing in, or having its principal place of business in, the United States (or, if the account debtor is in another country, the account debtor's obligations to Borrower are supported by a letter of credit in...

Page 281
...providing for Dating of the account debtor's obligation to pay for the goods or services in question; (r) A Commercial Account Receivable from a Tier I Account Debtor as to which not more than 25 percent of the total amount owed by such Tier I Account Debtor to Borrower is more than 120 days old (as...

Page 282
...by the account debtor because of returned, inferior, or damaged goods, unsatisfactory services, claims or defenses under Consumer Protection Laws, or for any other reason, except for customary discounts allowed for prompt payment (provided, however, that at all times Borrower shall reduce the amount...

Page 283
...parts and components; (e) Damaged or obsolete Inventory; (f) Inventory that is not merchantable; (g) Inventory to the extent of any progress payments, pre-delivery payments, deposits, or other amounts received by Borrower in anticipation of the sale of such Inventory to another Person; (h) All goods...

Page 284
..., and regulatory decrees, judgments, and orders, including common law rulings and determinations, relating to injury to, or the protection of, human health or the environment, including, without limitation, all requirements pertaining to reporting, licensing, permitting, investigation, remediation...

Page 285
... Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1 / 100 of 1 percent) of...

Page 286
... Environmental Law; or (d) without limitation, that contains gasoline, diesel fuel, or other petroleum products, asbestos, or polychlorinated biphenyls. " Indebtedness " means, with respect to the Person in question, (a) all obligations of such Person for borrowed money or other extensions of credit...

Page 287
... thereto (or such other commercially available reporting service selected by Lender in its reasonable discretion), at or about 11:00 a.m. London time (or such other time that such rate is available to Lender) on the day that is two Business Days preceding the first day of the Interest Period...

Page 288
...Credit evidenced thereby, and any amendments, extensions, modifications, renewals, replacements, and restatements thereof. " Material Adverse Effect " means (a) a material adverse effect on the business, assets, operations, or financial condition of Borrower, (b) a material impairment of the ability...

Page 289
.... Any change in the Prime Rate announced by Lender shall take effect at the opening of business on the day specified in the public announcement of such change. " Quarterly Compliance Certificate " has the meaning specified in Section 7.10(f) of this Agreement. " Restricted Payment " means any...

Page 290
... the management of which is directly or indirectly controlled by Borrower through the exercise of voting power or otherwise; or any joint venture or partnership in which Borrower has a 50 percent or greater ownership interest. " Successor " means, for any corporation, limited liability company, or...

Page 291
... or other charge imposed by any Governmental Authority on any property, revenue, income, or franchise of any Person, and any interest or penalty with respect to any of the foregoing. " Testing Date " means March 31, 2010, and the last day of each calendar quarter thereafter. " Tier I Account Debtors...

Page 292
... If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either Borrower or Lender shall so request, Lender and Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent...

Page 293
..., deliver, and take all other actions required under this Agreement and the other Loan Documents on behalf of Borrower, and providing specimen signatures of each such Person; (viii) The articles of incorporation of Borrower and all amendments and supplements thereto, as filed in the office of the...

Page 294
...laws of Borrower and all amendments and supplements thereto, certified by the Secretary of Borrower as being a true and correct copy thereof; (x) A certificate of the Washington Secretary of State as to the legal existence and status of Borrower in such state dated within 30 days of the Closing Date...

Page 295
... which speak as of the Closing Date, with such exceptions as may be acceptable to Lender in the reasonable exercise of its judgment; and (e) Borrower shall be in compliance in all material respects with all of the covenants set forth in Article VII, Article VIII, and Article IX of this Agreement...

Page 296
...such maximum stated amount is in effect at the time in question. Borrower agrees that it shall execute any documents that Lender in its Permitted Discretion requires Borrower to execute in relation to the Letters of Credit. Within the foregoing limits, and subject to the terms and conditions of this...

Page 297
... under this Section 3.5 at any time from the date such amounts become due and payable, until payment in full, shall be payable by Borrower to Lender on demand at the Default Rate for Base Rate Loans. Section 3.6 Cash Collateral for Letters of Credit and Credit Exposure Reserve . (a) Prior to the...

Page 298
... Lender such excess amount (and Borrower's failure to make such payment shall constitute an Event of Default under Section 10.1(a) of this Agreement). Section 3.9 The Revolving Credit Facility Commitment Fee . On the Closing Date, Borrower shall pay Lender a fee of $52,500 in consideration of Lender...

Page 299
... fee shall be prorated to take into account the fact that this fee is paid quarterly by Borrower). As used in this Agreement, the term "Unused Commitment Amount" means the average of the difference on each day in the immediately preceding three-month period (or, in the case of the fee payable on...

Page 300
... for the actual number of days for which due. If the due date for any payment of principal is extended by operation of law, interest shall be payable for such extended time. If any payment required by this Agreement or the Note becomes due on a day that is not a Business Day, such payment shall be...

Page 301
... must be received no later than 1:00 p.m. on the date (a) one Business Day before the day on which the requested Revolving Loan is to be made as or converted to a Base Rate Loan or Applicable Floating Rate Loan, and (b) two Business Days before the day on which the requested Revolving Loan is to be...

Page 302
...such other location that Lender may from time to time designate), in each case in immediately available funds denominated in United States dollars. All payments by Borrower under this Agreement and under any of the other Loan Documents shall be made without set-off or counterclaim and free and clear...

Page 303
... a contingency that materially and adversely affects the interbank Eurodollar market, or (b) compliance by Lender in good faith with any applicable law or governmental regulation, guideline, or order or interpretation or change thereof by any governmental authority charged with the interpretation or...

Page 304
...lien in 65 percent of the Capital Stock of Nautilus Fitness Canada Ltd. to secure payment of the Obligations. Section 5.3 Right of Setoff . In addition to any rights now or hereafter granted under this Agreement, applicable law, or otherwise, and not by way of limitation of any such rights, upon the...

Page 305
...annual examinations of the Collateral conducted on behalf of Lender, or any other inspection, examination, or appraisal of the Collateral obtained by Lender at any time that an Event of Default exists hereunder (which payments shall be made in accordance with Section 7.11 of this Agreement). ARTICLE...

Page 306
... or otherwise possesses the right to use, all material trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights that are reasonably necessary for the operation of its businesses, without conflict with the rights of...

Page 307
... to Borrower, or to Borrower's operations or property (including, but not limited to, Environmental Laws, Consumer Protection Laws and ERISA), except any thereof whose validity is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof and except...

Page 308
.... Section 7.4 Visitation Rights . At any reasonable time during normal business hours, and from time to time at reasonable intervals at mutually agreeable dates and times (not to exceed twice a year; provided that such limitation shall not be applicable when an Event of Default has occurred and is...

Page 309
... . Borrower shall maintain and preserve all of Borrower's properties which are material to its business in good working order and condition, ordinary wear and tear and casualty (to the extent insured) excepted, and shall from time to time make all needed repairs, renewals, or replacements so that...

Page 310
... to be true and correct in all material respects by an Authorized Officer (the "Borrowing Base Certificate"); (c) On or before March 25, 2010, and the 25 th day of each month thereafter, a written report with respect to the Commercial Accounts Receivable as of the end of the immediately preceding...

Page 311
... of Default existed at such time, identifying the Default or the Event of Default) (the "Annual Compliance Certificate"); (j) Within 60 days of each fiscal year end of Borrower (provided that a forecast for 2010 shall be delivered on the Closing Date), a forecast (including a balance sheet, income...

Page 312
... 31, 2010, and as of the last day of each calendar quarter thereafter to be less than the amount required below based on Borrower's Adjusted Continuing Business EBITDA for the four quarters ending on such date: Adjusted Continuing Business EBITDA Minimum Liquidity $2,500,000-$5,000,000 $5,000...

Page 313
... of Borrower (except (A) sales of goods in the ordinary course of business; (B) sales or other dispositions of surplus or obsolete equipment in the ordinary course of business; (C) disposition of any property in connection with discontinuation of Commercial Business; (D) dispositions of Inventory...

Page 314
... exclusively in the Continuing Business in an amount not to exceed $1,000,000 after the Closing Date; (i) Indebtedness to an insurance company, the proceeds which are used by Borrower to finance their insurance premiums payable on workers' compensation insurance policies maintained by Borrower...

Page 315
... of business to secure the performance by Borrower of its obligations under the terms of the lease for such premises; (i) Liens arising from precautionary UCC filings regarding "true" operating leases or the consignment of goods to Borrower; (j) Liens arising by operation of law under Article 2 of...

Page 316
... its Permitted Discretion; (c) Normal trade credit extended in the ordinary course of business and consistent with prudent business practice; (d) Capital Expenditures allowed under Section 8.4 of this Agreement; or (e) Investments in development of new product lines that are permitted under Section...

Page 317
...Business made after the Closing Date that do not exceed $1,000,000 and other Investments in joint ventures engaged exclusively in the Continuing Business and approved by Lender in its Permitted Discretion; (h) Loans and advances to officers and employees...repaid within five Business Days of being made...

Page 318
... by GAAP), or (ii) in tax reporting treatment (except as required by law). Section 9.9 Operations . Borrower shall not engage in any activity or introduce any major product that is substantially different from or unrelated to the present business activities or products of Borrower (other than any...

Page 319
... Borrower by any court, or a warrant of attachment or execution or similar process shall be issued or levied against property of Borrower that in the aggregate exceeds $250,000 in value, the payment of which is not fully covered by insurance in excess of any deductibles not exceeding $50,000 in...

Page 320
... Rate) and Lender's commitment in respect of the Revolving Credit Facility shall terminate. Section 10.3 Remedies . Upon the occurrence of an Event of Default, Lender from time to time may exercise any rights and remedies available to it under the Uniform Commercial Code and any other applicable law...

Page 321
...incorporated, or any court sitting in any place where property or an office of Borrower is located. Section 11.4 Notices . All notices and...mail, return receipt requested (with postage prepaid) or delivered to each party at the following addresses, or at such other address as shall be designated by ...

Page 322
...not be required during the continuance of an Event of Default), may assign or otherwise transfer all or any part of Lender's interest under this Agreement, the Note, and the other Loan Documents (including assignments for security and sales of participations) to any Person and, to the extent of such...

Page 323
..., but not limited to, any proceeds received by Lender as a result of any enforcement proceeding or setoff), or any part thereof, subsequently are invalidated, declared to be fraudulent or preferential, set aside, or required to be repaid to a trustee, receiver, or any other Person under any law or...

Page 324
...the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Patriot Act"), Lender is required to obtain, verify, and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow Lender to...

Page 325
... of reference only, do not constitute a part of this Agreement, and shall not affect the meaning or construction of any provision of this Agreement....20 Statutory Notice . UNDER WASHINGTON LAW, ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT...

Page 326
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first written above. BORROWER: NAUTILUS, INC. By: /s/ Kenneth Fish Kenneth Fish, Chief Financial Officer S-1 LENDER: BANK OF THE WEST By: /s/ Sean Edwards Sean Edwards, Vice President

Page 327
...the "Collateral"): all personal and fixture property of every kind and nature including without limitation all goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents, accounts (including health-care-insurance receivables), chattel paper...

Page 328
...be limited as set forth in the Pledge Agreement. 3. Authorization to File Financing Statements . The Debtor hereby irrevocably (until termination of this Agreement) authorizes the Secured Party at any time and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction...

Page 329
...Secured Party for the specific purpose set forth therein, (ii) a deposit account for which the Secured Party is the depositary bank and is in automatic control, and (iii) deposit accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for...

Page 330
... and the ability of the Secured Party to enforce, the Secured Party's security interest in any and all of the Collateral, including, without limitation, (a) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the Uniform Commercial Code, to...

Page 331
... Certificate accurately sets forth the Debtor's place of business or, if more than one, its chief executive office, as well as the Debtor's mailing address, if different, (e) all other information set forth on the Perfection Certificate pertaining to the Debtor is accurate and complete in all...

Page 332
... as follows: (a) without providing at least 15 days' prior written notice to the Secured Party, the Debtor will not change its name, its place of business or, if more than one, chief executive office, or its mailing address or organizational identification number if it has one, (b) if the Debtor...

Page 333
... course of business (ii) so long as no Event of Default has occurred and is continuing, sales or other dispositions of obsolescent items of equipment consistent with past practices and (iii) as otherwise permitted in the Credit Agreement. 10. Insurance . 10.1 Maintenance of Insurance . The Debtor...

Page 334
... thereof, the Secured Party may discharge taxes and other encumbrances at any time levied or placed on any of the Collateral, maintain any of the Collateral, make repairs thereto and pay any necessary filing fees or insurance premiums. The Debtor agrees to reimburse the Secured Party promptly on...

Page 335
..., as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of the Debtor or in the Secured Party's own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and...

Page 336
... may reasonably designate. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Secured Party shall give to the Debtor at least five Business Days prior written notice of the time and place of any public sale of...

Page 337
... or otherwise to fail to complete raw material or work in process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental...

Page 338
..., interest at the rate of interest for overdue principal set forth in the Credit Agreement. 22. Termination; Release of Collateral . Upon termination of the Credit Agreement, this Agreement shall automatically terminate and Secured Party (at Borrower's expense) shall promptly execute and deliver to...

Page 339
... HEREOF OR THEREOF. Except as prohibited by law, the parties hereto waive any right which they may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual...

Page 340
IN WITNESS WHEREOF, intending to be legally bound, the Debtor has caused this Agreement to be duly executed as of the date first above written. NAUTILUS, INC. By: /s/ Kenneth Fish Kenneth Fish, Chief Financial Officer BANK OF THE WEST By: /s/ Sean Edwards Sean Edwards, Vice President S-1

Page 341
...Switzerland, S.A., a Swiss corporation Nautilus International GmbH, a German corporation Nautilus Fitness UK Ltd., a United Kingdom corporation Nautilus Fitness Italy S.r.l., an Italian corporation Nautilus Fitness Canada, Inc., a Canadian corporation Nautilus (Shanghai) Fitness Co., Ltd., a Chinese...

Page 342
..., 333-46936, and 333-79643 on Form S-8 of our reports dated March 8, 2010, relating to the consolidated financial statements of Nautilus, Inc. appearing in this Annual Report on Form 10-K of Nautilus, Inc. for the year ended December 31, 2009. /s/ DELOITTE & TOUCHE LLP Portland, Oregon March 8, 2010

Page 343
... financial information; and 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. By: /s/ Edward J. Bramson Edward J. Bramson, Chairman and Chief Executive Officer March 8, 2010 Date

Page 344
... 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 Any fraud, whether or not material, that involves management or other employees who...

Page 345
... of Title 18, United States Code), the undersigned officer of Nautilus, Inc., a Washington corporation (the "Company"), does hereby certify that: To my knowledge, the Annual Report on Form 10-K for the year ended December 31, 2009 (the "Form 10-K") of the Company fully complies with the requirements...

Page 346
... of Title 18, United States Code), the undersigned officer of Nautilus, Inc., a Washington corporation (the "Company"), does hereby certify that: To my knowledge, the Annual Report on Form 10-K for the year ended December 31, 2009 (the "Form 10-K") of the Company fully complies with the requirements...

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